INTERGOVERNMENTAL FINANCING ARRANGEMENT REVIEW

The review of the current intergovernmental financing systems is a national government priority and agenda to support the decentralization reforms. The Provincial & Local Level Service Monitoring Authority (PLLSMA) at its meeting in Lae on 23 – 24th September 2020, has established a PLLSMA subcommittee on Intergovernmental Financing Arrangement Review (IGFAR) and endorsed the National Economic & Fiscal Commission (NEFC) and the Department of Treasury to chair and co-chair respectively. The PLLSMA sub-committee has been established and this team is comprised of very senior officers from key national departments/agencies. Preparation work on the review has already started.

The IGFA Review will look at the current intergovernmental financing systems, identify key issues and impediments and make appropriate policy recommendations to the national government for an appropriate fiscal decentralization system. This article gives a very brief background, key issues, the main objective of the review, the expected outcomes, the scope and framework and highly possible risks and mitigation options to minimize these risks.

This IGFA Review is not entirely new. A well planned, researched and intensive review in intergovernmental financing arrangement was undertaken by the NEFC from 2002 to 2008.  Arising from this review, the Reforms in Intergovernmental Financing Arrangements (RIGFA) were implemented in 2009. RIGFA is reported as the best reforms in intergovernmental financing arrangements in the history of PNG. The current review is an upscale version of RIGFA. While RIGFA addressed function grants or the recurrent funding, this IGFA Review will look at all sub national funding systems (development & recurrent) in a more integrated, cohesive and coordinated in a more holistic manner.

The following and not limited to, are identified as the key issues or inefficiencies in the current intergovernmental financing systems:

• Inconsistencies – Functions & Responsibilities: Functions and responsibilities or expenditures assignments not properly mapped for each level government or government funded bodies/institutions at the sub nationals resulting in overlapping, duplication and inconsistencies and confusion as to who should be accountable for funding and performing the assigned functions.
• Add Hoc and Concurrent Reforms: Ad-hoc & concurrent institutional, legislative, political, administrative & sectoral reforms (DDAs, PHAs, City Authorities, greater autonomy arrangements, new provinces, LLGs, electoral boundaries etc.).
• Affordability Issues: Government cannot adequately fund funding arrangements – late release of funds and not meeting funding commitments.
• Imbalances & Equity Issues:  Imbalances: Vertical & Horizontal Imbalances Between the national & sub nationals – functions and responsibilities and related funding arrangements. Between province –  disparities  –  cost of providing same level of services,  financial, economic, demographic, geographic, infrastructure, education, health, law & justice, provincial & district administrations and others factors.
• Limited Sub National Revenue Mobilization: Limited sub national revenue mobilization has made sub nationals to heavily depend on national government funding/transfers to implement their budgets. Heavy reliance on national funding has also promoted incentives in raising provinces’ own internal revenues.
• Fragmented and multiple sub national funding systems: Parallel fragmented funding systems – not coordinated and integrated (SIPs, Function Grants, PIPs, TFF, Credit Schemes, SLA Agreements…) Development & recurrent funding not integrated.
• Governance, accountability, monitoring and reporting issues: Weak, inefficient, ineffective and fragmented governance, accountability, monitoring and reporting systems for different funding systems.

The PLLSMA Sub Committee has endorsed the following as the key problem statement and major objective of the IGFA Review.

The following are very high level potential risks that pose huge challenges to the progress of the IGFAR. Therefore detailed risk mitigation strategies and plans will be developed and executed to minimize these risks. There will be other minor risks apart from these major risk areas but these will be managed through the whole review period.