Final report Malawi intergovernmental fiscal transfers study

Now that local government elections have taken place in Malawi and new assemblies have been sworn in across the country, the implementation of the fiscal decentralisation programme is expected to go ahead with full force. However, before the devolution of the first expenditure responsibilities can take place, a large number of financial and administrative issues will need to be resolved. One central unresolved issue is the development of a system of intergovernmental transfers (grants) from the central government to the local assemblies that will provide local governments with the resources needed to provide local public services. The importance of transfers, especially in the early years of the decentralisation process, is magnified by the relatively minor relevance of own revenue sources at the local level. Since local governments until now have only played a very minor role in the delivery of public services, the system of intergovernmental transfers used during the past several years is not well suited to the new institutional arrangements.

The principal objective of the study is to assist the Government in establishing an objective mechanism for the allocation of revenue from the central government to local assemblies. As such, the Final Report provides recommendations in specific areas of intergovernmental fiscal transfers.

The study recommends the following:

• a mechanism for determining the overall size of the transfer pool (as a share of the national budget)
• options for the types of fiscal grants
• options for the formulas which are needed to accomplish the Government’s objectives
• phasing the grant system to provide financial support for local governments during this transition period.
  

It further suggests that the following issues be considered as part of the evolution of the system of intergovernmental relations in Malawi:

• decreased emphasis on sectoral funds
• increased role for the General Resource Fund
• increased emphasis on locally generated revenue sources, revenue sharing and ceded revenues
• integration of transfers for recurrent expenditures and development funds (DDF and other donor-funded capital development funds).