Lack of fiscal decentralisation must be reviewed
Financial decentralisation is the model of allocating funds or budgetary decision-making powers and management responsibilities to the lower level of government. In other words, it’s a process of allocating funds to the 57 local authorities, which cover 13 municipal councils, 26 town councils and 18 village councils.
With the number of municipal councils, town councils and village councils orderly arranged, one can only expect that the central government - via the ministries of finance and urban and rural development - could reconsider the methodology of allocating funds to the local authorities currently in use to a fairer and transparent manner. Such can happen if the state adopts an established formula that speaks to the particular local authority’s needs. That formula must be known to all stakeholders to avert an opinion of unfairness. The existing funds allocation method has no basis and is done on a thumb-suck model, which is superficial. Local authorities submit their budgetary needs to the central government via the ministry of urban and rural development, and the odds are always 99% that local authorities’ financial requests are hardly met.
If any local authority expenditure needs are not properly balanced with the resources available, this could result in local authority deficits and incurrence debts. This happens, given that local authorities are advised by the central government to have a balanced budget as if all funding for the particular local authority is secured and assured. Since this would have an important outcome for macroeconomic conditions and the ability of the central government to rely on fiscal policy as a tool to manage macro-economic conditions, central government often requires local authorities to balance their budgets. The latter approach from the central government is imposing a retrogressive budgetary approach to the local authority given that local authorities are expected to have savings after financial year-end. That saving would then translate into what would be known as funds in the reserve, which would then be exclusively reserved for capital infrastructure.
The fundamental question would then be: How could local authorities be in the position to have reserves if their budgetary models are based on a balanced budget?
Regional capitals
As it stands, most local authorities that may perhaps have excess funds after every year- end are those that have been and continue to benefit from how government created a space conditioned to have regions with one town crowned as the regional capital.
It’s evident that all regional capitals are the enablers of the activities mostly boosted by state ventures, and investors would again follow those ventures that in return benefit only regional capitals at the expense of the other local authorities that are not crowned as regional capitals. When the government, a ministry, a state-owned enterprise or any private institution wishes to host an event of great magnitude, they first have to establish whether the proposed town(s) have facilities that could accommodate the envisaged capacity. Again, such lack of facilities in towns that are not crowned as regional capitals is the result of the imbalanced injection of capital investment. That could in a way snowball to private individuals as investors are likely to have their funds locked in the financial institutions because it’s not worth investing in a town that has less activities. At the same time, the same investor(s)will be reluctant to invest resources into towns (regional capitals) that are flooded with the same activities of their target market.
To be practical, let’s use the Otjozondjupa Region as an example. The region has five local authorities: Okahandja, Okakarara, Otjiwarongo, Otavi and Grootfontein. Because of the ‘regional capital’ tag allotted to Otjiwarongo, all the government’s regional head offices are built and will be built there. Such a system creates an economic advantage over the other municipalities and towns that are found in Otjozondjupa. This is simply because those government offices are part of the large users of municipal services, and it’s a given that the state will pay for their municipal users. Not that the economical edge is only created by the state ventures that are there; by and large, those offices have employees who owns houses within that particular regional capital, and their contributions in the form of municipal services equally translates into a fraction of reserve funds for that particular municipal council.
Laggards
This sad state of affairs is found all over the country, in 14 regions, that would then prompt the ordinary citizen to question why Outapi has grown significantly in comparison to Okahao. In the eyes of many who don’t understate this unfair arrangement, the municipalities, towns and village councils that do not enjoy the regional capital tag are regarded as the laggards.
These laggards became victims of circumstance due to the adopted system by central government; the system that only builds regional offices in regional capitals.
To justify my storyline, the mass housing project is another case in point - building of mass houses were only piloted in the regional capitals.
It is then correct to say that adopting a fair fiscal allocation formula and, most importantly, spreading state ventures to different towns would unlock potential growth at the towns currently not enjoying the regional capital tag.
*Ileni Hainghumbi is a social order specialist from Onhuno in the Ohangwena Region.
With the number of municipal councils, town councils and village councils orderly arranged, one can only expect that the central government - via the ministries of finance and urban and rural development - could reconsider the methodology of allocating funds to the local authorities currently in use to a fairer and transparent manner. Such can happen if the state adopts an established formula that speaks to the particular local authority’s needs. That formula must be known to all stakeholders to avert an opinion of unfairness. The existing funds allocation method has no basis and is done on a thumb-suck model, which is superficial. Local authorities submit their budgetary needs to the central government via the ministry of urban and rural development, and the odds are always 99% that local authorities’ financial requests are hardly met.
If any local authority expenditure needs are not properly balanced with the resources available, this could result in local authority deficits and incurrence debts. This happens, given that local authorities are advised by the central government to have a balanced budget as if all funding for the particular local authority is secured and assured. Since this would have an important outcome for macroeconomic conditions and the ability of the central government to rely on fiscal policy as a tool to manage macro-economic conditions, central government often requires local authorities to balance their budgets. The latter approach from the central government is imposing a retrogressive budgetary approach to the local authority given that local authorities are expected to have savings after financial year-end. That saving would then translate into what would be known as funds in the reserve, which would then be exclusively reserved for capital infrastructure.
The fundamental question would then be: How could local authorities be in the position to have reserves if their budgetary models are based on a balanced budget?
Regional capitals
As it stands, most local authorities that may perhaps have excess funds after every year- end are those that have been and continue to benefit from how government created a space conditioned to have regions with one town crowned as the regional capital.
It’s evident that all regional capitals are the enablers of the activities mostly boosted by state ventures, and investors would again follow those ventures that in return benefit only regional capitals at the expense of the other local authorities that are not crowned as regional capitals. When the government, a ministry, a state-owned enterprise or any private institution wishes to host an event of great magnitude, they first have to establish whether the proposed town(s) have facilities that could accommodate the envisaged capacity. Again, such lack of facilities in towns that are not crowned as regional capitals is the result of the imbalanced injection of capital investment. That could in a way snowball to private individuals as investors are likely to have their funds locked in the financial institutions because it’s not worth investing in a town that has less activities. At the same time, the same investor(s)will be reluctant to invest resources into towns (regional capitals) that are flooded with the same activities of their target market.
To be practical, let’s use the Otjozondjupa Region as an example. The region has five local authorities: Okahandja, Okakarara, Otjiwarongo, Otavi and Grootfontein. Because of the ‘regional capital’ tag allotted to Otjiwarongo, all the government’s regional head offices are built and will be built there. Such a system creates an economic advantage over the other municipalities and towns that are found in Otjozondjupa. This is simply because those government offices are part of the large users of municipal services, and it’s a given that the state will pay for their municipal users. Not that the economical edge is only created by the state ventures that are there; by and large, those offices have employees who owns houses within that particular regional capital, and their contributions in the form of municipal services equally translates into a fraction of reserve funds for that particular municipal council.
Laggards
This sad state of affairs is found all over the country, in 14 regions, that would then prompt the ordinary citizen to question why Outapi has grown significantly in comparison to Okahao. In the eyes of many who don’t understate this unfair arrangement, the municipalities, towns and village councils that do not enjoy the regional capital tag are regarded as the laggards.
These laggards became victims of circumstance due to the adopted system by central government; the system that only builds regional offices in regional capitals.
To justify my storyline, the mass housing project is another case in point - building of mass houses were only piloted in the regional capitals.
It is then correct to say that adopting a fair fiscal allocation formula and, most importantly, spreading state ventures to different towns would unlock potential growth at the towns currently not enjoying the regional capital tag.
*Ileni Hainghumbi is a social order specialist from Onhuno in the Ohangwena Region.
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