Academic journal article Public Administration Research

The Politics of Fiscal Decentralization in Ghana: An Overview of the Fundamentals

Academic journal article Public Administration Research

The Politics of Fiscal Decentralization in Ghana: An Overview of the Fundamentals

Article excerpt


Fiscal decentralization has gained support by most of the world's leading development organizations including the World Bank, United States Agency for International Development and, Asian Development Bank among others in the last two to three decades. It is therefore of much importance that some form of thought is given to the operations of this system to make it more beneficial. Drawing selectively on large academic and practical literature on fiscal decentralization and the articles in this volume, this article outlines the state of fiscal decentralization in current times. It then goes on to outline some key arguments in favor of and against fiscal decentralization as a system of government. The theoretical framework of fiscal decentralization is also discussed in this article with regards to the stabilization, distribution and allocation functions. An overview of this system of government so far as Ghana is concerned has also been touched on with much emphasis on the legal framework and the key sources of finance for subnational governments. Finally, a number of factors for improving and making this system more beneficial and sustainable over time are identified.

Keywords: Fiscal Decentralization, Central Government, Sub-national Government, Local Capacity, Ghana

1. Fiscal Decentralization

"...The establishment of effective and transparent financial management is at the core of any effort to reform the public sector...To be genuinely supportive of a decentralization process, the basic characteristics of a system for decentralized financial management should include: (a) transparency of allocation, (b) predictability of the amounts available to local institutions and (c) local autonomy of decision making on resource utilization. In contrast with the widespread practice of ad hoc grants driven by politics, the allocation of resources should be based on transparent formulas. Also, unlike the typical unpredictability of most central-to-local transfer mechanisms prevailing in developing countries, the process should provide local institutions with an up-front indication of how much money will be available in the next multiyear planning cycle. This makes local strategic planning possible and provides a financial ceiling that makes such planning a meaningful exercise and an opportunity for local communities to take autonomous decisions on the use of limited resources" (UN, 1996).

Fiscal decentralization is seen as a government system which involves the "assignment of responsibilities" comprising of the functions and activities at the various sectors of government as well as the assignment of locally generated revenues to local/subnational governments (Smoke, 2003). Fiscal decentralization has become the main issue in the decentralization process of which Ghana is no exception and it includes externally and internally generated sources of revenue. It has become very important for subnational governments in their quest to achieve their desired development goals and objectives at the local level (Dick-Sagoe, 2012). Fiscal decentralization has gained support by the world's leading development agencies including the World Bank, USAID, the Asian Development Bank among others, making it "part of a world-wide reform agenda." It has therefore played a major role in the formulation of economic, development and governance strategies in developing and transitional economies (Bahl, 1999a). The World Bank iterates that some 68 developing countries out of a number of 75 in the mid 1990s practiced some form of fiscal decentralization. The World Bank therefore sees fiscal decentralization and craves for local discretion and devolution of power as a major force shaping governance and development in these current times of globalization (World Bank, 1997). In his analysis of some 58 countries in the early 1990s, Oates (1993) also demonstrated a more cordial and positive relationship between economic growth and fiscal decentralization and suggests some role for subnational governments especially in infrastructure development. …

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