Local Public Sector MattersMattersMattersMatters

Information about the LPSI Local Public Sector Finance Study (December 2011)

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Local Public Sector Matters – December 2011 – www.localpublicsector.org 1

While it may seem obvious that “all service delivery is local”,

the public sector arrangements that are used to provide

people with key public services vary dramatically from country

to country. A common feature in many developing countries,

however, is that only a relatively small share of public financial

resources flows down to the local level where these resources

can be used for the front-line delivery of public services.

Instead, funds often remain stuck at the central government

level, where resources frequently fund bloated and inefficient

bureaucracies. This systemic problem limits the ability of many

developing countries to effectively deliver critical, pro-poor

public services such as basic education, health services, and

other public services that are essential to economic

development and poverty reduction.

While many donor agencies address the symptoms of this problem on a sector by sector basis, the common

underlying cause of this imbalance often remains unaddressed. Therefore, an important challenge for the

international development community is to determine which governance structures are able to make sure that

resources flow down to the local level to improve public service delivery. In addition, there is a need to better

understand how the political, administrative and fiscal arrangements within a country’s public sector impact the

ability of the country to effectively provide key public services at the local level.

The Local Public Sector Initiative (LPSI) was launched by The Urban Institute in December 2010 to address this

challenge. As part of this Initiative, the Urban Institute will prepare a set of comparative Local Public Sector

Country Profiles during 2012. The LPS Country Profile will identify the level of funding that flows to the local

public sector for the delivery of key pro-poor public services, such as basic education, health services, water and

agriculture. In addition, the country profiles will describe the role that local and regional administrative and

governance bodies play in the management and delivery of these public services. The LPS Country Profiles are

intended to give USAID as well as other development practitioners (and the research community at large) tools

for developing a better understanding of the structure of the public sector in developing countries, and provide

detailed information on how local public sector entities are governed, administered and financed.

What is the Local Public Sector?

The local public sector can be defined as that part of the public sector that regularly interacts with residents, civil

society and the private sector. The local public sector is where residents and businesses receive services from the

public sector and where residents interact with government officials.

There are different approaches by which central governments interact with—and deliver services to—the people.

As discussed further below, these approaches include centralized public service delivery, delegation,

deconcentration and the provision of public services by elected local governments (devolution). As a starting

point, the Local Public Sector Initiative does not assume that any single type of institutional arrangement at the

local level is inherently better than others. Instead, the Initiative seeks to explore under which conditions

different institutional mechanisms might be appropriate and efficient for the delivery of government services

within the local public sector.

Local Public Sector Matters – December 2011 – www.localpublicsector.org 2

Measuring the Local Public Sector and Local Public

Sector Finances

The main measure of subnational public sector

finances that is currently available on a consistent

basis is the local government finance data reported

by the IMF’s Government Finance Statistics, which

reports on the revenues and expenditures of elected

or “devolved” local governments.

A frequent concern with regard to the IMF’s

financial data on the local government sub-sector is

that this data set only captures one specific type of

dimension of local public sector finances, notably

finances that involved devolved local governments.

However, roughly half of the countries around the

world deliver public services (predominantly or

exclusively) through non-elected, or

“deconcentrated” local administrative structures.

Local public sector finances for deconcentrated

entities in these countries are not recorded in the

current Government Finance Statistics as being part

of sub-national finances.

Even in countries that rely on elected local

governments to deliver important public services to

the people, considerable funding for public services

is often provided through delegation or through

deconcentrated structures, on top of (or around) the

funding separately provided to the local government

level.

As such, a comprehensive metric of local public

sector finances ought to recognize that virtually no

country around the world is purely devolved or

purely deconcentrated, but rather, that central

authorities in each country simultaneously interact

with residents, civil society and the private sector

through four mechanisms: through the direct

delivery of public services (by central government

entities); through the delegated delivery of public

services (for instance, through NGOs or para-statal

organizations); through deconcentrated subnational

departments or jurisdictions; or through devolved,

elected local governments. Together, these four

institutional and fiscal mechanisms comprise the

range of arrangements that make up the Local

Public Sector (Figure 1).

However, a good measure of Local Public Sector

Finances should not simply aggregate the different

funding streams to the local public sector into a

single measure of local public sector finance, since

different types of political, administrative and fiscal

arrangements at the subnational level are likely to

result in different levels and quality of public

services, and different intergovernmental structures

are will yield different levels of economic or

governance benefits.

As a result, the metric of local public sector finances

developed by the Local Public Sector Initiative

provides a breakdown of the different types of local

public sector revenues and expenditures, rather

than simply aggregating them). In addition, in order

to understand how local public sector finances are

used, a comprehensive profile of the local public

sector needs to provide an institutional profile of

the political, administrative and fiscal governance

arrangements that guide the different funds that

flows through the local public sector.

Accordingly, the LPSI framework for the preparation

of Local Public Sector Country Profiles has two main

components. First, the LPS Fiscal Profile provides a

systematic overview of expenditures, revenues, and

funding flows that take place within the local public

sector, including expenditures on direct (centralized)

service provision, delegated expenditures,

deconcentrated expenditures and devolved

expenditures (Figure 2). Second, the LPS

Institutional Profile provides a detailed overview of

a country’s territorial-administrative structure, its

subnational governance arrangements and its

intergovernmental (fiscal) systems, covering the

political, administrative as well as fiscal aspects of

the local public sector (Figure 3).

Local Public Sector Matters – December 2011 – www.localpublicsector.org 3

Figure 2: Local Public Sector Fiscal Profile (Sample Screenshot)

Figure 3: Local Public Sector Institutional Profile (Sample Screenshot)

More information on the methodological framework for preparing Local Public Sector Country Profiles is

available online at www.localpublicsector.org.

Local Public Sector Matters – December 2011 – www.localpublicsector.org 4

Next Steps for the Local Public Sector Initiative

In accordance with the LPS Country Profile

framework described in this document, the LPS

Initiative is preparing to collect an initial set of

comparative Local Public Sector Country Profiles for

12 developing countries during 2012. Additional LPS

Country Profiles will subsequently be collected and

updated regularly with the ambition to achieve

global coverage by 2015. Preparing Country Profiles

according to a consistent methodological framework

will not only provide development agencies, policy

practitioners, and researchers in each selected

country with a useful “big picture” assessment of

the structure of the (local) public sector, but will also

allow for the comparison of the country’s local

public sector with local public sector structures for

other countries in the region, or other similarly

situated countries.

Completion of the Data Collection Methodology. An

expert seminar has been scheduled on local public

sector finances, subnational governance, and local

public service delivery in Washington, D.C., for

January 13, 2012, bringing together experts from

USAID, The World Bank, the IMF, academia, and

other selected policy practitioners. The purpose of

the seminar and roundtable is to finalize the Local

Public Sector data collection methodology in a way

that is informed by existing practices, experiences,

and shortcomings in the measurement of the local

public sector and local public sector finances.

Initial LPS Country Selection. The Local Public Sector

Initiative seeks to conduct and complete Country

Profiles for 12 countries by the end of 2012,

although additional funding may allow us to include

additional countries in the survey. While the study

will initially focus mainly on countries in Africa and

Asia, country selection is also driven by USAID

mission interest, and no country or region is a priori

excluded from consideration.

If you are interested in including your country in the

Local Public Sector Finance Study, please contact Dr.

Jamie Boex (jboex@urban.org) by January 13, 2012.

Relevance of the Initiative to USAID Missions and

Other Development Agencies

The role of the local public sector is not only

relevant for development officials that specifically

deal with public financial management, public sector

reform, or governance, but this issue is increasingly

relevant across all development activities.

For decades, many development agencies have

sought to avoid the complexities of providing

development assistance through the local public

sector, or have simply provided development

assistance around country systems altogether.

Although it is sometimes necessary to work around

highly ineffective (local) public sector institutions, it

appears that the centralized or parallel mechanisms

on which many development agencies have relied

are often neither sustainable nor necessarily more

efficient than host country systems.

Working with and through host country systems

(including the host country’s local public sector)

becomes unavoidable to the extent that the

ultimate goal of the international development

community is to strengthen public sector institutions

in partner countries so that host country systems

are able to deliver public services in an efficient,

responsive and accountable manner.

Before deciding (how) to align its programs and

interventions with partner country policy objectives

and systems, USAID and other donors would be

well-armed if they better understood the nature of

successful public service delivery. As such,

understanding the structure, governance and

financing of the local public sector is an important

building block for preparing successful Country

Assistance Strategies.

Furthermore, in order to design development

interventions that effectively strengthen existing

government systems, there is need to clearly

understand how the host government delivers

public services in different sectors; what the role of

the local public sector is in public service delivery;

how the local public sector is governed and

financed; and why existing public sector systems are

failing to deliver adequate pro-poor public services

in areas such as basic education, health, agriculture,

water, roads and other infrastructure.