Catalog

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p. 28 of 34 BACK | NEXT Executive Summary Introduction Good governance defined The elements of good governance The Bank’s concern with governance quality The Bank’s approach to governance issues Promoting the elements of good governance in Bank operations Building governance capacity Participatory development processes Participation of beneficiaries and affected groups Public sector/private sector interface Decentralization of public and service delivery functions Cooperation with NGOs Legal frameworks Information openness The Bank’s modalities for enhancing governance in DMCs Resource implications Reporting arrangements

Governance: Sound Development Management : Promoting the elements of good governance in Bank operations : Participatory development processes

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Decentralization of public and service delivery functions

As a rule, the Bank prefers that the obligations related to its loans be borne fully by the agencies that ultimately use the loan proceeds. This is also conducive to greater “ownership” on the part of project agencies. By analogy, it is likely that devolution of authority to smaller administrative units (e.g., provinces, districts, and municipalities) will foster greater responsiveness to local situations and possibilities than may be displayed by decision makers in a distant capital. At the same time, some government functions are best handled in a centralized manner. Also, the distribution of powers between central and provincial authorities usually reflects the political imperatives of national governance. Hence, decisions on the scope and degree of decentralization are best left to the governments themselves.

That said, however, once a DMC chooses to embark on devolution, the Bank can assist the process by helping identify those characteristics of decentralization that are market preserving and that can enhance economic performance. Often, a critical issue is whether financial accountability of different levels of government can be assessed accurately, so that local authorities can benefit from policies that produce a revenue surplus. Allowing local governments to raise funds through taxation or borrowing makes them more accountable for the fiscal and financial consequences of their policies. When obliged to compete among themselves for access to financial resources, they experience fully the costs of any unsound economic policies or decisions. However, the central government must ensure that local authorities do not transfer the costs of unsound policies to their neighbors by erecting local trade barriers. If requested to do so, the Bank will provide TA for analyzing these and other issues related to decentralization, and thus help smooth its implementation.

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