Addressing inequality in financial resources among local government units (LGUs), improving the capacity of LGUs, and enhancing transparency and accountability are key to improving decentralization as the country starts implementing the Mandanas Ruling in 2022, increasing the share of national government tax revenue transferred to local governments.
These are among the recommendations of the Philippines Economic Update released recently by the World Bank.
As a result of the Mandanas Ruling by the Supreme Court in 2018 (and confirmed in 2019) the IRA are programmed to increase by 55 percent in the 2022 budget, reaching Php1.08 trillion or 4.8 percent of the country’s gross domestic product compared to 3.5 percent of GDP in 2021.
“We look at the implementation of the Mandanas Ruling not just as a transfer of resources but an opportunity to strengthen decentralization and improve social service delivery in the Philippines,” said Ndiame Diop, World Bank Country Director from Brunei, Malaysia, Philippines and Thailand. “If this ruling leads to better coordination in planning and implementation across levels of government, taking into account the capacity and needs of LGUs, it could improve the lives of people and communities especially those that far from the country’s economic growth centers.”
“Local governments are on the ground and can directly feel citizen’s needs and aspirations,” Diop added. “Hence, decentralization encourages prompt responses and better matching of government services to local needs, making governance more inclusive. This is especially true if citizens have effective channels through which their voices are heard to enhance accountability.”
To lessen the fiscal impact of having to transfer more financial resources to LGUs, the national government has started to identify spending responsibilities for select devolved mandates to be transferred back to local government.
However, some local governments have started to raise concerns regarding their financial and technical capacity to absorb re-devolved mandates, while maintaining full autonomy in planning and managing the additional resources from the Mandanas Ruling. Underspending by local governments may worsen, as many local governments do not have the capacity to absorb a significant increase in revenues.
As a result, the government faces a significant risk that the transition process could lead to a large gap in service delivery, as a lack of coordination between the national and local government and weak implementation capacity could delay the transition towards increased decentralization.
According to World Bank Economist Kevin Cruz, addressing weaknesses in planning and coordination is a first step towards managing the transition and improving decentralization.
“The national government should clearly define re-devolved functions and communicate these clearly to both national government agencies and local government units,” said Cruz. “The authorities need to ensure that the development goals of the national government and local governments are well-aligned, and that service delivery gaps are minimized, particularly during this unprecedent crisis. This will require the national government and local government units to review the division of labor between national government agencies and local government units in re-devolving functions, while keeping fiscal and absorptive capacity in mind.”
Other recommendations for managing the transition due to the Mandanas Ruling include:
- Channeling the increase in IRA towards local government’s COVID-19 response efforts to mitigate budget execution risks while providing much needed support to local constituents;
- Providing capacity building support to local government units to improve their implementation capacity and overall service delivery;
- Addressing inequality among LGUs by providing targeted support to poor local governments that lack proper capacity and resources; and
- Strengthening citizen’s capacity to demand accountability through measures like citizen participation in budgeting and expenditure processes; public hearings on budget information; civic monitoring of intergovernmental transfers; monitoring of local service provision; and social audits.