GTZ Report on Proposal for Nepal Grant Formula - LGCDP

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Proposal for a municipal grant allocation formula 18Formulae deoinition for unconditional grantsThe amount allocated to local government bodies is dependent on the fuloilment of the minimum con-ditions and the relative performance of a distinctive local government body:• If minimum conditions are not met, the respective local government body is not entitled to beneoit from the MCPM grant.• The relative performance of a local government body decides whether a local government body would receive a supplement honouring the relative better results in comparison to the average, or a charge to discriminate local bodies which are below average or least performers.This approach requires:• The gross allocation is based on the same criteria as the unconditional grant.• The intended allocation for those local bodies not fuloilling the minimum conditions are allocated to all local bodies which have met the minimum conditions.4.2.1 Minimum condition fulHilmentCurrently, the MC/PM system for municipalities requires the fuloilment of the minimum conditions to become eligible for the topping up of the government grant funded by LGCDP.The DDC/VDC system knows similar arrangements.The arrangement should not be changed, however, a number of minimum conditions and performance measures may be changed after some years to set new minimum conditions and to shift policy object-ives that me be reolected in enhanced, changed or new performance measures.4.2.2 Honouring local performanceThe MCPM mechanism in honouring performance is currently based on the relative performance of an individual municipality against all other municipalities based on the overall performance assessment across all topics covered in the MCPM questionnaire. It is recommended to further analyse the available data to oind out differences in the thematic areas covered in the performance measurement assessment.4.2.3 Grant assignments during a Hiscal yearThe actual payment of grants through central (and regional) governments should follow a clear timetable. There should be no more than one approval of assignment within a year, and this informa-tion should include the tentative payment schedule to local governments to avoid illiquidity and cash olow problems on the local level.Dr Alexander Wegener interpublic consultancywww.interpublic-‐berlin.de
Proposal for a municipal grant allocation formula 19Formula deoinition for conditional grants (capital investment grants)5 Formula de[inition for conditional grants (capital investment grants)Conditional grants should be limited in number and should be channelled through a very limited number of institutions to avoid local government picking of “cheap” funds. It is recommended to use the Town Development Fund (TDF) as a distributing entity to ensure technical expertise, a single face of central (and regional) government to local government, and to free ministerial work from day-to-‐day oinancial monitoring and reporting of grants.Conditional grants should follow clear rules under which circumstances local governments may apply for conditional grants or under which the federal or regional governments allocate conditional grants. The total fund for central government grants should always be much smaller than the fund for uncon-ditional grants (see oigure 4 on page 14) and conditional grants should always be co-funded by the bene[itting local government. Local governments should have the authority to force main consumers of capital investments to contribute to the investment (i.e. road construction, side walks, etc.).Conditional grants should reolect the large differences in taxing power of local government in Nepal. A system in which disadvantaged local governments need less own sources than those with better taxing powers should be established. The Town Development Fund currently uses only a system by size of local government, however, this systems tells nothing on the need and the ability of the local govern-ment to co-‐fund a higher share of large-‐scale local infrastructure projects. It is recommended to use a similar criterion as the “own source criterion” described further above (see chapter 4.1.2 Own SourceRevenue on page 16f.).Capital investment grants should be made available for• Water and waste water management, including water supply, distribution, disposal, treatment and stormwater management, including construction works and equipment.• Local roads and bridges, and sidewalks, including street lightning, including construction works and equipment.• Solid waste collection, including collection, and disposal, construction works and equipment.• Educational facilities, including museums• Heritage, mainly restoration.Dr Alexander Wegener interpublic consultancywww.interpublic-‐berlin.de
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GTZ Report on Proposal for Nepal Grant Formula - LGCDP

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