Shah, Anwar

Person:
Shah, Anwar

Global Practice for Governance, The World Bank

Fields of Specialization

governance; public sector reform; budgetary accountability;

Departments

Global Practice for Governance, The World Bank

Last updated January 31, 2023

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Now showing 1 - 10 of 16

Fiscal Decentralization in Developing and Transition Economies: Progress, Problems, and the Promise

(World Bank, Washington, D.C., 2004-04) Shah, Anwar

The author discusses the revolution in public sector thinking that is transforming the public sectors of developing and transition countries. Countries are reconsidering their fiscal systems and searching for the right balance between central government control and decentralized governance. Political decentralization has advanced in most countries. Subnational expenditures in developing countries as a percentage of total public expenditures have also increased over the past two decades. However, the process is far from complete. In many countries, the central government is still involved in the delivery of local services, local governments have few sources of own-revenues, local governments have limited access to borrowing for capital projects, and the design of intergovernmental transfers does neither address regional fiscal equity nor convey appropriate incentives for fiscal discipline, improved service delivery performance, and accountability to citizens. Decentralized public governance can help realign public sector incentives through greater accountability to citizens, and attenuate the "democracy deficit" caused by globalization and the role of supranational institutions and regimes. However, this requires careful examination of the entire fiscal system. Elements of a comprehensive package of fiscal system reforms would include: (a) Clarifying roles of various levels of government in public service delivery; (b) Reassigning taxing responsibilities to ensure local revenue autonomy, accountability, and efficiency without endangering an internal common market; (c) Designing fiscal transfers to ensure regional fiscal equity and to create an enabling environment for innovative and competitive service delivery; (d) Facilitating responsible credit market access to subnational governments; (e) Designing institutional arrangements for intergovernmental fiscal relations to better coordinate policies; and (f) Aligning operational capacity with the authorizing environment through the "accountability for results" framework of public management.
Implementing Decentralized Local Governance: A Treacherous Road with Potholes, Detours, and Road Closures

(World Bank, Washington, D.C., 2004-06) Shah, Anwar ; Thompson, Theresa

During the past two decades, a silent revolution in public sector governance has swept across the globe aiming to move decision making for local public services closer to the people. The countries embracing and adapting to this silent revolution have had diverse motives and followed even more diverse approaches. This paper attempts to present a stylized view of the motivations and approaches used to strengthen local governance. The quest for the right balance, i.e. appropriate division of powers among different levels of government, is not always the primary reason for decentralizing. There is evidence that the decentralization decision may have more to do with short-term political considerations than the long-run benefits of decentralization. To take stock of progress worldwide, we take a comparative look at developments in political, fiscal and administrative decentralization for a selected group of countries. Most of the decentralization literature deals with normative issues regarding the assignment of responsibilities among different levels of government and the design of fiscal transfers. The process of decentralization has not received the attention it deserves as the best laid plans can fail due to implementation difficulties. We revisit major controversies regarding preferred approaches to obtaining a successful outcome. Key approaches examined are big push versus small steps; bottom up vs. top down; and uniform vs. asymmetric decentralization. Finally, Indonesia's 1999 big bang decentralization program is evaluated. The program should be commended for its achievements over a short period of time, however incentives are lacking for local governments to be accountable and responsive to their residents.
The Reform of the Intergovernmental Transfer System to Achieve a Harmonious Society and a Level Playing Field for Regional Development in China

(World Bank, Washington, DC, 2006-12) Shah, Anwar ; Shen, Chunli

In China, most of the service delivery responsibilities are assigned to the subnational governments. Yet for reasons of efficiency in tax collection and administration, the central government collects revenues far in excess of its expenditure needs. In 2003 the central government collected 70 percent of consolidated revenues but accounted for only 30 percent of consolidated expenditures. The initial fiscal surplus of the central government enables it to use its spending power to provide financing to subnational jurisdictions for the achievement of national objectives and to influence local priorities. This paper examines the incentives associated with the design of such transfers and their implications for the efficiency and equity of public service provision and accountable local governance in China. The paper argues that the existing design of such transfers is not consistent with efficiency and equity considerations. It further undermines local autonomy without enhancing local accountability while creating incentives for imprudent fiscal management. Its main limitations include a complex and opaque system, a piecemeal approach to gap filling, lack of consistency of design with objectives, focus on input controls without regard for output accountability, incentives to support an antiquated management paradigm, a one-size-fits-all approach to local financing, and lack of transparency and regulatory framework for the intergovernmental transfer system. The paper makes specific suggestions on a reform of this system to overcome these limitations and on better use of fiscal transfers to create responsive, responsible, equitable, and accountable local governance in China.
A Practitioner’s Guide to Intergovernmental Fiscal Transfers

(World Bank, Washington, DC, 2006-10) Shah, Anwar

Intergovernmental fiscal transfers are a dominant feature of subnational finance in most countries. They are used to ensure that revenues roughly match the expenditure needs of various orders (levels) of subnational governments. They are also used to advance national, regional, and local area objectives, such as fairness and equity, and creating a common economic union. The structure of these transfers creates incentives for national, regional, and local governments that have a bearing on fiscal management, macroeconomic stability, distributional equity, allocative efficiency, and public services delivery. This paper reviews the conceptual, empirical, and practice literature to distill lessons of policy interest in designing the fiscal transfers to create the right incentives for prudent fiscal management and competitive and innovative service delivery. It provides practical guidance on the design of performance-oriented transfers that emphasize bottom-up, client-focused, and results-based government accountability. It cites examples of simple but innovative grant designs that can satisfy grantors' objectives while preserving local autonomy and creating an enabling environment for responsive, responsible, equitable, and accountable public governance. The paper further provides guidance on the design and practice of equalization transfers for regional fiscal equity as well as the institutional arrangements for implementation of such transfer mechanisms. It concludes with negative (practices to avoid) and positive (practices to emulate) lessons from international practices.
How Close Is Your Government to Its People? Worldwide Indicators on Localization and Decentralization

(World Bank, Washington, DC, 2012-07) Ivanyna, Maksym ; Shah, Anwar

This paper is intended to provide an assessment of the impact of the silent revolution of the last three decades on moving governments closer to people to establish fair, accountable, incorruptible and responsive governance. To accomplish this, a unique data set is constructed for 182 countries by compiling data from a wide variety of sources to examine success toward decentralized decision making across the globe. An important feature of this data set is that, for comparative purposes, it measures government decision making at the local level rather than at the sub-national levels used in the existing literature. The data are used to rank countries on political, fiscal and administrative dimensions of decentralization and localization. These sub-indexes are aggregated and adjusted for heterogeneity to develop an overall ranking of countries on the closeness of their government to the people. The resulting rankings provide a useful explanation of the Arab Spring and other recent political movements and waves of dissatisfaction with governance around the world.
General Purpose Central-provincial-local Transfers (DAU) in Indonesia : From Gap Filling to Ensuring Fair Access to Essential Public Services for All

(World Bank, Washington, DC, 2012-06) Shah, Anwar ; Qibthiyyah, Riatu ; Dita, Astrid

Indonesia has come a long way from centralized governance to decentralized local governance, and today Indonesia ranks among the most decentralized developing countries. The Government of Indonesia is revisiting all aspects of local governance to make appropriate legal and institutional adjustments based on lessons leaarned during the past decade. An important area of this re-examination and possible reform is the central financing of subnational expenditures. The system of intergovernmental finance represents one of the most complex systems ever implemented by any government in the world. The system is primarily focused on a gap-filling approach to provincial-local finance in an objective manner to ensure revenue adequacy and local autonomy but without accountability to local residents for service delivery performance. This paper takes a closer look at Dana Alokasi Umum -- the most dominant program of unconditional central transfers to finance provincial-local government expenditures in Indonesia. The paper also presents illustrative simulations of alternative programs and compares these with the existing Dana Alokasi Umum allocations. The paper concludes that super complexity leads to lack of transparency, inequity, and uncertainty in allocation. Simpler alternatives are available that have the potential to address autonomy and equity objectives while also enhancing efficiency and citizen-based accountability. Such alternatives would represent a move away from the complex gap-filling approach to simple output-based transfers to finance operating expenditures. Capital grants would deal with infrastructure deficiencies. And the alternatives would institute fiscal capacity equalization as a residual program with an explicit standard to ensure that all local jurisdictions have adequate means to deliver reasonably comparable levels of public services at reasonably comparable levels of tax burdens across the country.
Public Services and Expenditure Need Equalization : Reflections on Principles and Worldwide Comparative Practices

(World Bank, Washington, DC, 2012-03) Shah, Anwar

This paper reviews the conceptual challenges as well as lessons from worldwide experiences in implementing public services and expenditure need compensation in fiscal equalization transfers with a view to developing guidance for practitioners. The paper concludes that while in theory a strong case for a comprehensive fiscal equalization can be made, in practice fiscal need equalization as part of a comprehensive equalization program introduces significant complexity. This works against the simplicity, transparency and general acceptability of the program. This does not imply that fiscal need equalization should be abandoned in the interest of simplicity and transparency. Instead simplicity, transparency and local autonomy are preserved by having fiscal need equalization through public service oriented (specific purpose block transfers) output based fiscal transfers that impose no spending requirements for any functions or objects of expenditures. Such transfers contrast with traditional earmarked transfers, which impose conditions on spending for specific purposes or objects of expenditure and subsequent verification/certification of such expenditures. Such output-based block transfers would further enhance citizen based accountability for results and thereby offer potential for enhancing public confidence and trust in government operations.
Sponsoring a Race to the Top : The Case for Results-Based Intergovernmental Finance for Merit Goods

(World Bank, Washington, DC, 2010-01) Shah, Anwar

Intergovernmental finance is a significant source of sub-national finance in most countries. In both industrial and developing countries, formula based "manna from heaven" general purpose transfers dominate but co-exist with highly intrusive micro-managed "command and control" specific purpose transfers. Both these types of transfers undermine political and fiscal accountability. Reforms to bring in design elements that incorporate incentives for results-based accountability are resisted by both donors and recipients alike. This is because the donors perceive such reforms as attempts at chipping away at their powers and recipients fear such programs will be intrusive. This paper presents conceptual and practical underpinnings of grant designs that could further simplicity, objectivity, and local autonomy objectives while furthering citizen-centric results-based accountability. The paper further highlights a few notable recent initiatives in both industrial and developing countries that embrace such directions for reform. The paper concludes that results-based intergovernmental finance offers significant potential to minimize tradeoffs between local autonomy and accountability while furthering access to merit goods.
Macro Federalism and Local Finance

(Washington, DC : World Bank, 2008) Shah, Anwar

The book is divided into two parts. The first part macro federalism provides a fresh look at emerging constitutional challenges arising from globalization and the information revolution, as well as the dynamic-efficiency and growth implications of existing federal constitutions. Several aspects of these systems are examined: (a) institutional design to achieve internal economic union; (b) policies for regional development; (c) conduct of monetary policy; (d) coordination of fiscal policies, with a special emphasis on tax harmonization; and (e) management of risks of insolvency from sub-national borrowing. The second part of the book local finance provides a comparative perspective on local finances and measures the progress of decentralized governance reforms in developing countries.
Local Public Financial Management

(Washington, DC: World Bank, 2007) Shah, Anwar

This volume provides an overview of local government financial accounting and reporting and where better practices in cash management are documented. The use of transparent procurement processes to mitigate corruption is also elaborated on while practical guidance is imparted on how and when to use debt, how to assess debt affordability, what debt to use, how to issue debt, and how to manage debt. The use of internal controls and audits to ensure efficiency and integrity is highlighted in this volume with particular emphasis on the role of external audit in combating corruption. Audit methods to detect corruption are also presented and discussed. The volume represents a collaborative effort of the Swedish International Development Cooperation Agency and the World Bank Institute to support reform of the public expenditure management and financial accountability systems in developing countries, especially in Africa.