PI-7. TRANSFERS TO SUBNATIONAL GOVERNMENTS

ABOUT THE INDICATOR

This indicator assesses the transparency and timeliness of transfers from central government to subnational governments with direct financial relationships to it. It considers the basis for transfers from central government and whether subnational governments receive information on their allocations in time to facilitate budget planning. It contains the following two dimensions and uses the M2 (AV) method for aggregating dimension scores:

  • Dimension 7.1. System for allocating transfers
  • Dimension 7.2. Timeliness of information on transfers

IMPACT ON BUDGETARY OUTCOMES

Transfers to subnational governments can have an impact on a central government’s ability to achieve and maintain aggregate fiscal discipline because they affect the way in which available resources are used. Transfers may also be targeted to specific policy priorities of the central government and thereby affect resource allocation. If transfers to subnational governments do not follow transparent and orderly systems, there can be unpredictable and potentially significant pressures to access funds needed to deliver services that rely on transfers or that are affected

when funds are diverted to subnational governments and away from other possible uses. (Performance information on services delivered by subnational governments on behalf of central government is captured in PI-8.)

INDICATOR MEASUREMENT GUIDANCE

7:1. The indicator examines the arrangements for providing transfers from central government to subnational governments4 and the timeliness of information on those transfers. Financial reporting by subnational governments and fiscal risks to central government from subnational governments are addressed in PI 10.

Dimension 7.1. System for allocating transfers

DIMENSION MEASUREMENT GUIDANCE

7.1:1. This dimension assesses the extent to which transparent, rulebased systems are applied to budgeting and the actual allocation of conditional and unconditional transfers. Transfers to support subnational government’s expenditure can be made in the form of unconditional grants, where their final use is determined by the subnational governments through their budgets, or through conditional (earmarked) grants to subnational governments to implement selected service delivery and expenditure responsibilities—for example, by function or program, typically in accordance with an agreed-upon regulatory or policy standard. The overall level of

Dimension 7.1. Scoring

Score Minimum requirements for scores
A The horizontal allocation of all transfers to subnational governments from central government is determined by transparent, rulebased systems.
B The horizontal allocation of most transfers to subnational governments from central government is determined by transparent, rulebased systems.
C The horizontal allocation of some transfers to subnational governments from central government is determined by transparent, rulebased systems.
D Performance is less than required for a C score.

 

4 Refer to the GFS Manual 2014, chapter 2, for an explanation of the distinction between a subnational government and a central government unit.

PEFA Handbook Volume 1: The PEFA Assessment Process – Planning, Managing and Using PEFA