51

grants (that is, the vertical allocation) will usually be determined by policy decisions at the central government’s discretion or as part of constitutional negotiation processes, and is not assessed by this indicator. However, clear criteria for the distribution of grants among subnational governments—for example, formulae for the horizontal allocation of funds—are needed to ensure allocative transparency and medium-term predictability of funds available for planning and budgeting of expenditure programs by subnational governments. Every fiscal transfer from central government to the relevant subnational governments should be taken into consideration. If different formulae or criteria are used for different elements of transfer, the overall assessment may be made on a value-based weighted average.

7.1:2. If the out-turn amounts actually transferred are different from the approved budgeted transfers, as long as the basis for which the actual funds are

determined is rulebased and transparent, then the dimension is scored according to the materiality of those transfers. For example, if allocations are reduced to all subnational governments as a result of revenue shortfalls, any reduction in allocation compared to budget is in accordance with applicable rules and transparently applied. When transfers are approved in the budget but not disbursed at all, assessors will have to determine whether there was transparency in the rules applied to explain the lack of disbursement, and score accordingly. The score would be D in case there was no transparency. If there was transparency, the score could range from A to D depending on transparency and rules in place for budgeting.

7.1:3. Transfers from one level of SNG to lower levels of SNGs are not included in the assessment of this indicator for central government PEFA assessments.

Dimension 7.1. Timing, coverage and data requirements

Time period Coverage Data requirements/calculation Data sources
Last completed fiscal year. CG and the subnational governments with direct financial relationships with CG.
  • Horizontal rulebased system or other arrangements for determining the horizontal allocation of transfers to subnational governments for each type of transfer.
  • Calculate proportion (weighted average by value of transfers) for which horizontal allocations among subnational governments are determined by transparent rules and rulebased system as a percentage of all transfers from CG to the relevant subnational government(s).
  • Legislation or rules governing transfers from CG to SNG.
  • Annual budget documents.
  • MoF, or specific entity in charge of subnational matters such as Minister of Local Government or Decentralization.
  • Triangulation with representatives of SNG, either at selected subnational entities or subnational associations.

 

Pillar Two: Transparency of Public Finances
51