Report No. 36516–MNA Decentralization and Local Governance in MENA: A Survey of Policies, Institutions and Practices Public Disclosure Authorized A Review of Decentralization Experience in Eight Middle East & North Africa Countries March 31, 2007 Sustainable Development Department Middle East and North Africa Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Middle East & North Africa Region World Bank ABBREVIATIONS AND ACRONYMS CVDB Cities and Villages Development Bank CEF Communal Equipment Fund CPSCL Fund for Loans and Support to Local Collectives EIJLMTWY Egypt, Iran, Jordan, Lebanon, Morocco, Tunisia, West Bank and Gaza and Yemen FAFO The Norwegian Social Science research Institute FCCL Local Government Common Fund GNI Gross National Investment IMF International Monetary Fund IPA Index of Public Accountability IQA Index of Quality Administration IGQ Index of Governance Quality LG Local Government LAT Local Allocation Tax LMIC Lower Middle Income Countries MNA Middle East and North Africa MNA-8 Egypt, Iran, Jordan, Lebanon, Morocco, Tunisia, West Bank and Gaza and Yemen MDG Millennium Development Goals OED Operations Evaluation Department PA Palestinian Authority PM Participations Municipals SED Social and Economic Development Group SF Studio Fiscal SDS Service Delivery Surveys SNC Sistema Nacional de Con financiación UMIC Upper Middle Income Countries WDR World Development Report Vice President: Daniela Gressani Chief Economist: Mustapha Nabli Sector Director: Inger Andersen Sector Manager: Hedi Larbi Task Team Leader: Stephen Karam ACKNOWLEDGMENTS This document has benefited from the contributions of many different stakeholders, consultants and informed sources across the region and elsewhere. The Bank team was guided by Hedi Larbi, Sector Manager (MNSSD) and led by Stephen Karam (TTL). Significant contributions were made by a team comprised of Mihaly Kopanyi, Laura Vecvagare, Balakrishna Menon Parameswaran, Serdar Yilmaz, Caroline Bollini, Sameh Wahba, David Sewell, Rosanna Nitti, Francois Noisette, Nicolas Peltier, Ibrahim Dajani,and George Awwad. Peer reviewers Robert Ebel and Robert Beschel provided useful guidance to the team at various review stages. The assignment was implemented under the overall guidance of Hossein Razavi and Inger Andersen (Sector Director). This paper draws heavily on the outputs of a number of field-based consultants who prepared country studies and/or led the service delivery survey (SDS) work in their respective country, including: Najib Maktari (Yemen), Fuad Malkawi (Jordan), Khaled Amin (Egypt), Kian Tajbaksh (Iran), Lina Abdallah (West Bank and Gaza), Mohammed Sbihi (Morocco), Ahmed Basti (Tunisia) and Mona Harb (Lebanon). The Norwegian Social Science Research Institute (FAFO), and particularly Jon Petersen and Mark Taylor, oversaw the training of SDA Country Teams, as well as implementation of the SDS in the five countries where it was carried out. FAFO analysis of the SDS data generated a rich set of findings and observations based on end-user and provider feedback, which were produced separately under a report entitled: Municipal Management & Local Governance: A Service Delivery Perspective – Giving Voice to End User Perspectives on Public Service Provision in the MNA Region. Over the course of the two years of implementation, many government officials and government agency technical staff, too numerous to mention here, were consulted and provided valuable input and suggestions to the team in the eight countries surveyed, namely Egypt, Iran, Jordan, Lebanon, Morocco, Tunisia. West Bank & Gaza, and Yemen. Their participation in the first regional consultative workshop held in Amman in December 2004 and subsequently through bilateral communications provided important feedback and impetus to the team in focusing its second phase work geared mainly at listening to what end-users had to say about a variety of government services delivered at the local level. Throughout the assignment, Government officials at many levels supported the team by making available documentation for review and analysis, enabling field-based teams to interview and collect information from key ministry and agency staff, and provided their approval for the SDS to be implemented in five of the surveyed countries – Egypt, Iran, Morocco, West Bank & Gaza, and Yemen. In working with local city officials, mayors and technical staff, the SDS teams relied upon the support and facilitation of the city officials to complete the survey work. For this support and partnership, the team wishes to express its gratitude. This Policy Note and the consultative workshops and numerous other activities organized under this initiative would not have been possible without the generous financial support of the Norwegian Government through the World Bank-administered Norwegian Trust Fund for Private Sector and Infrastructure. TABLE OF CONTENTS PAGE NO. EXECUTIVE SUMMARY ............................................................................................................ i INTRODUCTION .......................................................................................................................... 1 Decentralization and Local Governance in MNA Countries ................................................... 1 Decentralization and Service Delivery MNA Countries ......................................................... 3 Study Approach and Methodology .......................................................................................... 4 POLICIES, INSTITUTIONS AND PRACTICE........................................................................ 6 A. The Structure of Sub-National Government in MNA-8 Countries .................................... 6 B. Intergovernmental Systems .............................................................................................. 10 Administrative Decision-Making ................................................................................ 10 Intergovernmental Fiscal Relations ............................................................................. 12 Expenditure Assignments and Local Government Expenditures ................................ 14 Revenue Assignments and Local Government Revenues ........................................... 18 Own-source Revenues ................................................................................................. 21 Intergovernmental Transfers ....................................................................................... 23 Local Government Borrowing .................................................................................... 26 C. Governance and Accountability ....................................................................................... 28 LOOKING FORWARD .............................................................................................................. 34 ANNEXES ..................................................................................................................................... 38 Annex 1 – Conceptual Framework ........................................................................................ 38 Annex 2 – Average Annual Exchange Rates (local currency / US$) .................................... 41 Annex 3 – Local Government Data in MNA-8 ..................................................................... 42 Annex 4 – Inter-governmental Relations in Countries around the World ............................. 45 Annex 5 – Governance Indicators ......................................................................................... 48 BIBLIOGRAPHY ........................................................................................................................ 50 CHARTS Chart 1: MNA Local Government Expenditures ........................................................................... iii Chart 2: Municipal Revenues (US$ capita) .................................................................................. iii Chart 3: Municipal Investment Per Capita (US$) .......................................................................... iv FIGURES: Figure 1: Sub-national Structure in MNA-8 Countries .................................................................. 6 Figure 2: Population Served per Local Government Employee 2002 .......................................... 11 Figure 3: Share of Local Government Expenditures (% of total public expenditures) ................ 17 Figure 4: Composition of Local Government Expenditures......................................................... 18 Figure 5: Local Government Revenue Composition .................................................................... 21 Figure 6: Transfers and Local Government Expenditures (US$ per capita) ................................ 23 TABLES: Table 1: Mean Number of Tiers of Government, Mid-1990s ......................................................... 7 Table 2: Sub-national Governments in MNA-8 Countries .............................................................. 8 Table 3: Selection of Local Government (LG) Officials ................................................................ 9 Table 4: Decision-making Authority over LG Administrative Issues .......................................... 11 Table 5: Description of Select LG Training Program in Morocco ............................................... 12 Table 6: Central Control over Local Financial Decisions in MNA-8 Countries .......................... 13 Table 7: Formal Assignment of Local Services