1. Review of funding to the regions and a potential Roads Hibah funding mechanism Tyrone Toole Geoff Dixon Aberor Dachwan

2. Background Budget votes by some local governments substantially underfund their own planning targets for road stability This tendency to ‘plan-inconsistent’ budget preparation reflects a combination of volatile year to year movements in each PLGs finance envelope (attributable to year on year variations in National Government grants), combined with PLG prioritisation (in recent years) of spending on education and health ahead of roads, leaving spending on road maintenance as a ‘swing factor’ in the budget In this environment there is a case for looking at specific purpose grants for roads to increase and smooth spending on road maintenance

7. General Budget Support for the regional government

8. Development partner assistance based on results This presentation looks at applying similar OBA principles to grants for maintaining roads

10. total grant based on technical and cost parameters

11. payment after completion and physically verification

12. cost of works pre-financed by the regional government

13. requires specific road links to be identified in the grant agreementCompliance ensured by verification of the output, …..but no specific requirement that the recipient government spend the grant on the road sector The grant takes the form of General Budget Support (GBS)

14. Key issues Ensuring additionality 2. What is the evidence for ability to spend a grant? 3. Should the grant agreement include capacity building?

16. this would be as a pre-condition for grant disbursement

17. disbursement of the grant would be conditional on the local government implementing its non-grant maintenance program as well as the outputs agreed under the grant agreement

19. they have built substantial reserves

20. however, they it is argued that they lack the capacity to spend them efficiently and effectively due to late passage of the local budget, poor operational planning to spend budget allocations, slow procurement processes and leakagesLewis and Oosterman state "The major constraints to increasing capital spending at the sub-national level are not related to a dearth of finance, but regulatory rigidities in budget preparation and implementation and, most importantly, a lack of capacity to plan, design and implement investment projects."

21. Issue 2 continued Under the GoI’s generous grant system many local governments have accumulated substantial reserves and arguably don’t need more grants from development partners If this is true prior conditions for a grant agreement with a local government should include the absence of large reserves and the absence of any underspends of annual budget votes which reflect weaknesses in budget execution However, review work for the preparation of a Roads Hibah suggests a different story

23. to ensure that budget funds for road maintenance are fully spent

24. an underspend suggests that a Roads Hibah disbursed through the local budget may not fully deliver the contracted road maintenance package due to underspends of the budget