The National, Tuesday April 12th, 2016
By Aaron Batten and Yurendra Basnett
Country Economists from the Asian Development Bank
As Papua New Guinea (PNG)’s budget again reels from the impacts of a downturn in global commodity prices, ensuring that every kina of public expenditure is well spent becomes even more essential.
Nowhere is this more important than at subnational levels of government.
Over the last five years, national government grants to provinces, districts and local governments have grown four-fold
. This amounted to about $1.4 billion – or 7.7 per cent of GDP – in 2015, and comprised roughly 25 per cent of total national government expenditure, up from just over 5 per cent in 2012.
Rising subnational funding is being delivered primarily through constituency funds with MPs, provincial governors and local government administrators exerting a high degree of control over fund use.
Unlike in the past, when constituency funds were used to fund community projects too small for national government programmes, they are now being used to fund an array of infrastructure projects that subnational government entities have little experience in planning, contracting, and maintaining.
This includes – but is not limited to – the rehabilitation or construction of roads, bridges, health clinics, schools, and water supply and sanitation services.
Rapid growth in funding coupled with limited bureaucratic capacity at subnational levels of government has created significant implementation challenges.
In its 2013-14 audit of district expenditure, the PNG Auditor-General’s Office noted that over 26 per cent of spending was on projects that were left incomplete or abandoned, 9 per cent on activities not related to intended purposes, and 13 per cent on vehicles and heavy equipment with limited application toward funding objectives.
As the PNG Government’s largest infrastructure partner, ADB has witnessed these challenges first hand.
New rural roads are often poorly constructed and left to quickly deteriorate, school blocks remain half finished and medical clinics unstaffed.
To address implementation and maintenance challenges, ADB continues to work with the Government through its capacity development activities, in particular at the project level, to train and support subnational governments in implementing major national infrastructure programmes.
While capacity development remains important, the effective utilisation of subnational level funding also raises the question of what more ADB can do to assist the Government.
One answer came from the Government itself.
In 2013, shortly after the rapid growth in subnational government funding began, ADB’s PNG Resident Mission began to receive enquiries from MPs about whether they could make sizable contributions through their constituency funds to ongoing ADB programmes.
The primary objective would be to use the existing implementation structures already established under ADB and national government programs to channel local government resources toward priority infrastructure investments, and use the funds more effectively.
This apparently simple idea raises a number of complex issues for ADB and the Government.
For instance, do ADB and ADB-financed project management units have the capability and authority to accept and use this additional funding within the confines of the PNG Public Financial Management Act of 1996?
At what stage would an MP be required to commit funding to a project?
How would ADB or its project management units accept the funding, and what processes would have to be followed to ensure these partnerships did not undermine the annual budget process?
Wok Bung Wantaim, a report released this month by ADB, starts the process of answering these questions.
It looks at the legal and institutional issues associated with ADB fostering deeper, more formal, partnerships with subnational entities to support their capacity to deliver local infrastructure projects.
The study outlines forms these partnerships may take, ranging from expanding project scope in exchange for more counterpart funding to working in partnership with subnational governments to ensure that ADB and their own investments are better planned and coordinated.
These partnerships aim both to leverage greater impact from ADB’s existing investment, and provide opportunities for subnational entities to use their rapidly growing funds more effectively.
In many cases, local infrastructure partnerships will likely be undertaken on an opportunistic basis – when synergy exists between ADB projects and subnational entities’ infrastructure priorities.
To ensure activities do not expand outside of the 2016-2020 ADB-PNG Country Partnership Strategy and national government coordinating agencies maintain their existing responsibilities for planning and oversight of loan-financed investments, the report recommends that ADB should not engage in activities not already part of its ongoing national-level initiatives.
Now that many of the technical questions have been answered, the next step should be to convene a symposium, bringing together stakeholders to share ideas and lay out a common understanding for how these partnerships can work.
This would be an exciting opportunity to deepen ADB’s partnerships with subnational government, and enhance its impact in one of the most remote and beautiful developing economies in Asia and the Pacific.