Punjab may introduce new mechanisms to finance local govts

16 MCs to be asked to contribute in their schemes Ad hoc and fragmented development made Punjab cities helpless

LAHORE: Punjab government may introduce new mechanisms to finance city district government’s projects in its last budget by introducing performance-based financing, asking them to contribute a minimum of 20 per cent for the purpose, highly placed finance ministry sources revealed.
Sources told Pakistan Today that the step would be initiated from 16 major MCs for their contribution to the cost of all infrastructure investments undertaken. They said that the step would enable the system to generate around Rs4.158 billion. However, they said that the most important part of the plan was the aims to let these Municipal Committees (MCs) own those projects.
They were of the view that ULGs would be rewarded in the case with investment financing, based on their performance against institutional development and targets. Similarly, they said governance and urban management improvements would thoroughly be assessed for larger cities before releasing the allocations.
According to budget assessment documents, Punjab Cities stayed helpless in harnessing their agglomeration potential to become growth engines despite announcing the development of Punjab Growth Strategy 2018 by Punjab Chief Minister in March 2015.
Citing another one of major factor, they underlined critical municipal services that have recorded pathetic results in low coverage and quality, they said that while large investments were made on municipal service provision by a variety of funding sources, many areas remain unserved while others suffer from unreliable or low-quality service.
Pointing weak investment planning and asset management processes, the documents underline one of the chief reason of contribution of investment decisions that are neither evidence-based nor responsive to priority needs of residents, in addition to inefficient management of service delivery infrastructure creation.
The documents say that MCs needed to require for contributing 20 per cent of financing received through PBGs as counterpart funding. The documents made it clear that Punjab cities continue to have low economic density and productivity.
Citing some of the major factors, the documents underline the high and increasing degree of institutional fragmentation with unclear accountability, a primary cause in governance structures in Punjab’s cities that reduce efficiency in the planning and delivery of city services. “Numerous core municipal functions still are de-facto or de-jure not under the mandate of MCs – particularly in the largest cities – and are performed by various provincial departments, province-owned companies, agencies, or authorities’ the documents points out.
That prime reason, documents mention, led to high expenditure on numerous specialized service delivery entities with weak financial sustainability and diluted accountabilities. ‘The situation is however markedly better in secondary cities, where urban governance and service delivery mandates continue to remain largely intact, and reside with MCs, documents say.
Marking next reason, the documents mention capacities, systems, and finances at MCs, which continue to remain weak. Under Punjab LG Act (PLGA) 2013, the number of urban LGs has substantially increased, which has led to shortage of staff, and the need for new recruitment to address this gap’ documents mention.
Moreover, the new MCs require significant support to effectively manage the transition to new institutional structures and regulation and to fully operationalize new business processes prescribed under subordinate legislation to PLGA 2013. In addition, MCs continue to be heavily reliant on transfers and grants from Punjab government, with Own-source revenues (OSR) accounting for less than half of total receipts. “Collections of property tax from urban areas remains low, and Punjab’s collections as a share of urban GDP are half the average for middle-income countries’ documents highlights.
Documents say that development expenditures are mainly made through vertical programs designed and implemented by higher levels of government, such as provincial departments, federal ministries/agencies, or grants given to national and provincial members of parliament leading to ad hoc and fragmented development. Almost one-fifth to one-third of the provincial government’s annual capital expenditure is made on urban infrastructure and services, with limited involvement of MCs in its planning and delivery.
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