 Hello, my name is Marcus Brandt. I'm the head of the International Idea Programme in Myanmar and we are here today with Roger Schotten who is a renowned expert on fiscal decentralization in Asia and beyond. We want to take an opportunity today to talk about fiscal decentralization in the broader context of constitutional design in Myanmar for a new federal democratic future as is outlined in the Federal Democracy Charter that was adopted two years ago by the Democracy Movement in Myanmar. International Idea runs a program called Building Federal Democracy in Myanmar and we have had a number of workshops and seminars on decentralization local governance and fiscal decentralization and Roger has been one of our contributors to these discussions and we today want to go a bit more in-depth about the context of in which fiscal decentralization is designed and that some of the lessons learned especially from other countries in the Asia-Pacific region. Roger thank you very much for joining us today and we've had many conversations over the years on this fascinating subject already in Nepal and also in Myanmar and I would like to start with inviting you to tell a little bit about how you got here to this point like you've been working for more than 30 years in different countries after your studies in Oxford coming here to eventually being based in Thailand but working in many countries in Asia always with a specific angle on fiscal decentralization and reforms related to that. Can you just say a little bit about how you got into this and what your path was to the experience that you have on this subject now? Thanks Marcus and thanks for inviting me. Well look I've as you said I've been working on these issues now for actually more than over 40 years and I started working on rural development programs across Africa and Asia as I say over 40 years ago but after a number of years working on these programs it became apparent that they were not having the impact that they should have had largely because they these programs were divorced from government and local government in particular so at one point we decided I was working with the UN at the time to to make a deliberate shift and to start collaborating with local governments in Africa and in Asia to have them be the hosts the key stakeholders in these rural development programs so to be to be sure that they would take them forward in the future and thereby ensure their sustainability so that's where my interest in local government decentralization started and so over the past 10 15 20 years I've been working on this sort of money's local government financing fiscal decentralization issues around South Southeast Asia and in Myanmar I started working there in 2016 initially doing some research with the Asia Foundation and the Ministry of Planning and Finance doing research on the on how the 2008 constitutional provisions for subnational government were panning out and what some of the issues and challenges were in those arrangements so it was extremely interesting rewarding work that we did together and it also involved quite a lot of training work with Ministry of Planning and Finance staff and then laterally I was then involved with UNDP's program for township democratic local governments which as you know Marcus was all about supporting township level governance financing planning and budgeting in Mon and Bagot in Mon state and Bagot region all that of course sadly had to end on the 1st of February 2021 so you clearly have a lot of background not only in Myanmar but in the wider region and it's interesting that you come basically from the development background and like many in the UN having discovered the importance of governance and governance institutions and not the basically separating development issues from governance and which are in other way other words means political issues and this is also clearly recognized in the agenda 2030 where goal 16 speaks about effective accountable and transparent institutions at all levels and that of course includes of course the most importantly the local level of government and so coming zooming in a bit more about so what is local governance about and how can a generalist who hasn't got much background in this try to make sense of what is important to look at Myanmar finds itself in a situation where it is basically back to the drawing board of a constitutional design that should be federal but the local level of governance has so far been not really very fully developed in Myanmar and we may get back to that in a few minutes but can you just say sort of what is the basic questions that we need to ask to understand fiscal decentralization or let's say the where the where the power lies where the money comes from and goes to and how do we make sense of local governance in the from a fiscal decentralization perspective in your opinion well let's first of all just say a word about fiscal decentralization as I think we all know there are the three dimensions of decentralization is the political element dimension of decentralization which is the one most people talk about usually but then the other two feel like more technical dimensions the administrative side and the fiscal side which tend to get less attention but nonetheless equally important for the success of any political decentralization program fiscal decentralization is all about determining the responsibilities of lower level governments whether they be state township level it may obviously that this depends on the national context but the responsibilities of subnational governments and particularly their spending responsibilities and on the other hand how these spending responsibilities will be financed so fiscal decentralization is about is about these sets of issues if they are not properly determined what you then have is a system of local government subnational government where governments do not have meaningful responsibilities or do not have adequate finance services then do not get delivered locally the citizenry gets frustrated and loses interest in engaging with local governments and so determining the the right fiscal decentralization framework is key to any successful decentralization program and when you when we talk about decentralization we still think of local government governments or local governance institutions as part of the state structure they are basically the lowest tiers lowest sort of components of as central still something that is a central state structure so to what extent does autonomy and self-governance come in here and to what extent are local governance governments just implementing central state agendas and policies and to what extent do they have their own let's say power to decide things by themselves and in what way does just do fiscal and financial issues come into this question you're pointing now to one of the key challenges and there is always a balance in any country in any local government local government system there's all about always a balance between allowing local governments and the communities that elect these local governments and interact these local governments between allowing them a sufficient degree of local choice local autonomy local independence in certain areas but recognizing that in other areas of and we're talking about service delivery here but in other areas the center needs to give some direction so for example in many countries you you local governments are allowed to or manage deliver certain services which are devolved and which are financing is provided where local governments can pretty well can choose both the standards of service delivery the which communities will be benefiting this year which communities will benefit next year and so on whereas there may be other services like vaccination for example which need to be rolled out a fairly standardized basis and of which you do not want local governments to be choosing too much so then they need to be more strings attached to those services so just to say that in any system you will have a mix of functions of which more or less local freedom is allowed and corresponding to that a mix of funding arrangements which allow more discretion over over some spending functions but much less discretion over others like for example the vaccination vaccination campaigns and how does this interplay with question whether countries federal or not well yes I mean the principles of fiscal decentralization I think apply across the board to all countries whether they unitary or federal the difference I think between a unitary the country of the unitary constitution I country of the federal constitution is that the specific arrangements where we haven't where you have a multi-level government system where you have a center a federal center where you have states and where you have governments within the states in a federal system you are generally allowing the state level a fair amount of discretion in choosing the particular arrangements it wants with its local governments in regard to their spending responsibilities how they're going to be funded etc in a unitary country you would expect about uniform arrangement whereby all states pretty much adopt the same arrangements with their respective local governments however the line is not a very hard one here because you do have some unitary countries like Vietnam or China where on the financing side on the fiscal decentralization side of things it so happens that the sub the first tier of subnational government name the provinces in China or in Vietnam are allowed a lot of freedom to decide their arrangements with their local governments in those provinces so in many respects both Vietnam and China look like federal countries despite the fact that they're of course unitary so variation of designs and models is a common thing not only in federations but also in formally unitary systems and camp it allows local government to be adjusted to to local specific local circumstances absolutely of course this is what we want to see in here as Myanmar moves forward to federal but that was not the case of course under the 2008 constitution because until now in the previous decades the state structure was not only centralized but also very uniform and standardized so there was basically no degree of local variation possible in in the Myanmar context until now is that correct that that I would say that is correct legally though in fact and I think we go back I mean looking back at how the 2008 constitution worked out at subnational level what are the issues is that the the legal framework was not never very properly very well developed so you had schedule two in the Constitution which determined the functions of states and regions very vaguely incomplete and never followed up by any organic local government law or finance law which might have more clearly defined those functions as a result of which different states and regions quite often interpreted those provisions differently so you had an in practice sort of variation the way things worked out even though legally speaking in the jury terms the things should have been the same I guess that is the case in all systems that you know what is written and in the law and then the Constitution is one thing and then another completely different set of questions is how things are actually implemented in indeed indeed and I think one of the lessons we learn looking at that fiscal decentralization issues around Asia and elsewhere is the importance of a clear well-developed legal regulatory framework we see in Nepal for example a lot of time and effort was invested in around the development of the federal constitution in Nepal around also developing a whole body of laws and regulations I think some 20 or more which clearly spelt out the who does what and how arrangements at province and local government level in Nepal if there are no if there is not that sort of clarity then you leave you leave things to the choice of local officials and local representatives which may go the way you want them to go or may not go the way you want them to go and and relatedly I think another AC which is often forgotten is the is the need to to continually revise and clean up pre-existing legislation because another feature I think of the 2008 Constitution Myanmar was that a lot of older laws were left in place unchanged and so a lot of local officials at states and regions were often not quite sure quite sure which which legal which which which legal text they were supposed to be following because in some cases the provisions of schedule 2 or schedule 5 in the Constitution were not consistent with older laws in regard for example some of the taxes that states and regions were supposedly allowed to levy so local officials were left a little bit little bit in a bind as to how to how to act so I guess the clarity and systematic nature of the regulatory framework is an important ingredient for effective institutions and that is something we often don't see in practice indeed indeed it's sort of boring technical exercise but we just needs to be done but you see in a number of countries across Asia the problems resulting when when attention is not given to this yes let us talk about the federal democracy charter and the way in which it outlines already a system of decentralization not only to the state level but also what could be future local government level structures what you make of what we see there of how the designers of the federal democracy charter have laid this out and what would be the open questions that still need to be worked out well I think I mean what one sees in the charter and it's very welcome are a number of key principles already reflected there around the importance of subsidiarity the importance of separating the functions of the future federal level from the state level the importance of there being a an equalization a fiscal equalization mechanism put in place to ensure that different states or regions if there are still regions are kept in equity and that of importantly that there also be a commission or committee formed which will allow regular consultation between the levels that is a key I think will be a key issue so all of this is our excellent principles but obviously there are awful lot of details which will need to be to be to be worked out and that will of course take time a lot of consultation what are these areas where things need to be worked out firstly obviously the nature of local government within the states that is a bit of a blank at the moment as far as I am aware clearly the the the configuration of local government within each of the states may look quite different and this of course is the point of of of of a future and you know being a federal a federal having a federal constitution nonetheless they will need to be clarity sooner rather than later I would think about the nature about at what level within states there be constituted some formula who government was an elected body its own administration to which functions and finances can be assigned one thinks of course of the township but that might not necessarily be appropriate in all parts of the country lack of which of course the lack of any government a township level under the 2008 Constitution I think we saw in the work that we did that I referred to earlier as being a major problem in in the effective and efficient delivery of public services local level can you just stop here for a moment so when we the townships were have been the basic unit of local administration for Myanmar for generations why can we say that there was no local government so how that the townships not live up to being a local government well townships and as you know Marcus were not given any formal local government status in the 2008 Constitution they were just a tier of administration so they were not it was not possible to make them budget and financing entities in their own right there were simply emanations of this this respective state region governments all what one had I'm not sure if they're still in functioning or not but when at least until 2021 all on had with the township planning implementation committees and previously other development committees which were I think was suspended after the entry of the NLD in take after NLD took over government in 2016 those were suspended so all that one had with these TPICs chaired by the township administrator but they had a very weak role all they were they could do since the township didn't have its own budget each year all they could do was to send up proposals for spending up to their state and region government so what does that mean I mean that that that looks like it might be okay but since each state is each township no townships were not given a budget each year they had every interest each township to send a long long list of proposals in all their sectors roads and irrigation and electricity etc far more than was ever going to be funded so what what you saw at some at state regional level was the arrival of long long long lists of proposals and I remember the finance ahead of financing chin state saying saying look you know we have here ten times more proposals coming in than we can possibly finance what does that mean it means that 90% of what is formulated the township level and arrives on the desk at its state regional level has to be rejected time is wasted in preparing these proposals officials at state regional level really in the time they have with the knowledge they have are unable to make a sensible selection of the 10% that can be afforded so you get what is effectively a very inefficient and ineffective planning and budgeting arrangement and probably also a risk for arbitrary and decisions not based on objective criteria there simply isn't the time even with the best will in the world even with all the PhDs sitting around these desks in in Haka in chin state for example or elsewhere there's no way they could make a sensible selection of those so all I wish to say had the townships been allowed to make their own selections had the townships been told next year you will have x billion chat despite then they can start making their own sensible priorities and long-term planning and long-term planning as well and that makes it of course also more transparent and accountable to the local population what would you say is the role of transparency and accountability in the functioning of a local government well transparently accountability of course a key I mean without that there are all the suspicions of political decision-making favoritism come into play you know what sees that not only Myanmar one sees that everywhere really I mean unless there is light shed on decisions and clear criteria for why decisions were taken then suspicions are aroused and indeed suspicions will often be justified and very often the wrong in this case budgeting planning and budgeting decisions are taken so public monies are not spent as effectively and efficiently as they should be and since public monies are very scarce in poor countries like in this is a tragedy now if we look at another country poor and underdeveloped in the region that has actually gone through a constitution building process and significant decentralization reform that you also know Nepal what would be the lessons learned from the Nepali process of designing local government that Myanmar could learn from well Marcus I mean you you know Nepal I think much better than I do but I mean my understanding from what is happening in Nepal the last 15 or so years is that a lot of consultation and compromise was required between all the different interest groups and ethnic groups and political parties perhaps that is a given a lot of effort and thought as I said earlier was put into the technical groundwork around and we come back here to the specifics of fiscal decentralization a lot of technical workers put into the groundwork of figuring out what functions what spending functions should best be given to the province these these new provinces and the local governments within those provinces and if I if I if I'm not wrong I think in that process a number of working committees were established public services were scrutinized very carefully and I think they they unbundled I think over a thousand government spending functions and look carefully at each one on the basis not only of subsidiarity concerns but also other basic economic criteria and and assigned appropriate responsibilities both to to the provinces and the local government and all that was done after that is the constitution was already written or designed the constitutional principles had been laid out yes and then this unbundling took place in more as a bureaucratic exercise yes and was then reflected in legislation so what you have the result of that are a set of functions assigned to these local governments and urban and rural the local level a set of functions the provinces and functions of course retained at the federal level the obvious things like defense national transportation and so forth interestingly of the in now in in the Bali government budget budget spending about 40% of spending is subnational spending provinces and local governments of that three quarters actually is with the local government so the bulk of spending in Nepal is as it has been decided is must be appropriately handled at the local government level so I suspect there are lessons there for for Myanmar to the looking forward future local governments however constituted in the various states will probably need to assume quite large responsibilities spending because the states and regions certainly as they are now are very big entities with large populations bigger than many countries in Asia so really the state and regional state and regional capitals are a long way away from from ordinary people in the villages and village tracks so the the opportunities for giving responsibilities to future local governments township or whatever level it is decided they be probably considerable and Nepal which you also knew before the the new constitution was adopted has also moved from a very centralized unitary structure very top down administration to something that is now quite significantly decentralized and the question many Myanmar ask or yes we can somehow see the vision of how we want it to be in the future but how do we get there how what what steps we can we make already now where still there is a lot of uncertainty right now about the political outcome of this conflict but there are those who work already towards a new constitution what could they do to put the right processes on track that will for sure take many many years what is the capacity that needs to be built what can people already do now to prepare for this well I think I think one important starting point is to understand how local governments arrangements are actually being rendered now in practice across the territory of Myanmar and I think we know that there was a great variety of of practice within and between the EIO controlled areas within the NUG controlled areas and and across the areas that that sack the the diminishing areas that sack is controlling I mean I think it will be important to document what is going on there now because in the one never starts from zero whenever starts from a clean piece of paper I think in any country when you're building a decentralization framework you have to build on what is there you can reform it you can improve it you can adjust it but you have to start from from what is there now so I think understanding that the here and now of practice and arrangement across the country both what what the institutional arrangements are in these different areas what functions are being managed and how and at what level what revenues are being collected how and how they're being being used and managed and so forth all of this I think was one key starting point relatedly I think moving toward vision a vision of visions because these may vary by state of local government and local governments building on what we know is there now as I say whether that we know whether these are built around the township or clusters of this tracks or the district or whatever and this may vary some some common vision of local governments future local governments arrangements building on what works and what doesn't work from existing practice they would that will be important we and we haven't really talked about the revenue the financing side so far Marcus but just a quick word about that so the starting point as any public finance person will say the starting point for talking about fiscal decentralization is defining the functions and that's what we've been talking about what are the functions of subnational government then you can start talking about how they should be financed many countries that we made the mistake you're doing things the other way around this was the problem in Latin America in the 80s and 90s giving local governments in Argentina financing powers and borrowing powers without telling what they should be spending on so you don't be doing that so once you're clear what local governments and states should be spending on then you're in a position to see okay how will this spend how will this spending be financed and financing of course is from two sources the first source will be those tax and non-tax revenues which you want to assign to the states in the future and indeed the local governments within the states in the future however generally speaking and this is the universal experience I think generally speaking the finance that local governments earn from their own revenue sources is never as much as what they need to spend this is as true in Asia as it is in in the in Europe and you see it in Denmark or Canada the most decentralized countries in the world the proportional government spending is far greater than the sub-national proportion of government revenues so there's always a difference a gap as as the public finance people say there's a gap which needs to be filled and this will be the same I'm sure in Myanmar how do we fill this gap with transfers with fiscal transfers from the center of the federal level from the federal levels own revenue sources which revenues can then be distributed across the country and there are different ways this can be done such revenues has well these can be from from there are there are different ways this can be handled so you can I mean essentially there are two main types of transfer I mean they're starting with the typology of two main types the first type of transfer is a revenue sharing transfer where you take a revenue a commercial tax which indeed is now is being shared down under the current arrangements or was until 2021 50% was going down in Myanmar to the townships of origin you start with a tax it could be as I say a commercial tax or it could be a natural resource related tax and you say X percent shall be given back or retained by the area of origin that's a revenue sharing transfer the problem with that before I go on to the second type is that of course the revenues which are being shared often very greatly across localities within the country particularly if we're talking about natural source revenues so you end up with a real problem of difference between areas which which you really have to deal central government or federal government will have to deal with later on but pause on that one come back to it the second type of transfer is what we call a ground transfer whereby whereby a part of said central federal government revenues are put into a pot and distributed across states for example townships even on the basis of some criteria formula indeed in in Myanmar there there has been the general deficit formula which general deficit grant transfer which since 2015 has been distributed according to formula across states and regions and this this obviously tends to be more equitable and so going forward what what what what would be needed it will be some thinking about the right mix of these transfer instruments which revenue transfers and which sort of grant transfers will make sense taking care not to perhaps be overly generous with the revenue sharing transfers which can cause inequity and once the problem is that once you've started you've started the practice of sharing particular revenues it can be very hard to go back and reverse because people get used to it this is the experience of Indonesia Indonesia 20 something years ago with the big bang was very generous in sharing their natural source oil and gas revenues which then caused massive disparities between the regions which the grant transfers formula is grant transfers were not adequate to compensate for but it became very difficult for central government to redress the balance because they were they were had become vested interests in place which opposed any reforms so best not to make it be too generous too early if you want on that front well these are all things that each one of these subjects could probably something for another hour long discussion but we have to wrap it up now I want to thank you very much and we will certainly invite you again for future discussions presentations I also want to thank the audience for joining us today apologies for my voice but we will certainly continue to provide knowledge comparative analysis and experiences that can be useful for Myanmar constitutional designers and governance reform actors but we believe that discussions like this can contribute maybe to a broader understanding of the roles and functions of local government and in that sense hopefully also help to improve the situation in terms of services and access to government services for the people of Myanmar thank you very much and please leave your comments below and give us your feedback thank you