The economic disruptions of COVID-19 have put local government revenue in Ghana in a dire state. James Dzansi, IGC Country Economist in Ghana, argues that local governments must urgently adopt the digital Enhanced Revenue Management System to increase their capacities to deliver essential services to their citizens.
The local governments must stand up to the challenge. They need to raise sufficient internal revenues to deliver on their mandates and give meaning to the object of bringing governance closer to the governed. Over the years, local governments have been overly dependent on the District Assemblies Common and other donor funds. The reasons range from outdated property valuation, a disengaged populace to lack of appropriate revenue management system to bill, distribute, collect, monitor and enforce collection. As a result, whenever central government transfers delay, most local governments find it near impossible to run the local government machinery, let alone provide essential services.
With the outbreak of COVID-19 and its disruption to economic activities, the financial position of most local governments threatens to get worse. In the words of Hon. Osei Assibey Antwi, the Kumasi Metropolitan Assembly records a 30 per cent shortfall in internally generated funds (IGF). Moreover, the 2020 midyear Budget Review suggests the government is facing falling revenues, rising expenditures and increasing debt. While it is reasonable to expect these headwinds to ease with the COVID-19 pandemic, the indications are that central governments' transfers will not only delay, as has been the norm. There will be significant shortfalls in the disbursement of District Assemblies Common Funds for years to come.
The situation is so dire that at the Local Government Service's award ceremony, the Minister of Local Government and Rural Development chose to warn that "the days of overreliance on the disbursement of the District Assemblies Common Fund are gone". She went further to challenge the local governments to institute innovative ways to generate internal revenues, according to the 10th October edition of the Daily Graphic. Truth to be told, the Hon. Minster's warning is timely and imperative.
While the Minister did not elaborate on the ways local governments could adopt to increase IGF, there is a reason to be optimistic. Among the myriad factors, improvement in the revenue management systems stands out as a quick and essential step to increase IGF. My colleagues from the International Growth Centre and I evaluated one such system in the La Nkwantana Madina Municipal Assembly (LaNMMA), using the gold standard in evaluation, the so-called randomised controlled trial.
LaNMMA adopted the Enhanced Revenue Mobilisation System (ERMS) since early 2019. The ERMS is a Ghanaian owned web-based revenue mobilisation, monitory and management system. It has inbuilt navigation tools to aid and track the distribution and collection of bills. The ERMS' dashboard allows the Assembly to monitor the daily activities of revenue collectors and supervisors in real-time. Most importantly, the ERMS does not require significant upfront expenditure.
For this evaluation, we worked with 24 revenue collectors between 18th September and 25th October 2019. We randomly assigned half of the revenue collectors to the newly deployed ERMS, while the other half works with the old manual approach to revenue mobilisation. The main findings are summarised in Table 1 below.
|Table 1: Average IGF collection and bill delivery per collector|
|Group||IGF collection||IGF net of collection costs||Bills delivered||IGF collected per bill delivered||IGF collected per household who paid|
|Control||GHS 1,255||GHS 725||71||GHS 17.7||GHS 188.8|
|ERMS||GHS 2,180||GHS 1,104||94||GHS 23.2||GHS 238.2|
|Note: Each value corresponds to an average per collector in the corresponding group.|
The main takeaways are that the ERMS improved the effectiveness and the efficiency of IGF mobilisation by 74 per cent and 52 per cent respectively. The ERMS improves IGF mobilisation through two channels. First, the navigation tools of the ERMS enables the revenue collectors to locate the assigned properties and businesses more efficiently. As a result, ERMS revenue collectors were more effective and distributed 31 per cent more bills.
Second, the ERMS reduces the potential avenues for revenue leakages. The ERMS permits continuous monitoring of collectors' activities in the field. It appears the constant monitoring reduces the incentive and the extent of leakage. This, in part, explains the higher recorded payment per bill delivered. Indeed, when we conducted an audit at the end of the experiment, we found that discrepancies between the ratepayers' self-declared payment and the recorded payments are 80 per cent less among the ERMS revenue collectors as compared to those revenue collectors who use the old approach.
The evidence is clear. It is the case that several factors constrain the capacity of local governments to increase IGF. While the local governments cannot address all the constraints immediately, they must adopt an enhanced revenue management system to increase their capacities to deliver on their mandates. It is time they took up the challenge, Hon. Minister.
Editor’s note: This article first appeared in Business and Financial Times
Disclaimer: The views expressed in this post are those of the author based on his experience and on prior research and do not necessarily reflect the views of the IGC.