URBAN FINANCIAL MANAGEMENT:
REVENUE RAISING, BUDGETING AND
PARTICIPATION WITH SPECIFIC
REFERENCE TANZANIA’S EXPERIENCE
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Introduction
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Urban councils accorded status of government
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Have powers to levy and collect taxes, fees and
charges
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LGRP addresses problem of under funding
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Objective of LGRP – to enhance financial
resources and increase the efficiency of their use
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Categories of Sources of Revenue:
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Own Source revenues;
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Grants
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Borrowing
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Own Source Revenues
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Taxes e.g. property tax, service levy, rent
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Charges
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Fees for undertaking activities/access to services
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Need to step up revenue collection effort
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Need to harmonize and rationalize taxes, fees and
charges
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Borrowing
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Borrowing benefits present and future generations
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Borrowing currently not seen as a source of finance
Bond market at national level just emerging
Problem of moral hazard leading to Central
Government paying loans of defaulting councils
Local Government Loans Board seriously resource
constrained
Bond market is a potential source of finance
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Grants
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Grants provided to councils since reintroduction of
local government system in 1984
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80% of recurrent expenditures financed through
grants
Currently, councils have no discretion in allocating
grants
Act No.6 of 1999 allows for provision of block grants
to councils
Block grants provision to be approached on a
phased arrangement
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Shortcomings of Current Grants Allocation
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Non-transparent and subject to negotiations
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Supply focused rather than demand/client driven
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No incentive to improve on service delivery
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Favours developed/better off councils
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No accountability downward
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Excess central control over local resources
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Principles to guide design of grant allocations
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Provision of adequate resources
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Preservation of budget autonomy
Enhancement of equity and fairness
Transfers to be predictable
Simple and transparent formulae
Transfer system not to create negative incentives
for revenue mobilization
Transfer system to focus on demand for services
Transfer system to avoid equal shares
Transfers system to avoid sudden changes in
amounts of grants
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Formula-based system being developed
with likely factors as follows
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Population
Number of school age children
Infant mortality rate
Poverty count
Distance from council headquarters
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Problems facing implementation of
Formula based System
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Financing of holding harmless
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Cost of holding harmless Shs.18.44 billion
(14.65 billion for Education and Shs.3.79 billion
for Health)
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Continued disaggregation of grants into PE &
OC
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Eligibility for greater Autonomy

All councils were assessed and went through
following three steps:
– Council’s accounts not awarded adverse
opinion audit report
– Council has substantial own source revenue
– Council operating good financial management
systems
Some 11 councils picked for greater financial
autonomy
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Division of Resources between Central
and Local Government
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Should be guided by expenditure responsibilities
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Central Government responsible for development
of policies, research, professional development,
quality control and setting standards
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LGAs lead other agents in implementation
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Steps being taken to rationalize sources of public
revenues
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Planning and Budgeting
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Local government system and laws call for bottomup planning
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Participatory planning and budgeting emphasized
as part of the reform of local government
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People at local level are given the chance of
identifying their problems, prioritizing them and
looking for solutions to bring about own
development
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Financial regulations for block grants management
require councils to allocate annual budget to each
service outlet
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Capacity Building in Financial Management
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Councils can only justify their existence by
improving on service delivery
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This can happen with better management of
finances
So ZRTs are providing inhouse training to address
weaknesses in financial management
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Introduction of Epicor-based system in 32 councils
(including 14 urban councils)
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Urban Councils’ Budgets
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LGAs budgets are prepared in the context of
Central Government process of planning and
budgeting
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Plans and budgets of LGAs reflect policies
pursued by Central Government
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Plans and budgets are made under the law and
attendant regulations
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They should be developed on a bottom-up
participatory approach for full ownership
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Process of Budget Formulation
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Budget preparation starts with issuance of annual
budget guidelines around December
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The guidelines recap the sector policies and areas
to be given priority in allocation of resources
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Currently priority sectors are education, health,
water, roads, agriculture and lands
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Ministry responsible for local government clarify
issues that are relevant to LGAs
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Process of Budget Formulation (Cont…)
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Important information contained in guidelines
includes levels of funding to enable councils to plan
ahead and realistically
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Use of GFS codes links Central and Local
Government budget preparation and execution
It engenders uniform application and reporting and
makes consolidation of budgets and reports of
various levels
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Primary education sub-sector claims 70% of the
grants while 18% of the grants goes to the health
sector
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Local Government Budget
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Ownership of the plans is entrenched in the people
by use of the Opportunities and Obstacles to
Development (O and OD)
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Technical input to the planning process begins at
ward level
So output of the Ward Development Committee
begins to assume the required format
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This calls for provision of indicative planning levels
of funding to wards
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Local Government Budget (Cont…)
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It is not always possible to do this with regard to
grant funds
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Integrated draft council plans and budgets
submitted to Regional Secretariats (RS)
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Comments and advice of RS incorporated and
draft budget submitted to Finance Committee and
thence to Full Council for approval
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Budget Execution and Monitoring
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Approved budget is part of the law
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Monthly reports on revenue collection and
expenditure and bank reconciliation statements
submitted to Finance Committee
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Quarterly reports submitted to Full Council and
copies sent to RS for verification and consolidation
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Council management responds to questions and
queries raised at various levels
Internal audit checks on soundness of the financial
and accounting system and on the execution of the
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budget
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Budget Execution and Monitoring (Cont..)
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External audit checks on proper accounting for
funds collected and received and the use to which
they are put
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LAAC discusses auditors’ findings and
observations and gives instructions for
improvement of financial performance
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LAAC’s instructions are binding on the council
hence it is an effective monitoring instrument
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Challenges in Budget Execution
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Budget not yet accepted as an instrument for
guiding and controlling activities of the council
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Poor quality and delayed reporting
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Unpredictable flow of funds from own sources
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Non adherence to rules and regulations
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Inadequate or lack of qualified staff
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Addressing Challenges
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These challenges are being addressed under
LGRP’s relevant components of Good
Governance, Finance and HRD
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Good Governance focuses on enhancing financial
accountability and transparency, training of
Councillors, codes of conduct and reporting
upwards and downwards
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Addressing Challenges (Cont...)
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Financial management focuses on inhouse training,
and use of Epicor-based system in financial
management and introduction of formula-based
grant allocation system
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HRD focuses of restructuring to identify core and
non core functions leading to establishing number
and quality of staff required
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Need for Capacity Building
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Capacity building needs fall under training and
provision of equipment
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Capacity building also required at Central
Government level in order to adequately support
and facilitate LGAs in performing fiscal
responsibilities
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Conclusion
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The country is on right track to fiscal
decentralization
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There is adequate superstructure for proper
budget execution and fiscal reporting by LGAs
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Councils need to justify their legitimacy and
existence through good governance including
improved delivery of services to the people and
enhanced accountability and transparency
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