Box 8.6 Improving Local Governments Capacity: The Experience of Municipal Finances Self-Assessment (MFSA) in South East Europe The MFSA methodology was developed by the World Bank and has been customized for South-East Europe by the World Bank with the support of international and local experts. This adaptation required a common understanding of terminology and a clear definition of budget items (categories) on both the revenue and the expenditure sides. The template or framework of analysis was validated by all stakeholders. 1. One important lesson from the MFSA process is the recognition by participating municipalities of the need for municipal departments and staff to share information and data among theTechnical Departments, the Public Utility Companies (PUCs) in charge of service delivery, Tax Services, State Treasury, and so forth. This has typically not been the case. Creditworthiness assessments, municipal finance projections, and financing strategies require data inputs from various sources that are not reported in any of the typical mandatory accounting reports. The MFSA provides a platform for consolidating and reconciling these information sources. 2. The C2C dialogues and the embedded MFSA process helped make a vital connection between financing, urban planning, land management, and ultimately investment programming and service delivery. The series of seven City to City Dialogues was structured in a way that helped close that loop. Several factors have a fundamental impact on the way cities urbanize and on the future of urban investments: the fact that a large share of local revenues come from land development, that
these revenues are highly volatile and subject to global financial stress, that there is a pressure to sell and develop land, and that urban planning functions and issuance of building permits have been quickly devolved to largely unprepared local governments. It is essential that the region start a conversation on these important issues—a conversation that should include all levels of government, the citizens, the service providers, the private sector, and the donor community. The C2C series has helped launch this conversation in a forum where these issues could be discussed safely, problems could be unbundled, and solutions could be identified. The MFSA process clarified the need for a more global and integrated approach that combines MFSA with Urban Audits (Land, Infrastructure and Services SelfAssessment), which a number of municipalities have begun to pursue. 3. The debates launched as part of the MFSAUrban Audit, as well as the findings of the NALAS Fiscal Decentralization Study and the World Bank Municipal Finances Review underlined the need to assess the progress of fiscal decentralization in the region. 4. The municipal staff from some 25 cities and municipalities in the region (including capital cities) took part in this experience and more municipalities have expressed a desire to join in. Scaling up and institutionalizing these tools are the next steps to be taken in collaboration with regional, national, and local stakeholders.
Source: C. Farvacque-Vitkovic, S. Palmreuther, T.Nikolic, A.Sinet.
Achieving Greater Transparency and Accountability
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