publication April 22, 2020

Subnational Public Expenditure Review 2019: Fostering Decentralization in Myanmar

Context

Decentralization of governance, financing, and service delivery in Myanmar is taking place against a particularly challenging backdrop of considerable geographic and social diversity and a history of isolation, conflict, and underdevelopment. Political and economic transitions, begun in 2011, have promoted growth and improved welfare outcomes, though the benefits have not been equally shared with all groups or geographic areas. There remain extreme variations in the provision and quality of public infrastructure and services, reflected in significant disparities per capita income and human development outcomes. These inequalities are widening, economic growth is spatially concentrated in the growth poles of Yangon and Mandalay, while rural and remote areas, such as those on the Shan plateau, are isolated from the centers of growth.

The Myanmar subnational Public Expenditure Report (PER) examines Myanmar’s nascent subnational institutions, focusing on governance, union-local administrative and fiscal relations, and service delivery from a local perspective. The aim is to identify pragmatic and practical policy options for incrementally strengthening the institutional capacity and inclusiveness of subnational governments. While the political debate on the future shape of a federal Myanmar continues, reforming local governance institutions, within the considerable space available in the current constitution, as suggested throughout the PER, is a vital way to support “federalism from below,” promoting a more sustainable, inclusive and accountable system of governance and fiscal management that better reflects Myanmar’s considerable social and economic heterogeneity.

Key messages and policy recommendations

Governance:

The policy and architecture of subnational governance in Myanmar are influenced by modern history and political evolution. From the initial 1948-62 Constitution through to 2019, via the fully centralizing detour of the 1974 constitution, Myanmar’s subnational architecture has nearly – though not fully – come full circle. The assignment of powers granted to the subnational level falls well short of the powers initially granted to states at independence and is narrow relative to other countries in the region.
An important exception to the constrained authority of subnational governments is that states and regions have sole jurisdiction over municipal services in Myanmar’s urban areas. This includes the largest cities of Yangon and Mandalay as well as smaller cities.
The influence and autonomy of subnational governments over public finance and administration are growing slowly and steadily. There are clear pathways for further strengthening the role of the subnational level through enabling provisions of the constitution and other legislation to allow the union government to assign roles to subnational governments.
More can be done to strengthen social inclusion by increasing the role of women in subnational governance and reaching the Union Peace Conference - 21st Century Panglong and the Myanmar Strategic Development Plan aim for “30 percent involvement of women” in administration and political dialogue. This can be done through recommended changes that can substantially strengthen gender inclusion in both politics and the civil service.

Expenditure:

The subnational share of total government spending has risen strongly with a general rebalancing of a rising capital budget toward the subnational level. The state and region governments plan around a quarter of the total national capital expenditure. At all levels of government in Myanmar, there has been a strong focus on capital deepening and improvements to physical infrastructure given decades of underinvestment in public infrastructure that impaired production capacity in the economy and restricted access to basic services.
Subnational governments have a key role to play in promoting inclusive growth in Myanmar. To strengthen and sustain inclusive growth through improved subnational spending, the PER proposes to standardize and enforce consistent budget classification, implement a digital register of capital projects, enhance the targeting efficiency by a better linkage to objective metrics of needs, set township-level budget ceilings and develop participatory (and where needed conflict-sensitive) approaches to expenditure prioritization.

Revenue:

Fiscal transfers, in particular the unconditional general-purpose grant, are key to overcoming the vertical fiscal imbalances between levels of government as well as playing an important role in redressing horizontal fiscal imbalances. Most states and regions depend heavily on fiscal transfers from the Union to finance their budget. The exceptions are Yangon and Mandalay Regions, which rely on shared tax revenues and own-source revenues. The union transfers to the state and region governments occupy about ten percent of the union spending.
The considerable redesign of the intergovernmental transfer system has improved the transparency, predictability, and efficacy of transfers. However, there are still a number of shortcomings in the operation of the transfer system. For example, the transfer system does not incentivize own-source revenue collection.
Strengthening the fiscal transfer and equalization system while incentivizing more own revenues will be key to improving subnational resources and equity. The PER proposes several short- to long-term reforms to achieve this. For example, the report includes recommendations around land-value capture mechanisms, operational efficiency of intergovernmental transfers, and incentivizing local collection through sharing a tax-base.

Solid Waste Management:

Solid Waste Management is entirely within the mandate of the subnational governments, via municipal authorities. Myanmar’s urban areas are producing an increasing amount of waste with the size and scope of current waste collection services covering only a fraction of the urban population. Municipal authorities are recommended to improve cost recovery, expanding the scale of activities, strengthening regulatory frameworks as well as communication and education efforts.

Urban Transport:

Yangon and Mandalay are very different in terms of their demographic and transport demand characteristics. Yangon has managed to maintain a healthy demand for buses; however, the number of private vehicles has been increasing rapidly. In Mandalay, public transport is practically non-existent, and motorcycles account for about 70 percent of transport modal share. Urban mobility challenges in both cities will only become more sophisticated and costlier, and addressing these challenges sustainably and efficiently will increasingly require integrated policy solutions, stronger technical capacity, and larger amounts of funding and financing.
To improve the financing of urban transport and meet the growing mobility needs of populations of Yangon and Mandalay, the PER proposes to integrate urban transport policy formulation and implementation, increase public spending on urban transport, review resource mobilization plans for Yangon and Mandalay cities, and address data limitations.

Digital Governance:

While lagging its regional peers, Myanmar’s digital development is progressing rapidly. This development embraces better service delivery, decision making, and innovative engagements with local digital economy enterprises. Subnational governments in Myanmar are at a very nascent stage of their digital transformations. Further rapid developments could emerge over the short- and medium-term facilitated by rapid improvement in internet connectivity and mobile use. A key constraint to digital initiatives, however, is the lack of institutional support at the subnational level.
To strengthen locally rooted digital development in Myanmar, the PER highlights the importance of building and implementing interoperability frameworks. The report recommends thinking early about the practical roles, responsibilities, and results of an integrated digital government architecture; leverage “for free” global spatial information feeds, such as satellite and other spatial data imagery, nurture beneficiary feedback mechanisms and use smartphone technology to create spatial registries of local assets.

Policy notes

Concise thematic policy notes based on the PER have been prepared by the report’s partner, Renaissance Institute. These policy notes and weblinks can be found below:

Managing the Challenges of Rapid Urbanisation

Strengthening Subnational Governance

Managing Subnational Finance