67486 IMPROVING SERVICE DELIVERY Thailand : Public Finance Management Report Overview IMPROVING SERVICE DELIVERY Thailand : Public Finance Management Report Overview ©2012 The World Bank The World Bank 30th Floor, Siam Tower 989 Rama 1 Road, Pathumwan Bangkok 10330, Thailand (66) 0-2686-8300 www.worldbank.org/th This volume is a product of the staff of the World Bank with external contributions. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judge- ment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. 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Report number : 67486-TH Cover Photographer : Athit Perawongmitha TABLE OF CONTENTS Preface 2 Acknowledgements 3 Abbreviations And Acronyms 4 Executive Summary 5 Motivation And Context 10 A. Growth, Poverty, And Inequality Dynamics In Thailand 13 B. Recent PFM Reforms Aimed At Improving Service Delivery 17 C. Assessment Of The PFM Reform Program And Some Suggestions 20 D. Key Cross-Cutting Findings Of The PFM 24 Reducing Regional Disparities In Access To Public Services 25 Restructuring The Central-Local Government Relations System 31 I Transition To A Decentralized Unitary Government Structure 31 II Clarify Roles And Responsibilities Between Different Levels Of Government 35 III Administratively Consolidate Laos Into Larger, More Financially Viable Entities 36 Recalibrate Service Delivery And Public Finance Management System’s 37 Monitoring And Evaluation Functionality To Foster Local Accountability E. Summary Of Issues And Recommendations 46 Annex A : Key Findings And Summary Of Recommendations From The 2000 PER 50 PREFACE Fifteen years ago, Thailand joined a growing number of countries around the world in reexamining the various roles of different levels of government in providing services, managing public finances and creating mechanisms for citizen voice and accountability. With the enactment of the 1997 Constitution and subsequent 2007 Constitution, Thailand embarked on a series of public sector reforms that would have a profound impact on both the structure of government and the delivery of public services throughout the country. The decision to transition towards a decentralized unitary system of local self-government was undertaken with the goal of strengthening democratic participation, bringing service delivery and decision making closer to the people, addressing regional disparities and enhancing central and local accountability for service delivery performance. Now, after more than a decade of decentralization reforms in Thailand, we have an opportunity to take stock in order to acknowledge the program’s many achievements, identify the challenges which have emerged, provide options for overcoming these issues, and build consensus around key focus areas for Thailand’s service delivery reform program looking ahead. This report reviews how Thailand’s public financial management system supports delivery of effective and accountable public services at the local level. It was undertaken in partnership with the Royal Thai Government for over two years. This partnership has resulted in a body of work which not only serves to provide meaningful insight into Thailand’s public financial management system and service delivery framework, but also to identify current and future challenges and provides options for addressing these issues. Additionally, by presenting the Thai experience to the international community, this report advances the World Bank’s agenda of knowledge sharing and learning from cross-country exchanges. Thailand has made commendable progress in moving towards more efficient, responsive and accountable service delivery at the central and local levels. We believe sharing Thailand’s achievements as well as its challenges will be of great benefit to countries in the region and further abroad. We therefore hope this report will be useful both to inform the ongoing reform program in Thailand, while serving as a resource to policy makers and practitioners at large. Annette Dixon Country Director Thailand, East Asia and Pacific Region The World Bank 02 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review ACKNOWLEDGEMENTS This Public Financial Management Report (PFMR) was prepared by the World Bank in collaboration with the Royal Thai Government. In particular, the team would like to thank key partners in the Office of the National Decentralization Committee, the National Economic and Social Development Board, the Office of the Prime Minister, the Ministry of Finance, the Bureau of Budget, the Comptroller General’s Department, the Fiscal Policy Office, the National Statistic Bureau, the Office of the Civil Service Commission, the Ministries of Public Health and Education, and the Department of Local Administration in the Ministry of Interior. Contributions and collaboration from these departments and agencies are gratefully acknowledged. The World Bank team was led by Shabih Ali Mohib (Senior Economist, EASPR) and included Anwar Shah (Consultant and former Lead Economist, Public Sector Governance, WBI), Jose Cuesta (Senior Economist, PRMPR), Lucia Madrigal (Consultant, PRMPR), Magnus Lindelow (Sector Leader, LCSHD), Nattaporn Triratanasirikul (Consultant, EASPR), Robert Boothe (Consultant, EASPR), Suhas Parandekar (Senior Education Economist, EASHE), and Sutayut Osornprasop (Human Development Specialist, EASHH). Professor Sakon Varanyuwatana from Thammasat University and Mr. Weerachai Chomsakorn from the Office of the National Decentralization Committee also played key roles in planning, developing, revising and disseminating this work. We also recognize the contributions of Ms. Buntarika Sagarun and Ms. Noppakwan Inthapan (team assistants based in Bangkok). The team is grateful for the leadership and support of Annette Dixon (Country Director, EACTF) and Matthew Verghis (Lead Economist, EASPR). They are also thankful for their peer reviewers, Vikram Nehru (former Chief Economist and Sector Director, EASPR), Dena Ringold (Senior Economist, DECWD), and Kaspar Richter (Lead Economist, ECSP3). The team greatly appreciated the opportunity to collaborate with key academic institutions, including Thammasat University, Chulalongkorn University, the King Prajadhipok’s Insitute, Chiang Mai University, and the College of Local Administration at Khon Kaen University, and is greatful for their support and partnership. Additionally, the team is grateful to have had the opportunity to engage in a number of different stakeholder consultations with locally elected executives and councilors, local government officials, academicians and civil society members around the country. They are grateful to participants in consultations that took place in the Central region (Bangkok Metropolitan Authority, Nonthaburi Province and Municipality), the Northern region (Chiang Mai Municipality), the Northeastern region (Khon Kaen Municipality, Udon Thani Province and Municipality, Ban Chiang TAO), and the Southern region (Surat Thani Municipality). Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 03 ABBREVIATIONS AND ACRONYMS BOB Bureau of the Budget BSP Budget Strategy Paper CGD Comptroller General’s Department DOLA Department of Local Administration DOPA Department of Provincial Administration e-LAAS Electronic Local Authority Accounting System ESA Educational Service Area GAP Government Administrative Plan GDP Gross Domestic Product GES Government Evaluation System GFMIS Government Financial Management Information System HAI Human Achievement Index HDI Human Development Index LAO Local Administrative Organization LQM Local Quality Management MOF Ministry of Finance MOI Ministry of the Interior MTEF Medium Term Expenditure Framework NDC National Decentralization Committee NESDB National Economic and Social Development Board ONESQA Office of National Education Standards Quality Assessment PAO Provincial Administrative Organization PART Performance Assessment Rating Tool PDM Public Debt Management PFM Public Financial Management PFMR Public Finance Management Review PMO Prime Minister’s Office PMQA Performance Monitoring and Quality Assurance RTG Royal Thai Government TAO/SAO Tambon/Sub-district Administrative Organization UNDP United Nations Development Program 04 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review EXECUTIVE SUMMARY ADRESSING REGIONAL Addressing regional disparities in access to public services is an emerging development DISPARITIES IN ACESS challenge for Thailand. A well-functioning system of Central-Local Government Relations and TO PUBLIC SERVICES IS proactive expenditure policy can help achieve this goal. Providing responsive and accountable AN EMERGING public services are necessary for maintaining trust of the citizens in government and fostering DEVELOPMENT cohesion within a unitary state like Thailand. Without a reversal of current regional disparities CHALLENGE FOR in access to public services and addressing tensions that are present in the central-local THAILAND architecture, Thailand runs the risk of eroding public trust in government and leading to further polarization. Thailand has a significant opportunity to improve delivery of public services by: (i) making access to public services more uniform across the country; (ii) transitioning fully to a unitary decentralized form of government with clearly demarcated roles and accountabil- ity structures between different levels of government (especially within health and education sectors) and to administratively consolidate LAOs into larger more financially viable entities; and (iii) establishing national service delivery standards, publishing annual performance reports on these benchmarks along with unit costs of standard goods and supplies procured, and publishing reports on operations at the municipal level. GROWTH, POVERTY REDUCTION AND INEQUALITY Over the last two decades Thailand has experienced sustained economic growth which has contributed to a dramatic reduction in poverty. However, inequality at the national level has remained constant (Figure I). The average annual real GDP growth rate over has been about 5.1 percent, with the poverty rate falling from more than 40 percent in 1988, to less than 10 percent by 2009. However the inequality rate, as measured by the GINI index, has remained static – 0.49 in 1988 and 0.48 in 2009. Poverty and inequality in Thailand are not uniformly distributed across the country. In spite of the significant declines in poverty rates at the national level over the past decade, regional differences persist, with the poverty rate in the Northeast being five times higher than in Bangkok. Figure I : GDP Growth, Poverty Reduction, and Static Inequality WHILE THAILAND’S Percent Gini (by Expenditure) SUSTAINED ECONOMIC 50 0.65 GROWTH HAS 40 0.60 CONTRIBUTED TO A Share of Population Below Poverty Line 30 DRAMATIC REDUCTION 0.55 Gini Co-efficient IN POVERTY, INEQUALITY 20 0.50 HAS REMAINED STATIC 10 0.45 0 GDP Growth %YoY -10 0.40 -20 0.35 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2009 Source : National Economic and Social Development Board (2011) Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 05 Thailand also has significant regional income disparities. Between 2000 and 2009, income inequality (as measured by the regional GINI index) in Bangkok and the Northeast has increased while in other regions inequality has decreased. This regional dimension has kept the national income inequality level unchanged. There are also significant regional disparities in human development and economic opportunities in Thailand. Examining the four indices of the 2009 UNDP Human Achievement Index (HAI) that relate to service delivery (health, education, income, and transportation and communication), we see that on each dimensions Bangkok performs much better than other regions, while the Northeast region lags on health, education and transportation/communications indicators (Figure II). The North lags most on the income dimensions. Figure II : Regional Comparison on Selected Components of the UNDP Human Achievement Index Health THERE ARE SIGNIFICANT RE- 0.8 GIONAL DISPARITIES IN HUMAN DEVELOPMENT 0.6 AND ECONOMIC 0.4 OPPORTUNITIES 0.2 IN THAILAND Transportation 0 Education and communication Bangkok Central North Northeast South Income Source : UNDP Thailand Human Development Report 2009 Such a growth, poverty, and inequality trajectory is not specific to Thailand alone. International EXPERIENCE SHOWS experience shows that as economies grow from low to high income, production tends to become THAT AS COUNTRIES more concentrated spatially. Some places – cities, coastal areas, and connected countries – are DEVELOP, THE MORE favored by producers and hence production becomes concentrated. Concentration of economic SUCCESSFUL ONES INSTITUTE POLICIES activities leads often to concentration of services and resulting regional disparities. THAT MAKE LIVING International experience further shows that as countries develop, the most successful ones STANDARDS AND ACCESS institute policies that make living standards of people and access to public services more uniform TO PUBLIC SERVICES across space (World Development Report 2009: Reshaping Economic Geography). MORE UNIFORM ACROSS SPACE As such, a key question for Thailand is what steps can be taken to help make living standards, economic opportunities and access to public services more equitable across the country. MAKING ACCESS TO PUBLIC SERVICES MORE UNIFORM ACROSS THE COUNTRY As the economy has grown over the past three decades, production has become more PUBLIC SPENDING concentrated in the central region and in Bangkok possibly due to proximity to the port and IS CONCENTRATED related supply chains. As production has become concentrated, the government has made infrastructure investments and provided social and ancillary public investments to support the productive sectors. In addition, as Bangkok is the administrative capital of the unitary government and the major capital city, most of the administrative and planning functions have been centralized there. As a result there has been a concentration of public spending in Bangkok (see Figure III). 06 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review Figure III : Regional Comparison – Expenditures, GDP, and Population (2010) Percent Share 80 72 70 60 50 44 40 34 30 26 20 18 17 17 14 Share of GDP 11 9 10 10 8 Share of Population 7 7 6 0 Share of Total Expenditure Bangkok Central North Northast South Source : MOF, NESDB, and World Bank WHILE MOMENTUM Figure III shows that although Bangkok accounts for about 17 percent of population and 25.8 OF EXPENDITURES percent of GDP, it benefits from about 72.2 percent of total expenditures. This is in sharp contrast ARE A PARTIAL to the Northeast which accounts for about 34 percent of population and 11.5 percent of GDP, EXPLANATION FOR but received only 5.8 percent of expenditures. Even correcting for the fact that Bangkok is the THIS CONCENTRATION, administrative capital for the country, such concentration of expenditures is extreme. THE EXTERMELY SMALL COMPONENT OF THE Service delivery disparities mirror expenditure disparities. In the health sector there are three INTERGOVERNMENTAL times more doctors per capita in Bangkok than in other regions. While in the education sector FISCAL TRANSFER the teacher per student ratio is much lower in the North and the Northeast than Bangkok and SYSTEM IS ANOTHER the central region. These disparities are correlated to human development outcomes. KEY FACTOR Analysis points to two main reasons for the observed concentration of expenditures: (i) momentum of expenditures – concentration of economic activity requiring concentration of investments in infrastructure and education and health facilities in the Bangkok and the central region. Now these need to be maintained, leading for little fiscal space for other expenditures; and (ii) the equalization component of the intergovernmental fiscal transfer system is very small THE GOVERNMENT COULD – out of total grants from central government to the local government of TBH 174 billion, a mere CON-SIDER REFOCUSING 3.7 billion were set aside for equalization purposes in 2011. EXPENDITURE POLICY As Thailand continues to develop, production will probably continue to be concentrated in ON SERVICE DELIVERY Bangkok and the central region. The key policy challenge however will be on making access to DEFICIENT REGIONS TO public services more uniform across the country – both in terms of quantity and quality. BRING THEM UP TO BANGKOK’S STANDARD, In order to accomplish this task the Government could consider: AND INCREASING THE Refocusing expenditure policy towards regions that are deficient in terms of service delivery, EQUALIZATION COMPONENT with the aim of bringing them up to the Bangkok standard; and OF THE INTERGOVERMENTAL FISCAL TRANSFER SYSTEM Increasing the equalization element of the intergovernmental fiscal transfer formula from 2 percent to at least 15-20 percent of total transfers MAKING PUBLIC SERVICES MORE EFFICIENT The 1997 Constitution brought in reforms aimed at decentralizing service delivery responsibility and finances to local authorities. These reforms were intended to make public services more efficient and lead to increased public participation in decision making at the local level, and enhance local economic development. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 07 Over the last decade the decentralization reforms have led to a significant increase in the share of finances held by Local Administrative Organizations (LAOs) – from 8 percent of general government revenues in 1999 to 26 percent by 2011. However, there has been limited progress with decentralizing service delivery. There are essentially three key reasons for this: Firstly, although the government has established new institutions of local self government, it has THE VISION OF not rolled back the deconcentrated arms of the central government. Deconcentrated arms of A DECENTRALIZED the central government have continued to perform traditional command and control functions UNITARY GOVERNMENT over local authorities and there is little effective autonomy for LAOs to decide on service delivery. HAS NOT YET BEEN FULLY REALIZED Secondly, decentralization reforms have not been coordinated with sectoral service delivery LOCAL COUNCILS reforms conducted by central government agencies. The lack of clearly delineated responsibilities WERE CREATED between central-government and LAOs, and no coordination between sectoral reforms and WITHOUT ROLLING BACK decentralization reforms have led a reform-flux with agencies responsible for decentralization DECONCENTRATED are trying to decentralize ownership of health and education units, while central government CENTRAL INSTITUTIONS, agencies have been trying to retain control of these units and to improve service delivery. Lack REFORMS HAVE NOT of coordination has resulted in significant tension in service delivery. BEEN COORDINATED WITH SECTORAL SERVICE Thirdly, Thailand has too many small LAOs which are financially too small to provide public DELIVERY REFORMS, AND services. Out of the 7,854 local authorities more than 3,000 have populations of less than five MANY OF THAILAND’S thousand. In such LAOs, a large share of resources is spent on administration instead of public MULTITUDE OF SMALL LAOs services. In addition, such small LAOs makes effective coordination by central government ARE FINANCIALLY UNVIABLE agencies very difficult and burdensome. AND MAKE COORDINATION VERY CHALLENGING These three issues are making the provision of services at the local level less efficient and administratively expensive. In order to address these three key issues, the government is recommended to consider three actions: Transition to a unitary decentralized government structure in order to address tensions in the central-local government relations system. This can be most simply achieved by rolling back the deconcentrated arms of the central government at the provincial level and linking LAOs directly with line and sector agencies-for example, the Ministry of Finance and Bureau of the Budget on budgeting issues, and sector ministries on service delivery issues. The role of the Department of Local Administration at the Ministry of the Interior should transition from command and control to facilitation and coordination. The pace of the roll-back should be calibrated with measures aimed at strengthening capacity of LAOs and could first be piloted for municipalities. This proposed decentralized unitary form of government administration is consistent with THAILAND CAN KEEP the 1999 and 2007 Constitution and allows for a seamless integration of LAOs with the DECENTRALIZATION central government. This form also requires the least restructuring of the existing central local REFORMS ON TRACK BY government relations system. TRANSITIONING TO A CONSISTENT UNITARY Earlier in 2011, the Thailand National Reform Committee recommended abolishing the provincial DECENTRALIZED GOVERNMENT governor’s office to empower local authorities directly for delivering services, and to connect STRUCTURE, CLARIFYING AND LAOs directly to central government agencies responsible for service delivery, bypassing the DEMARCATING FUNCTIONAL Ministry of the Interior. This proposal means a complete roll-back of the deconcentrated arms ROLES BETWEEN DIFFERENT of the central government at the provincial level and is also consistent with the unitary form of ORDERS OF GOVERNMENT, government and the proposal in this policy note. AND ADMINISTRATIVELY CONSOLIDATING LAOs INTO Clarify and demarcate functional roles between central government and local authorities and LARGER, MORE prepare a model of decentralized service delivery especially as they relate to health and education VIABLE ENTITIES services. Clarity in functional roles will help guide the centralized-decentralized management of these sectors and solve the current questions regarding structure of health and education delivery. This will also increase accountability for results and help refocus the intergovernmental fiscal transfer system to follow functions. 08 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review Administratively consolidate LAOs into larger, more financially viable entities through fiscal grants and other incentives. Per capita, Thailand has more local authorities than many other decentralized countries like China, Japan, Brazil, US, Denmark and Poland, with much smaller service populations. Such small administrative units result in high administrative costs which crowd out public expenditures on service delivery, while the large number of LAOs strains central coordination mechanisms as there are too many units to effectively deal with, and causes fragmentation in service delivery. The government is advised to consider administrative consolidation of LAOs into larger and financially more viable units – such administrative consolidation has been successful in other European countries such as Norway, Sweden, Denmark, Germany and Netherland. Administrative consolidation of local authorities will allow for a reduction in administrative costs which can be channeled into service delivery, improve central-local coordination and enhance voice of local authorities as larger units. These three suggestions will make the central-local government relations system more efficient at providing services at the central and local level. MAKING PUBLIC SERVICES MORE EFFICIENT ACCOUNTABILITY IS Accountability at the local level is currently constrained by lack of information on service delivery CONSTRAINED BY A performance, procurement of standard goods and supplies and application of public finances. LACK OF INFORMATION Thailand has established different performance management and monitoring systems at both ON SERVICE DELIVERY the central and local level. Some of the main systems include: (i) the Local Quality Management PERFORMANCE, UNIT system for monitoring and reporting on local authority service delivery performance; (ii) the e-Local PRICES OF STANDARD Authority Accounting System for monitoring and reporting on local authority fiscal performance; PROCURED GOODS (iii) the Public Management and Quality Assurance for making departments more effective and AND SUPPLIES, AND INFORMATION ON FISCAL responsive in service delivery. OPERATIONS However currently there is little reporting on: (i) service delivery performance (response times and outcomes) for LAOs and centrally managed units; (ii) fiscal operations for local authorities (even for large municipalities); and (iii) unit prices of even standard goods and supplies procured by government entities. Such information is necessary for operationalizing informed accountability systems at the central and local levels. Stakeholders must be able to determine whether or not their local authority is obtaining goods and supplies as competitively as other jurisdictions and the central government. This basic reporting is well within reach of and expected by a higher middle income country like Thailand. The absence of such information weakens local accountability mechanisms and builds perceptions of opacity and secrecy at the central and local levels. In order to improve service delivery and address some of the issues identified in this policy note, SIGNIFICANT IMPROVEMENTS there are four main recommendations: COULD BE MADE BY Measure and annually publish service delivery performance by central and local PUBLISHING SERVICE authorities either against national benchmarks or in absolute terms. DELIVERY PERFORMANCE AGAINST BENCHMARKS, Consolidate detailed fiscal operations information of LAOs (at least at the municipal level) PROVIDING DETAILED FISCAL with that of the central government and publish general government operations report by OPERATIONS INFORMATION functional and economic classifications. OF LAOs, ENSURING CITIZEN Institute mechanisms for local citizen representation on boards of health and education VOICE IS PRESENT IN THE facilities in order to ensure voice and opinion of citizens are considered and taken into MANAGEMENT OF HEALTH account in management of service delivery units. AND EDUCAITON FACILITIES, AND PUBLISHING UNIT PRICE Publish unit price information for standard supplies and goods procured by local authorities INFORMATION FOR STANDARD and central agencies. Such a move will increase transparency and provide incentives for SUPPLIES AND GOODS LAOs to conduct competitive procurement, along with interested citizens to see at what PROCURED AT CENTRAL price their respective jurisdiction is procuring standard goods and supplies as compared AND LOCAL LEVELS with others. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 09 MOTIVATION AND CONTEXT 1. Motivated by the need to improve accountability The second set of reforms which focused on and quality in provision of public services at modernizing the public finance management the local level and to modernize public finance systems aimed at improving linkages between management systems in wake of the 1997 budgeting and planning with a multi-year per- Asian financial crisis, the Royal Thai Government spective, improving budget execution systems (RTG) has implemented two major public and improving fiscal transparency, and instilling sector management reform programs over the performance within the public sector by last decade. The first reform program was aimed implementing state-of-the-art Performance at transitioning from a unitary centralized form of Management and Quality Assurance (PMQA) government to a unitary decentralized form of systems. All these reforms were underpinned by government – with a transfer of service delivery the 1999 Constitution and subsidiary legislations responsibility from central government agencies issued by the Royal Thai Government. to Local Administrative Organizations (LAOs). 2. Now, after a decade of implementing these encountered in the public finance management public sector management reforms, the RTG is system that impedes its ability to management reviewing and revising the reform program with public finances effectively and transparently. the aim of addressing issues of inequality, further These issues are at the forefront of the public improving access and accountability in public discourse in Thailand at this time. Specifically, service delivery, and resolve problems being the Government is focusing its efforts on: • Comprehensively revising the legislative framework governing central-local government relations and concurrently formulating the third master plan for decentralization (2012 – 2016). The RTG seeks to address issues encountered over the last decade and to continue the transition to a performance oriented unitary decentralized form of government, as mandated by the 2007 Constitution, and manages to deliver coordinated services and focuses on area based development. • Commencing with implementation of the eleventh National Economic and Social Development Plan (NESDP 2011 – 2016) with a focus on improving service delivery and fostering decentralization, and addressing regional disparities and inequalities. • Drafting a new Law on Fiscal Affairs and Finance of the State as per Chapter VIII of the 2007 Constitution. The key focus areas of this legislation are on increasing efficiency in use of public finances, improving management of contingent liabilities, and enhancing fiscal transparency – as required by Chapter VIII of the 2007 Constitution2. 1 A unitary state is a sovereign state governed as one single unit in which the central government is supreme and any administrative divisions (subnational units) exercise only powers that their central government chooses to delegate. In federal states, by contrast, states or other subnational units share sovereignty with the central government, and the states comprising the federation have an existence and power functions that cannot be unilaterally changed by the central government. 2 Chapter VIII of the 2007 Constitution lays out the key principles on fiscal management and transparency that need to be articulated clearly through the Public Financial Act. 10 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review • Recalibrating the public finance management core tools – budget planning and execution systems – for improving fiscal management and transparency, as well as developing a new Government Evaluation System. • Reviewing the performance of health and education sectors and identifying challenges and issues encountered in order to address them. 3. This Public Finance Management Review for addressing issues identified. Following (PFMR) provides analytical inputs into the the Governments thematic review focus, the Governments review and redesign of this PFMR comprises of the following five public sector management reform program, and Discussion Papers: provides recommendations to the authorities • Discussion Paper 1: Budgeting, Planning and Fiscal Trends reviews the current budgeting and planning systems, constructs a general government operations profile through a survey of LAO finances, and identifies issues that need to be addressed for further strengthening core budgeting and planning, and improving fiscal reporting and transparency. • Discussion Paper 2 : Distributive Analysis of Fiscal Policy conducts a benefit incidence analysis of education, health and infrastructure spending and analyzes to what extent public spending is responsive to regional income disparities. • Discussion Paper 3 : Central-Local Government Relations in Transition analyzes the decentralization reforms and the current state of the central-local government relations with the aim of identifying issues that need to be addressed for improving service delivery and accountability at the local level. • Discussion Paper 4 : Efficiency of Health Expenditures reviews health sector reforms over the last decade and identifies public finance management issues at the central and local level that are impacting the performance of the health sector. • Discussion Paper 5: Efficiency of Education Spending considers the education sector reforms conducted over the last decade and identifies public finance management issues that impede effective delivery of education services. 4. This Overview Paper on Improving Service systems and impede the central-local Delivery presents the key cross-cutting issues government relations system in delivering from the five discussion papers that affect the effective and accountable services at the central performance of the public finance management and local levels. 5. This paper comprises of five sections. reforms program along with some suggestions Section A highlights the economic growth, for addressing issues encountered by poverty reduction, and inequality dynamics in authorities; Section D highlights three Thailand over the last decades; Section B reviews cross-cutting issues emerging from the PFMR the recent public finance management (PFM) analysis along with recommendations for reforms aimed at improving service delivery; addressing them; and Section E concludes with Section C presents an assessment of the PFM a matrix of key issues and recommendations. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 11 6. The PFMR has been prepared in close for the analysis. At different stages of the partnership with government agencies, work, the World Bank team held brainstorming international experts, and national discussions across the country with a academicians. A technical working group wider range of stakeholders on Central-Local comprising the Bureau of the Budget, the Government Relations, service delivery in the Comptroller General’s Department, the health and education sectors, results based Fiscal Policy Office, the Office of the management, and financial reporting. The National Decentralization Committee at the Prime technical working group and brainstorming Minister’s Office, the Ministry of the Interior, the workshops provided invaluable inputs into the National Economic and Social Development PFMR and ensured that from the beginning, the Board and the Thammasat University was work was relevant for the Thailand context and formed to collaborate on preparations of the emerging issues internalized by agencies early Report. This technical working group provided on in the process. invaluable insights, guidance, and information 12 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review A GROWTH, POVERTY, AND INEQUALITY DYNAMICS IN THAILAND 7. Thailand has experienced sustained this time period the poverty rate fell from more economic growth which has contributed to than 40 percent in 1988 to about 10 percent a reduction in poverty, but inequality has by 2009. However over the corresponding time remained static over the last three decades. period the inequality rate, as measured by the Average annual real GDP growth rate over the GINI index, has remained static – 0.49 in 1988 last two decades has been 5.1 percent. Over and 0.48 in 20093 - as shown in (Figure 1). Figure 1 : GDP Growth, Poverty Reduction, and Static Inequality Percent Gini (by Expenditure) 50 0.65 40 Share of Population Below Poverty Line 0.60 30 0.55 20 Gini Co-efficient 0.50 10 0.45 0 GDP Growth %YoY 0.40 -10 -20 0.35 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2009 Source : National Economic and Social Development Board (2011) 8. The poverty and inequality trends have economic growth seems to be associated with not been uniformly distributed across the a relatively slow reduction in inequality at the country . In spite of the significant declines in 4 national level and there is some increase of poverty at the national level, regional differences inequality in some Bangkok and the Northeast persist – as can be seen in (Figure 2). Aggregate (Figure 2). Figure 2 : Region Poverty and Inequality Trends in Thailand Regional Regional Bangkok Central Poverty Inequality North Trends Trends Northeast South 40.00 35.00 0.440 30.00 0.420 25.00 0.400 20.00 0.380 15.00 0.360 10.00 0.340 5.00 0.320 0 0 2000 2002 2004 2006 2007 2008 2009 2000 2002 2004 2006 2007 2008 2009 Source : National Economic and Social Development Board (2011) 3 Calculations are based on the Household Socio Economic Survey for 2009 (latest available survey as of June 2011). 4 Detailed analysis of poverty and income inequality dimensions are presented in PFMR Background Paper on Inequality and Geographic Disparities in Welfare. 14 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 9. Growth has contributed to an improvement human development index. Figure 3 shows the in development outcomes. Over the past evolution of the human development index (HDI) two decades at the national level Thailand has for Thailand with some comparator countries. made steady progress in improving human Since 1990 the overall HDI has improved from development outcomes as measured by the 0.54 in 1990 to 0.63 by 2009. Figure 3 : Evolution of Human Development Index – An International Perspective 0.9 0.8 Human Development Index 0.7 Argentina Brazil 0.6 China Greece India 0.5 Indonesia Mexico 0.4 Pakistan Russian Federation South Africa 0.3 Thailand 1990 2000 2005 2006 2007 2008 2009 Source : International Human Development Indicators Database (UNDP 2011) 10. Thailand performs at par with comparator indicators. Thailand performs well at the countries on basic human development national level across the range of indicators, indicators – better in some areas and less well especially on the adult literacy rate and under-five in others. Table 1 presents a cross-country mortality rates. comparison of selected human development Table 1 : Selected Human Development Indicators – A Cross Country Comparison Yr Argentina Brazil India Indonesia Malaysia Mexico Pakistan Russian South Thailand Turkey Federation Africa Adult literacy rate 2010 97.8 90 68.3 92 92.9 92.8 54.2 99.6 89.3 94.7 88.7 (% aged 15 and above) Combined gross enrolment 2010 88.5 87.2 61 68.2 71.5 80.2 39.3 81.9 76.8 78 71.1 rate in education (%) Life expatancy at birth (years) 2010 75.7 72.9 64.4 71.5 74.7 76.7 67.2 67.2 52 69.3 72.2 Maternal mortality ratio 2008 77 110 450 420 52 60 60 28 400 110 44 (deaths of woman per 100,000 live births) Under-five mortality (per 1,000 live) 2008 16 22 69 41 6 17 17 13 67 14 22 Source: Human Development Indicator Database (UNDP) Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 15 11. HOWEVER, notwithstanding the report by the UNDP, (Figure 4) presents a progress with human development outcomes regional picture of four indices of the UN at the national level, there are significant Human Achievement Index (HAI)5 that relate regional disparities in human development and to public service delivery: health, education, economic opportunities in Thailand. Drawing income, and transportation and communication. from the 2009 Thailand Human Development Figure 4 : Regional Comparison on Selected Components of the UNDP Human Achievement Index Health 0.8 0.6 0.4 0.2 Transportation 0 Education and communication Bangkok Central North Northeast South Income Source : UNDP Thailand Human Development Report 2009 12. The health index comprises seven per classroom. The income index comprises indicators: underweight births, population with four indicators: household income, poverty physical illness, population with disabilities/ incidence, households with debt, and income impairments, population with mental illness, disparities measured by the income Gini. The population with unhealthy lifestyles, population transportation and communications consists that exercises, and population per physician. of six indicators: villages with all-season roads, The education index comprises of four registered vehicles, road accidents, households indicators: gross enrollment in upper secondary with televisions, populations with mobile level, mean years of schooling, upper secondary phones, and population with internet access. O-Net scores, and upper secondary students 13. In summary, over the last three decades index, Bangkok performs much better than Thailand has experienced rapid economic other regions, while the North Eastern region growth, a reduction in national poverty rate lags on health, education and transportation/ but inequality has remained static. There communications indicators. The North lags are significant regional disparities in terms most on the income dimensions. Thus, over of income inequalities as well as in human time even though there has been significant development outcomes, as measured by the improvement in human development outcomes human opportunities index. In each of the at the national level, there are significant and four dimensions of the human achievements persistent regional disparities in Thailand. 5 The Human Achievement Index (HAI) is composed of eight indices, based on 40 indicators covering health, education, employment and income. For more details see UNDP Thailand Human Development Report 2009. 16 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review B RECENT PFM REFORMS AIMED AT IMPROVING SERVICE DELIVERY 14. Since the last Public Expenditure Review service delivery responsibility from the for Thailand was conducted in 2000, a number centralgover nment to LAOs. Second, of important developments have affected the authorities have been implementing a series management of public finances. First, the of public finance management reforms with country has significantly increased fiscal the goal of strengthening linkages between transfers to Local Administrative Organization planning and budgeting, introducing results based (LAOs), established an administrative structure management in the public sector, and increasing for local self governance for all 7,854 LAOs fiscal transparency for greater accountability. and to a more limited extent decentralized 15. Thailand established decentralization within economic outcomes for citizens through local a unitary form of government as a national economic development. These objectives were policy priority under the 1997 Constitution in to be achieved through a gradual transformation order to: (a) increase public participation in of the central-local government system from decision making at the local level; (b) improve a centralized unitary form of government to local service delivery by fostering greater bottom a decentralized unitary form of government. up accountability; and (c) improve social and 16. The 1997 Constitution and the 1999 functional assignments, the Decentralization Act Decentralization Act provided an impetus purposefully provided overlapping mandates to for significant change. Elected local councils central government agencies as well as LAOs were established for all 7,854 LAOs, and the on provision of social and infrastructure services. National Decentralization Committee chaired by The first Decentralization Master Plan (2000) the Prime Minister was established in 2001 to also mandated a gradual transfer of health and make policy decisions needed to facilitate the education facilities to LAOs which had the decentralization process and formulate the fiscal capacity to manage such facilities, and where transfer system. The Ministry of the Interior (MOI) fifty percent or more of facility staff agreed was assigned the responsibility to manage, to transfer to the local authority – without supervise, and facilitate implementation of the establishing a timeline for this transfer or what decentralization process. As mandated by the the decentralized service delivery system Decentralization Act the share of LAO revenue for health and education sectors would look to net central government revenues was like. In order to monitor performance and progressively increased from about 11 percent finances, the MOI attempted to implement in 1999 to slightly above 26 percent by 2011 a financial reporting system (e-LAAS) and (equivalent to approximately 20 percent of total a Local Quality Management for all LAOs. general government expenditures). On 6 See Annex A with summary of issues and recommendations from the 2000 Public Expenditure Review. 7 Reaffirmed in the 2007 Constitution. 8 These objectives were laid down in the 1999 Decentralization Act and operationalized by the 2001 Decentralization Master Plan. 18 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 17. On the broader PFM reforms, the 2003 Decree also required the government to prepare Royal Decree on Criteria and Procedures for comprehensive administrative and operational Good Governance has been the key legislative plans for ensuring “responsive public instrument that has mandated all agencies at administration, (where) people shall be the central and local level to implement results deemed to be centre to be serviced�. Since based management systems in service delivery, the promulgation of this Decree, government shift focus from inputs to effectiveness and departments have been reforming business value for money, implement good governance processes and management systems t o measures, and increase responsiveness to citizens be more responsive and accountable to in the provision of public services. This citizens in the provision of services. 18. Some of the important public sector management reforms undertaken by agencies have been on : • Reforming budgeting and planning10 . The Bureau of the Budget (BOB) started implementing Strategic Performance Based Budgeting reforms from 2003 and internally established a top-down and bottom-up medium term expenditure framework in order to improve linkage between budgeting and planning in a medium term context. BOB has also tried to transition its focus from line item budgeting to more program oriented budgeting in order to better support the development strategies in the National Economic and Social Development Plan and the Government Administrative Plan (with the corresponding ministerial operation plans), as re- quired by the 2003 Royal Decree on Good Governance. Furthermore an e-Budget system was implemented for all government agencies to infuse more consistency into the budget preparation process, and to strengthen monitoring of budgetary spending the BOB also implemented the Performance Assessment Rating Tool across all budget entities. • Strengthening budget execution and reporting systems. In 2005 the government implemented the Government Fiscal Management Information System (GFMIS) – a real-time nationwide budget execution and financial reporting system, at the Comptroller General’s Department (CGD) of the Ministry of Finance. In tandem with the GFMIS the CGD has also implemented a suite of satellite financial reporting systems that would allow for greater fiscal reporting, as well as strengthen operations of the internal control systems. At the same time to improve budgeting and financial reporting at the local level, the Ministry of the Interior developed the e-Local Authority Accounting System for LAOs. • Results based management in the Public Sector. The Office of the Public Sector Development Commission was established in 2003 to formulate department level performance- oriented reforms across the public sector. The government implemented a Performance Management and Quality Assurance (PMQA) system involving balanced score cards along with key performance indicators for all government agencies at the central government level. At the local level, a Local Quality Management system was designed and implemented for LAOs. The Government was also required to issue a Government Policy Statement and prepare a 4-year Government Administrative Plan (GAP), which is converted into 4-year operational plans as well as an annual operating plan by each ministry and province. Provinces are also required to prepare a Provincial Development Strategy and 3-year local development plans. All these plans have key performance indicators and feed into the annual budget prepared by the Bureau of the Budget. This planning process has been in working since 2003, when it was introduced in parallel to the existing 5-year National Economic and Social Development Plan prepared by the NESDB. 9 The 2001 Decentralization Act mandated the Government to increase LAO share of net general government revenue to 35 percent by 2006. However, in 2006 the Decentralization Act was amended and the clause mandating LAOs to be allocated at least 35 percent of net general government revenues was changed to be not less than 25 percent. 10 For details please see PFMR Discussion Paper 1 on Budgeting, Planning, and Fiscal Trends. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 19 C ASSESSMENT OF THE PFM REFORM PROGRAM AND SOME SUGGESTIONS 19. Overall, the Government has managed effectively integrated and some fundamental to put in place the building blocks for issues (highlighted in this section and improved service delivery and management the next one) need to be addressed for of public finances. However, the public the reforms to deliver on their objectives. finance management system is not as yet 20. Thailand’s decentralization reform local authorities. Furthermore, there is inadequate program is currently in transition and has information on fiscal or service delivery not yet achieved its intended objectives11. performance of local authorities, making it Although transfers to local authorities were difficult to determine where LAOs are spending significantly increased between 1999 and 2011, resources and what this spending is achieving there has been very limited de facto functional in terms of outcomes. transfer of service delivery responsibilities to a. Lack of clear demarcation of functions between central government and local authorities in the Decentralization Act of 1999. This has led to confusion in the roles and responsibilities of different levels of government, especially in provision of health and education services. The result has been uncertainty and frustration amongst local authorities, some of whom have opted to provide health and educational services while others have been unable to. Also central government agencies have retained control over the majority of the service delivery units and hence provision of health and education services. Because of lack of clear roles and responsibilities between different levels of government there has not been adequate coordination of decentralization reforms with sectoral reforms. Over the last decade the health and education sectors have also implemented reforms through the introduction of a centrally managed Universal Health Care Scheme and the National Education Act (1999) which set up 176 devolved Education Service Areas across the countries and provided significant financial autonomy to schools. These sectoral reforms have not been coordinated or calibrated with the decentralization reforms. On top of these issues, there have been significant coordination challenges between the deconcentrated arms of the central government at the provincial level and the new institutions of local self government that were established through the decentralization process. b. Tensions in the central-local government relations system and poor institutional coordination between central government agencies and LAOs. The decentralization reforms have led to establishment of locally elected councils for all LAOs with the mandate to plan and deliver services, and in turn be accountable to the electorate. However, the deconcentrated arms of the central government at the provincial level have not been rolled back, and in practice have retained control over the management of local authorities. This situation has meant that centrally appointed officials who are accountable to the central government make most of the decisions on planning and delivery of services, and elected councilors who are accountable to their electorate have not been provided the autonomy to manage LAOs. Such a system has led to dilution in the local accountability framework and is causing tensions in the central-local government relations system. Another related issue is that sector ministries do not directly coordinate interventions with LAO’s but must legally go through the Ministry of interior’s Department of Local Administration – which is problematic because large number of LAOs (7,854) makes comprehensive monitoring and coordination unfeasible for the MOI . 11 For detailed assessment of decentralization reforms in Thailand and recommendations for improving service delivery, please see the PFMR Discussion Paper 3: Central-Local Government Relations in Transition. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 21 c. Many LAOs are too small to be financially viable or have adequate capacity to provide public services effectively. Of the 7,854 LAOs, more than 3,000 have populations less than 5,000 people. Thailand also has one of the largest numbers of LAOs with small population per local authority as compared with other middle income unitary decentralized countries. Such small units are administratively costly to maintain and do not have the capacity to provide the more than 175 functions assigned to them. The local administrative organization survey conducted for the PFMR confirms that LAOs spend more than one-third of revenues on administration. In addition, as was previously discussed, the sheer number of LAOs also makes coordination difficult between central government and local authorities. d. Local accountability mechanisms do not function because of lack of basic information on finances and service delivery. There is a general lack of: (i) consolidated information on local authority finances published – even for larger municipalities; (ii) nationally established service delivery benchmarks or information on service delivery performance by LAOs – relative or in absolute terms; and (iii) unit prices of standard goods and services procured by LAOs. The absence of such basic information renders local accountability processes and systems ineffective and also instills a general perception of opacity in the management of local authorities – leading to perceptions the local authorities are mismanaged. 21. Public financial management reforms System across central government budget at the central level are also in transition entities along with a suite of financial reporting and have encountered implementation systems, the Ministry of Finance has been challenges. Although Thailand has deployed unable to:the Ministry of Finance has been the Government Fiscal Management Information unable to: i. Obtain certification of budget execution reports for 2007/08 to-date from the Office of the Auditor General due to information inconsistencies in the GFMIS and inadequate capacity of the Office of the Auditor General to conduct an electronic systems audit; ii. Publish detailed budget-to-actual reports by economic or functional classification because the chart of account between budget and fiscal reporting are not aligned, and the GFMIS and e-Budget systems are not fully integrated; iii. Consolidate even aggregate level general government fiscal operations information primarily because financial information for LAOs is incomplete; and iv. Publish procurement monitoring reports by agencies and departments because of information gaps within the e-procurement reporting system. 22. These shortcomings significantly limit fiscal with financial reporting shows that there are transparency and impede effective functioning some fundamental issues with the GFMIS core of the accountability systems. The fact that system and the chart of accounts that need Thailand is encountering such basic problems to addressed as a matter of urgent priority. 22 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 23. With regards to budget reforms, although and trade-offs made during the budget the strategic performance based budgeting process coupled with agencies not knowing system has allowed the Bureau of the Budget earlier on what their indicative budget ceilings to internally generate significant information encourages agencies to submit budget for improving budgeting, the absence of a requests significantly above actual needs. BOB formal Budget Strategy Paper (BSP) and non- then trims down the budget requests to meet communication of indicative ceilings from BOB the available resources. The Bureau of the to agencies early in the budget preparation Budget internally has ceilings for agencies from cycle leads agencies to practice unconstrained the top-down MTEF but deliberately does not budgeting. The absence of a BSP to present communicate these indicative ceilings to agencies. the constraints, strategic choices considered, 24. There are concerns with fragmentation and (ii) classifying the borrowing as “off-budget�, of the budget. The Public Debt Management in which has the PDM Act ceiling does not apply. (PDM) Act (2005) has provided the legislative In case the government opts for the “off-budget� framework for debt management, with ceilings option, it is the Ministry of Finance that makes placed on domestic and foreign borrowing12. the allocative discussions on these funds rather However, the finance management system than the Bureau of the Budget. Agencies then allows the government to borrow (domestically have to report on the use of these funds to the and externally) in excess of the PDM Act ceiling MOF through parallel-to-the-budget reporting by issuing an Emergency Decree to author- systems, raising not just administration and ize additional borrowing . In case the govern- 13 transactions cost but also causing fragmenting ment wants to raise financing in excess of the of the budget by source of financing and budgetary financing ceiling imposed by the PDM weakening the monitoring and evaluation Act there are two options: (i) legislating a change systems. in the budgetary financing ceiling in the Act; 25. Program loans which are typically for because it is not able to use program loans financing the budget deficit are classified as to finance normal budgetary operations, and ‘off-budget’ financing sources in the Thai public in practice ring fences these loans to specific finance system. This classification mismatch projects. causes fiscal inflexibility for the government 26. In order to improve budget unity and and (ii) other than in a situation of emergency, in flexibility it is advisable for government to: (i) case financing is needed in excess of the ceiling reclassify program loans as an ‘on-budget’ allowed under the PDM Act, then it would be financing source so that these resources advisable to legislate a change in the ceiling, can be used flexibly to finance budgetary rather than proceed through the off-budget expenditures within the budget process window. Again such a move will preserve rather than be tied to individual projects as an the unity of the budget while reducing the ‘off-budget’ source. This measure will improve additional workload on the Ministry of Finance efficiency and effectiveness of budget spending; on managing and reporting on these funds. Under the PDM Act, domestic borrowing to finance the budget deficit is limited to 20 percent of total expenditure (including any supplementary 12 budgets) plus 80 percent of principal repayment budget, while foreign borrowing is limited to 10 percent of total expenditures. 13 In accordance to section 184 in Constitution 2007, for the purpose of national economic security, an Emergency Decree may be issued and shall have force as an Act. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 23 D KEY CROSS-CUTTING FINDINGS OF THE PFMR 27. Based on the analysis of the decentralization the following three interrelated issues emerge reforms and issues in the public finance as key to equitable and accountable provision management system highlighted in Section D, of service delivery at the central and local levels: • Reduce regional disparities in access to public services by increasing the equalization component of the intergovernmental fiscal transfer formula and review expenditure policy to better target service delivery deficient areas. • Restructure the central-local government relations system with clearly demarcated roles between different levels of government (especially within health and education sectors) and administratively consolidate LAOs into larger more financially viable entities through fiscal and other incentives. • Recalibrate service delivery and public finance management systems’ monitoring and evaluation functionality to foster local accountability. This would require establishing national service delivery standards, publishing annual performance reports on these benchmarks along with unit costs of standard goods and supplies procured, and publishing reports on operations at the municipality level. REDUCING REGIONAL DISPARITIES IN ACCESS TO PUBLIC SERVICES 28. At the outset of the PFMR exercise there were three motivating questions: a. What does the General Government Operations picture look like for Thailand? This question was of importance because authorities have been unable to consolidate information on LAO finances with central government operations information. Furthermore, because LAOs are allocated about 26 percent of net central government revenues, it is fiscally important to understand the position of LAO finances. b. How general government spending is spread across the regions, especially for the health and education sectors? This question is important in order to understand whether or not public spending improves or exacerbates regional disparities in terms of public service delivery. c. How can government improve fiscal reporting and expenditure policy? Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 25 29. In order to answer these questions it was obtained for 6,308 LAOs (representing 80 was necessary to collect fiscal information percent of LAOs). Using population weights from LAOs and to consolidate it with fiscal the survey information was extrapolated for the information from the central government. remaining LAOs. The PFMR survey of LAOs is To bridge the information gap on LAO now the most complete set of fiscal information expenditures, a detailed survey of fiscal available on LAO fiscal operations in Thailand operations of all 7,854 LAOs for fiscal years and has been used extensively in the analysis 2007 – 2009 was conducted in collaboration contained in the PFMR Discussion Papers. The with the Office of the Decentralization LAO survey data has also been made available Committee at the Prime Minister’s Office and the to government agencies which are part of the Thammasat University for the PFMR. Through PFMR Technical Working Group. this survey fiscal and demographic information 30. With the LAO survey data has now been important however to recognize that the possible to prepare the General Government information on LAOs suffers the limitations Fiscal Operations table for 2007 – 2009 (see faced by information generated from any survey Table 2). This is the first time since 2005 that a instrument, but this information is as good as it consolidated general government operations gets at this time. table has been prepared in Thailand. It is There are some important issues with the quality of data that need to be pointed at the outset: • Although fairly detailed budget and actual information is available on the Central Government, it is difficult to match the information at the detailed economic classification level because the classification system between the budget and accounting system is different. • The Ministry of Finance publishes the aggregate non-budgetary balance figure (which was approximately 1 percent of GDP in 2009 (table 1)), but information on what comprises this figure is not published and therefore it is not possible to determine what is included in this aggregate number. • The LAO Survey was able to consolidate detailed fiscal information for 6,308 representing 80 percent of the total LAO population. This information was used to extrapolate for the missing LAOs. And hence there is some approximation used in the numbers – but this is as good as it gets for the moment. • The accounting structure and sectoral classification between the central government and LAOs is different and therefore it is not possible to consolidate sectoral information in at the administrative level. 26 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review Table 2 : General Government Operations (2007 – 2009) FY 2007 FY 2008 FY 2009 Central Government budget Actual % budget Actual % budget Actual % 1. Revenue 1,420.0 1,444.5 102% 1,495.0 1,545.8 103% 1,604.6 1,410.9 88% 2. Expenditure 1,510.7 1,475.0 98% 1,614.5 1,582.8 98% 1,855.9 1,818.2 98% - Current year expenditure 1,566.2 1,470.8 94% 1,660.0 1,532.5 92% 1,951.7 1,790.8 92% - Carry - Over from previous FY - 104.1 - 100.9 - 126.3 - Stimulus Package - - - - 14.6 14.6 - less : principal repayment 55.5 100.0 180% 45.5 50.6 111% 63.7 66.7 105% - less : replenishment to TreasuryA/C - - - 46.7 46.7 3. Non-budetary balance -28.4 -28.4 8.8 8.8 131.2 131.2 4. Central fiscal balance -119.1 -59.0 49% -110.7 -28.1 25% -120.1 -276.2 230% % of GDP -1.4% -0.7% -1.2% -0.3% -1.4% -3.1% FY 2007 FY 2008 FY 2009 Central Government budget Actual % budget Actual % budget Actual % 1. Revenue (Excluding transfer) 218.1 176.3 81% 228. 168.4 74% 251.3 162.2 65% 1.1 owned source revenue 56.1 50.2 45.6 1.2 revenue sharing from government 120.2 118.2 116.6 2. Transfers 139.4 101.9 73% 147.8 121.7 82% 163.1 124.1 76% 3. Expenditure 357.4 225.8 63% 376.7 266.8 71% 414.4 287.3 69% 4. Local fiscal balance 0.0 52.4 0.0 23.3 0.0 -1.0 % of GDP 0.0% 0.6% 0.0% 0.3% 0.0% 0.0% FY 2007 FY 2008 FY 2009 General Government budget Actual % budget Actual % budget Actual % 1. General Revenue 1,638.1 1,620.8 1,723.9 1,714.2 99% 1,856.0 1,573.0 85% % of GDP 19.5% 19.5% 99% 18.7% 18.7% 21.3% 17.8% 2. General Expenditure 1,728.8 1,598.9 1,843.4 1,727.9 94% 2,107.2 1,981.4 94% % of GDP 20.6% 19.3% 92% 20.0% 18.9% 24.2% 22.4% 3. General fiscal balance -119.1 -6.5 -5% -110.7 -4.8 4% -120.1 -277.2 231% % of GDP -1.4% -0.1% -1.2% -0.1% -1.4% -3.1% Memo : Nominal GDP (FY) 8,399.0 8,301.7 9,232.2 9,145.5 8,712.5 8,850.6 Source : Budget in Brief (BOB), Comptroller General’s Department, Fiscal Policy Office, and LAO Survey estimates (World Bank) 31. Some interesting points to note from Table 2 are: • There seems to be a significant shortfall in transfers to local governments in each of the years between budget and actual figures. For example, in 2009 LAOs only received 65 percent of budgeted revenues, while they only reported receiving 76 percent of budgeted transfers. There can be various reasons for this observation including reporting errors, delays in transfer of funds from the central government to LAOs, or simply a reduced transfer from central government to local authorities. As the variation is significant, it warrants some detailed review by the authorities on the specific causes for this observed trend. • Notwithstanding the variation between budget-actual figures, LAOs have been running a fiscal balance, with a very slight deficit in 2009. • Overall general government fiscal balance has registered a modest deficit which is almost entirely driven by the central government. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 27 32. The consolidated general government general government expenditures by regions dataset developed for the PFMR shows that – including for health and education sectors there are significant disparities in spending at the while Table 3 shows the per-capita spending regional level. Figure 5 shows the per capita total by regions, including for health and education. Figure 5 : Regional Comparison – Expenditures, GDP, and Population (2010) Percent Share 80 72 70 60 50 44 40 34 30 26 20 18 17 17 14 Share of GDP 11 9 10 10 8 Share of Population 7 7 6 0 Share of Total Expenditure Bangkok Central North Northeast South Source : MOF, NESDB, and World Bank 33. Regional comparison of expenditures In contrast, the North East accounts for about shows a concentration in Bangkok. Even 34 percent of the population, 12 percent of though Bangkok represents only 17 percent of GDP, but only accounts for 5.8 percent of total the population and 26 percent of GDP share, expenditures. it accounts for about 72 percent of expenditures. Table 3 : Public Expenditures – Per Capita by Region Unit: Thai Baht Per capita spending Bangkok Central North Northeast South Total central spending 157,104 12,488 13,467 10,192 13,666 - Health 14,722 1,235 1,350 824 1,270 - Education 20,106 3,728 4,745 3,923 4,551 - Other 122,276 7,525 7,372 5,445 7,845 Total local spending 6,697 3,909 3,227 2,972 3,262 - Health 792 264 162 76 149 - Education 715 552 453 479 420 - Other 5,190 3,093 2,612 2,418 2,694 Total general spending 163,802 16,397 16,694 13,165 16,928 - Health 15,514 1,397 1,459 919 1,362 - Education 20,821 4,280 5,197 4,402 4,971 - Other 127,466 10,720 10,038 7,843 10,595 Source : Comptroller General’s Department and LAO Survey 28 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 34. Some of the reasons that could explain relative to other regions. It is not uncommon this concentration of expenditures in Bangkok that expenditure in large capital cities is five include: (i) high administrative costs associated times higher than other regions in a country. with Bangkok being the administrative capital for However in Thailand the difference between the central government with most of the tertiary spending in Bangkok as compared with other education institutions and large hospitals being regions is in the range of 1:10. Therefore not- located in Bangkok; (ii) unit costs for provision withstanding these possible reasons for the of services being higher in Bangkok than other observed expenditure disparities, it seems that regions; (iii) agglomeration effects requiring more this concentration of spending is still skewed social and infrastructure services in Bangkok disproportionately towards Bangkok. 35. Another reason for the observed expenditure only 3.6 billion baht (accounting for only 2 disparities is due to the extremely weak percent of total) was set aside for equalization equalization effect of the intergovernmenta purposes. This low equalization cannot transfers. The fiscal transfer formula for have any tangible impact on providing fiscal year 2010/11 is presented Figure 6. resources for poorer service deficient areas. Out of total transfers of 173.9 billion baht, 36. International experience shows that as concentrated. As countries develop, the most economies grow from low to high income, successful ones institute policies that make living production tends to become more concentrated standards of people more uniform across space spatially. Some places – cities, coastal areas, – and this means providing uniform access and connected countries – are favored by to quality public services across the country. producers and hence production becomes 37. Thailand has experienced a similar policy challenge looking ahead will be on economic development trend – with production making access to public services more and economic activity concentrated around uniform across the country – both in terms of Bangkok and the Central Region. Expenditure quantity and quality. In order to accomplish trends have also followed these developments this task the Government could consider: (as shown Figure 5 and Table 3. The key i. Refocusing expenditure policy towards regions that are deficient in terms of service delivery, with the aim of bringing them up to the Bangkok levels; ii. Increasing the equalization element of the intergovernmental fiscal transfer formula from 2 percent to at least 15-20 percent of total transfers. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 29 Figure 6 : Intergovernmental Transfer Formula for Fiscal Year 2010/11 (in millions of Thai Baht) Total transfer (173,900) BMA PAOs, Municipalities, Pattaya (13,630) TAOs (158,875) (1,395) Department of Local Prime Minister’s 1. Incentive Organization Office awards (250) (153,375) (500) 2. Award for reveune collection, local admin (250) General transfer Specific transfer (80,029) (78,346) List of 9 mandatory items (27,966) 1. Electrical water pumping (907) 1. Train subsidy (0.8) 2. Support for personal transfer (1,353) 2. Public health service (890) 3. Compulsory education 3. School lunch (15,253) (healthcare) (500) 4. School milk (11,041) 5. Sport stadium administration (95) 4. Compulsory education 6. Allowance for HIV patients (224) (accommodation) (80) 7. Social services center (4) 5. Compulsory education 8. Elderly housing (100) (pension) (1,544) 9. Enhance of educational 6. Support for nursery center (6,454) management capacity (369) 7. Nurseries construction (313) 8. Instructional materials for local schools (102) General transfer follows functions 9. Environmental implementation (52,062) projects (1,275) 10. Water management in NR. Municipality, Nakhon Ratchasima (205) Portion 1 (48,741) Portion 2 (3,644) 11. Teacher salaries and wages (11,227) By functions Fiscal equalization 12. Insurance for the elderly (31,068) 13. Free 15 yrs education (2,943) PAOs 10% 14. Health volunteer (7,241) 15. Support for social welfare for the disables (4,740) Municipalities / 16. Compensation for those working TAOs 90% in the 3 Southern provinces (254) 17. Urgent local development project (8,142) Municipalies : - Improvement of local highways 50% by population (3,406) 50% equally distributed - Sports center (720) TAOs : - Project related to local strategic 40% by population development (4,016) 60% equally distributed 30 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review RESTRUCTURING THE CENTRAL-LOCAL GOVERNMENT RELATIONS SYSTEM (I) TRANSITION TO A DECENTRALIZED UNITARY GOVERNMENT STRUCTURE 38. The decentralization reforms have resulted set-up, the Ministry of the Interior has been in a system of dual administration at the local been entrusted with the dual task of promoting level as depicted in Figure 7. All local authorities local self governance while at the same time have an elected council which is vested with ensuring local authorities comply with rules and the authority to determine service delivery regulations governing the unitary government. and budgetary priorities for their respective The rationale for this dual administrative jurisdiction (right hand side of Figure 7). At the arrangement is that locally elected councils same time the deconcentrated provincial would represent interests of constituents while administration appoints officials to run the day to the centrally appointed officials would ensure day matters of local authority in consultation with local authorities are managed effectively. locally elected council representatives (left hand On paper this arrangement is workable for side of Figure 7). Within this dual administrative delivering quality services at the local level. Figure 7 : Structure of Central-Local Government Relations in Thailand CENTRAL ADMINISTRATION Ministry of Interior Provincial Dept. of Provincial Dept. of Local BMA and Pattaya City Elected Governor / Governors (76) Administration Administration Mayor & Council Provincial Local Administration Administration Districts PAO (75) (878) Elected CEO & Council Municipalities Sub-districts (city, town, sub-district) (5,770) (2,007) Elected Mayor & Council TAO / SAO (5,770) Villages Elected Head & Council Source : DOLA Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 31 39. In practice this system of dual administration councils. This blurs the lines of accountability is experiencing significant tensions. While and control and in extreme cases causes locally elected councils are empowered to make significant tensions within the central-local decisions on the operations of local authorities government relations set-up – especially in and be held accountable by their electorate, situations where the local council guidance most de facto control and decisions are are contrary to the thoughts of centrally made by centrally appointed officials who are appointed officials. In such a situation accountable to their respective central central officials trump local councils. government paymasters, and not to the local 40. An additional coordination challenge arises authorities makes effective coordination by on issues of service delivery. Local authorities the Ministry of Interior difficult. This lack of do not have a direct means of communication coordination significantly increases cost and or coordination with either line agencies (like the complexity of local government, reduced Bureau of the Budget or the Ministry of Finance) accountability, diverts attention away from nor with sector ministries (health, education, regional issues and general tensions within transport, etc). Local authorities must go the central-local relations system. Figure 8 through the Ministry of the Interior to discuss depicts how the system is operating issues with other arms of the central in practice – with significant complexity. government. The sheer number of local Figure 8 : How the Central-Local Government Relations System Functions in Practice Line Decentralization MOI BOB Ministry committee budget (2) local staff DOPA grants tax sharing CENTRAL DOLA (on budget) (off budget) ADMINISTRATION governor clerks grants (3) PROVINCIAL & LOCAL district officer ADMINISTRATION Nai Amphoe BMA Province governor Jangwat(76) PAO (76) council (1) chairman (2) council Pattaya BMA District Amphoe(878) (1) Municipality mayor (2,007) council Thessaban funds (2) mayor elects Sub District council controls and supervises Tambon(5,770) dispatch (2) SAO / TAO (1) approves budget, (5,770) personal decisions kamnan Village (2) directly reports to Mooban council (3) reports (4) Member of DC village head Bold = executive Source : Budget in Brief (BOB), Comptroller General’s Department, Fiscal Policy Office, and LAO Survey estimates (World Bank) 32 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 41. This current dual administrative structure to streamline all government operations is also incompatible with the constitutional at the provincial level and create a unified vision of a seamlessly integrated unitary government structure would reduce costs form of decentralized government. Options and improve central-local coordination. 42. Based on the fact that Thailand remains LAOs in the province and the chair of the council a unitary government, considering analysis would be indirectly elected by the members of the current institutional arrangements and of the Provincial Council. All LAO heads with issues therein, and taking into consideration population above 10,000 would serve for the international experience, it is recommended full term of the council whereas LAOs with that Thailand transitions to a decentralized population below 10,000 would serve on a unitary government structure which is more rotating basis with one fourth represented in any consistent with the Constitution of Thailand. given year. The Provincial Council would have Under this arrangement (see Figure 9), legislative authority over regional functions and a centrally appointed governor would assume providing oversight on the provincial executive the position of provincial chief executive for a headed by the governor. The provincial governor period of four years. The appointment of the would prepare the provincial budget for approval governor would, however, require confirmation by the Provincial Council. All legislation by a majority of the members of the provincial approved by the Provincial Counci lwould council. The governor could also be replaced have the force of the law unless overturned by a no-confidence vote of the three-fourth by an act of national parliament or by courts. Local majority of the Provincial Council. He/she authorities (LAOs) would have wider powers would be supported by a permanent secretary subject to home rule and will be considered appointed by the Provincial Council. Provincial equal partners with the PAO comprising Council would comprise the elected heads of Provincial Council and the provincial executive. 43. Under the proposed decentralized re g u l a t e L A O s . P o s i t i o n s w i t h i n t h e unitary form of government arrangement, deconcentrated central administration, such as fiscal transfers will be rerouted to flow directly the district and sub-district officers will from the Comptroller General’s Department of transition to municipal/tambon coordinting the Ministry of Finance to individual accounts officers, will continue to be appointed by RTG, of local governments – and with the financial but would be subject to confirmation and management systems at the central and annual review by elected bodies of the LAOs, local level linked up. All field offices of with the option to recommend on transferring central line agencies would have dual reporting officials elsewhere, subject to a three-fourths and accountability channels – to the central majority vote. The LAO chief executive would administration as well as the LAOs. In play a growing role in coordinating with the this model, the Department of Provincial Center and the PAO and other LAOs. Administration (DOPA) and area-based Furthermore, in this arrangement, local bodies continue to exist, but are meant to authorities would directly coordinate service provide technical support rather than solely delivery issues with sector agencies. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 33 Figure 9 : The Proposed Decentralized Unitary Structure CENTRAL ADMINISTRATION Office if Central Local Relations Provincial Govenor Provincial (Subject to confirmation (Ex-Official heads of LAOs) by Proincial Council) Multipalities Municipal Elected Mayor Coordination Officer Elected Council (Formerly District Officer) TAO TAO Elected CEO Coordination Officer Elected Council (Formerly sub-District Officer) Key Features: • Weaker regional, strong local government, consistent with unitary system • Centrally appointed Governor as Provincial Executive with 4 year term, confirmed by majority of members of Council • Council as Provincial Legislative composed of elected executives of LAOs—LAOs w populations >10,000 serve full term, <10,000 serve ¼ term on rotating basis • Central transfers flow directly from MOF to LAOs, central field offices report to both Central and Local authorities • Provincial Administration retained but appointed positions subject to confirmation by LAOs, accountable to LAOs through annual reviews 44. This proposed decentralized unitary form of government, while also requiring the least government administration is consistent with the restructuring of the existing central local 1999 and 2007 Constitution and would allow for government relations system. a seamless integration of LAOs with the central 45. The Thailand National Reform Committee delivery, bypassing the Ministry of the Interior. had recommended earlier in 2011 abolishing This proposal would essentially be a complete the provincial governor’s office altogether, to roll-back of the deconcentrated arms of the directly empower local authorities to deliver central government at the provincial level public services, and to connect LAOs to central and is also consistent with the unitary form of government agencies responsible for service government proposed in this Overview Paper. 34 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review Table 4 : Current and Proposed roles for a decentralized unitary system of governance LEGISLATIVE EXECUTIVE Order CURRENT PROPOSED CURRENT PROPOSED CENTER House No change Prime Minister Prime Minister-no change (Directly elected) (Indirectly elected) Proposed new Office of Senate (Appointed) Central-Local Relations PROVINCE PAO Provincial Council (comprising Provincial Governor Provincial Governor (appointed ex-officio heads of LAOs) PAO Chief Executive subject to confirmation by Provincial Council) DISTRICT N/A N/A District Officer N/A MUNICIPALITY Municipal Council No change Mayor Mayor-no change District officer transitions to municipal coordination officer TAO TAO Council No change Sub-district Officer TAO CEO-no change TAO Chief Executive Sub-district officer transitions to TAO coordination officer 46. However, the proposal in this paper Thailand and capacity limitations of LAOs in pragmatically takes into account the historical immediately assuming direct service delivery context of centralized institutional control in responsibilities. (II) CLARIFY ROLES AND RESPONSIBILITIES BETWEEN DIFFERENT LEVELS OF GOVERNMENT 47. As the transition to the decentralized unitary contributing to service delivery coordination form of government proceeds, it will be important problems. A coordinated approach towards to clarify and demarcate functional roles and service delivery is critically important not only for responsibilities between central government service delivery in health and education sectors, and local authorities. The current overlapping but in other key areas like water management, functional roles and responsibilities between as evidenced by the recent flood response. central government and local authorities is also 48. Clarity in functional roles will help guide delivery in the health and education sectors. the centralized-decentralized management of This will also infuse more accountability for health and education sectors and address the results and help refocus the intergovernmental key question of how the unitary decentralized fiscal transfer system to follow functions. government structure will organize service Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 35 (III) ADMINISTRATIVELY CONSOLIDATE LAOs INTO LARGER, MORE FINANCIALLY VIABLE ENTITIES 49. Thailand has 7,854 local administrative level and a total of 47,270 local government organizations. Most Tambon Administrative units including townships. In developed Organizations (sub-districts administrations) countries the average size of local have a small area, small population size (3,055 government usually falls in the range of LAOs with less than 5,000 people and 6,733 10,000 to 30,000 population range. As a rule LAOs with less than 10,000 people) almost of thumb, a minimum size of 10,000 is non-existent tax base but costly administration considered essential to deliver a range of and a wide range of service delivery local services and effective in political responsibilities. In contrast, South Korea representation. Most TAOs in Thailand fall with a population of 49 million has only below this threshold; in terms of average local 234 local government units and China government size, Thailand falls among with a population of 1.3 billion has only governments with the smallest population 3,203 local governments up to the municipal size of local government 50. The large numbers of LAOs lead to two dollar per person on health care and challenges: (i) high administrative costs leaving environmental protection (World Bank 2009). little or no money for public services. The small Such a system could create distrust in the lo- size and deficient revenue base can put TAOs cal authorities among residents in the long run; at risk of spreading resources too thinly, trying and (ii) strains the coordination mechanisms to accomplish too wide a range of mandates with central government as there are too and being unable to devote sufficient resources many small units for central agencies to to maintain quality or perform well. For example, effectively work with leading to fragmentation Ban Chiang TAO spends annually less than a in service delivery. 51. In order to reduce administrative costs governments on a voluntary basis. This and improve coordination between the central grant program was responsible for reducing gover nment and local authorities, the the total number of local governments from government is advised to administratively 416 in 2005 to 326 in 2010 (see Moisio, 2010). consolidate LAOs into larger and financially Other European countries such as Norway, more viable units. If small local government units Sweden, Denmark, Germany and Netherland are unwilling or unable to consolidate or form had achieved a more dramatic consolidation partnerships to carry out some of the more of local government through non-voluntary demanding responsibilities, it may be programs in the past. Thailand may consider necessary to consider redefining the scope of reviewing these experiences to develop duties for tambons. Several European countries ฃown program for local gover nment in recent years have caried out municipal administrative consolidation or to develop administrative consolidation programs. Finland asymmetric service delivery/functional instituted a special grant program to responsibility for TAOs below a certain size. induce consolidation of smaller local 36 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review Figure 10 : Median/average size of local governments in comparison 120,000 100,000 80,000 60,000 40,000 20,000 0 ce ) a nd e k nd il n na al az ar si at pa ur an hi la la ne St m Br Ja C ai Po (R Fr en do d Th a te D In di ni In U Source : Boadway and Shah (2009) 52. Resolving these three key issues: into larger, more financially viable entities; will (i) transitioning to a decentralized unitary significantly enhance the ability of the central- form of government; (ii) clarifying roles and local government relations architecture to responsibilities between central and local levels delivery more cost effective, responsive, and especially on core service delivery sectors; accountable services at the central and and (iii) administratively consolidating LAOs local levels. RECALIBRATE SERVICE DELIVERY AND PUBLIC FINANCE MANAGEMENT SYSTEMS’ MONITORING AND EVALUATION FUNCTIONALITY TO FOSTER LOCAL ACCOUNTABILITY 53. A key objective of the government public government relations and PFM systems finance management reform program has have been conducted. Therefore a question been to increase citizen centered accountability of considerable importance is whether or not in service delivery. It was with this objective in decentralization these reforms have improved mind that many reforms to the central-local accountability in service delivery? Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 37 54. Unlike some other developing countries, meaningful citizen participation in the planning, absenteeism by public sector employees is monitoring and evaluation of the quality and not an issue in Thailand. The main issues timeliness of service delivery. of accountability revolve around increasing 55. Thailand has made considerable investments more performance oriented and accountable. in implementing results based management Some of the main results based management systems aimed at making the public sector tools that have been implemented are: • Balanced Scorecards with a set of Key Performance Indicators across all public sector agencies since 2003 under the Performance Management and Quality Assurance (PMQA) system. There is a requirement for citizen feedback on quality of service delivery under the External Perspective Dimension of the balanced scorecards. Agency assessments on the extent to which key performance indicators are met are published annually on respective agency websites. • A Local Quality Management system has been implemented for LAOs by the Ministry of the Interior. The LQM focuses mainly on checking whether LAOs comply with regulations by MOI. • The Performance Assessment Rating Tool (PART) of the Bureau of the Budget (BOB) monitors efficiency of use of budgetary resources at the project and program level. Results of the PART are not published but used internally by the BOB in reviewing budget proposals by agencies. • Performance pay system for civil servants was introduced in 2008, focusing on making adjustments based on performance rather than time-in-job. A process of performance contracts and assessments has been established and started working since 2009. Responsiveness to citizen needs and ethical behavior is a criterion within the performance contracts. • The Office of National Educational Standards and Quality Assessment (ONESQA) and the National Institute of Educational Testing Service (NIETS) have implemented systems to measure performance of schools across the country in turns of both student scores and teacher qualifications. • In the health sector, different agencies managing different schemes have also implemented performance management systems to monitor service delivery standards. 56. In addition to the performance and results to improve governance of public finances. based management tools, Thailand has The main tools in this regard are: also implemented major electronic systems • The Government Fiscal Management Information System (2005) for budget execution and financial reporting. • The e-Budgeting system (2006) to improve consistency, timeliness and quality of budgeting at the agency level. • The e-Auctions system (2005/06) for public procurement at the central and local levels with the aim of enhancing transparency and competition in public procurement. • The e-Local Authority Accounting System was implemented for LAOs since 2005 to improve budgeting and financial reporting at the local level. 38 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 57. The objectives of this suite of performance to account; (iii) improve fiscal transparency; and financial management are to: (i) improve a nd ( iv ) a ddre ss gov e r na nc e ri s ks i n service delivery performance in the public procurement and financial management; (v) sector; (ii) provide the necessary finance and provide appropriate management reports service delivery performance information in for monitoring service delivery and finances order for citizens to hold their governments 58. However, the PFMR review shows that, on the accountability system are hampered at this time the systems are not able to meet by a combination of the following issues: these objectives and effective operations (I) THERE IS INADEQUATE INTEGRATION BETWEEN THE RESULTS BASED MANAGEMENT SYSTEMS 59. There are three major issues in the overall service standards. Figure 11 presents a bird’s eye results management system in Thailand . First, view of the different results based management the PMQA, the PART, and performance related systems – note that there are no horizontal pay assessment systems are not integrated lines between the systems. Third, there are and there is significant overlap in performance more than 3,000 key performance indicators metrics of each system. Second, the key between these systems causing significant performance indicators are focused mostly on transactions cost for agencies, which also have compliance issues rather than on monitoring to focus on sector specific performance metrics. 60. The lack of integration means that it with PART. At the same time there are no is entirely possible for a department that effective linkages between the HR Balanced does not perform on its key performance Scorecards (performance pay) and BSS/PMQA indicators to get higher budgetary allocations (key performance indicators). because BSC/PMQA does not share information 61. These issues significantly compromise the in the public sector whilst placing significant overall efficacy of results based management transactions cost on to government agencies. Figure 11 : A Bird’s Eye View of Thailand Results Based Management Systems (as of 2010) OPDC BOB OCSC NESDB DOLA BSC/PMQA PART HR BSC Value for OPDC Money 20 141 18 18 75 Local Ministries Departments Provincial Provincial Academic Administrative Clusters Institutions Org. Source : Results Based Management in Thailand – GET Note (2011) Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 39 62. Figure 12 shows that the Thai RBM system integrate the results based systems to form a has more indicators than any other comparator unified and integrated Government Evaluation RBM system. There is a clear need to rationalize System (GES) and in doing so, to rationalize the numbers of KPI and to make them more the more than 3,000 KPIs in the systems performance oriented. The government is mindful and make them more performance oriented. of these issues and has recently decided to Figure 12 : Number of national level indicators used by central government 3,000+ 2,037 2,000 1,500 1,178 1,000 562 545 500 454 Goals 400 Objectives 200 153 127 164 Targets 54 46 0 4 30 4 13 4 13 Indicators United Kingdom Netherland Canada France Korea Thailand (1996) (2002) (2003) (2005) (2007) Source : Results Based Management in Thailand – GET Note 2011 (II) THERE IS EXCESSIVE FOCUS ON TOP-DOWN COMPLIANCE TO THE DETRIMENT OF BASIC SERVICE DELIVERY PERFORMANCE ASSESSMENTS 63. At the LAO level there is excessive focus any performance metrics. There are no national on compliance monitoring with little information service delivery standards established at on basic performance assessments. As currently this time, nor is there any concerted focus on configured, the Local Quality Management consolidating and publishing information on (LQM) system focuses predominately on service delivery performance by LAOs. The subjective assessments of compliance with information collected from the LQM system central regulations. These assessments are is mostly for internal control purposes. largely process-focused and do not consider 64. Local administrations also face a reporting agencies, citizens, and think tanks have overload but receive no feedback on legitimate needs for such financial and comparative performance with other LAOs. operational data as such data are essential Currently, the central administration has little to designing public policies, informing policy timely information on the fiscal health and debates, and to foster accountability at the service delivery performance of LAOs. Central local level. 40 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 65. In this regard it would be important for the information it may be helpful to consider the government to develop a list of performance framework presented in Table 5. Current and financial data requirements and to collect efforts under DOLA’s LQM program can be and publish this essential information in a refined to provide useful and timely data without coordinated manner. In developing such a list of requiring a complete overhaul of the system. Table 5 : A Framework for Accountability at the Local Level Responsive and fair governance Responsible governance Accountable governance • Has subsidiarity and home rule Follows due process: Lets the sunshine in: • Has direct democracy provisions • The principle of ultra vires or general • Local government bylaw on citizens’ competence or community governance right to know • Has budget priorities consistent with citizens’ preferences • The procedure by law • Budgetary proposals and annual performance reports posted on the • Specifies and meets standards for • Local master plans and budgets Internet access to local services • Zoning bylaws and regulations • All decisions, including the costs of • Improves social outcomes Funded mandates concessions, posted on the Internet • Offers security of life and property Is fiscally prudent: • Value for money performance audits by • Offers shelter and food for all • Operating budget in balance independent think tanks • Has clean air, safe water, and sanitation • Golden rule for borrowing • Open information and public assessment • Has a noise-free and preserved • New capital projects that specify upkeep costs and how debt is to be Works to strengthen citizen voice environment repaid and exit: • Offers ease of commute and • Conservative fiscal rules to ensure • Citizens’ charter pothole-free roads sustainable debt levels • Service standards • Has primary school at a walking distance • Major capital projects that are subject • Requirements for citizens’ voice and to referenda choice • Has acceptable fire and ambulance response times • Maintenance of positive net worth • Sunshine rights • Has libraries and Internet access • Commercially audited financial • Sunset clauses on government statements programs • Has park and recreation programs Earns trust: and facilities • Equity- and output-based • Professionalism and integrity of staff intergovernmental finance • Safeguards against malfeasance • Citizen-oriented performance (output) budgeting • Streamlined processes and e-governance • Service delivery outputs and costs • Complaints and feedback acted on • Citizens’ report card on service delivery performance • Honest and fair tax administration • Budget, contracts, and performance • Strict compliance with service reports defended at open town hall standards meetings • Citizen-friendly output budgets and • All documents subjected to service delivery performance reports citizen-friendly requirements • Participatory budgeting and planning • Open processes for contract bids Works better and costs less: • Mandatory referenda on large • All tasks subjected to alternative service projects delivery test—that is, competitive provision involving government • Steps taken so that at least 50 providers and entities beyond percent of eligible voters vote government • Financing that creates incentives for • Citizens’ boards to provide scorecard competition and innovation and feedback on service delivery performance Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 41 Responsive and fair governance Responsible governance Accountable governance • Comparative evaluation of service • Provisions for popular initiatives and providers recall of public officials • Public sector as a purchaser through • Bylaw on taxpayer rights performance contracts but not neces- sarily a provider of services • Managerial flexibility, but accountability for results • No lifelong or rotating appointments • Task specialization • Budgetary allocation and output-based performance contracts • Activity-based costing • Charges for capital use • Accrual accounting • Benchmarking with the best • General administration costs subjected to public scrutiny • Boundaries that balance benefits and costs of scale and scope economies, externalities, and decision making • Boundaries consistent with fiscal sustainability Source : Shah and Shah (2006, 2007) 66. Both top-down and bottom-up citizens to hold their respective local accountability is stifled because authorities effectively accountable. This is the information on service delivery and fiscal most striking weakness in the current system and performance is not published. Without such one that should be addressed simultaneously information, citizens are unable to hold service with other the systemic issues in the delivery units accountable for quality or value performance monitoring systems. Until then, of services rendered. Without information on accountability will remain piecemeal and based benchmarks or relative performance of LAOs on individual accounts and perceptions. vis-à-vis their peers, it is not possible for 67. Improving performance monitoring and organization in key areas to support making to strengthen local accountability entails performance information available in a timely focus on two key interrelated objectives: fashion. At its core, performance monitoring it moving from top-down compliance oriented a tool to support greater local accountability for assessments towards basic performance service delivery. By focusing on the two areas assessments which can be easily benchmarked above, Thailand has the opportunity to re-orient against similar LAOs and understood by performance monitoring in line with this objective. constituents; and strengthening data collection 42 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 68. In order to improve LQM, the following sequential steps could be considered: • LQM forms could be refined to use a simple check list (yes or no) for compliance related items, removing all subjectivity from the assessment. • Basic local service performance indicators should be defined across the range of locally- provided public services. For example, in waste management, LAOs could record the number of days per week waste was collected, and the volume collected. For infrastructure, LAOs could record the kilometers of roads built or repaired. Such indicators would be defined by DOLA in consultation with both central line agencies (especially Education and Public Health) as well as with LAOs themselves. Where LAOs did not provide certain services, fields could be left blank. LAOs would also be responsible for reporting basic revenues by source, and expenditures by function, creating a complete picture of both the cost of service delivery and the quantity and quality received. Data would be self-reported annually to DOLA, which is already prepared for such a task as it has teams in the field engaged in LQM monitoring work. • DOLA would be responsible for consolidating and organizing the data, and making publically available simple reports on performance for all LAOs —this allows for an important accountability check, as local populations can ensure the self-reported data from their governments accurately reflects reality and also see how their respective LAO is performing in comparison with other authorities. Data could be simply coded to allow sorting by type of LAO (urban municipality vs rural municipality vs tambon) and by population size (0-25,000; 25,000 to 50,000; 50,000-100,000; >100,000). Doing so would allow DOLA to determine averages for class and size of LAO. Benchmarking would be a simple exercise in looking at deviations from the mean. Additionally, the adoption of tools such as citizen scorecards can supplement this performance data and help to ensure the availability of channels for citizen voice, allowing the public to influence the final outcome of a service through meaningful participation or feedback. (III) ABSENCE OF BUDGET AND FISCAL REPORTS IMPEDES EFFECTIVE BUDGET MANAGEMENT AND LIMITS FISCAL TRANSPARENCY 69. One of the most basic monitoring tools is variations, and to take corrective actions the Budget Performance Report – a simple appropriately. Without such basic reports, it comparison between budget appropriations is not really possible to determine how well or and actual expenditures by main economic and otherwise the budgetary management system administrative classifications. Budget is working to deliver planned appropriations performance reports allow the authorities to service delivery units. Currently Thailand and the citizens to determine variations does not publish such reports for either in expenditures, identify causes for large the central government or local authorities. 70. There are two technical reasons why Thailand is unable to publish Budget Preparation Reports even at the central government level: • The e-Budget and GFMIS are not appropriately integrated. • The chart of account between budgeting and accounting are different and the overall chart of account code structure is fragmented. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 43 72. At the local level, by 2010 the e-LAAS LAOs, even though the issues that inhibit data only had fiscal information for about 1,200 consolidation may be of a technical nature. It out of 7,854 LAOs. This data incompleteness is therefore of critical importance that at least is a source of concern for many reasons 80 percent of data on fiscal operations of including possible funds leakages, avenues LAOs is consolidated and published together of misuse of resources, increased corruption with relative service performance reports in risks, and reduced opportunity for citizen order to allow local accountability systems accountability. Lack of information gives rise to to operate as intended by the Constitution. perceptions of mismanagement on account of 73. In order to address these issues, the government is recommended to consider the following sequence of measures: a. Unify the budget codes with the financial chart of accounts for the central government and develop a uniform chart of account with the appropriate coding segments to fulfill budget and financial monitoring needs; b. Harmonize financial reporting standard for local authorities and develop bridge tables that would ensure consolidation of central government and local authority fiscal information; c. Conduct a gap-analysis of GFMIS and integration needs assessment between GFMIS, e- LAAS, and e-Budget; d. Implement the unified chart of account and coding structure within GFMIS and e-Budget system in tandem with addressing issues highlighted from the GFMIS gap analysis and integrate GFMIS, e-Budget, and e-LAAS; e. Start publishing automated budget execution and monitoring reports with variance analysis (IV) INFORMATION ON PUBLIC PROCUREMENT OR UNIT PRICES IS NOT PUBLISHED GIVING RISE TO PERCEPTIONS OF MISMANAGEMENT AND CORRUPTION AT THE LOCAL LEVEL 74. As money public is spent at the local vaccines, medicines, office supplies, paper, level, improving governance and controlling computers, and other off-the-shelf consumables corruption is a concern for policy makers. There across the country and to publish this information are also instances reported in the press where regularly – at least on a six monthly basis. At local authorities have procured goods and the same time it will be important to mandate construction contracts at inflated prices, giving central government and local authorities to rise to a perception of corruption at the local publish information on unit prices of standard level. It is not possible to corroborate or negate goods and supplies procured so that citizens such reports under the currently available can compare the national reference prices with monitoring framework or data. Accordingly, it the unit prices obtained by their respective would be advisable for the government to gather local authority. Such a cross-check will improve information from the e-auction database on unit local accountability and incentivize responsible prices for standard goods and supplies like governance from respective administrations. 44 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 75. In order to address some of the issues identified here and enhance local accountability, there are four main recommendations: • Publish annually information on service delivery performance by central and local authorities either against national benchmarks or in absolute terms. • Consolidate detailed fiscal operations information of LAOs (at least at the municipal level) with that of the central government and publish general government operations report by functional and economic classifications. • Integrate results based management systems and financial management systems and publish budget monitoring reports that can be linked to departmental performance. • Institute mechanisms for local citizen representation on boards of health and education facilities in order to ensure voice and opinion of citizens are considered and taken into account in management of service delivery units. • Publish unit price information for standard supplies and goods procured by local authorities and central agencies. Such a move will increase transparency and provide incentives for LAOs to conduct competitive procurement, along with interested citizens to see at what price their respective jurisdiction is procuring standard goods and supplies as compared with others. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 45 E SUMMARY OF ISSUES AND RECOMMENDATIONS 76. The table below summarizes the desired improve service delivery at the local level objective along with key issues and as well as governance of public finances. sequential recommendations that would Table 6 : Summary of Issues and Recommendations Objective Issues Key Recommendations Significant regional expenditure variations • Refocus expenditure policy towards regions that services equitable Making access to • Contribute to disparities in service delivery and are deficient in terms of service delivery, with the ultimately regional human development outcomes. aim of bringing them up to Bangkok levels and standards. • Increase the equalization element of the intergovernmental fiscal transfer formula from the current 2 percent to at least between 15 – 20 percent. Dual administration leads to increased cost, • Transition to a unitary decentralized form of confusion and inadequate accountability government by rolling back the deconcentrated • Dual administration at the local level drives up provincial administration and connecting LAO’s administrative costs, impairs central-local directly to the Ministry of Finance and the Bureau coordination and blurs lines of accountability, of the Budget on fiscal matters and with sector inhibiting effective and accountable delivery of agencies on service delivery issues. The role of services at the local level. the Ministry of Interior would transition to one of coordination and promotion, away from command and control. Reforming central-local government relations system to deliver more Overlapping central and local mandates and lack • Clearly demarcate roles and responsibilities of coordination with other central reforms between central government and LAOs as the Government formulates the new Decentralization responsive, coordinated, and effective public services • Overlapping legislative mandates for service delivery between central government and local Act and related regulations. This will allow for authorities combined with insufficient coordination financing to follow functional responsibilities. between decentralization reforms and central • The Decentralization Committee could ensure health and education reforms are affecting service central government led health and education delivery and increasing transactions cost for all sector reforms are coordinated with the levels of government. decentralization reforms – and appropriate legislative instruments reflect this appropriately Numerous small LAOs are unviable • Provide incentives for LAO’s with 5,000 or less administrative units residents to administratively consolidate into larger • Small administrative units (3,000 LAOs with fewer more financially viable entities. than five thousand residents) result in high • Provide asymmetric service delivery responsibilities administrative costs which crowd out public to LAO’s – with smaller LAO’s taking on a much expenditures on service delivery, put strain on the narrower set of service delivery responsibilities than coordination mechanisms with central government the larger ones. The cut-off could be either number as there are too many small units for central of registered residents or by level i.e. municipality. agencies to effectively deal with, and cause fragmentation in service delivery. Absence of a functioning performance monitoring • Rationalize the compliance checks within the Local system Quality Management system into a simple yes/no • The monitoring and evaluation systems at central check-list and to include metrics on service delivery and local levels are focused almost solely on quantity and quality. compliance, leaving service delivery outcomes • Effectively integrate the Bureau of the Budget PART uncertain. Transactions cost for agencies to comply with the Office of the Public Sector Development with these systems is high and detracts from the Commission’s Total Quality Management Assurance needed focus on delivering services. system within the newly constituted Government Evaluation System. • Ensure the Local Quality Management System is fully integrated with the Government Evaluation System. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 47 Objective Issues Key Recommendations Fiscal information for LAOs – which receive more In order to improve basic fiscal reporting, the than 25 percent of net central government income authorities are recommended to: – is not available • Publish fiscal operations table at the general • This results in compromised fiscal transparency – government level with at least 80 percent Thailand is one of very few middle income coverage of LAO finances with broad economic Fostering more accountability and efficiency in delivery of public services countries that are unable to prepare fiscal and functional classification. accounts at the general government level; • Revisit the implementation of the e-Local Authority weakening of overall expenditure planning as Accounting System to ensure that it captures at 25 percent of net central government revenues least 80 percent of total LAO spending by are being spent without an understanding of their economic and functional classification. purpose; perceptions of financial mismanagement • Integrate LAO financial management system with at the local level. the Government Fiscal Management Information System within a common chart of account structure so that financial reporting and consolidation is seamless. Lack of tools to compare performance of LAOs • Publish an annual report on service delivery relative to their neighbors inhibits accountability performance for key service delivery areas for • Residents of localities cannot determine whether central and local authorities either in comparison or not their respective LAO is performing better or with some nationally established service delivery worse compared with either a national average or benchmarks or in absolute terms. This information other localities. Opportunity for citizen engagement would help identify any outliers and provide a in local accountability is severely curtailed. relative performance benchmark. Such reporting is conducted in OECD countries like Canada, US and Western Europe these countries are known for accountability and quality of service delivery at the local level. Lack of systematic public procurement • In order to improve transparency and accountability information at the local level the government is advised to publish unit price • leads to perceptions of mismanagement and information for standard supplies and goods procured corruption at the local level by local authorities and central agencies. Such a move will increase transparency and provide incentives for LAOs to conduct competitive procurement, along with interested citizens to see at what price their respective jurisdiction is procuring standard goods and supplies as compared with others. Fiscal reporting and transparency have consider- Fiscal transparency can be effectively enhanced by: able room for improvement • Ensuring reconciliation issues in the budget • The Office of the Auditor General has not certified execution report for at least 2010/11 are Improving fiscal reporting, transparency, budget execution reports for FY2007/8 – 2010/11. addressed and certification from OAG obtained. Not having certified audit opinion is a significant Going forward, it will be important to ensure and enhancing unity of the budget source of concern and points to fundamental certification is obtained in a timely manner. issues. • Publish: (i) biannual in-year budget execution • Although Thailand publishes budgetary report (with budget-to-actual reporting by detailed appropriations and reports on actual expenditures, economic and administrative classification); and (ii) there is next to no budget-to-actual reporting – annual budget performance report with variation either as in-year budget monitoring reports or as analysis. In order to aide these task the budget annual budget performance reports. nomenclature and the chart of accounts for • Analyzing actual expenditures is problematic financial reporting will need to be aligned and because it is not possible to reconcile the figures implemented uniformly across GFMIS and reported by the FPO and the BOT with the e-Budget. underlying numbers from CGD. This is because • FPO and BOT should consider publishing the the adjustments that FPO and BOT make to the memo items of adjustments made to the actual CGD information is not published as memo items expenditure figures published by the CGD (which in their respective reports. Furthermore it is not is the source of the data) possible to determining what items are covered • Providing more details of the constituent elements in the ‘carryover’ category (representing about 7 of the ‘carryover’ category will significantly improve percent of total expenditures, as per Table 2) the ability of agencies and stakeholders on fiscal analysis and strengthen fiscal transparency. 48 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review Objective Issues Key Recommendations Debt financing options and classification of budget loans as ‘off-budget’ source of finances causes budget fragmentation • The public finance management system allows the • Other than in a situation of emergency, in case government to borrow (domestically and externally) financing is needed in excess of the ceiling allowed in excess of the PDM Act ceiling by classifying under the PDM Act, then it would be advisable to such borrowing as ‘off-budget’. For financing in legislate a change in the ceiling, rather than Improving fiscal reporting, transparency, excess of the budgetary financing ceiling imposed proceed through the off-budget window. Such a by the PDM Act there are two options: move will preserve the unity of the budget whilst and enhancing unity of the budget (i) legislating a change in the budgetary financing reducing the additional workload on the Ministry ceiling in the Act; and (ii) classifying the borrowing of Finance on managing and reporting on these as “off-budget�, in which has the PDM Act ceiling funds. does not apply. Under the “off-budget� option, it • Reclassify program loans as an ‘on-budget’ is the Ministry of Finance that makes the allocative financing source so that these resources can be discussions on these funds rather than the Bureau used flexibly to finance more needed expenditures of the Budget. Agencies then have to report on the within the budget process rather than be tied to use of these funds to the MOF through parallel-to- individual projects as an ‘off-budget’ source. This the-budget reporting systems by agencies, raising measure will improve efficiency and effectiveness not just administration and transactions cost but of budget spending. also fragmenting the monitoring and evaluation systems. • The government classifies budget support loans (program loans) as off-budget financing sources. This classification mismatch causes fiscal inflexibility for the government because it is not able to use program loans to flexibly finance normal budgetary operations, and in practice ring fences these loans to specific projects causing budget fragmentation and reducing the strategic prioritization aspects of budgeting. Thailand still practices unconstrained budgeting at the agency level • Agencies are not provided indicative ceilings within • In order to incentivize agencies to internally which to prioritize their budget request. The current reprioritize budgets and redeploy resources, and system has two main disadvantages; (i) agencies for BOB to free up human resources for more Infusing more strategy into the Strategic Performance Based Budgeting System have no incentive to internally prioritize budget strategic areas of budgeting, it is recommended requests and critically review programs for possible that BOB issue indicative ceilings to ministries and redeployment of resources; and (ii) Bureau of the agencies at the beginning of the budget Budget has to deploy significant human resources preparation calendar – after the core agencies on line item review and budgeting cutting exercise, have determined agreed on the macro-fiscal at the expense of conducting program reviews and parameters and the overall budget framework is value for money analysis on the budget. determined. • Thailand does not produce an integrated • Government should present to the Parliament a document presenting the Government’s Fiscal and Budget Strategy Paper (BSP) when the Budget Bill Budget Strategy which provides key economic is tabled to the Parliament – as is standard information to the Parliament and stakeholders on practice in progressive OECD countries like assumptions used in formulating the overall budget Australia, New Zealand, the UK, the US, and framework, strategic government objectives, risks neighboring countries like Malaysia, Singapore, present and steps taken to mitigate them, and and Korea. the projected outturn of the preceding fiscal year • Presenting this BSP will make parliamentary budget. Without this document it is not possible to and stakeholder discussions more strategic and have a holistic view of the government’s budgetary engaging, rather than focusing on a review of line constraints, choices, and outcomes expected from items and providing marginal commentary on the utilization of public resources. budget proposals. Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 49 ANNEX A KEY FINDINGS AND SUMMARY OF RECOMMENDTIONS FROM THE 2000 PUBLIC EXPENDITURE REVIEW The 1997 Asian Financial Crisis provided an important impetus to Thailand’s Public Finance Management (PFM) Reform program. In order to inform the design of the Royal Thai Government’s PFM reforms, the 2000 Public Expenditure Review identified the following issues and recommendations : • Appropriately sequence fiscal decentralization reforms. The 1997 Constitution had mandated a fundamental shift from a centralized unitary form of government to decentralized unitary government by decentralizing revenues and functional responsibilities to Local Administrative Organizations (LAO’s). This constitutional requirement was operationalized by the 1999 Decentralization Act which required the gradual transfer of more than 175 service delivery responsibilities (including healthcare and education) from the central government to LAO’s over time based on the capacities of LAO’s and for the central government to progressively increase LAO share of general government revenues from about 11 percent in 1999 to 35 percent by 2006. The stated objectives of the decentralization reform as presented in the 1999 Decentralization Act were to: (a) increase public participation in decision making at the local level; (b) improve local service delivery by fostering greater bottom up accountability; (c) improve social and economic outcomes for citizens through local economic development; and (d) make public services responsive to local needs. At the time of the PER, the government was developing the first Decentralization Master Plan, and in this regard the PER recommended that in order to achieve the objectives of the decentralization reforms it was important that: (i) central-local administrative and functional responsibilities were clearly defined; (ii) devolution of revenue authority needed to be closely calibrated with the decentralization of functional responsibilities from central government to LAOs; (iii) the appropriate institutional arrangements be put in place to encourage LAO’s to improve local revenue mobilization; (iv) authorities ensure that the intergovernmental transfer system be based on transparent formulas, and that transfers were predictable and provided in a timely fashion; (v) LAO borrowing be managed carefully in order to minimize fiscal risks whilst providing LAOs with viable programs/projects, recourse to appropriate borrowing instruments; and (vi) LAO accountability system should be enhanced by strengthening local fiscal reporting systems, increasing local revenue mobilization, and engaging civil society in local decision making and monitoring. • Provide greater budgetary planning autonomy to sector ministries. The budget process was considered too centralized and did not incentivize agencies to use the budget as a management tool to increase the performance – i.e., the efficiency, effectiveness, and equity – of government programs. The recommendation therefore was for the Bureau of the Budget (BOB) to provide more fiscal flexibility to agencies whilst increasing their accountability for results. This would entail a move from line-item incremental budgeting to having medium term programmatic perspectives to budgeting and putting in place a monitoring and evaluation system which would provide information on efficiency and effectiveness of public spending at the program and agency level; • Improve budget execution system and quality of financial reporting. The budget execution and reporting systems were not integrated, fragmented across departments, and mostly paper based. This resulted in a weak financial control environment and incomplete financial reporting on public finances. The recommendation was for the government to automate and integrate the budget execution systems for improving the financial control environment and improve financial reporting; Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review 51 • Manage fiscal risks and enhance fiscal transparency. The 1997 Asian Financial Crisis had highlighted the need to establish structures and systems for identifying and mitigating fiscal risks and to increase fiscal transparency in the public sector. In this regard the Ministry of Finance was advised to improve the debt management function at the Public Debt Management Office, publish a clear medium term fiscal strategy, report on the extent of off-budget operations, prepare a statement of fiscal risks arising from government’s contingent liabilities, and to move towards compliance with the IMF’s general data and dissemination standards; • Enhance revenue mobilization and improve transparency in tax administration. The concerns regarding tax administration revolved around strengthening collection enforcement by improving arrears information, audit case selection and reducing collectable debt to a manageable level. On enhancing revenue collection the focus was on increasing the tax base, especially for the personal income tax, improving taxpayer compliance, and enhancing information technology as a means to strengthen management and transparency; • Improve development outcomes from public finances. This objective was to be accomplished by enlargement of poverty alleviation programs and improvement in geographical targeting and self-targeted programs. However, it was noted that in comparison to other middle income counties, Thailand’s expenditure allocation among sectors broadly reflected its development priorities and that a relatively large share of government expenditure was allocated to agriculture, transportation and communications, and health and education; and • Enhance quality and timeliness of external audit by ensuring that the Office of the Auditor General has the capacity for timely and quality financial and performance audits. 52 Overview Paper : Improving Service Delivery In Thailand – A Public Finance Management Review