Rejoinder to the article titled “Resource Allocation Formula under Fire”

[23 Sep 2009 ] The Resource Allocation Formula (RAF) was developed in keeping with article 22 of the Constitution of the Kingdom of Bhutan, which entitles the Local Governments(LGs) to adequate financial resources from the Royal Government in the form of Annual Grants (AG). The RAF is applied to allocation of the capital budget (Annual Grants) to LGs, Dzongkhags and Gewogs and the resources can be used for any eligible capital expenditure activities prioritized by local governments, subject to the Annual Grants ceiling.

The rationale for developing the RAF was to ensure a system of transparent, objective, and equitable allocation of financial resources to LGs in a predictable manner as opposed to adhoc allocations. Since the allocation of resources is based on objective criteria, with the data for the criteria being sourced from independent sources, it provides a high level of transparency. Infact, once the total resources available to be distributed among the local governments is announced, local governments can actually calculate the shares they should receive through a simple calculation. The RAF has taken into account most conventional parameters applied globally, i.e., population and geographical size and added to it, in view of the priority of the Tenth Plan, poverty levels as an additional factor. The underlying logic being that development disparities (infrastructure or otherwise) is best reflected in the levels of poverty.

The RAF was discussed with the Hon. Members of National Assembly and the National Council. The Hon. Members of the Parliament had endorsed the RAF. However, they had suggested that the weights assigned to each criteria needs to be reviewed. The RAF was also endorsed by the Lhengye Zhungtshog in its 20th Session held on 28 October 2008.

Infact, the two common comments received on the RAF are: i) need to review the weights assigned to each of the criteria ii) lack of disaggregated Gewog level poverty data in the RAF. In response, the GNHC is already reviewing the weights assigned to each criteria as well as working on Gewog level disaggregated poverty data. The work on Gewog level poverty data will be completed soon, following which inter-Gewog poverty differences will be factored into the allocation of Annual Grants among Gewogs. The GNHC has also been studying ways to improve the weights assigned to the three criteria and some changes will be proposed in the forthcoming budget (FY 2010/2011). Under active consideration is enhancement of the weight for poverty at the expense of population. The weight for geographic area, used as a proxy for environment, will remain the same.

Furthermore, to address some of issues regarding the existing disparities in the level of development among Dzongkhags and Gewogs, the GNHC has already standardized, in the present financial year 2009/2010 budget, the provision of Gups office, Renewable Natural Resources (RNR) centres and Gewog connectivity roads. What this means is that Gewogs without these facilities will be provided the resources for these facilities over and above their Annual Grants share. In addition, another important capital expenditure at Gewog levels, education facilities, is being provided over and above the annual grants. This will also have an equalization effect for those Gewogs lacking such facilities.

The GNHC accepts that the present formula could be improved and indeed, the search for the perfect formula is expected to remain a constant endeavor. Toward this end, lessons learnt from actual experiences from implementation, particularly the absorptive capacity of Gewogs, will be critical. As of now, it has been less than six months into implementation, and thus, still too soon for any significant lessons to emerge. Nevertheless, in light of the knowledge that the roles of local governments will only grow in time to come, and that the Resource Allocation Framework will be one of the keys to furthering decentralization, empowering our people and letting them take greater responsibilities for the development choices that directly affect their lives, the GNHC remains committed to continuously exploring ways and means to improve the Resource Allocation Framework throughout the 10th Plan and beyond.

Gross National Happiness Commission Tashichhodzong

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