Armenia - Performance Budgeting at the Local Level

Organization(s): UNDP Country Office in Armenia in cooperation with the Ministry of Territorial Administration and 13 urban Municipalities

Country(ies): Armenia

Primary thematic focus: Sub-national capacity development: local solutions, national strengths

In a Nutshell:
The goal of the Project was to improve the capacity of Local Self Governments bodies in fiscal decentralization and to ensure the accountability and transparency of public expenditure management. The Project aimed at the introduction of Performance Budgeting mechanism into planning, implementing, monitoring and evaluation processes at the community level.

The Story:
In Armenia, local governments are responsible for forming and managing their own local budgets. In an environment where local government is committed to transparency, fiscal decentralization can potentially help improve the accountability of local service providers by making resource allocation and decision making processes more accessible to the beneficiaries. However, a number of barriers exist in Armenia in this regard.
• Lack of a culture of participation: Many years of highly centralized government rule, both under Soviet domination and in the early years of independence mean that Armenia has little established culture of citizen participation in planning or resource allocation decision making.
• Legislative Framework: National legislation requires community budgets to be presented to local communities; however there is no requirement for local authorities to incorporate local opinion in resource allocation decision making.
• Autonomy of local government bodies and ability to allocate resources: Although the legislative framework allows for local government to form and allocate budgets independently from central government, local government only has limited revenue raising powers and therefore remains reliant on central government for financial resources.
• Lack of capacity in local government: Technical and administrative capacity within local government departments responsible for budget preparation is often very low.
• Poor communication and understanding of local budgets: Whilst legislation requires that community budgets are presented to local communities, these budgets have tended to be written and presented in inaccessible language and format, making them incomprehensible to those citizens interested in the process. A Performance Budget (PB) differs from a more traditional Line Item budget in that it links predicted expenditure to specific tasks or goals. PBs links local government priorities to specific targets and objectives.

A key component of PB is the active engagement of the population in the setting of priorities and in providing oversight and scrutiny on budget execution. Introduction of PB at the Community Level was started in 2006 under the UNDP Performance Budgeting Project (PBP). Initially 5 urban communities were selected to take part in a pilot study, with a further 8 added in 2007. Communities were selected to represent a cross section of economic and demographic trends, and based on the degree of understanding and enthusiasm shown for the PB concept by the mayor and municipal council. In each selected community, a public meeting was arranged in which the concept and process of PB was introduced. Initiative Groups (IG) were set up representing various groups within the community. IGs consisted of up to 17 individuals, identified as being representative of the community by participants at the initial public meeting. The IGs worked with municipal staff to identify and set budget expenditure priorities. Municipal staff units (Working Groups) then compiled draft budgets, copies of which were distributed within the communities. Public hearings were organized in which the draft budget could be discussed and debated before being presented for approval by community councils. An educational manual on PB in Local Self Government Systems was also developed. The manual is based on experiences gained during the initiation of the PB project in the 5 pilot municipalities, as well as international best practices. It provides a detailed description of local PB principles, frameworks, budgeting process phases, execution and oversight. The process of introducing PB at the community level has been supported by capacity building programs organized for Local Government and municipality staff as well as local people and NGOs. Through a number of study tours and seminars the participants were trained in using the new model, theoretical knowledge of each stage and cycle of budgeting, and the role of community participation in the budgeting cycle.

Results and Critical Factors:
The PBP has increased the transparency of the budgeting process in pilot communities. Demystifying the process has presented the opportunity for greater citizen engagement, and facilitated increased citizen participation. Furthermore, PB has resulted in increased confidence of citizens to affect change in the way that resources are allocated, and thereby to hold local government to account for the allocation of resources. All pilot communities have seen significant increases in both the number of public hearings being held, and the numbers of people attending and actively participating. Local authorities are more aware of the priorities of the people, and citizens are more aware of the roles and responsibilities of the local authorities in terms of service provision. Citizens have also expressed increased confidence to make their voices heard and demand improved provision of services.

A key challenge to project implementation was overcoming widespread skepticism that citizens could affect change by engaging with the state. In order to help overcome this problem, UNDP has agreed to fund one community priority, quick impact project in each municipality that could not be paid for through the budget (due to lack of funds). This allowed for citizens to see an immediate effect associated with their participation and instilled confidence in the PB process. Working and Initiative Groups, made up of both local people and LSG workers helped to promote mutual understanding of the PB concept, but also to encourage increased dialogue between citizens and state officials. By promoting community and municipality staff involvement in the budgeting process community ownership has also been greatly improved.

The impact and sustainability of the PB model has varied depending on the location of communities. An analysis of the sustainability of PB implementation after two years found that the 5 communities involved at the first stage of the programme were ready and able to replicate the PB methodology and process independently into the third year. In 2007, following piloting of PB at national level, and drawing on the lessons learned from the PBP at the local level, legislation was introduced making PB mandatory for the national budget.

Name of Primary Contact Person: Mr. Vrej Jijyan

Title of Primary Contact Person: Socioeconomic Governance Portfolio Analyst

City: Yerevan