Operational Expenditure Block Grants – The Missing Link for Combating COVID19?

  • April 21, 2020

  • New York, USA


Edition 4 of the guidance note on COVID19 and Local Government Finance will be published on April 22nd. This latest edition includes an expanded section on Operational Expenditure Block Grants known as OEBG, which could be the missing link for combatting COVID19.

If we have learnt anything, it is that fast, local action slows the spread of the virus. In the words of the World Health Organization, “Test, test, test”. Testing, even of those without symptoms, enables isolation of those infected, focussed treatment of those seriously ill. Experience has shown that testing combined with the enforcement of social distancing and other mitigation measures can stop the virus before it gets out of control. Early action is critical to cities and local governments that cannot afford lockdown and where working from home is not an option for most people.

Experience shows that the effectiveness of the response to COVID19 has varied significantly across national territories. This does not only reflect differences in the geographical spread of the virus, it also reflects differences in the approaches taken by local governments as first responders. Indeed, some countries neglected the role of local governments in the early response and now publicly acknowledge how costly this neglect is. In the United Kingdom, Jeremy Hunt, former Minister of Health and current chair of the parliamentary health committee informed the public that:

“One of the reasons testing took too long to ramp up is because it was all done centrally… I think one of the lessons we could reasonably draw from the slowness of ramping things up centrally is that this is something we should trust local government to help us with” Interview with BBC, World at One programme, April 16th.

Local governments in Uganda have been proactive in assessing how to respond quickly to the threat of COVID19. For example, Napak district has drawn up a response plan that involves the local health department, education department, the local media and local police force around a District Task Force. The budget for the COVID response plan is 250million Ugandan Shillings or US$66,000. All the actions proposed are practical and immediate and the plan does not include hiring new staff or purchase expensive equipment such as vehicles. This is a relatively small amount of money for a district of over 220,000 people. Yet, the operating budget of the district governments are miniscule, and the capital budgets are locked up in long term procurement.

Generally, COVID19 resources are managed by central government health ministries and do not reach the different district units required for an integrated response. How can governments and development partners deploy financial support to their territories to get “ahead of the curve” and stop the virus before it takes root?

Whilst Napak district is largely rural, factors like crowded public transport in the Karamoja region make social distancing difficult and provide dangerous potential for virus transmission.

Operational Expenditure Block Grants (OEBG) are a specific type of intergovernmental fiscal transfer that can be a useful and effective vehicle for governments to implement their COVID-19 response strategies. The beauty of the OEBG is that it combines the most effective elements of the discretionary capital grant and the discretionary recurrent grant. The transfer mechanism of the OEBG is like a capital grant. The resources are not drawn from the recurrent budget for human resources and basic operating expenditures, instead they are drawn from other funds and use the modality of the development (or capital budget) as appropriate. This has four advantages:

  • Depending on the severity of the lockdown and its economic impact, expenditure on many development or capital projects is slowing down and there may be immediate liquidity under those budget lines.
  • Expenditure under the development / capital budget is usually reassessed annually and does not assume long term commitments (for example, to human resources).
  • The development budget is usually more open to receive contributions from international development aid, philanthropic aid, contributions from the public and other sources. Existing development accounts with transparent reporting can be repurposed.
  • The development budget can be assigned to the discretion of the mayor or the governing body of the local authority, it does not need to be pre-allocated to any particular department or sector.

Once available to local governments, the OEBG can be applied to immediately implement COVID19 response protocols. In this respect the OEBG is different from the regular development or capital budget. It has specific criteria and rules: For example, it cannot be used for any expenditure that creates long term obligations such as new permanent staff on the payroll or new large infrastructure that requires operation and maintenance. However OEBG can be used for (temporary) staff costs, for goods and services, and for small scale capital items (for example, medical equipment or motorcycles). In this respect the OEBG covers the full range of budget headings and expenditure codes. This provides a critical flexibility that can:

  • Top up and co-finance interventions by departments using centrally allotted conditional funds. For example, to make an ongoing initiative by a local hospital funded from the Ministry of Health more effective.
  • Combine interventions by different departments. For example, complement an ongoing initiative by a local hospital with a follow up activity by the social services department or the public works department (i.e. re-fitting installations to promote social distancing).
  • Deploy funds to practically all legal expenditure categories. For example, hire (temporary) staff, consultants, purchase fuel or personal protective equipment, purchase motorcycles, for a team of quarantine enforcement officers.
  • Be managed either by the respective departments or by a specific COVID19 response unit under the mayor or council, or a combination of both.

Setting up OEBG, the details matter…

In terms of disbursement, performance and reporting the COVID19 OEBG is characterised by transparency and frequency of reporting. Here existing reporting features for the development budget can be adapted. OEBG is best managed by a locally developed pre-defined plan, which is regularly adjusted in line with the development of the epidemic in the locality. The plan can be endorsed by the relevant COVID19 response entities for its relevance.

Transfers of OEBG can be made more frequently than for regular development transfers, for example on a three-monthly basis against attainment of the performance measures or targets in the plan. Here, two characteristics are important. Firstly, that the local government is responsible for the design, management and implementation of the plan, secondly that the performance measures are broad enough to allow rapid and frequent (no cost) budget revisions and changes in the distribution of the expenditure between activities, thirdly that the OEBG system enables the local government to dynamically “ride the curve” and adapt its response and activities in line with the progress of the epidemic.

Finally, the appropriate amount of the OEBG will depend on the available resources, the stage of the spread of the epidemic, the degree to which local government is part of the national response, and the absorption capacity of the local government. UNCDF has developed a rapid scoping tool, building on the scoping methodology applied in its other work on local government finance, which can quickly produce a design proposal for OEBG in partnership with interested central or local governments. UNCDF can also make available its e-municipal grant architecture to process and report quickly on external contributions to an OEBG system from international development partners.

Guest blog entry contributed by David Jackson, Director of Local Development Finance at United Nations Capital Development Fund: