68551 Thailand : Challenges and Options for 2012 and Beyond Improving Service Delivery Through strengthening central-local government relations and expenditure policy Addressing regional disparities in access to public services is an emerging development challenge for Thailand. A well-functioning system of Central-Local Government Relations and proactive expenditure policy can help achieve this goal. Providing responsive and accountable public services are necessary for maintaining trust of the citizens in government and fostering cohesion within a unitary state like Thailand. Without a reversal of current regional disparities in access to public services and address tensions that are present in the central-local architecture 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 accountability 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 municipality level. Growth, Poverty Reduction, and Inequality measured by the GINI index, has remained static – 0.49 in 1988 and 0.48 in 2009. Over the last two decades Thailand has experienced sustained economic growth which has contributed to Poverty and inequality in Thailand are not uniformly a dramatic reduction in poverty. However, inequality distributed across the country. In spite of the at the national level has remained constant (Figure significant declines in poverty rates at the national 1). The average annual real GDP growth rate over has level over the past decade, regional differences been about 5.1 percent, with the poverty rate falling persist, with the poverty rate in the Northeast being from more than 40 percent in 1988, to less than 10 five times higher than in Bangkok. percent by 2009. However the inequality rate, as THAILAND: CHALLENGES AND OPTIONS FOR 2012 AND BEYOND January 2012 Figure 1: GDP growth, Poverty and Inequality Trends Such a growth, poverty, and inequality trajectory is not specific to Thailand alone. International experience shows that as economies grow from low to high income, production tends to become more concentrated spatially. Some places – cities, coastal areas, and connected countries – are favored by producers and hence production becomes concentrated. Concentration of economic activities leads often to concentration of services and resulting regional disparities. International experience further shows that as countries develop, the most successful ones institute Source: National Economic and Social Development Board policies that make living standards of people and access to public services more uniform across space. Thailand also has significant regional income disparities (Figure 2). Between 2000 and 2009, There are three things that Thailand can do to make income inequality (as measured by the regional GINI access to public services more uniform across the index) in Bangkok and the Northeast has increased country, efficient and accountable. while in other regions inequality has decreased. This regional dimension has kept the national income Making Access to Public Services More inequality level unchanged. Uniform across the Country Figure 2: Thailand Regional Inequality Trends 0.440 As the economy has grown over the past three decades, production has become more concentrated 0.420 in the central region and in Bangkok due to proximity 0.400 to the port and related supply chains. As production has become concentrated, the government has made 0.380 infrastructure investments and provided social and 0.360 ancillary public investments to support the 0.340 productive sectors. In addition, as Bangkok is the administrative capital of the unitary government and 0.320 2000 2002 2004 2006 2007 2008 2009 the major capital city, most of the administrative and planning functions have been centralized there. As a Bangkok Central North Northeast South result there has been a concentration of public Source: National Economic and Social Development Board spending in Bangkok (see Figure 3). There are also significant regional disparities in Figure 3: Regional Comparison – Spending, Population and GDP human development and economic opportunities in Percent Share Thailand. Examining the four indices of the 2009 80 72.2 UNDP Human Achievement Index (HAI) that relate to 70 Share of Total Expenditure service delivery (health, education, income, and 60 Share of GDP transportation and communication), we see that on 50 43.6 Share of Population each dimensions Bangkok performs much better than 40 other regions, while the Northeast region lags on 30 25.8 34 health, education and transportation/ 20 17.2 16.8 18.1 13.8 communications indicators. The North lags most on 10 7.2 9.4 7.4 11.5 5.8 9.6 7.5 the income dimensions. 0 Bangkok Central North Northeast South Source: MOF, NESDB, and World Bank The World Bank in Thailand | Improving Service Delivery 2 THAILAND: CHALLENGES AND OPTIONS FOR 2012 AND BEYOND January 2012 Figure 3 shows that although Bangkok accounts for (ii) Increase the equalization element of the about 17 percent of population and 25.8 percent of intergovernmental fiscal transfer formula GDP, it benefits from about 72.2 percent of total from 2 percent to at least 15-20 percent of expenditures. This is in sharp contrast to the total transfers. Northeast which accounts for about 34 percent of population and 11.5 percent of GDP, but received Making Public Services More Efficient only 5.8 percent of expenditures. Even correcting for the fact that Bangkok is the administrative capital for The 1997 Constitution brought in reforms aimed at the country, such concentration of expenditures is decentralizing service delivery responsibility and extreme. finances to local authorities. These reforms were intended to make public services more efficient and Service delivery disparities mirror expenditure lead to increased public participation in decision disparities. In the health sector there are three times making at the local level, and enhance local economic more doctors per capita in Bangkok than in other development. regions. While in the education sector the teacher per student ratio is much lower in the North and the Over the last decade the decentralization reforms Northeast than Bangkok and the central region. have led to a significant increase in the share of These disparities are correlated to human finances held by Local Administrative Organizations – development outcomes. from 8 percent of general government revenues in 1999 to 26 percent by 2011. However, there has Analysis point to two main reasons for the observed been limited progress with decentralizing service concentration of expenditures: (i) momentum of delivery. There are essentially three key reasons for expenditures – concentration of economic activity this: requiring concentration of investments in infra- structure and education and health facilities in the Firstly, although the government has established new Bangkok and the central region. Now these need to institutions of local self government, it has NOT rolled be maintained, leading for little fiscal space for other back the deconcentrated arms of the central expenditures; and (ii) the equalization component of government. Deconcentrated arms of the central the intergovernmental fiscal transfer system is very government have continued to perform traditional small – out of total grants from central government command and control functions over local authorities to the local government of TBH 174 billion, a mere and there is little effective autonomy for LAO’s to 3.7 billion were set aside for equalization purposes in decide on service delivery. 2011. Secondly, decentralization reforms have not been As Thailand continues to develop, production will coordinated with sectoral service delivery reforms probably continue to be concentrated in Bangkok and conducted by central government agencies. The lack the central region. The key policy challenge however of clearly delineated responsibilities between central- will be on making access to public services more government and LAO’s, and no coordination between uniform across the country – both in terms of sectoral reforms and decentralization reforms have quantity and quality. led a reform-flux with agencies responsible for decentralization are trying to decentralize ownership In order to accomplish this task the Government of health and education units, while central could consider: government agencies have been trying to retain (i) Refocus expenditure policy towards regions control of these units and to improve service that are deficient in terms of service delivery, delivery. Lack of coordination has resulted in with the aim of bringing them up to the significant tension in service delivery. Bangkok standard; and The World Bank in Thailand | Improving Service Delivery 3 THAILAND: CHALLENGES AND OPTIONS FOR 2012 AND BEYOND January 2012 Thirdly, Thailand has too many small LAOs which are financially too small to provide public services. Out of A unitary state is a sovereign state governed as one single unit in which the central government is supreme and any the 7,853 local authorities more than 3,000 have administrative divisions (sub-national units) exercise only populations of less than five thousand. In such LAOs, powers that their central government chooses to delegate. a large share of resources is spent on administration In federal states, by contrast, states or other sub-national instead of public services. In addition, such small units share sovereignty with the central government, and LAOs makes effective coordination by central the states comprising the federation have an existence government agencies very difficult and burdensome. and power functions that cannot be unilaterally changed by the central government. These three issues are making the provision of services at the local level less inefficient and administratively expensive. Clarify and demarcate functional roles between central government and local authorities and In order to address these three key issues, the prepare a model of decentralized service delivery government is recommended to consider three especially as they relate to health and education actions: services. Clarity in functional roles will help guide the centralized-decentralized management of these Transition to a unitary decentralized government sectors and solve the current questions regarding structure in order to address tensions in the central- structure of health and education delivery. This will local government relations system. This can be most also increase accountability for results and help simply achieved by rolling back the deconcentrated refocus the intergovernmental fiscal transfer system arms of the central government at the provincial level to follow functions. and linking LAOs directly with line and sector agencies—for example, the Ministry of Finance and Administratively consolidate LAOs into larger, more Bureau of the Budget on budgeting issues, and sector financially viable entities through fiscal grants and ministries on service delivery issues. The role of the other incentives. Per capita, Thailand has more local Department of Local Administration at the Ministry of authorities than many other decentralized countries the Interior should transition from command and like China, Japan, Brazil, US, Denmark and Poland, control to facilitation and coordination. The pace of with much smaller service populations. Such small the roll-back should be calibrated with measures administrative units result in high administrative aimed at strengthening capacity of LAOs and could costs which crowd out public expenditures on service first be piloted for municipalities. delivery, while the large number of LAOs strains central coordination mechanisms as there are too This proposed decentralized unitary form of many units to effectively deal with, and causes government administration is consistent with the fragmentation in service delivery. The government is 1999 and 2007 Constitution and allows for a seamless advised to consider administrative consolidation of integration of LAOs with the central government. This LAOs into larger and financially more viable units – form also requires the least restructuring of the such administrative consolidation has been successful existing central local government relations system. in other European countries such as Norway, Sweden, Denmark, Germany and Netherland. Earlier in 2011, the Thailand National Reform Administrative consolidation of local authorities will Committee recommended abolishing the provincial allow for a reduction in administrative costs which governor’s office to empower local authorities can be channeled into service delivery, improve directly for delivering services, and to connect LAOs central-local coordination and enhance voice of local directly to central government agencies responsible authorities as larger units. for service delivery, bypassing the Ministry of the These three suggestions will make the central-local Interior. This proposal means a complete roll-back of government relations system more efficient at the deconcentrated arms of the central government providing services at the central and local level. at the provincial level and is also consistent with the unitary form of government and the proposal in this policy note. The World Bank in Thailand | Improving Service Delivery 4 THAILAND: CHALLENGES AND OPTIONS FOR 2012 AND BEYOND January 2012 Making Services More Accountable The absence of such information weakens local accountability mechanisms and builds perceptions of Accountability at the local level is currently opacity and secrecy at the central and local levels. constrained by lack of information on service delivery performance, procurement of standard goods and In order to improve service delivery and address supplies and application of public finances. some of the issues identified in this policy note, there are four main recommendations: Thailand has established different performance Measure and annually publish service delivery management and monitoring systems at both the performance by central and local authorities either central and local level. Some of the main systems against national benchmarks or in absolute terms. include: (i) the Local Quality Management system for monitoring and reporting on local authority service Consolidate detailed fiscal operations information of delivery performance; (ii) the e-Local Authority LAOs (at least at the municipal level) with that of Accounting System for monitoring and reporting on the central government and publish general local authority fiscal performance; (iii) the Public government operations report by functional and Management and Quality Assurance for making economic classifications. departments more effective and responsive in service delivery. Institute mechanisms for local citizen representation on boards of health and education facilities in order However currently there is little reporting on: (i) to ensure voice and opinion of citizens are considered service delivery performance (response times and and taken into account in management of service outcomes) for LAOs and centrally managed units; (ii) delivery units. fiscal operations for local authorities (even for large municipalities); and (iii) unit prices of even standard Publish unit price information for standard supplies goods and supplies procured by government entities. and goods procured by local authorities and central Such information is necessary for operationalizing agencies. Such a move will increase transparency and informed accountability systems at the central and provide incentives for LAOs to conduct competitive local levels. Stakeholders must be able to determine procurement, along with interested citizens to see at whether or not their local authority is obtaining what price their respective jurisdiction is procuring goods and supplies as competitively as other standard goods and supplies as compared with jurisdictions and the central government. This basic others. reporting is well within reach of and expected by a higher middle income country like Thailand. The World Bank in Thailand | Improving Service Delivery 5 THAILAND: CHALLENGES AND OPTIONS FOR 2012 AND BEYOND January 2012 What can be done? Policy Options for Improving Service Delivery Making Access to Public Services More Uniform Making Services More Accountable  Refocus expenditure policy towards regions  Measure and publish annual service delivery that are deficient in terms of service delivery, performance by central and local authorities with the aim of bringing them up to the Bangkok either against national benchmarks or in standards. absolute terms.  Increase the equalization element of the  Consolidate detailed fiscal operations intergovernmental fiscal transfer formula from information of LAOs (at least at the municipal the current 2 percent to at least 15-20 percent level) with that of the central government and of total transfers. publish general government operations report by functional and economic classifications. Making Services More Efficient  Institute mechanisms for local citizen representation on boards of health and  Transition to a unitary decentralized education facilities in order to ensure voice and government structure by rolling back the opinion of citizens are considered and taken into deconcentrated arms of the central government account in management of service delivery at the provincial level and linking LAOs directly units. with line and sector agencies.  Publish unit price information for standard  Clarify and demarcate functional roles between supplies and goods procured by local central government and local authorities authorities and central agencies. Such a move especially as they relate to health and education will increase transparency and provide services. incentives for LAOs to conduct competitive  Consider administrative consolidation of LAOs procurement, along with interested citizens to into larger more financially viable entities see at what price their respective jurisdiction is through fiscal and other incentives. procuring standard goods and supplies as Administrative consolidation of local authorities compared with others. will allow for a reduction in administrative costs, which can be channeled into service delivery, improve coordination and enhance voice of local authorities. This Policy Note summarizes the key findings of the Thailand Public Finance Management Report which is part of the on-going Thailand-World Bank knowledge sharing partnership under the Country Development Partnership on Public Sector Reform and Governance. The Note also draws on The World Development Report 2009 – Reshaping Economic Geography (World Bank) For more information please contact Ms. Nattaporn Triratanasirikul at nattaporn@worldbank.org The World Bank in Thailand | Improving Service Delivery 6