Ghana is embarking on a significant overhaul of local government financing, proposing the introduction of municipal bonds for financially strong assemblies and a doubling of the constitutional minimum for the District Assemblies Common Fund. This ambitious plan seeks to devolve power from Accra and empower the country's 261 Metropolitan, Municipal, and District Assemblies (MMDAs) to become more fiscally independent.
Harry Yamson, Administrator of the District Assemblies Common Fund (DACF), highlighted that Ghana's three-decade decentralisation project has reached a critical juncture. He noted that despite efforts, MMDAs remain largely dependent on central government grants, lacking genuine fiscal autonomy. The proposed reforms aim to transform these assemblies from grant-dependent administrative bodies into institutions capable of generating their own revenue, borrowing for essential infrastructure, and serving as engines for local economic development.
This initiative fits into Ghana's broader economic narrative of strengthening local governance and improving public finance management. The current system, despite a sizeable performance-based local government financing mechanism like the DPAT IX allocation pool totaling GHS 833.50 million, has not led to fiscal independence for any of the 261 MMDAs. This dependence creates a "perverse incentive," where assemblies prioritise compliance with assessment criteria over improving local governance and economic conditions.
Mr. Yamson stated that Article 240 of the Constitution envisioned fiscal, administrative, and political decentralisation moving together. He emphasised that resources, staff, and power should pass from the central government to the people in a coordinated and deliberate manner. The current situation, marked by persistent audit infractions, fragmented institutional mandates, and central control over local government staff, indicates a deeper structural problem.
The proposed reforms include a six-pillar agenda covering fiscal sovereignty, democratic deepening, digital transformation, grant reform, institutional rationalisation, and the constitutional entrenchment of key decentralisation commitments. A crucial aspect of this plan is allowing creditworthy MMDAs to issue municipal bonds under central government oversight. This would enable financially sound assemblies to fund local markets, clinics, or other revenue-generating infrastructure against future revenues, rather than relying solely on central government capital grants. This shift could allow economically stronger districts to finance long-term infrastructure projects over their useful life, benefiting residents and businesses directly.
However, the introduction of municipal bonds also carries new fiscal risks. Poorly governed assemblies borrowing against overly optimistic revenue projections could create liabilities that ultimately revert to the central government. Therefore, any framework for municipal bonds would require strict creditworthiness tests, borrowing ceilings, audited accounts, and clear rules to prevent implicit state guarantees from encouraging reckless debt accumulation. These safeguards are essential to ensure the financial stability of both local and national governments.
Another significant intervention is the District Own-Revenue Mobilisation Compact. Under this compact, every MMDA would be required to increase its own-source revenue by at least 15.00% annually. This increase would be a condition for full access to the grant envelope. Assemblies that exceed this target would receive performance bonuses, while citizens would be able to monitor revenue performance through publicly accessible dashboards, promoting transparency and accountability. The plan also ensures the continued 100.00% retention of internally generated funds, alongside a future constitutional minimum for a wider local-revenue base.
These reforms are expected to have profound implications for Ghana's economic landscape. By empowering local governments to raise and manage their own finances, the country can foster more balanced regional development, improve local infrastructure, and reduce the fiscal burden on the central government. Decision-makers and financial markets will closely watch the implementation of these proposals, as they could significantly alter the dynamics of public finance and investment across Ghana.