Cities Without Fiscal Power

Executive Summary. Bangladesh asks local governments to manage visible problems without giving them a stable, visible fiscal system. The latest comprehensive finance study available from the World Bank and Local Government Division uses FY 2017-18, so its monetary levels are old and must not be read as current budgets. Its structure is still revealing. Union Parishads spent about BDT500 per resident, pourashavas about BDT2,000, and City Corporations about BDT3,800. Own-source revenue ranged from BDT33.6 per resident in Union Parishads to BDT1,147.2 in City Corporations, yet own revenue does not equal discretion when transfers and functions are fragmented. The deeper failure is current measurement: Bangladesh lacks a regularly published, comparable ledger of local revenues, transfers, functions, and results. Fiscal decentralisation should begin with transparent assignments, formula-based transfers, and audited local accounts, not with a slogan that every city should simply collect more tax.

A blocked drain is local. A broken footpath is local. Waste collection, street lighting, local roads, markets, parks, fire access, and neighbourhood resilience are experienced at a specific place. Yet the money and authority needed to solve them can be distributed across a city institution, central ministry, special project, utility, and field administration. The resident sees one failure. The state sees several files.

This fragmentation lets every institution explain what lies outside its mandate. It also prevents citizens from matching the tax or fee they pay to a service result. Fiscal power is not only the ability to raise money. It is the ability to know which function one owns, predict what money will arrive, choose among local priorities, execute, and account for the result.

The best comprehensive map is already an old map

The World Bank and LGD report states that its broad analysis focuses on FY 2017-18, then the latest year with comprehensive data. It covered all 4,538 Union Parishads, all 11 City Corporations, and 175 of 329 pourashavas with complete and consistent reports, while using incomplete data for Upazila Parishads. That coverage was a serious attempt to build a national picture.

The age of the evidence is itself a policy finding. Local fiscal reform cannot be managed from a comprehensive snapshot that is many budget cycles old. Inflation, urban boundaries, population, infrastructure needs, transfer programmes, and revenue bases change. If the next comparable national picture requires another special study, local finance is not a system. It is a research project.

The Local Government Division publishes budget documents, but a list of files is not the same as a consolidated dataset. A national local-finance ledger should make each institution's budget, actual spending, own revenue, transfers, arrears, debt, and service functions comparable across years. It should preserve revisions and state which figures are audited.

Freshness matters for accountability as much as analysis. A resident cannot challenge an old average. A mayor cannot benchmark current collection against peers. A ministry cannot adjust a transfer formula using stale population and cost assumptions. The first act of fiscal decentralisation is to make the fiscal position visible while decisions can still change.

Place determines the size of the service envelope

In the older comprehensive study, Union Parishads spent about BDT500 per resident. Pourashavas spent about BDT2,000, while City Corporations spent close to BDT3,800. These are approximate values from the report, not current entitlements.

Source: World Bank and Local Government Division, FY 2017-18 comprehensive local-finance study. Older vintage.

Different institutions have different functions and cost structures, so equal per-person spending is not automatically fair. Dense urban areas need expensive drainage, waste management, traffic systems, and infrastructure maintenance. Rural bodies cover dispersed populations and may rely more on deconcentrated services. The chart does not prove that one type is overfunded.

It does prove that the institutional category shapes the resources available around a resident. That makes function assignment essential. A spending comparison without a function map can mislead, because one level may appear cheap only because another agency pays for the service. Bangladesh needs to state which level is responsible for the standard, financing, delivery, and maintenance of each local function.

The service envelope must also be predictable. A local government cannot plan maintenance or staffing around discretionary project releases that arrive late or carry narrow conditions. Capital construction without a future operating stream creates assets that decay. Predictable finance is not a gift to local politicians. It is a condition for lifecycle management.

Own revenue is unequal, and it is not the same as autonomy

The study reports own-source revenue of BDT33.6 per resident for Union Parishads, BDT646.5 for pourashavas, and BDT1,147.2 for City Corporations. Urban institutions have larger tax and fee bases, higher land values, and more commercial activity. Rural institutions cannot reproduce that base through effort alone.

Source: World Bank and Local Government Division, FY 2017-18 comprehensive local-finance study. Older vintage.

This is why a reform framed only as "collect more" is incomplete. Revenue administration can improve. Property records, billing, payment channels, fee schedules, and enforcement all matter. But capacity and tax base are separate. A poor locality may exert strong effort and still collect little. A wealthy locality can collect more with weak effort. Transfer design must distinguish the two.

Own-source revenue covered 6.5% of Union Parishad expenditure, 42.2% for pourashavas, and 30.5% for City Corporations in the study. The higher urban shares show that local taxpayers already mattered. They do not prove that urban bodies controlled the rest of their budgets.

Source: World Bank and Local Government Division, FY 2017-18 comprehensive local-finance study.

The report's central institutional warning is that much transfer funding arrived through special or earmarked project grants. Money can enter a local account while discretion remains at the centre. Own revenue may also become politically earmarked when taxpayers will only accept payment for visible services that benefit them. A city can therefore collect a meaningful share and still lack room to finance poor neighbourhoods, migrants, prevention, or maintenance.

Formula transfers are the bridge between equity and autonomy

Central transfers are not evidence that decentralisation failed. Every serious system uses intergovernmental transfers because local tax bases differ and national standards matter. The question is whether the transfer is predictable, transparent, and aligned with functions.

A formula can account for population, poverty, service cost, climate exposure, infrastructure deficit, and revenue effort. The formula should be public enough that a local government can forecast its envelope and a citizen can reproduce the allocation. Stability should be balanced with periodic updates so old boundaries and population estimates do not become permanent advantages.

Conditional transfers also have a legitimate role when the centre finances a national priority. The problem is excessive fragmentation and hidden conditions. Each grant should state the function, formula or selection rule, release schedule, reporting requirement, and expected local contribution. Similar grants should be consolidated where possible. Local officials should not spend their planning capacity chasing disconnected projects.

Autonomy needs an accountability counterpart. Local budgets and actuals should use a common chart of accounts. Procurement and payroll should connect to the same institution identifier. Audit findings should be public and resolved. Citizens should see function-level spending and service indicators, not only line items. Fiscal power without this visibility can decentralise capture instead of service.

The counterargument: local capacity is too weak for more money

The strongest objection is that local governments often lack financial management, engineering, procurement, and audit capacity. Giving them greater discretion before building capability could increase waste or local elite control. Central ministries may have stronger technical staff and economies of scale.

This objection identifies a real sequencing problem, but permanent centralisation does not solve it. Institutions do not develop capacity for decisions they are never allowed to make. Project-by-project control can weaken local systems by creating parallel units, bespoke formats, and temporary staff. When the project ends, capability leaves with it.

The answer is graduated authority. A common minimum system can govern accounts, disclosure, procurement, and audit. Local bodies that meet the standard can receive larger predictable envelopes and wider discretion. Those that fail need targeted support and closer controls, with a path to improve. National agencies can continue to set standards and provide shared technical services where scale matters.

Capacity should also be measured by function, not as a single label. A local body may manage routine maintenance well but lack capacity for complex treatment plants. Finance and responsibility should match the task. "Weak capacity" cannot remain an all-purpose reason to keep every decision far from the service.

Three moves to give places fiscal agency

1. Publish a current national local-finance ledger. Owner: Local Government Division with the Comptroller and Auditor General and Bangladesh Bureau of Statistics. Success signal: every local institution has comparable annual budget, actual, own-revenue, transfer, arrears, and audit fields, with population and function definitions attached.
2. Replace fragmented discretion with a transparent transfer architecture. Owner: Ministry of Finance and Local Government Division. Success signal: formula-based and conditional transfers have published rules, forecastable release calendars, and a clear link to assigned functions and service standards.
3. Earn wider discretion through a common capability floor. Owner: Local Government Division. Success signal: local bodies that meet accounting, procurement, disclosure, and audit standards receive broader multi-year spending authority, while weaker bodies receive specific support and a published improvement path.

Bangladesh's urban future will not be managed from one capital desk. Local governments need neither unchecked autonomy nor another layer of projects. They need defined functions, predictable money, usable accounts, and consequences for results. The possibility begins by replacing the old fiscal snapshot with a living system, then giving each place the power to act inside rules the public can see.

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Data note: all monetary local-finance figures are from the comprehensive FY 2017-18 study and are explicitly treated as an older structural benchmark, not current 2026 budget levels. Sources retrieved 2026-08-23.

Sources

1. World Bank and Local Government Division, Improving Local Governance and Service Delivery in Bangladesh: The Role of Local Government Finance: https://documents1.worldbank.org/curated/en/150821592287566995/pdf/Improving-Local-Governance-and-Service-Delivery-in-Bangladesh-The-Role-of-Local-Government-Finance.pdf
2. Local Government Division, Budget publications: https://lgd.gov.bd/pages/static-pages/69414020c4774958d7b54b08