Chapter four: Economic governance and management 436. The devolution of fiscal resources has lagged behind the devolution of functions and staff. The only development fund received by the community councils by 2007 was an initial interim capital grant of M15 million that was subsequently increased to M21 million. The grants are allocated to community councils based on population (75 per cent) and on geography (25 per cent). Although the allocation is formula-based, the funds are not fungible and each community council is still required to apply to make expenditures based on approved implementation plans. The FDTT is currently developing a new formula for transfer grants from central government to local authorities. Currently, the Local Government Finance Board (LGFB) – made up of a chairperson selected by the MoFDP, two members selected by the MoLG and three members elected by the chairpersons of district councils – monitors and controls the implementation of unconditional and conditional district development funds. 437. The Local Government Act of 1997 provides a general framework for financing local government through fines and penalties; revenue from sales; leases or other transactions; donations; gifts and grants; and rates, taxes, fees and other charges levied by local authorities. However, local authorities have not yet been able to raise funds through any of these channels. The only exceptions are that some community councils have been able to raise small amounts of money through fines on animals that have trespassed on reserved grazing lands. Most community councils have neither kept these monies in the bank nor accounted for them. 438. Local government finances have therefore relied almost entirely on central government grants. Donor and NGO funding is usually tied to particular programmes or development activities, depending on the area of interest of the donor organisation, and very little revenue is generated from local sources. All the funds transferred to local authorities are conditional in the sense that they are tied to specific development or current expenditure functions. ii. Findings of the CRM 439. With regard to public revenue mobilisation and allocation, stakeholders have underscored the risks of Lesotho’s heavy dependence on SACU revenue (50.1 per cent of total revenue in 2008) and that disbursement is hard to predict, making budget preparation and management rather difficult. However, although some stakeholders argue that the SACU revenue-sharing formula is likely to result in lower benefits for Lesotho, this may only occur when SACU countries sign economic partnership agreements that result in significantly lower tariff rates (see box 4.2). 440. While tax rates are in line with those of South Africa, it is difficult for Lesotho to expand the tax base because of its small industrial/manufacturing sector. Nonetheless, the government of Lesotho can do more to increase tax revenue through direct and indirect means. Improving tax administration and implementing measures to promote domestic investment and growth are two examples of how government can increase public revenue in the future. The government can also mobilise increased resources for financing development through PPPs. 441. Budget allocations to the economic sectors are relatively low (17 per cent in 2008) and declining. Stakeholders attribute this to a lack of long-term growth perspectives and reduced allocations to agriculture because of perceived low returns. Further, declining budgetary allocations to economic 121