Chapter 3. Strengthening regional development policy to boost inclusive growth

This chapter explores how regional development can be a lever to help Panama continue on its growth trajectory and achieve more inclusive socio-economic outcomes. It discusses Panama’s current multi-level governance architecture, identifying where it should be strengthened to better support the design and implementation of regional development policy. In addition, it evaluates the need for a more strategic approach to regional development and greater capacity in subnational finance, institutional co-ordination, and quality public service delivery, at all levels of government. A special focus is placed on Panama’s local authorities in light of specific resource challenges and the 2014 decentralisation reform. Finally, the chapter looks into what would be necessary to achieve a strategic shift towards a “place-based” policy approach for regional development, and provides recommendations for action.


Regional development is a policy lever for sustainable and inclusive growth in Panama. To better meet national objectives of sustained development with greater inclusiveness, a number of territorial challenges should be addressed (OECD, 2017a). These include ensuring more equal access to public services across regions, reducing the level of labour market informality, and strengthening the mechanisms that can finance development. A regional development strategy that is built around the unique and competitive attributes of each region – a “place-based” approach – supported by effective multilevel governance mechanisms could help Panama achieve more inclusive socio-economic outcomes.

This chapter is dedicated to exploring regional development as a policy lever for Panama to better meet its sustainable growth and inclusiveness aims, and focuses on the need to improve strategic planning and implementation frameworks. It begins by reviewing Panama’s multilevel governance structures as they relate to regional development, explores the benefits associated with a “new paradigm” approach, and identifies multi-level governance tools, particularly with respect to co-ordination, that could strengthen institutional capacity to realise regional development aims. It concludes with a series of recommendations for regional development.

Why a national-level regional development policy matters

A national level policy establishes the guiding principles for decision making and action with respect to a specific sector (e.g. education, transport, energy) or a multisector concern (e.g. regional economic development, labour markets, social inclusion). In a regional development context, the purpose and value of a national regional development policy is several fold. First, it sets the guidelines for decision making and action in a complex, multistakeholder policy area. Second, when well designed, executed and monitored, a national-level regional development policy can help align priorities and build greater coherence and complementarity among the various actors involved, particularly since sector priorities and approaches may differ among them. When regional development is approached in terms of a policy package (rather than individual sector interventions), there is less potential for the unintended and undesirable effects that can arise when policy measures are undertaken in isolation (OECD, 2012). Third, it facilitates capitalising on cross-sector policy synergies that can better promote inclusive and sustainable growth.

Regional development is a key multisector policy area that promotes well-being and economic prosperity. Taking a regional perspective, including an aim to promote growth in all regions, rather than focusing on high or low performance regions, is likely to yield economies that are less vulnerable to external shocks (OECD, 2012). At the same time, there is increasing agreement that the quality of governance structures (institutions and frameworks) plays a significant role in the ability to generate sustained increases in wellbeing and economic prosperity (EC, 2017a). Regional development policy contributes to inclusive and sustainable growth by acting as a framework for action at the national and subnational level.

Approaches to regional development in OECD countries

Investing in regions, including the less-performing ones, is beneficial for sustainable growth. While there is no question why governments should invest in regions that are engines of growth, policy makers and the public can question why it is just as important to invest in regions that are less dynamic. Regions that underperform can be costly to national budgets. Missed growth opportunities go hand in hand with lower tax revenues, and ensuring adequate public service delivery can be very expensive. In addition, if the decline is not reversed, political pressures can lead to expensive policies dedicated to sustaining communities and living standards through transfers, which in time can lead to conflict (particularly as wealthier regions tire of paying for such support) (OECD, 2012).

Shifting from an approach that focuses on transfers and subsidies as generators of wellbeing and growth to one that concentrates on identifying and building the productive potential of each region can contribute to regional dynamism and national inclusive growth (OECD, 2012). Over the past few decades, OECD countries have done precisely this, using regional development policy to promote more integrated and market-oriented approaches in order to solve national growth challenges. This has resulted in a “new paradigm” driving the design and implementation of regional development policy (Table 3.1), where effort and resources are concentrated on building competitive regions by bringing together actors and targeting key local assets rather than ensuring the redistribution from leading to lagging regions (OECD, 2009a; OECD 2009b).

Table 3.1. Old and new paradigms of “place-based” regional development policy


“Old” Paradigm

“New” Paradigm


“Balancing” economic performance by compensating for spatial disparities

Tapping underutilised regional potential for competitiveness


Sector-driven approach

Integrated development projects


Subsidies and state aid

Development of soft and hard infrastructure


Central government

Different levels of government

Unit of territorial analysis

Administrative regions

Functional regions


Redistribution from leading to lagging regions

Building competitive regions by bringing together actors and targeting key local assets

Source: OECD (2009b), Regions Matter: Economic Recovery, Innovation and Sustainable Growth, OECD Publishing, Paris,

The goal of regional development policy is to ensure that different types of regions are able to thrive and offer a high quality of life for their residents (OECD, 2016a). Introducing such a policy in and of itself will not automatically generate growth or inclusiveness. It serves as a framework to guide the implementation of sector and cross-sector policies and programmes that can – in the short, medium and long term – contribute to the performance of a country and its regions. It needs to be complemented not only by effective sector policies that support infrastructure, labour markets, and innovation, but also by effective multilevel governance structures – the institutions and frameworks supporting relationships, decision making, and implementation processes between national and subnational levels of government, including subnational development planning.

Panama’s multilevel governance structures supporting regional development

The design and execution of regional development policy relies heavily on the successful interaction of multiple levels of government, government sectors, actors and interests. It must align national and subnational objectives and priorities, and its implementation depends on the capacity, including human, financial, and infrastructure endowments, of all levels of government. Its success also relies on empowered, accountable, and properly resourced subnational governments, both regional and local. Panama’s multilevel governance structures (i.e. the institutions and frameworks) that support regional development are centralised and top-down, not fully able to promote a “place-based” or “new paradigm” approach. This is further limited by the minimal role that subnational governments play in the country’s economic and social development.

Panama’s territorial administrative structures

Panama is a presidential republic of over four million inhabitants. Compared to OECD member countries, it is similar in population to Ireland, New Zealand and Norway. In total area it is slightly smaller than the Czech Republic. It is a unitary country with two levels of government established constitutionally: national and municipal. At the subnational level, administration is divided into two administrative tiers, with municipalities divided into submunicipal units (Table 3.2).

Table 3.2. Panama: Subnational administrative bodies

Subnational Tier

Name of unit

Number of administrative units

Tier 1: Provincial level






Tier 2: Municipal level



Indigenous settlements2

2 101

Submunicipal level



1. Within the context of the decentralisation law and in order to ensure government transfers, Panama counts 78 municipalities with the 78th municipality being the combination of three comarcas: Madugandí, Wargandí and Guna Yala.

2. Panama’s three comarcas have a total of 2 073 populated areas broken down as follows: Kuna Yala (117), Emberá (82), Ngäbe Buglé (1 874). The two indigenous groups that are embedded in provinces, Kuna de Wargandí and Kuna de Madungandí, have 5 and 23 populated areas, respectively. Note that for these last two areas, data is in anticipation of the census in 2020, for the others data is from February 2018.

Sources: Adapted from: OECD (2017a), Multi-dimensional Review of Panama: Volume 1. Initial Assessment, OECD Development Pathways, OECD Publishing, Paris,; editorialox (n.d.), “Panama” available:; Data for indigenous settlements provided by Panama from INEC (National Institute of Statistics and Census of Panama).

Provinces are deconcentrated entities of the central government. Each is led by a presidentially appointed governor and administered by a Junta Territorial composed of representatives from each line ministry. An indirectly elected Provincial Council1 acts as an advisory body to the governor. Provinces do not have revenue-generating capacity, and are responsible for implementing the plans and programmes developed by the national government. Comarcas with provincial status are semi-autonomous, and have traditional, “communal” structures (Box 3.1). They can generate their own revenues, often from tourism, fishing, and crafts that are transferred into a community treasury or fund. Other comarca revenues come from state transfers and from remittances to family by community members living and/or working outside the comarca.

Each province is divided into autonomous municipalities (distritos), which themselves are divided into subunits – corregimientos. Municipalities are led by democratically elected mayors and have municipal councils comprised of two representatives from each corregimiento.

Box 3.1. Comarcas: Panama’s indigenous territories and communities

Approximately 12% of Panama’s population is a member of one of seven indigenous groups. The majority live either in one of three semi-autonomous comarcas or in indigenous territories embedded in provinces. Combined, these territories cover about 24% of the country’s total land mass. Functioning as collectives, the communities are governed by local leaders. Additionally, there are 10 General Congresses and two General Councils, representing the maximum authority for the indigenous population of Panama. Comarcas are represented in Panama’s National Congress. Each comarca has its own organic (constituting) law, which recognises the right of the communities to hold collective property (within the comarca), and contains specific references to natural resources, government, justice, economy, culture, education, and health. While not always the case, poverty levels are generally higher and wellbeing outcomes are generally lower in the comarcas than in Panama’s non-indigenous provinces.

Sources: UNDP (2014), Imaginando un Futuro Común: Plan de Desarrollo Integral de los Pueblos Indígenas de Panamá, United Nations Development Programme, New York, available; OECD (2017a), Multi-dimensional Review of Panama: Volume 1. Initial Assessment, OECD Development Pathways, OECD Publishing, Paris,

First-tier outcomes and growth patterns can reinforce territorial disparities

There is a large gap between provinces and comarcas in terms of wellbeing outcomes. Residents of comarcas are much more likely to live in poverty and report lower levels of satisfaction about their living conditions. They are also at greater risk of having an informal job, or not having access to drinkable water in their dwelling. The lowest level of electricity coverage in Panama is among the indigenous population. However, low outcomes in material and living conditions are also evident in the provinces as well, generally those that are rural, and regardless of whether they have a high percentage of indigenous residents (Figure 3.1) (OECD, 2017a).

A strategic approach to regional development, supported by a policy for its implementation, can help mitigate a risk of ad hoc growth and development, and better ensure the ability to successfully address inequalities. Projections indicate that provincial population growth between 2010 and 2020 is expected to range from a low of 1.6% in Los Santos, to 33.5% in Bocas del Toro. The population of Panama City is expected to increase by over 20% in this same 10-year period, a growth level also expected of the three comarcas2 (Controlaría del Gobierno de Panamá, 2010). In light of this, there are two points that should be underscored. First, the population is expected to grow most in some of the least-advantaged territories, where quality of life/wellbeing outcomes are already low, particularly in the comarcas, Bocas del Toro, and Los Santos (OECD, 2017a). Second, Panama City is also expected to grow significantly and the challenge will be to ensure adequate infrastructure, housing, amenities, and service delivery capacity to keep up with growing demand, while also maintaining or improving quality of life. While appropriate spatial and land-use planning is fundamental to meet the challenges represented by such growth, they complement and contribute to a regional development policy; they do not replace it.

Figure 3.1. Quality of life by regions
Standardised scores

Notes: This analysis looks at the original province of Panamá, although Panamá and Panamá Oeste recently split. Z-score or standard score stands for the signed number of standard deviations by which the regional outcome is above or below the national average. This normalisation enables an assessment of how much a region’s performance is deviating from that average.

Source: OECD (2017a), Multi-dimensional Review of Panama: Volume 1. Initial Assessment, OECD Development Pathways, OECD Publishing, Paris,

Normative and institutional frameworks for the subnational level

Territorial administration is governed by a series of laws, some of which date to the 1970s, and others which were recently introduced. These include the Constitution; Ley N9-106 Sobre Regimen Municipal from 1973 which establishes municipal categories, autonomy and structure; Law No. 37 of 2009 Que Descentraliza la Administración Pública – Panama’s first decentralisation law; and Law No. 66 of 2015 Que Reforma la Ley 37 de 2009, which updates and amends Law No. 37 of 2009. In addition, a national policy for land use with a horizon to 2030 (Política Nacional de Ordenamiento Territorial), together with an action plan establishing priorities, is under preparation by the Ministry for Housing and Land Use (Ministerio de Vivienda y Ordenamiento Territorial).

Planning frameworks for regional development could be better targeted

Regional development in Panama is guided by successive government programmes, currently the Plan Estratégico de Gobierno 2015-2019 (PEG) (Box 3.2). The document outlines the president’s objectives and approach for the country’s development, including at the subnational level. It is implemented by sector-driven projects and programmes. However, this plan does not guide regional development in the long term. Rather, regional development is a central level process guided by government strategies that are limited to a period of five years. Implementation depends on the plans of each line ministry, as well as the articulated needs of local authorities that emerge from provincial government bodies. Panama is also developing a 12-year national development plan, the Plan Estratégico Nacional con Visión de Estado – Panamá: 2030, which can be a valuable longer-term strategic document to embed broader national objectives, although it does not specifically refer to regional or territorial development.

Box 3.2. The territorial dimension to Panama’s Government Strategic Plan, 2015-2019

In the current government programme – the Plan Estrategico de Gobierno 2015-2019 (PEG) – the overall ambition is to promote greater sustainability and equality, increased competitiveness and more effective investment throughout the country. In order to achieve this, the PEG calls for a national “master plan” for land use and territorial development supported by a new legal framework, greater citizen and business participation in territorial and urban interventions, and building institutional capacity at all levels of government. It includes a section dedicated to modernising the public sector that focuses on public finance and investment effectiveness, as well as on taking a more strategic approach to public management, promoting civil service reform, and advancing the decentralisation agenda.

Source: Gobierno de la República de Panamá (2014), Un Solo País: Plan Estratégico de Gobierno 2015-2019, Gobierno de la República de Panamá, Panama, available:

There are several concerns with this approach to regional development planning and implementation. First is the lack of a link to a larger strategy, one built using longer-term strategic foresight, solid evidence bases, and which establishes clear outcome objectives. This means that there is limited guidance for decision making and action by line ministries and their relevant agencies, and little that can be used to support monitoring, evaluation and government accountability. Second is the limited time horizon (five years) for implementation – it corresponds to one presidential term and is not tied to a longer term vision or investment strategy (OECD, 2017a). This is particularly challenging as the concrete results stemming from a strategically-based regional development policy can take longer to materialise. Third, there is no requirement that sector plans be binding in terms of implementing regulatory or investment policies to achieve objectives set in the government plan (OECD, 2017a).

OECD and non-OECD countries use a variety of mechanisms to ensure their regional development strategies have a longer-term dimension, and link to sector and subnational planning. For instance, some countries use a legal framework to support strategic regional development planning and implementation at a central or subnational level. This is the practice in Finland (Act on Regional Development, 2014), Slovenia (Law on the Promotion of Balanced Regional Development), Switzerland (Federal Law on Development Policy, 2006), and Ukraine (Law on Fundamentals of State Regional Policy, 2014) (OECD, 2016b; Verkhovna Rada, 2015) while others use white papers (e.g. Australia, UK), state strategies for regional development (e.g. Sweden) or other framework documents such as state-region planning contracts (e.g. France) or regional growth programmes (e.g. New Zealand) specifically dedicated to the task (OECD, 2016b). In addition, some countries dedicate funds to regional development planning in their national budget codes or through dedicated special funds.

At the subnational level, development planning instruments are gradually being introduced and focus on the municipal level. Article 13 of the original law on decentralisation (No. 37) included a hierarchy of planning instruments, beginning with the government plan, followed by a national land-use plan, provincial development plans, municipal development plans and finally ending with corregimiento development plans (República de Panamá, 2009). As the law was suspended and then reintroduced, this planning hierarchy appears to have been modified. The amended decentralisation law requires municipal development planning in the form of district strategic plans (Planes Estratégicos Distritales – PED). These are combined development and land-use plans (República de Panamá, 2015) that are intended to link back to the Strategic Government Plan 2015-2019 (PEG) and the National Strategic Plan 2030 (Plan Estratégico Nacional con Visión de Estado-Panamá: 2030). Prior to this, it is reported that local level development planning was under the responsibility of the central government, based upon identified needs that were communicated upward by local authorities, and for which the central government would design the corresponding plan.

Institutional responsibility for regional development is fragmented

Responsibility for regional development is fragmented across sectors in Panama. The Ministry of Economy and Finance (Ministerio de Economía y Finanzas – MEF), and specifically its Direction for Public Policy, and Department for Regional Planning within the Direction for Investment Programming, play important roles. Line ministries with a territorial logic, such as the ministries of Agriculture, Education, Employment and Labour Force Development, Health, Housing and Land Use, Social Development, and the Vice-ministry for Indigenous Affairs, as well as relevant agencies, are also involved, realising their objectives through a variety of plans and programmes. In addition, the Ministry of Government and its Department for Planning and International Co-operation also have a hand in the cross-sector co-ordination of subnational initiatives that support productive development. Finally, the Secretariat for Decentralisation will likely play an increasingly visible role with respect to local development and development planning.

This institutional framework underscores two issues. First, responsibility for regional development is highly fragmented, within institutions as well as among actors across sectors. Second, there is no government body exclusively dedicated to regional development in terms of its design, implementation, co-ordination, monitoring and evaluation. When confronted with this degree of fragmentation, institutional co-ordination becomes fundamental and inter-ministerial co-ordination is an important ingredient for success, given the complexity and cross-sectoral nature of regional development policy.

Centre-of-Government (CoG) bodies are often responsible for ensuring co-ordination across government, for instance in the area of regional development. Cross-government co-ordination committees, in turn, can delegate the oversight of the policy’s implementation to a specific ministry, which can be vital to success. In Panama, however, the level of influence that the CoG has over line ministries to encourage co-ordination is relatively low – limited to expressing its views rather than potentially executing sanctions. Also, there appears to be limited to no responsibility on the part of the CoG to organise cross-government policy co-ordination committees. Panama together with Paraguay belong to the few countries in the region where this is the case. In the others, there is responsibility for such organisation on at least one level (OECD, 2016c).

In sum, regional development in Panama could be strengthened through more targeted normative and institutional frameworks. Currently, two frameworks lead the regional development process, the PED and the Law on Decentralisation, the implementation of which are supported by the individual strategies and plans of line ministries and other government bodies. A dedicated national regional development policy could help bring these pieces together and ensure continuity over the medium term (see sections below).

Generating regional level growth depends on greater subnational capacity

Panama’s subnational governments face financial challenges and constraints in administrative and management capacity that can limit successful regional development and the implementation of place-based plans and programmes. The law on decentralisation could help address these, however it is in its early stages and so it is too soon to assess its real or potential impact.

Subnational fiscal and financial frameworks

As currently structured, Panama’s financing and investment frameworks do not easily support a “place-based”, regionally-driven approach to development. This is true at the provincial and municipal levels, where governments play a limited role in public expenditures, supposing a high degree of centralisation (Figure 3.2).

Figure 3.2. Subnational government expenditure is low in Panama (2014)

Notes: Data for Panama are for 2016. Subnational government calculations for Panama reflect expenditure by municipalities and Juntas Comunales, because provincial expenditure is counted as part of central government expenditure. Panama is highlighted in bold, Latin American countries in grey, OECD countries in blue.

Source: OECD calculations from Contraloría General de la República – Dirección General de Fiscalización, Municipalidades de la República y Ministerio de Economía y Finanzas Dirección de Presupuesto de la Nación (DIPRENA); OECD (2017b), Making Decentralisation Work in Chile: Towards Stronger Municipalities, OECD Multi-level Governance Studies, OECD Publishing, Paris,


Provincial frameworks

Provincial governments have no own-source revenue, and their expenditures are financed directly from the central budget. Their fiscal frameworks are limited to the immediate budget year (i.e. there is no multi-annual budgeting), and are frequently not formula based. Instead, line ministries are responsible for financing their sector’s subnational responsibilities, and funds are assigned annually after the ministries have defined their budgets with the Ministry of Economy and Finance. Once funds are allocated, each sector redistributes funds down the line (i.e. to the province and from there to specific areas such as schools or hospitals) based on identified local needs and projects. Funding gaps arise, and if there are insufficient funds one year, then programming waits until the next year’s budget round. Panama’s time span for fiscal projections is up to five years – a time span common to a majority of Latin American and Caribbean countries. There is no requirement for the budget to be based on long-term fiscal projections – as practised by 70% of countries in the region – nor must it take demographic change into account (OECD, 2016c). Fiscal projections can be useful for identifying future expenses in light of expected demographic and economic change, and can contribute to the reform agenda (OECD, 2016c).

This approach to managing provincial fiscal and investment funds can challenge sustainable regional and local development. Provincial authorities have little to no discretion over the use of funds in a cross-sectoral manner since budgets are handed down by the line ministry and kept within the corresponding sector. However, in some cases, such as healthcare, recent changes allow a degree of interchangeability within a sector which is a step toward greater fiscal decision-making autonomy at the provincial level. What this means for regional development, though, is that funds are limited unless the associated development programming is sector driven, or a special budget or fund for regional development is allocated by the central government. It also makes a “place-based” approach more challenging as provincial governments are limited in their ability to prioritise spending needs and act accordingly.

Municipal frameworks

At the municipal level, the picture is somewhat more complex, as there is no particular legal framework that regulates central level transfers to municipal governments (World Bank, 2013). These are often left to presidential discretion. In addition, central government transfers do not have standard frameworks, such as rules or formulas. This lends a degree of unpredictability to transfers, thereby contributing to a lack of budget predictability among local authorities (World Bank, 2013).

However, municipalities can generate own-source revenue from fees, fines and taxes (e.g. municipal taxes, tax on alcoholic beverages, and on livestock [abattoirs], which is paid to the municipality of the animal’s origin), income from public lands, properties or municipal assets; duties on the extraction of a variety of natural resources (e.g. wood, sand, stone, clay, coral) and on public performances (e.g. concerts) (Gobierno de Panamá, 1972/2004). Despite their autonomous status, however, municipalities have few attributed responsibilities. Those that they do have are heavily concentrated on general urban amenities and education with some additional services in public health, transport, recreation and culture (Annex A) (Ministerio de Economía y Finanzas, 2002). This links to the limited weight of municipalities in general government expenditure, estimated at 2.2% in 2016, representing around 0.5% of GDP (Figure 3.3). This is significantly different from the OECD average where municipal governments represent 40% of public expenditure and 17% of GDP. It is also far from many other Latin American countries.

While municipal revenue levels remain low, they have been rising since 2014 (Figure 3.3), as a result of the reintroduction of the Law on Decentralisation. In addition, municipal revenue is starting to grow faster than expenditure, which may reflect the impact of the law’s injection of funding for investment that has not yet been matched by an increase in the level of responsibilities that require spending. Despite these upward trends, however, Panama’s municipalities generate very limited revenue and have low expenditure levels as a percentage of GDP and as a percentage of total general government revenue. In Chile, for example, one of the OECD’s most centralised countries, subnational government revenue represented 3.6% of GDP and 15.5% of general government revenue in 2016 (OECD, 2017c), compared to Panama’s 0.7% of GDP and 3.0% of general government revenue.

Figure 3.3. Municipal expenditure as a percentage of GDP and total general government revenue

Source: OECD calculations from Contraloría General de la República – Dirección General de Fiscalización, Municipalidades de la República y Ministerio de Economía y Finanzas Dirección de Presupuesto de la Nación (DIPRENA).


Despite these positive shifts in municipal financing, municipal expenditure is unevenly distributed across municipalities. For example, municipalities in the province of Panamá were responsible for 62% of all municipal expenditure in 2016, underscoring large differences in the ability of local authorities to deliver quality public services and effectively administer a municipality. Disparities are also evidenced by municipal expenditure per capita, which in 2016 ranged from an average of PAB3 14 in the communities of Ngäbe Buglé to an average of PAB 112 in those located in the province of Panamá (Figure 3.4).

Figure 3.4. Per capita municipal revenues and expenditures, 2016 (USD)

Source: OECD calculations based on data from Contraloría General de la República –-DIPRENA.


Overall, Panama’s expenditures per capita are extremely low compared to other economies (Table 3.3). On the one hand, this reflects the limited number of services and other responsibilities ascribed to local authorities, and on the other hand the limited amount of income generated by municipalities.

Table 3.3. Municipal expenditures per inhabitant are low, 2016


Municipal expenditures


per inhabitant (USD)

as % GDP

As % general government expenditure

















Note: PAB 1 = USD 1.

Sources: OECD calculations based on data from Contraloría General de la República – DIPRENA; OECD (2017c), “Subnational governments in OECD countries: Key data” (brochure), (database:

Of importance to regional – and local – development is the ability for subnational governments, including municipalities to invest. In 2016, 11.6% of municipal expenditure, on average, was dedicated to direct investment in infrastructure and large facilities. This is a level close to the OECD average (11.2%). This ability among Panamanian municipalities is relatively new, as in 2012 and 2015 direct investment accounted for only 4% and 6% of their expenditure, respectively. There are, however, large disparities across municipalities. In three provinces (Herrera, Bocas del Toro, Darién) and one comarca (Emberá), direct investment represented less than 1% of municipal expenditure in 2016 (Figure 3.5, Panel A). In the same year, among the municipalities located in Panamá province direct investment represented 15% of municipal expenditure and overall accounted for 88% of total municipal direct investment (Figure 3.5, Panel B). It should be remembered, however, that the share of municipalities in total public direct investment remains extremely low – 1.6% compared to the OECD average of 59.3% (Contraloría General de la República, 2018). Overall, municipal investment is very low, and concentrated mainly in Panama City.

Figure 3.5. Investment at the provincial level (2016)

Source: OECD calculations based on data from Contraloría General de la República –DIPRENA.


On the revenue side, taxes are the main source of municipal income. While since 2014, and especially 2015, municipal revenue has been increasing as a percentage of GDP and total general government revenue (Figure 3.4), taxes have decreased as a share of municipal revenue since 2015 when municipalities started to receive grants linked to the decentralisation reform (Figure 3.5). The result is a significant increase in the weight of grants, and especially current grants, in municipal budgets. On the one hand, this can mean that the proportion of municipal budgets generated by taxes and other own-revenue sources is declining, thereby limiting fiscal autonomy. Central government transfers are often linked to specific uses, while own-source revenue can be used at municipal discretion and is associated with greater spending autonomy. On the other hand, it also means a more diversified and, in this case, balanced financing system for local authorities.

Figure 3.6. Changes in municipal revenue 2012-2106
% of total municipal revenue

Note: 2016 figures are projected.

Source: OECD calculations from Contraloría General de la República –DIPRENA.


In addition to disparities among municipalities in terms of expenditure levels, there are also disparities in terms of revenue generation (Figure 3.6). For instance, while in Ngäbe Buglé only 7% of municipal revenues came from taxes, in Bocas del Toro, taxes represented 69% of municipal revenues. Meanwhile, grants contributed only 2% to the revenues of Panamá Oeste’s municipalities, but 67% to the communities of Ngäbe Buglé. This can signal a significant discrepancy in the capacity to raise revenue, and also indicates highly different degrees of dependence on central government support.

The province of Panamá and its municipalities are the leading generators of municipal revenues – accounting for 65% of total municipal revenue in 2016. They also received 77% of all central government transfers, and accounted for 59% of municipal tax revenue in 2016. This creates a territorial disparity in terms of financial resources that can be translated in differences regarding the quality of public services provided.

Figure 3.7. Municipal revenue by category in 2016 (%, provincial level)

Source: OECD calculations from Contraloría General de la República –DIPRENA.


Municipal administrative and management capacity is constrained

As autonomous entities able to generate own source revenue, local authorities are expected to cover their operating and administrative costs, as well as deliver services and invest in development. However, this does not appear to be the case for the majority. It is currently estimated that 77% of Panama’s municipalities are receiving state subventions for operating and administrative costs. In some provinces all or all but one municipality require support from the central government (AMUPA, unpublished). This challenge can be linked to various factors including size (population and territory) and demographic makeup – those with higher levels of poverty, and/or a lower percentage of an active population in the formal labour market – will have greater difficulty generating sufficient resources to meet their operational costs.

A population imbalance across municipalities can further impact disparities in municipal capacity, including in management and administration, service delivery and development planning. While municipal (administrative) fragmentation appears to be limited in Panama, population levels are not evenly spread across the territory, and thus there is a certain degree of imbalance.4 This is reflected, at least in part, by the discrepancies in revenue and expenditure between Panama (city and province) and other parts of the country.

Panama’s system of municipal classification may be compounding territorial disparities at the local level and contributing to resource challenges. Panama’s four-category classification of municipalities5, identifies the bulk of municipalities as semi-urban (51 in total), with an additional 10 being rural, 15 urban, and two metropolitan (Figure 3.7). However, this system may not reflect each territory’s actual economic and social dynamic, which can undermine the ability to develop territorially appropriate policies and plans, and to identify the actual costs of service delivery as well as opportunities for revenue generation. A functional area analysis often more accurately captures the economic, social and connectivity factors contributing to a territory’s productivity.

Figure 3.8. Population levels in each category of municipality (2010)

Note: Data from 2010, last official census.

Source: Authors’ calculations based on data from Controlaría del Gobierno de Panamá (2010), “Boletín 16: Estimaciones y Proyecciones de la Población Total del País, por Provincia, Comarca Indígena, Distrito y Corregimiento, según sexo y edad: años 2010-2020”, Instituto Nacional de Estadística y Censo, Panamá, Panama, available at:


The classification system raises two concerns with respect to regional development. First is the large percentage of rural plus semi-urban municipalities (79%). This can exacerbate intermunicipal and interregional disparities based on revenue generation capacity, and affects capacity and outcomes in municipal delivery. In addition, if one considers the differences in minimum wage paid in urban versus rural municipalities, the system may be supporting segregation between urban and rural communities (see Chapter 2). Ultimately, this undermines greater inclusiveness.

The second concern is the subdivision of municipalities into smaller units, the corregimientos. Submunicipal administrative units are more frequent in countries with very populous municipalities, such as Ireland, Korea, Japan, New Zealand or the United Kingdom, where average municipal populations range from a low of almost 70 000 in New Zealand to a high of almost 223 000 in Korea (OECD, 2017c; OECD, 2017d). Panama certainly has populous municipalities. However, these are not the majority and corregimientos are characteristic of all municipalities, not just the larger ones. This can fragment municipal decision making, as each corregimiento has its own leadership. Corregimientos are represented on the municipal council as well as on the provincial council (Consejo Provincial), giving them a fair amount of representative power. This is not negative but the co-ordination mechanisms within municipalities need to be sufficiently strong to ensure adequate and effective prioritisation and decision making across the municipal territory.

Municipal administrative and management capacity is also challenged by human resource limitations. This is evidenced first by the number of inhabitants per municipal staff – on average there are 420 people per civil servant. However, as with financial capacity, there are significant disparities – ranging from a ratio of 73:1 in Taboga to 1 370:1 in La Pintada (Figure 3.8). Low staffing levels could reflect the limited tasks assigned to municipalities, of the difficulties to meet administrative costs which then limits hiring, and also of a skills gap, i.e. an inability to recruit staff with the necessary skills.

Figure 3.9. Number of inhabitants per municipal staff member, 2013

Note: For reasons of legibility, this figure is limited to a representative sample of municipalities and provincial capitals.

Source: OECD calculations based on data from the national statistics office.


Sufficient financial capacity is needed to guarantee the high skills of public servants. The law on decentralisation (discussed below) stipulates that all municipalities must employ a municipal engineer, a legal advisor, an administrator, a planner, a person responsible for citizen services, and a person responsible for municipal services. This should address some specific capacity issues. However, it may not be enough if the quantity and variety of responsibilities increase with the advancement of the decentralisation process. Thus, sufficient financial capacity will be fundamental to ensure that remuneration levels are appropriate to recruit subnational public servants with the right skills and experience.

Panama’s Law on Decentralisation

Decentralisation is a tool that contributes to realising national and subnational government objectives by transferring a range of powers, responsibilities and resources from central government to elected subnational governments in three interconnected areas (OECD, 2017d):

  1. Political decentralisation: involves a new distribution of powers (including how subnational administrators are selected) with the objective of strengthening democratic legitimacy.

  2. Administrative decentralisation: involves a reorganisation and clear assignment of tasks and functions between territorial levels to improve the effectiveness, efficiency and transparency of national territorial administration.

  3. Fiscal decentralisation: involves delegating taxing and spending responsibilities to subnational tiers of government. The degree of decentralisation depends on both the amount of resources delegated and the autonomy in managing such resources (e.g. decisions on tax bases, tax rates and the allocation of spending).

Decentralisation can more actively involve subnational authorities in the development of their territories, while also building accountability for performance, quality and results. In addition to the “traditional” reasons for introducing decentralisation6, some countries, such as Chile and Mexico, use decentralisation reforms to fight against poverty and large territorial disparities, or to preserve historical, linguistic and cultural specificities (e.g. in Belgium, Finland, Italy, Spain and the UK). There is also some evidence that countries with more devolved spending responsibilities tend to have a higher GDP per capita (OECD, 2017d).

Panama’s Law on the Decentralisation of the Public Administration (the Decentralisation Law) as amended is intended to build municipal capacity so that local authorities can better assume municipal development and service responsibilities (Box 3.3). It establishes the administrative structure for comarcas and local governments. In addition, the law requires municipalities and comarcas to develop PED. These plans are to link directly to the relevant sections of the PEG. The law also increases municipal funding by establishing two municipal level investment funds and foresees a gradual transfer of responsibilities once it is determined that municipalities have been accredited by the Secretariat for Decentralisation and show they have the capacity to meet such responsibilities.

Box 3.3. Panama’s Laws on the Decentralisation of the Public Administration

Law No. 37 of 2009 on the Decentralisation of the Public Administration (Ley No. 37 Que Descentraliza la Administración Pública) was introduced in 2009. It defines the principles and objectives of decentralisation and local governance, establishes categories of municipalities according to population and density, foresees a development planning hierarchy, classifies, defines and lists the responsibilities to be delegated to local authorities, and establishes a multistakeholder, autonomous government entity to oversee the process. It takes a gradualist approach to decentralisation, permitting the transfer of competences to local authorities once their competence has been accredited, and they have completed an application process. This law was suspended by the subsequent government before it was fully implemented.

In 2015, Law No. 66 was passed, updating and amending the original legislation. Law No. 66 maintains the gradualist approach and the concept of accreditation before assignment of responsibilities. However, it amends the original law (Law No. 37) with the objective of improving local investment capacity by supporting the Ministry of Economy and Finance’s capacity to collect property and real estate tax, create an intermunicipal solidarity fund, target investment funding, improve citizen participation and transparency and promote local development and land-use planning. In addition, Law No. 66 stipulates the responsibilities that can be attributed to municipalities funded by resources from the collection of the property and real estate tax. Broadly these include: maintenance and improvement of education, healthcare, recreation, and sports facilities; basic public services to homes (e.g. aqueducts, street lighting, waste management and recycling services); infrastructure for public safety; construction and maintenance of social service facilities; construction and maintenance of infrastructure for tourism and culture; construction and maintenance of infrastructure for socio-economic development (e.g. urban and public infrastructure, water landings, municipal markets, infrastructure for municipal microenterprises, and support for the agricultural sector).

Sources: República de Panamá (2009), Ley No. 37 Que Descentraliza la Administración Pública, República de Panamá, Gaceta Oficial Digital, Panama, available at:; República de Panamá (2015), Ley No. 66, Que Reforma la Ley 37 Que Descentraliza la Administración Pública, República de Panamá, Gaceta Oficial Digital, Panama, available at:

Panama’s decentralisation process is just getting started. However, care will need to be taken that it does not fall short of its intentions in three critical ways.

First is the limited extent of fiscal autonomy it appears to offer. The financial capacity component of the reform provides municipalities with two investment-financing sources. The first fund derives from the property and real estate tax. Of the funds transferred into this investment budget by the central government, urban municipalities can use 90% for investment in hard infrastructure in areas outlined by the law (e.g. public works such as roads, lighting, water, electricity, etc.) and municipal services (see Box 3.3) and 10% for increasing their administrative budgets. All other classifications of municipalities can dedicate 75% of the funds for investment in hard infrastructure and 25% for administrative capacity (República de Panamá, 2015). The intention of this fund is twofold. First it aims to give municipalities more opportunity to finance development projects, particularly in infrastructure; and second it is a way to support local authorities which have had difficulty covering their operating and administrative costs in the past. This increase in funding is welcome and it appears to be having some effect on local revenues, as discussed above. It could be made even stronger if it were accompanied by greater spending autonomy by local governments. As it now stands, local authorities are limited in how the development funds are spent, and they have no ability to increase the property or real estate tax rate to grow the fund. The second investment fund is an equalisation mechanism, the Solidarity Fund – Fondo de Solidaridad – which can be used to finance service and “soft-infrastructure” projects and programmes. It is a common pool fund with a redistribution formula, part of which is based on population. There is general agreement that this fund needs to be reformed. The Public Works and Municipal Services programme (Programa de Obras Públicas y de Servicios Municipales) transfers USD 110 000 to each junta comunal (the representative body of each corregimiento), of which 70% can be used for investment projects (subject to citizen consultation) and the remaining sum can be dedicated to administrative or operational functions (República de Panamá, 2015). Certainly the introduction of these funds is a large shift from the past when priorities and spending were centrally managed. However, the funds are in essence central level transfers and not a delegation of fiscal responsibilities. Thus, fiscal decentralisation through the law is limited.

Second, administrative decentralisation requires further clarification in the criteria of selection, funding and transfer of responsibilities. Service and administrative responsibilities will be delegated to accredited municipalities that have proven capacity to manage their investment funds based on their investments and results achieved. Accreditation requires a completed PED, and each municipality must apply to receive delegated responsibilities. It is expected that in 2018 the Secretariat for Decentralisation will begin the process of determining municipal capacity, classifying municipalities according to ability, and then identifying which responsibilities will be transferred. It is a form of asymmetric decentralisation which can be successful for ensuring improved service delivery by municipalities. However, there is a need to clarify: a) the criteria that will be used to determine capacity and/or eligibility for the responsibilities; b) how municipal classifications will be matched to responsibilities – will responsibilities be grouped into sets, or will it be a pick–and-choose approach; c) how the new responsibilities will be funded, if through a central level transfer or through greater revenue-generating capacity at the local level; and d) how to ensure a balanced transfer of responsibilities across the territory and across sectors. There is a risk of generating incoherence in the degree of decentralisation and even greater subnational inequality, particularly if smaller municipalities do not have the capacity to take on additional responsibilities.

Third, the success of decentralisation may depend on addressing municipal capacity. There is a resource gap at the local level. In some countries this is due to scale and excessive fragmentation (too many small municipalities). In other cases it is due to limited municipal revenues. In Panama, only a very small percentage of municipalities have less than 5 000 inhabitants (Figure 3.9), and so the problem is more likely to be due either to the cost of service delivery or to low revenue-generating capacity rather than fragmentation. Given the limited service responsibilities attributed to municipalities, the former is not likely to be a significant factor. The latter, low revenue-generating capacity, however, is highly probable. Diverse factors can contribute to the resources shortfall, including the high levels of labour force informality, which then impacts tax revenue (see Chapter 4). However, for such a reform to be successful subnational authorities must have the administrative capacity and revenue-generating base to meet the responsibilities which they are assigned. While the current decentralisation law provides them with additional funds in the form of transfers, it does not necessarily solve the problem in the long run because it is not increasing their capacity to meet cost obligations, by either reducing expenditures or increasing revenues.

It is still too early to determine if the decentralisation law will lead to a more decentralised approach and, through this, will better support regional development at the local level. Its success will rest on, among other things, the capacity of municipalities to manage their revenues in light of new expenditure responsibilities (e.g. generate more revenue or reduce costs), the responsibilities that are transferred down, and the degree of autonomy local authorities have with respect to municipal management, prioritising investment, delivering services and using their resources. Panama may wish to consider the guidelines for effective decentralisation that the OECD has developed as these can help governments identify where and how they can strengthen their approach to decentralisation (e.g. through a clear, coherent and balanced decentralisation process, sufficient subnational capacity, adequate co-ordination mechanism and room for pilots or experimentation) (Annex C).

Figure 3.10. Municipal population levels by number of inhabitants

Note: Data for Panama comes from 2010 census.

Source: Controlaría General de la República de Panamá (2010),; OECD (2017c), “Subnational governments in OECD countries: Key data” (brochure), (database:


Taking a “new paradigm” approach to regional development

There are several forces affecting Panama’s capacity for more inclusive territorial development. The first is strong socio-spatial segregation at the regional level that separates non-indigenous and indigenous, as well as urban and rural communities. This is mirrored by socio-economic segregation at the local level, particularly within large urban and metropolitan areas. Socio-spatial segregation, particularly of residences, by ethnicity, class or race, combined with an uneven spatial distribution of quality public services, results in limited opportunity for a percentage of the population (Greenstein et al., 2000). While this is particularly true in cities, it is certainly applicable to regions as well. Addressing this, requires strongly integrated activity across ministries and levels of government to build programmes and design service delivery that can begin to break down the barriers (horizontal co-ordination), and a clear policy path outlined in a national level document dedicated to regional development and supported by subnational (provincial and comarca) plans (vertical co-ordination).

The second is a policy of wealth redistribution based mainly on social transfers. Although they are well targeted, territorial differences in Panama’s wellbeing outcomes remain high (OECD, 2017a). Some consideration should be given to how to increase the sustainability of regions and communities so that such transfers are less necessary. There is a strong need for subnational governments to be able to generate wealth, and ideally manage at least some of it. This is closely linked to making sure the provinces, comarcas, cities and other categories of local communities are attractive places to live and offer opportunities for employment, which itself is linked to subnational development. The risk with Panama’s approach, particularly over the long term, is that it does not help lagging regions adjust their productive capacities.

The third is insufficient subnational capacity to partner with the national government in addressing social cohesion from a territorial perspective. Panama’s approach to territorial development has been “top-down”, expressed through successive government programmes, and driven by social and other transfers. This has left little room for subnational – and especially local – governments to build experience in dealing with complex policy matters in a “bottom-up” fashion. Provincial governments do so as extensions of the national government and its line ministries, comarca governments are semi-autonomous and thus not expected to undertake the same initiatives as provinces, and municipalities have limited resources, despite being where the impact of inequalities is most strongly felt. The result is a capacity gap at all levels of government in the area of regional development. This being the case, and given the principle of subsidiarity, subnational governments should have the capacity in terms of resources (financial, human capital and infrastructure) to play a stronger role in development of their territories.

Panama’s approach to regional development has focused on addressing economic disparities through subsidies and state aid transferred by the central government to provinces and comarcas, as well as redistributive policies and the funding of sector-driven projects. Given the socio-economic challenges, Panama may wish to consider shifting away from its traditional approach toward the “new paradigm” highlighted at the beginning of this chapter. From a strategic perspective, a “new paradigm” approach could help subnational authorities (e.g. provinces, comarcas, metropolitan areas) maximise their capacity to improve wellbeing outcomes. It can offer a more sustainable approach, and has the advantage of allowing greater flexibility in addressing and harnessing the unique opportunities offered by Panama’s different provinces and comarcas. It would mean, however, developing an explicit regional development policy at the national level, taking an integrated approach to policy and programming, developing effective performance measurement systems to generate accountability by government to citizens, and building stronger partnerships with subnational governments and other stakeholders to collectively identify unique competitiveness factors and capitalise on local assets.

A national regional development policy to improve co-ordination across different levels of governments

An explicit national-level policy for sustainable regional development and growth would be beneficial in Panama as it could clearly articulate national territorial objectives and priorities, and build vertical co-ordination and co-operation mechanisms between relevant stakeholders across different levels of government. It could also engender greater coherence in the implementation of sector strategies and support policy and programming prioritisation at the subnational level. A policy of this kind can guide actors with diverse interests on how to proceed, while reinforcing and clarifying accountability of input and of results. Its success, however, depends on clear strategic direction on the part of the central government, as well as strong bottom-up involvement in order to build ownership between central and subnational authorities, the private sector, civil society organisations, and citizens (Cuadrado-Roura and Güell, 2008).

A general strategic framework for regional development is based on a clear hierarchy, in which each tier cascades down from the one above (Figure 3.10). The first tier sets the vision and should transcend political parties and election cycles, reflecting societal aspirations for the country. Tier 2 provides the roadmap for realising the larger ambitions, and finally the Tier 3 offers the practical dimension of implementation. In Panama, and specifically with respect to regional development, Tier 1 could correspond to a vision for a more inclusive society, supported by a national regional development policy with clearly articulated objectives (Tier 2), including, for example, poverty reduction among indigenous communities and rural areas, and realised through Tier 3 sector and subnational policies, programmes and projects that contribute to reducing poverty (e.g. healthcare, education, economy, labour, housing, public works).

Figure 3.11. The policy cascade: a schematic using a vision based on inclusiveness

Source: Adapted from OECD (2016f), OECD Territorial Reviews: Córdoba, Argentina, OECD Publishing, Paris,

A formalised national regional development policy would be valuable for supporting development goals, and for guiding relevant policy development and implementation among line ministries in the short and medium terms. One of the obstacles in Panama’s policy process, however, is a lack of technical capacity. Strengthening technical capabilities within ministries is on the government’s agenda and could improve planning and evaluation. To do so, however, additional in-work training is important, as well as building the professionalisation of Panama’s civil service through a more stringent and transparent admission process (OECD, 2017a).

Approaches to formalising regional development in selected countries

The formalisation of regional development strategies varies across countries. Some countries develop explicit long- or medium-term strategic documents (e.g. Ireland and Sweden), while others, such as Mexico, create a specific plan linked to the government programme, and still others use intergovernmental contracts (e.g. France and Colombia) (Box 3.4). Regardless of the approach, the majority of OECD countries, including the Czech Republic, Estonia, Iceland, Ireland, Italy, New Zealand, Norway and Switzerland, follow an explicit regional development strategy defined in one or several documents. Those that do not have an overarching strategic policy include federal countries (e.g. Belgium, Germany and the United States). On average, countries have two strategic documents – in some cases a legal framework complemented by a more regularly updated plan (e.g. seven years is common in European Union (EU) countries to correspond with the EU policy cycle). This permits them to strike a balance between policy stability over time and flexibility to adapt to changing circumstances (OECD, 2016a). In all cases, however, formalised strategies and/or policies help co-ordinate the diverse interests involved in regional development. In addition, they can provide some guidance for dedicated urban and rural development policies.

Box 3.4. Formalising regional development strategies: examples from select countries

Long- and medium-term regional development strategies: Ireland and Sweden

The National Spatial Strategy for Ireland 2002-2020 was developed to guide more balanced regional development. It aims to improve the spread of job opportunities throughout the country, improve the quality of life, and improve the places where people live. It examines the country’s economic and spatial structure, identifies how the various regions can contribute to realising the strategy’s objectives, and takes an integrated approach by indicating the role that policies promoting economic development (e.g. employment, tourism), housing, quality of life (e.g. social infrastructure, service delivery, urbanism), and the environment play in building and ensuring competitive regions. It also includes guidelines on implementation, clearly designating a ministry responsible for co-ordinating the plan’s implementation, setting an implementation time frame, and building ownership among subnational governments through the preparation and adoption of statutory regional planning guidelines.

Sweden’s National Strategy for Sustainable Regional Growth and Attractiveness 2015-2020 serves as a guideline for regional authorities, state agencies, government offices, non-governmental organisations and other actors involved in regional growth efforts. The strategy aims to help actors prioritise regional-level activities, such as sectoral programming at the national level and regional-level development strategies. It is also used to support spending evaluations, specifically of national grants, and it monitors and steers the use of central government appropriations for regional growth measures. The strategy elaborates priorities for regional growth and how meeting these can help address societal challenges, and identifies policy tools for the strategy’s implementation. The document also highlights the role of regions in meeting the strategy’s objectives and the importance of subnational regional development strategies.

A dedicated regional development policy linked to the government programme: Mexico

Within the framework of its 2013-2018 National Development Plan, Mexico developed a Regional Development National Policy. It focuses on regional, urban and rural development, and includes infrastructure, competitiveness, social inclusion and environmental sustainability. The Ministry of Agrarian, Territorial and Urban Development complements the national policy with regional programmes for development covering to the north, south-southeast and central regions of the country, which are countersigned by 15 ministries.

A contractual approach to regional development: France and Colombia

France promotes its regional development and investment priorities through a series of planning contracts – Contrats de Plan Etat-Région – signed between the state and its regions on six- to seven-year cycles. In these planning contracts, the state and subnational authorities of all levels identify priorities and develop a common strategy to promote territorial competitiveness and attractiveness. In the current cycle, the six priority areas for investment are multimodal mobility; higher education, research and innovation; the environment and energy transition; digital technologies and very high-speed broadband; innovation, industries and factories of the future; and regions, with employment being the transversal priority linking the rest. In order to ensure equality between territories within regions, contracts mobilise specific resources for priority areas (i.e. urban priority neighbourhoods, vulnerable areas undergoing major economic restructuring, rural areas and others facing a deficit of public services, metropolitan areas and the Seine Valley).

Colombia has developed the contratos plan between the national government and departments to facilitate their interaction and to help deliver regional development policy. The contrato plan is a multiyear binding agreement between them and co-ordinates their investment agendas. Contracts focus on improving road connectivity, poverty reduction and support for regional competitiveness. The contrato allows departments and municipalities to co-ordinate different sources of revenues from different levels of government.

Sources: Republic of Ireland, National Spatial Strategy for Ireland 2002-2020: People, Places and Potential, Government of Ireland, Stationary Office, Dublin, Ireland, available at:; Sweden, Ministry of Enterprise and Innovation (n.d.), National Strategy for Sustainable Regional Growth and Attractiveness, 2015-2020 – Short Version, Government offices of Sweden, Ministry of Enterprise and Innovation, Stockholm, Sweden, available at:; OECD (2016a), OECD Regional Outlook, 2016: Productive Regions for Inclusive Societies, Country Notes, OECD Publishing, Paris, available at:; France, Ministère de la Cohésion des Territoires (2015), Les Contrats de Plan Etat-Région: Présentation Générale, Ministère de la Cohésion des Territoires, Paris, France, available (in French) at:; OECD (2016d), Making the Most of Public Investment in Colombia: Working Effectively across Levels of Government, OECD Multi-level Governance Studies, OECD Publishing, Paris,

An overall regional development policy with a framework to support comarca development

Incorporating the comarcas as a strategic component to national development would be an important step toward addressing the challenges posed by socio-spatial segregation. However, as part of the policy’s implementation, Panama may also wish to include a framework dedicated to the development of the comarcas to better work with and support the unique opportunities and complex challenges facing indigenous communities. Canada has taken this approach with its Federal Framework for Aboriginal Economic Development (Box 3.5). In addition, Canada’s Department for Indigenous and Northern Affairs7 explicitly links its sustainable development objectives with the federal sustainable development strategy through its departmental plan. This plan also articulates a series of performance indicators that either contribute to a goal or target or are specific programme activities that support sustainability outcomes, for example clean drinking water, effective action on climate change, sustainable food, and safe and healthy communities (Government of Canada, 2017).

Box 3.5. Canada’s Federal Framework for Aboriginal Economic Development

Introduced in 2009, the Federal Framework for Aboriginal Economic Development is a roadmap for the government’s actions and activities (i.e. legislation, partnerships and programmes) dedicated to increasing the participation of Canada’s First Nations, Inuit and Métis people in the Canadian economy, and to improve economic action for indigenous peoples throughout the country. The Framework emphasises strategic partnerships with indigenous groups, the private sector, provinces and territories. The Framework seeks to maximise federal-level investment by: i) strengthening entrepreneurship; ii) enhancing the value of indigenous assets; iii) building new and effective partnerships to maximise economic development opportunities; iv) developing indigenous human capital; v) more effectively focusing on the role of the federal government. Its aim is to build indigenous communities that are able to seize economic development opportunities, to achieve viable indigenous businesses and that have a skilled indigenous workforce.

Through a process of extensive engagement with indigenous communities the Framework has been adjusted since its introduction to reduce administrative burdens and programme duplication. The result is a streamlined set of five programmes dedicated to increasing the participation of indigenous communities in Canada’s economy and to help indigenous peoples pursue new opportunities for employment, income and wealth creation. To support this effort the government has integrated land management with economic development to facilitate support to communities as they build their economic base.

Sources: Government of Canada (2015), “Lands and Economic Development”, Indigenous and Northern Affairs Canada, Ottawa, Canada, available at:; Government of Canada (2010), “Federal Framework for Aboriginal Economic Development”, Indigenous and Northern Affairs Canada, Ottawa, Canada, available at:

In 2013-14, Panama embarked on a similar path with an integrated development plan for indigenous communities (Plan Nacional de Desarrollo Integral de Pueblos Indígenas de Panamá), articulated in conjunction with the UNDP. The plan was based on a dialogue process between Panama’s indigenous communities, the government, the United Nations and the Catholic Church. The process called for establishing a National Council for the Development of Indigenous Communities in Panama (Consejo Nacional de Desarrollo de los Pueblos Indígenas de Panamá), which would oversee the Plan’s implementation and be responsible for designing and implementing future economic, social and cultural development strategies for indigenous communities (UNDP, 2014). A draft law establishing the Council and its responsibilities, including the integrated development plan, was presented to the National Assembly but failed to garner sufficient votes to be approved. As of 2018, the government is revisiting this Plan and has established a timeline for launching its implementation. In addition, a USD 80 million loan from the World Bank was announced in March 2018, specifically for this initiative (World Bank, 2018). As a complement to this plan and in direct support of its objectives, Panama may wish to consider this idea of a territorial development strategy for comarcas as part of a larger regional development policy, which could also help embed the action across electoral cycles. This should be accomplished with the active involvement of the comarcas and supported in its realisation through comarca development plans elaborated at the community level.

Introducing regional development planning at the provincial and comarca level

There is a need to reconcile national and subnational level development priorities. While at the national level priorities may be highly “macro” (e.g. inclusiveness), at the subnational level they are imminently practical (e.g. sanitation, schools and healthcare). These two perspectives are not mutually exclusive but rather mutually supportive. To capture the potential synergies, a link needs to be made between government aims and subnational priorities. Without such links regional development risks remaining a series of sector and ad hoc programmes and projects at the national and local levels that may not be complementary and therefore have difficulty effectively contributing to meeting development objectives in a coherent and integrated fashion.

Intermediate level plans could help bridge Panama’s goals and the immediate and highly practical development needs of subnational governments. Subnational regional development planning – including at the metropolitan level – can lead to greater responsibility being taken by the provinces and comarcas, particularly when the plans are designed, implemented and monitored at the subnational level and in dialogue with the central government. It would, however, require that each intermediate authority play an active role in identifying its development objectives and the mechanisms to realise them.

The capacity and capability challenges in planning seen at the central level are even more acute at the subnational level. Thus a focused effort on training and support for planning among subnational leaders would have to be made. Building the capacity among subnational officials to develop such plans, however, will be critical. This was the approach taken with the majority (73 of 77) of local authorities when developing their PED, for example. In these cases, the Direction for Investment Programming, through the Department for Regional Planning in the Ministry of Economy and Finance, developed a methodological guide and worked with local planners and in consultation with civil society and other stakeholders, to develop the PED. A similar approach could be taken if deciding to introduce regional-level development plans. In addition, consideration should be given to first developing a national-level policy which can subsequently be used to guide the design of subnational plans. This requires a region’s perspective of its priorities, strengths and weaknesses, and combines both top-down and bottom-up elements in development planning.

In addition, consideration should be given to building financial capacity as well. Regional development policies, plans and programmes are stronger when associated with funding. For instance, a regional development fund could be established as a fixed line item in the national budget and then distributed on a formula-based allocation system. Another option would be to combine a formula-based budget with a national development fund. This would provide each province with its own budget, affording greater budget visibility and decision-making flexibility, and would shift away from the current system of earmarked grants transferred by individual line ministries to a block operating, service and investment grant. Uruguay has adopted this method for financing its provincial tier and promoting regional and local development (Box 3.6).

Box 3.6. Subnational financing mechanisms for development in Uruguay

Uruguay’s constitution establishes that 3.33% of total annual government income be transferred to its departmental (provincial) governments. The system is constructed so that subnational governments share in the economic success of the country and in case of economic difficulties the risk of budget shortfalls is somewhat mitigated as provincial governments know they will be guaranteed a certain amount of funding. If a provincial government does not meet its performance agreement as established with the national government, it does not receive its full portion of the 3.33% set aside. Thus, not only is there a monitoring mechanism built into the system, but also an incentive for responsible fiscal management and performance.

The Interior Development Fund (Fondo de Desarrollo del Interior) is the second main source for subnational financing in Uruguay, and is also guaranteed by the constitution (article 298). All provinces (except Montevideo), receive a portion of this fund which is financed by national taxes collected outside of the capital. Of the total fund, two-thirds are used for implementing sectoral policies that support decentralisation and the remaining one-third goes to provincial governments to support projects co-financed with municipal own-source revenues.

Source: Michalun, M.V. (2018), Diagnostico de Desarrollo Territorial de Uruguay, Estudio no. 24, Serie: Analysis, Area: Descentralización, Programa EUROsociAL, Madrid, Spain

In some provinces, the gap in regional development planning at the intermediate level is being filled by the private sector through non-profit competitiveness centres (Centros de Competetividad). These function in a manner similar to regional development agencies, but they are directly sponsored by the private sector, rather than being funded by the government as is more commonly the case. By late 2017, four centres had been opened, including in a comarca, and the trend is expected to continue. They promote and bring together financing for projects in targeted and competitive areas such as agriculture, logistics, and tourism, combining private and public initiatives. These centres are also working with international financial institutions such as the Inter-American Development Bank and the Latin American Development Bank (Banco de Desarrollo de America Latina) to identify and implement development projects and to develop long-term development plans for their provinces (e.g. Vision Chiriquí 2025), and neighbourhood master plans including for those for modernisation.

The centres play a vital role in ensuring more dynamic territories and are positive contributors to their provinces. However, they also point to a gap in planning and planning capacity at the central and subnational level. In general, the private sector plays a fundamental role in regional development, for instance through investment, as well as in identifying and generating new areas for productive growth and innovation. However, it may be valuable to support regional development agencies in a private plus government partnership-based manner. This is an approach taken in Poland (Box 3.7). Polish regional development agencies were established in the early-to-mid-1990s, whose shareholders are the government of the region, and can include banks, regional institutions and regional or local enterprises. They launch initiatives to promote regional development, taking regionally differentiated approaches.

Box 3.7. Regional Development Agencies in Rzeszow and Torun, Poland

The Rzeszow Regional Development Agency supports improving the quality and standard of life for residents, and works to promote the region as a modern, innovative and economically developed area as well as a tourist destination. Its activities include training for entrepreneurs, managing EU-funded projects, co-ordinating a Technology Transfer Centre and managing an Enterprise Development Centre, among other things.

In Torun, the Agency for Regional Development (64% of which is owned by the regional government) aims to support small and medium enterprises and co-operate with local authorities and stakeholders in order to strengthen regional development. It prepares feasibility studies and business plans for investment projects, offers training, seminars, and conferences, and acts as a financing agency for EU programmes in the region. Among its primary activities are implementing EU structural funds, offering advisory services, and managing regional cluster projects. It is also the driver behind the Torun Technology Park which aims to attract investment and create favourable conditions for entrepreneurship.

Source: OECD (2018 – forthcoming), Maintaining Momentum of Decentralisation in Ukraine’s Decentralisation, OECD Multi-level Governance Studies, OECD Publishing, Paris.

Using monitoring and measuring performance to track success and build accountability

Performance measurement systems, including indicator systems, policy and programme monitoring and evaluation, and spending reviews contribute to building government capacity in designing and implementing more effective policy, support evidence bases and evidence-based policy making, and help co-ordination efforts. They can also be powerful tools for building government accountability.

Panama can improve public policy evaluation, which affects accountability to citizens and results in less effective government spending (OECD, 2017a). In Panama’s current frameworks, individual ministries, agencies or governments are responsible for provincial level performance measurement, establishing performance indicators, and programme reviews. It is reported, however, that this is not systematically practised, but it may be changing in some ministries. The Ministry of Education, for example, is undertaking an extensive reform of its provincial reporting practices that could help improve data collection, availability, and contribute to higher-quality evidence bases for policy making and monitoring. Municipal governments are responsible for their own monitoring and evaluation practice, but here too, there are limitations due to capacity, which is not uncommon.

Performance measurement and indicator systems for regional development

Building indicator systems for regional development and investment could be a step forward in evaluating policies and measuring progress. Performance indicators can address information asymmetries that arise between levels of government or between government and stakeholders, including citizens. They are also effective tools for reinforcing accountability at all levels of government by improving transparency. When carefully coupled with specific incentive mechanisms and realistic targets, indicators can stimulate and focus actors’ efforts in critical areas. Consequently, they help focus on priorities, and promote capacity development and good management practices (Mizell, 2008).

When developing indicators, it is important to get as much input from all relevant stakeholders as possible. This is especially true if policy success depends on the participation of multiple actors with complex relationships and divergent interests. There are a diversity of monitoring practices among OECD countries, but most often they are applied at the national, regional and metropolitan levels (Box 3.8). The OECD is also developing a series of multilevel governance indicators of the use of formal co-ordination mechanisms specifically with respect to public investment, allowing for a comparison among countries (OECD, 2016d).

Box 3.8. Examples of indicator systems for the national, provincial and local levels

In Chile, the National System of Municipal Indicators provides over 150 standardised indicators for each of the municipalities in Chile. This initiative introduced by the Subsecretaria de Desarrollo Regional y Administrativo (SUBDERE) offers accessible information to the general public. Its data make it possible to compare the performance of all Chilean municipalities and help different stakeholders to make informed decisions. The system offers information dating from 2001 onward.

In 2000, the Province of Ontario, Canada, introduced the Municipal Performance Measurement Program (MPMP) as an accountability mechanism and to help local authorities make more informed decisions; and its use became mandatory in 2001. Ontario’s 444 municipalities – regardless of their size – are all responsible for reporting on 12 core service areas, resulting in 54 measures of efficiency and effectiveness. The MPMP has not only improved reporting, it has also given provincial and local authorities a solid database of information, supporting multiyear trend analysis and budgeting processes. Municipalities report performance data annually.

New York City’s strategic development plan – OneNYC – is supported by a series of performance indicators aligned with the city’s four-pronged strategic vision. Each one clearly states the indicator, the performance target and data for the most recent year as a baseline. For example, “sustainable city” objectives are supported by a goal to improve air quality, which in turn has three indicators and associated targets. Details regarding the lead agency responsible for accomplishing each initiative, funding status and source are also available. Citizens can find information on how the city is performing with respect to its stated goals, make comments, and download reports.

Sources: OECD (2009), OECD Territorial Reviews: Chile 2009, OECD Publishing, Paris,; OECD (2010X), OECD Territorial Reviews: Sweden 2010, OECD Publishing, Paris,; Buckstein, J. (2009), “Municipal Performance Indicators are gaining in stature and efficiency across Canada”, CGA Magazine, Chartered Professional Accountants, Canada, Ottawa, Canada, accessed: 15 April 2016, available at:; Government of Ontario (2015), “Municipal Performance Measures”, Ministry of Municipal Affairs and Housing, Government of Ontario, Ontario, Canada, accessed: 15 April 2016, available at:; City of New York (n.d.), One New York: The Plan for a Strong and Just City, City of New York.

As an ongoing activity and when effectively communicated, performance measurement mechanisms, and particularly indicator sets, can show citizens how government is meeting its stated objectives, how it is using its resources, and how its policies are performing. While acknowledging their value, many governments are challenged to establish effective performance measurement systems, in part due to difficulty in building meaningful indicators. Among the obstacles they encounter are the lack of a strategic objective; organisational cultures which inhibit broad-based co-ordination and building ownership; insufficient appreciation of the relationship and links between strategies, policies, targets, outputs and outcomes; policies that are not clearly articulated; and indicators that are imprecise. Scotland’s experience with performance measurement is a good example of how indicator systems support government policy making over time, and can be communicated in an easy, accessible way for citizens (Box 3.9).

Box 3.9. Government performance and development indicators in Scotland

In 2007, the Government of Scotland set out to streamline government resources and improve overall territorial performance. To do so, it aligned the government around five strategic objectives which established a series of national outcomes articulating what Scotland wished to achieve over the subsequent ten years. It then established a set of indicators that cut across many of the national outcomes, helping decision makers and policy designers identify policy complementarities, and helping citizens identify where progress could be made.

Performance in each indicator was easy to interpret as it was based on an arrow – up, down or horizontal – to indicate improvement, decline or no change over time. The importance and current status of each indicator was explained on the website, together with the indicator measure, what influenced change, the government’s role, how Scotland was performing in the indicator over time, criteria for change, partners engaged in creating change, and any related strategic objective. Scotland constantly monitors its performance, updating its objectives and indicators accordingly.

Source: Adapted from The Scottish Government (2014), “Scotland Performs”,

Moving forward, Panama may need to consider formalising and communicating an indicator set for regional development. Establishing stronger evidence bases and setting targets for regional development activities would be critical first steps. If the development of a national regional development strategy is pursued, it is recommended to associate it with output and outcome indicators88 that are realistic and measurable. This could also be applied at the municipal level, particularly among large cities and metropolitan areas, as illustrated in the boxes above. In all cases, desired outcomes should be widely communicated within government and to citizens in order to enhance transparency and accountability of government.

Enhancing institutional co-ordination to better support regional development

Ensuring sustainable growth and greater inclusiveness requires the concerted effort of a large array of ministries and agencies, as well as the co-operation of diverse subnational stakeholders – public and private. Results are likely to be stronger and more sustainable if the ministries work with each other to identify the policy links and sectoral synergies that need to be harnessed, and with communities to determine realistic implementation parameters to achieve better territorial outcomes. Success, therefore, depends on a co-ordinated approach among ministries with highly diverse portfolios and interests, and between national and subnational governments, not only in the planning stage, but at the implementation stage, as well.

There are good examples of interministerial co-ordination for promoting the government programme and its development agenda. The Ministry of Agriculture, for example, works with the Ministry of Social Development (Ministerio de Desarrollo Social – MIDES) for advancing rural development and reducing informality, and it works with comarcas to commercialise their products. MIDES has a number of successful programmes that depend on cross-sector, cross-agency involvement. For instance, its programme Plan Panama – Everyone’s Country-Zero Poverty (Plan Panamá – el País de Todos-Cero Pobreza) depends on eight state institutions and a co-ordination secretariat. It is currently implemented in a number of regions and piloted in municipalities, and has ambitions to be nationwide. Another MIDES programme implemented at the regional level aims at improving productive development in agriculture and livestock, tourism, fishing, and crafts. It involves 15 state institutions, as well as local governments. One of the most extensive and formalised interministerial co-operation mechanisms is the Gabinete Social (Box 3.10). The Secretariat of the Presidency (Secretaría de la Presidencia) also plays a strong role in co-ordinating cross-sector and multistakeholder initiatives with a potential regional impact – for example a programme is underway with the Ministry of Labour and the International Labour Organisation to better support technical education. A variety of co-ordination tools are used to formalise interministerial agreements. At the presidential level these include Memoranda of Understanding and decrees. At the ministerial level, one-on-one agreements (convenios) between ministries are often used. MIDES has signed a series of such contracts, for example with the Secretariat for Decentralisation, the ministries of agriculture and of housing and land use, as well as with the tourism agency.

Box 3.10. Panama’s Gabinete Social

Panama’s Gabinete Social (Social Cabinet) is an unfunded, high-level interministerial body that co-ordinates programmes and projects focused on promoting social cohesion. Regulated by presidential decree, it is chaired by the Vice President, and includes the participation of eight ministries and a secretariat that is co-ordinated by MIDES.

Much of the Gabinete’s co-ordination work takes place at the institutional level, while it also supports programme implementation at the provincial and municipal levels. Consideration is being given to establishing provincial-level gabinetes sociales to facilitate a more integrated approach to programme implementation, and build greater social cohesion at the subnational level, particularly where there is a Cero Pobreza initiative underway.

Source: OECD interviews in Panama.

There appears to be no lack of co-ordination mechanisms or of interministerial interaction to advance sectoral development interests in support of the PEG. There are two points to consider, however. First, Panama’s co-ordination approach for regional development is focused on horizontal interaction at the national level. Second, while mechanisms are well formalised, they are not firmly institutionalised. In other words, the co-ordination mechanisms work because of the government in place and its existing relationships, rather than because the co-ordinating body or mechanism has proven its value over time and through electoral cycles. This in turn may affect the sustainability of regional development.

A number of mechanisms that support a more co-ordinated approach to regional development have already been discussed or highlighted in this chapter, including a regional development policy, subnational regional development plans, and performance measurement and indicator systems. To further strengthen Panama’s multilevel governance practices in regional development, enhancing institutional co-ordination for regional development would be valuable.

Dedicating an entity to co-ordinate regional development

To successfully use regional development as a policy lever for addressing territorial development, identifying a responsible body to champion the effort would be beneficial. As discussed, national-level strategies and/or policies can be strong horizontal and vertical co-ordination mechanisms, and are often used as such. Contracts and agreements are also useful tools. However, these mechanisms can be even more effective when championed by an entity responsible and accountable for ensuring that regional development objectives are met and priorities acted upon.

A cross-sectoral, integrated approach to regional development can be easier to realise with the support of a high-level institutional body. Such bodies – be they full ministries, interministerial committees or specialised agencies – can bring together stakeholders to identify objectives and ensure the alignment and realisation of policy priorities at the national and subnational levels. There are a number of different approaches governments take to strengthen cross-sectoral co-ordination of regional development. These include:

  • A ministerial approach, where a specific ministry for regional development is established. These ministries have broad responsibilities and powers that encompass traditionally separate sectors. Some positive implications of the concentration of different responsibilities within the same authority include a more open and coherent perspective, a concentration of expertise and the possibility of a more integrated approach. This has been the case in Chile, the Czech Republic, Poland, the Slovak Republic, Slovenia and Colombia (Box 3.11). A less resource-intensive but still high-level alternative is to introduce departments for regional development within a relevant ministry. Other countries appoint regional ministers who must take into account the territorial aspects of the programmes and policies of their portfolios. In France and the Netherlands a minister is appointed who represents the interest of the leading region in the country, i.e. the State Secretary for the Development of the Ile de France and the Minister for Randstad.

  • Co-ordinating structures can be established, such as interministerial committees and commissions. These are simpler than a ministerial approach as they are based on the existing government structure, and bring together representatives from the various ministries with a territorial logic. They are frequently chaired by a prime minister, president or vice president and generally mandate a ministry to act as the co-ordinating body. Examples include the Ministerial Committee for Regional Policy in Denmark, the Presidential Committee on Regional Development in Korea, and the Cabinet Subcommittee on Rural and Regional Policy in Norway.

  • Special units or agencies provide planning and advisory support to facilitate policy coherence across sectors at the central level. High-level “special units” can ensure consistency among sectors. The closer such units or co-ordinators are to a chief executive, the greater the incentive for co-operation across sectoral ministries. Examples include the French General Commission for the Equality of Territories (Commissariat Général à l’Egalité des Territoires – CGET) (formerly DATAR), which is linked to the Office of the Prime Minister, and the Austrian Conference on Spatial Planning under the auspices of the Federal Chancellery. Special units under line ministries include the National and Regional Planning Bureau of the Ministry of Land, Infrastructure, Transport and Tourism in Japan and the Spatial Economic Policy Directorate of the Ministry of Economic Affairs in the Netherlands.

Box 3.11. Colombia’s Department of National Planning

In Colombia, the Department of National Planning (Departamento Nacional de Planeación) has a ministerial rank and is in charge of cross-sectoral, vertical and horizontal co-ordination, in particular for the design and implementation of the National Development Plan. In 2012 the Department created a General Deputy Direction for Territorial Affairs and Public Investment (Subdirección General Territorial y de Inversión Pública) in charge of fostering links between national and territorial planning, between sectors, across government levels, and among financing sources, as well as to support subnational capacity for development and investment financing. The design of the National Development Plan involves a National Planning Council (Consejo Nacional de Planeación), established in 1991. The Council gathers representatives of the central government, departments, municipalities, the private sector and civil society. It is not involved, however, in the plan’s implementation, or in performance monitoring.

Source: OECD (2016d), Making the Most of Public Investment in Colombia: Working Effectively across Levels of Government, OECD Multi-level Governance Studies, OECD Publishing, Paris.

An interministerial co-ordinating body for regional development, modelled for example after existing cross-sectoral bodies, such the Gabinete Social or the Secretariat for Decentralisation could help advance and ensure the sustainability of a national regional development policy, and ensure national, sectoral and territorial priorities align and objectives are met. Such bodies are well placed to support coherent policy implementation, and can sponsor ongoing dialogue among relevant stakeholders. This helps identify what works and what does not, potential risk factors, as well as relevant – and ideally more integrated and innovative – solutions. Consideration could also be given to including representatives from the Association of Panama’s Municipalities (Asociación de Municipios de Panamá – AMUPA) on such a committee.

An interministerial co-ordinating body could complement and support the current activity of the Ministry of Economy and Finance. However, consideration might be given to uniting the Department for Regional Planning (Departamento de Planificación Regional) and the Department for Regional Development (Departamento de Desarrollo Regional), creating one specific unit responsible for the full regional development policy cycle, and limiting additional fragmentation in this policy field. Whatever is established, the regional development objectives and perspectives should be clearly articulated and as relevant to the provinces as to the comarcas. It is important to highlight, however, that line ministries, agencies and other regional development stakeholders remain responsible for successfully contributing to regional development. An interministerial commission and a stronger internal regional development policy unit, as outlined above, should guide and co-ordinate the regional development policy cycle in order to ensure territorial objectives are met. Their existence does not exempt other institutions with a territorial logic from responsibility or action.

Strengthening dialogue bodies for more effective vertical co-ordination

Vertical co-ordination between national and subnational actors is particularly important for realising regional development objectives and establishing priorities because it is at the lower levels of government where programmes and plans are implemented and ultimately where objectives are realised.

If Panama’s local authorities are to play a more active role in the development of their territories and communities, including through development planning, then success will depend on a clear communication of objectives and priorities both top-down and bottom-up. Reinforcing vertical co-ordination mechanisms, particularly those that foster a relationship based on partnership among levels of government rather than hierarchy will become increasingly important.

Formal dialogue bodies can be effective instruments for aligning interests and priorities among actors and levels of government. Panama’s AMUPA already plays a role here with its convening and lobbying capacities. However, dialogue can be taken even further with an institutionalised body that brings together representatives from all levels of government on a regular basis, specifically to discuss regional development concerns and how to advance the country’s regional development agenda. Ideally, this type of mechanism should be as much part of the political level as the administrative or technical level, gathering civil servants from different levels of government. In Italy, for example, political dialogue and vertical co-ordination is ensured through the State-Region Conference which plays a role in influencing the decision-making processes on regional issues (OECD, 2016d). In Sweden, the Forum for Sustainable Growth and Regional Attractiveness maintains a continuous dialogue among a wide array of stakeholders and is part of the implementation of Sweden’s National Strategy for Sustainable Regional Growth and Attractiveness: 2015-2020 (OECD, 2017e).

If Panama decides to move forward with a dedicated regional development policy (a co-ordination mechanism in and of itself), expanding its current practices to “softer” levers such as an interministerial committee for regional development, and a dialogue body that brings together relevant stakeholders from different levels of government, would be valuable. Panama currently uses many “hard” levers – contracts, agreements, decrees, memoranda of understanding – to ensure the co-ordination and implementation of multisector programming. “Softer” levers could help strengthen the institutional dimension to regional development policy co-ordination and introduce a more multilevel perspective into the planning and implementation process. In addition, they could help align priorities, support stronger programme sequencing, and build ownership and capacity to ensure regional development objectives are met across sectors and by all levels of government.

Enhancing horizontal co-operation at the local level

Greater local capacity is fundamental for development in a “new paradigm” approach to regional development as the local level is just as important an actor as the central level. This makes local development planning as important as higher tier planning, and it is where the Law on Decentralisation plays a strong role with its required PEDs. For these reasons it is in the interest of all levels of government to ensure that Panama’s local authorities build administrative, management and service capacity. More widespread intermunicipal co-operation could be a valuable mechanism in this respect, and it could be a strong complement to the Law on Decentralisation.

Strengthening intermunicipal co-operation to build scale and capacity

The law Sobre Régimen Municipal foresees a governance structure for associations between municipalities which includes a council, an administrative structure, and a treasury (hacienda intermunicipal) (República de Panamá, 1973). How often such arrangements are used among other municipalities is not clear. However, given the resource challenges and the few large-scale service responsibilities attributed to municipalities, its application may be limited.

Panama may wish to begin encouraging more intermunicipal co-operation (IMC) to build local capacity for meeting decentralised responsibilities. IMC can also help manage costs for expensive services or administrative requirements. For example, such agreements could help smaller municipalities to meet the requirements of specialised staff by sharing the cost of the expertise. It could also be useful for strengthening the capacity of indigenous communities. Comarca communities are known to co-operate with each other for ensuring education and health-care services, for example, but co-operation appears limited between indigenous and non-indigenous communities. Some consideration could be given to building co-operative arrangements between the two as a means to address common concerns, build capacity, and generate greater opportunities for development. To this end, the Federation of Canadian Municipalities and Canada’s Council for the Advancement of Native Development Officers launched a First Nations Municipal Collaboration Programme which encompasses opportunities for joint economic development, and for infrastructure, particularly waste management (FCM 2017).

Intermunicipal co-operation can be particularly valuable to help municipalities fulfil compulsory service (or other) requirements that arise from shifts in task attribution and/or decentralisation reform. In a few countries, IMC has become compulsory for small municipalities and/or for specific services. In Iceland, for example, IMC became compulsory for municipalities of under 8 000 inhabitants following the decentralisation of social services for disabled persons, and it is required in Greece for waste management (OECD, 2017d). In the Netherlands, co-operative arrangements have gained momentum with the decentralisation of a number of additional responsibilities to local governments, particularly in the areas of employment and social welfare services. To comply with these new and complex responsibilities and to improve financial management, many Dutch municipalities created new co-operative structures, for example intermunicipal social services.

IMC’s popularity rests on a number of factors including potential efficiency gains and cost savings. In Spain clear benefits were observed in the case of joint management of waste collection, especially for small municipalities where cost savings were estimated to be 20% in towns with less than 20 000 inhabitants and 22% in towns with less than 10 000. In England, the Local Government Association has reported that 416 shared-service arrangements among councils resulted in efficiency savings of GPB 42 million (as of September 2015) (OECD, 2017d). Results associated with IMC extend to better local public services, including improved processing times; more innovative, high-tech or specialised services (e.g. through the application of shared technologies); increased staff performance; and access to expertise, especially in remote locations with a skills shortage (Local Government New Zealand, 2011; OECD, 2017d).

The downsides to IMC include high transaction costs and the generation of externalities. It can be difficult to measure, faces transparency challenges, and can engender political, organisational and operational difficulties. In the end, the efficiency of IMC depends on a range of factors, including the number of participating municipalities, the extent of the transaction costs and the characteristics of the public good in question (Bartolini and Fiorillo, 2011; OECD, 2017d).

Despite these challenges, OECD countries are continuing to refine their approaches for encouraging the use of IMC among local authorities. For example, most OECD countries have passed laws in support of intermunicipal co-operation. In some cases, existing legal frameworks have been adjusted to reinforce IMC by encouraging or requiring that municipalities participate in co-operative agreements. This was seen in Austria in 2011, in Chile in 2011, in New Zealand in 2013, and in the Slovak Republic in 2012 and 2013 (OECD, 2017d).

In light of the challenges facing Panama’s municipal governments, particularly fiscal and human resource gaps, and considering the benefits that can be associated with IMC, Panama may wish to strengthen intermunicipal co-operative practices and introduce incentive mechanisms that promote its use. This could be equally beneficial for the development of undercapacitated municipalities and for comarcas, as it could be for metropolitan areas where individual municipalities are reported to act on their own rather than in concert. Incentive mechanisms to encourage co-operative arrangements among communities are frequently financial. They include special grants, a special tax regime (applied in France), additional funds for joint public investment proposals (seen in Estonia and Norway), or bonus grants for municipalities that generate savings through co-operation (practised in Spain). Incentive structures can also be nonfinancial, such as the provision of consulting and technical assistance. Some governments have introduced new types of contracts and partnership agreements to encourage IMC. Poland and its territorial contracts are an example, as are Portugal’s multilevel contracts (OECD, 2017d). There appears to be ample room for greater IMC in Panama, and there are a variety of areas in which greater formal co-operation between communities could help subnational governments manage capacity challenges. It could be a complementary mechanism to the decentralisation reform, and allow municipalities to build their service-delivery capacity, while limiting costs.

Conclusions and policy recommendations

Panama is growing rapidly, and with this comes increasing pressure on governments of all levels to better ensure continued growth while also promoting greater inclusiveness and wellbeing. To realise its dual territorial objective, a clearer and stronger approach to regional development would be valuable as well as adjustments to its multilevel governance practices. An explicit regional development policy – one that supports a strategic vision for how Panama would like its territory to look for the next generation – would be a positive step forward.

Consideration should be given to strengthening the normative and institutional frameworks supporting regional development. Currently, there is no overarching strategy to guide regional development in the long term, nor is there an explicit regional development policy to serve as a road map in the medium term. The implementation of regional development initiatives is spread across line ministries with a territorial logic, each introducing and executing its sector objectives and plans. This renders regional development a fragmented and sector-driven exercise, with limited visibility as to overall effectiveness and concrete results.

If regional development is to have an impact, a “place-based” or “new paradigm” approach is increasingly being considered good practice, and success rests in part on subnational decision-making ability and resource capacity. Subnational governments play a very limited role in Panama’s economic and social growth. The revised Law on Decentralisation could have a positive impact, but additional clarity may be needed regarding how responsibilities will be transferred to municipal authorities, and to ensure them greater capacity – financial and human resource – in a sustainable manner.

To develop a policy that can successfully help Panama manage its territorial challenges, strengthening evidence bases and monitoring and evaluation mechanisms will be critical.

Enhancing institutional co-ordination is fundamental to support regional development. While there are strong horizontal co-ordination practices at the national level, these are less evident with respect to vertical co-ordination between levels of government. This is particularly important given what is perceived as a gap between “macro” level national priorities, such as ensuring greater inclusiveness, and “micro” level local priorities, such as education, healthcare, and transport/connectivity. While these are not mutually exclusive, work needs to be done to bridge the gap and help subnational authorities translate national priorities into initiatives that meet local needs. This, ultimately, is one of the fundamental roles of regional development policy at the national and subnational levels.

Box 3.12 summarises the main policy recommendations and requirements for each area covered in this chapter.

Box 3.12. Key recommendations for regional development policy

Strengthen multilevel governance practices to better support regional development:

  • Consider supporting and adjusting normative and institutional frameworks for regional development, including:

    • Taking a more strategic, long-term approach to regional development, inspiration could be drawn from practices in Finland and Slovenia (legal frameworks), the United Kingdom (white papers), Sweden (state strategies), France (state-region planning contracts) or New Zealand (regional growth programmes).

    • Building evidence bases to manage territorial growth and development, particularly in light of expected population growth and the pressures placed on services, infrastructure, jobs, and administration.

    • Reinforce the Law on Decentralisation by ensuring:

      1. Clarity in competence attribution among levels of government, and transparency in the transfer of responsibilities.

      2. Carefully monitoring and evaluating its contribution to municipal financial and administrative capacity and its impact on local administrative and fiscal prioritisation and decision-making autonomy.

  • Build subnational capacity and resources, especially at the municipal level, by:

  • Enhancing subnational fiscal autonomy in decision making and budget management.

    • Considering a new municipal classification system based on functional areas rather than population and density.

    • Ensuring training for local public servants, including in skills in planning, budgeting, municipal management, and administrative service delivery.

Support a “new paradigm” approach to regional development

  • Develop a national regional development policy that clearly articulates national territorial development objectives and priorities. Countries such as Colombia, France, Ireland, Mexico and Sweden have taken diverse approaches to formalising their regional development strategies.

  • Consider including a specific development framework for the comarcas within the policy’s framework, and possibly reintroducing a multistakeholder, cross-sectoral body dedicated to promoting comarca development. Canada has adopted a similar mechanism.

  • Introduce provincial and comarca regional development plans, elaborated by the corresponding subnational authorities, in order to better address subnational priorities and harness the unique opportunities corresponding to each area.

  • Introduce regional development funding mechanisms that include a degree of predictability for the intermediate level. This can be either through a dedicated budget line or a special development fund. Uruguay may provide a useful example.

  • Build performance measurement systems to better understand policy and programme effectiveness and build evidence bases at the national and subnational levels (seen in Canada, Chile, Scotland and the United States, for example), including:

    • Output and outcome indicator sets, and programme reviews to measure the effectiveness and impact of a national regional development policy, and subnational development plans.

    • Communicate objectives and intended targets to citizens, updating results on a predictable basis (e.g. biannually), in an easy and accessible format to understand advances, challenges and actors involved in these targets.

    • Consider stronger partnership between the public and private sector when launching future regional development agencies. Poland’s approach to regional development agencies may be of value.

Enhance horizontal and vertical co-ordination capacity

  • Create a high-level interministerial body for guiding regional development policy, its priorities and performance, in an integrated, cross-sectoral manner.

  • Form a dedicated unit for regional development policy to act as a steward, guiding and co-ordinating the policy design and implementation process on a day-to-day basis.

  • Build vertical dialogue mechanisms at the political and potentially civil servant level to better understand priorities, capacities and the synergies that can arise from sectoral programming. Ensure that they meet regularly, have a clear agenda, and can point to results. Sweden’s Forum for Sustainable Regional Growth and Attractiveness offers a successful example.

  • Promote intermunicipal co-operation as a horizontal co-ordination mechanism to overcome capacity challenges in service delivery and local administration. Countries as diverse as Chile, Greece, Iceland, the Netherlands, New Zealand and Ukraine have mechanisms to support such co-operation.


Allain-Dupré, D. (forthcoming), “Assigning responsibilities across levels of government: Challenges and guiding principles”, OECD Regional Development Policy Working Papers, OECD Publishing, Paris.

AMUPA (Asociación de Municipios de Panamá) (n.d.), “Datos Generales de los Municipios”, AMUPA, Ciudad de Panamá, Panama.

Bartolini, D. and F. Fiorillo (2011), “Co-operation among local councils for the provision of public goods” Rivista Italiana degli Economisti, Vol. 16/ 1, pp. 85-108.

City of New York (n.d.), One New York: The Plan for a Strong and Just City, City of New York, New York,

City of Seattle (n.d.), “Welcome to performance Seattle”, Performance Seattle, Seattle, Washington,

Controlaría del Gobierno de Panamá (2010), “Boletín 16: Estimaciones y Proyecciones de la Población Total del País por Provincia, Comarca Indígena, Distrito y Corregimiento, según sexo y edad: años 2010-20”, Instituto Nacional de Estadística y Censo, Panamá, Panama,

Controlaría General de la República (2018), Dirección General de Fiscalización, Municipalidades de la República y Ministerio de Economía y Finanzas Dirección de Presupuesto de la Nación (DIPRENA),

Cuadrado-Roura, J.R. and J.M. Fernández Güell (2008), “Metropolitan areas and the challenges of competitiveness”, in Rojas, E., J.R. Cuadrado-Roura and J.M. Fernández Güell (eds.), Metropolitan Governance: Principles and Cases, Inter-American Development Bank, Washington, DC, and David Rockefeller Center for Latin American Studies, Harvard University, Cambridge, MA.

EC (European Commission) (2017a), My Region, My Europe, Our Future: Seventh Report on Economic, Social and Territorial Cohesion, Directorate General for Regional and Urban Policy, EC, Brussels,

EC (2017b), “Rzeszow Regional Development Agency”, Growth: Internal Market, Industry, Entrepreneurship and SMEs webpage, EC, Brussels,

EC (2017c), “Torun Agency for Regional Development”, Growth: Internal Market, Industry, Entrepreneurship and SMEs webpage, EC, Brussels,

Editorialox (n.d.), “Panamá”,

FCM (Federation of Canadian Municipalities) (2017), “First nations-municipal Community Economic Development Initiative,” Federation of Canadian Municipalities, Ottawa,

Gobierno de la República de Panamá (2014), Un Solo País: Plan Estratégico de Gobierno 2015-2019, Gobierno de la República de Panamá, Panama,

Government of Canada (2017), “2017-2020 departmental sustainable development strategy”, Indigenous and Northern Affairs Canada, Ottawa,

Government of Canada (2015), “Lands and economic development”, Indigenous and Northern Affairs Canada, Ottawa,

Government of Canada (2010), “Federal framework for aboriginal economic development”, Indigenous and Northern Affairs Canada, Ottawa,

Greenstein, R., F. Sabatini and M. Smolka (2000), “Urban spatial segregation: Forces, consequences, and policy responses,” Land Lines, November 2000, Lincoln Institute of Land Policy, Cambridge, MA,

Local Government New Zealand (2011), “Shared services for local government”, Local Government New Zealand, Wellington,

Ministère de la Cohésion des Territoires (2015), Les contrats de plan Etat-Région: Présentation générale, Ministère de la Cohésion des Territoires, Paris,

Ministerio de Economía y Finanzas (2002), Guía sobre Organización Municipal y Participación Popular, Dirección de Desarrollo Institucional del Estado, Departamento de Fortalecimiento Institucional, Ministerio de Economía y Finanzas, Gobierno de Panamá, Panama,

Ministry of Enterprise and Innovation (n.d.), “Sweden’s National Strategy for Sustainable Regional Growth and Attractiveness, 2015-2020” (short version), Government Offices of Sweden, Stockholm,

Mizell, L. (2008), “Promoting performance – Using indicators to enhance the effectiveness of sub-central spending”, OECD Working Papers on Fiscal Federalism, No. 5, OECD Publishing, Paris,

OECD (Organisation for Economic Co-operation and Development) (2017a), Multi-dimensional Review of Panama: Volume 1. Initial Assessment, OECD Development Pathways, OECD Publishing, Paris,

OECD (2017b), Making Decentralisation Work in Chile: Towards Stronger Municipalities, OECD Multi-level Governance Studies, OECD Publishing, Paris,

OECD (2017c), “Subnational governments in OECD countries: Key data” (brochure), OECD Publishing, Paris, (database:

OECD (2017d), Multi-level Governance Reforms: Overview of OECD Country Experiences, OECD Multi-level Governance Studies, OECD Publishing, Paris,

OECD (2017e), OECD Territorial Reviews: Sweden 2017: Monitoring Progress in Multi-level Governance and Rural Policy, OECD Publishing, Paris,

OECD (2016a), OECD Regional Outlook 2016: Productive Regions for Inclusive Societies, OECD Publishing, Paris,

OECD (2016b), Regional Outlook, 2016: Productive Regions for Inclusive Societies, Country Notes, OECD Publishing, Paris,

OECD (2016c), Government at a Glance: Latin America and the Caribbean 2017, OECD Publishing, Paris,

OECD (2016d), Making the Most of Public Investment in Colombia: Working Effectively across Levels of Government, OECD Multi-level Governance Studies, OECD Publishing, Paris,

OECD (2016e), OECD Territorial Reviews; Japan 2016, OECD Publishing, Paris,

OECD (2016f), OECD Territorial Reviews: Córdoba, Argentina, OECD Publishing, Paris,

OECD (2016g), OECD Regions at a Glance, 2016, OECD Publishing, Paris,

OECD (2015), The Metropolitan Century: Understanding Urbanisation and its Consequences, OECD Publishing, Paris,

OECD (2014a), OECD Territorial Reviews: Ukraine 2013, OECD Publishing, Paris,

OECD (2014b), OECD Regional Outlook 2014: Regions and Cities: Where Policies and People Meet, OECD Publishing, Paris,

OECD (2013a), OECD Territorial Reviews: Brazil 2013, OECD Publishing, Paris,

OECD (2013b), Investing Together: Working Effectively across Levels of Government, OECD Publishing, Paris,

OECD (2013c), Poland: Developing Good Governance Indicators for Programmes Funded by the European Union, OECD Public Governance Reviews, OECD Publishing, Paris,

OECD (2012), Promoting Growth in All Regions, OECD Publishing, Paris,

OECD (2010), Finland: Working Together to Sustain Success, OECD Public Governance Reviews, OECD Publishing, Paris,

OECD (2009a), How Regions Grow: Trends and Analysis, OECD Publishing, Paris,

OECD (2009b), Regions Matter: Economic Recovery, Innovation and Sustainable Growth, OECD Publishing, Paris,

Republic of Ireland, National Spatial Strategy for Ireland 2002-2020: People, Places and Potential, Government of Ireland, Stationary Office, Dublin,

República de Panamá (2015), Ley No. 66, Que Reforma la Ley 37 Que Descentraliza la Administración Pública, República de Panamá, Gaceta Oficial Digital, Panama,

República de Panamá (2009), Ley No. 37, Que Descentraliza la Administración Pública, República de Panamá, Gaceta Oficial Digital, Panama,

República de Panamá (1973), Ley No. 106, Sobre Régimen Municipal, República de Panamá, Panama,

República de Panamá (1972), Constitución Política de la República de Panamá (amended, 2004), República de Panamá, Panama,

UNDP (United Nations Development Programme) (2014), Imaginando un Futuro Común: Plan de Desarrollo Integral de los Pueblos Indígenas de Panamá, UNDP, New York,

Verkhovna Rada (2015), “Verkhovna Rada of Ukraine adopts law ‘on fundamentals of state regional policy’”, Verkhovna Rada, Kyiv,

World Bank (2018), “Banco Mundial aprueba innovador proyecto para pueblos indígenas de Panamá”, World Bank Group, Washington, DC,

World Bank (2013), Republic of Panama: Panama Public Expenditure and Financial Accountability, World Bank Group, Washington, DC,

Annex A. Municipal competences in Panama versus a general schematic

The public services falling under municipal responsibility are classified into six main categories and then divided into specific tasks presented in Table A.1. Table A.2 offers a comparative, generalised look at how responsibilities are attributed across distinct levels of government in Organisation for Economic Co-operation and Development (OECD) countries.

Table A.1. Competences ascribed to Panama’s municipalities


Specific responsibility

Urban public services

Zoning; parks and gardens; paving and maintaining of public roads (i.e. sidewalks, avenues, lateral roads)

Authorisation for public lighting, telephone lines and supply of potable water

Cleaning, collection and elimination of solid waste

Environmental protection (air, noise and aesthetics)

Construction permits

Granting of urban licenses in accordance with the norms established for urban development

Public transport services

Supply of vehicular license plates

Vehicular parking

Transport terminals

Public services for security and protection

Judicial administration1

Citizen security

Fire prevention

Public education and culture services

Education (school canteens, support for the construction of gymnasiums or areas for physical education)

Sports fields or areas for recreation

Public swimming pools

Classroom construction and maintenance (support)

Library services

Social assistance

Health centres

Pre-primary schools

Public health services


Facilities for elderly care


Public hostels or dormitories

Waste (garbage) collection

Public provisions

Public abattoirs

Public markets

Plazas or areas for the sale of agricultural or industrial products

Markets for crafts, agriculture, livestock, etc.

1. This refers to local justice responsibilities (i.e. police), not to be confused with justicia ordinaria, which is under the responsibility of corregidores, a political authority within a corregimiento, and which will be replaced by justices of the peace as of 2018.

Source: Ministerio de Economía y Finanzas (2002), Guía Sobre Organización Municipal y Participación Popular, Dirección de Desarrollo Institucional del Estado, Departamento de Fortalecimiento Institucional, Ministerio de Economía y Finanzas, Gobierno de Panamá, Panama,

Table A.2. Breakdown of responsibilities across subnational governments: A general scheme

Regional Level

Intermediary Level

Municipal Level

Heterogeneous and more or less extensive responsibilities, depending on country characteristics (e.g. unitary vs federal).

Specialised and more limited responsibilities of supra-municipal interest.

A wide range of responsibilities:

General clause of competence

Eventually additional allocations by law

Services of regional interest:

Secondary/higher education and professional training

Spatial planning

Regional economic development and innovation

Health (secondary care and hospitals)

Social affairs (e.g. employment services, training, inclusion, support to special groups)

Regional roads and public transport

Culture, heritage and tourism

Social housing

Environmental protection

Public order and safety (e.g. regional police, civil protection)

Local government supervision (in federal countries)

An important role in assisting small municipalities.

May exercise responsibilities delegated by the regions and central government.

Community services:

Education (nursery schools, pre-elementary and primary education)

Urban planning and management

Local utility networks (water, sewage, waste hygiene, etc.)

Local roads and city/local public transport

Social affairs (support for families, children, elderly, disabled, poverty, social benefits, etc.)

Primary and preventative healthcare

Recreation (sport) and culture

Public order and safety (municipal police, fire brigade)

Local economic development, tourism, trade fairs

Environment (green areas)

Social housing

Administrative and permit services

Responsibilities determined by the functional level and geographic area:

Secondary and/or specialised education

Supra-municipal social and youth welfare

Secondary hospitals

Waste collection and treatment

Secondary roads and public transport


Source: OECD (2016g), Regions at a Glance, 2016, OECD Publishing, Paris,

Annex B. Guidelines for effective decentralisation to support regional and local development

Through its work on regional and local development, the OECD has created a set of guidelines to support more effective decentralisation when undertaken to strengthen regional and local development. While the ideal is to have all of these dimensions in place before undergoing a decentralisation process, this is difficult to achieve in practice. Therefore, in order to maximise the possibility of success, governments should assess which areas may be weak and take steps to address these, while also reinforcing those areas that are already strong. Successful decentralisation will depend on the presence of these factors.

  1. Clarify the sector responsibilities assigned to each government level: Most responsibilities are shared across levels of government, and spending responsibilities overlap in many policy areas. Therefore, it is crucial to ensure adequate clarity on the role of each level of government in the different policy areas in order to avoid duplication, waste, and loss of accountability.

  2. Clarify the functions assigned to each government level: Clarity in the different functions that are assigned within specific policy areas, e.g. strategic planning, financing, regulating, implementing, or monitoring is as important or even more so than clarity in assignment of tasks.

  3. Ensure coherence in the degree of decentralisation across sectors: A degree of balance in what is decentralised and to what degree should be ensured across policy sectors. In other words, decentralising one sector but not another can limit an ability to exploit cross-sectoral complementarities and integrated policy packages when implementing regional and local development policy. While decentralisation may apply differently to different sectors, there should be coherence and complementarity in the approach.

  4. Align responsibilities and revenues, and enhance subnational fiscal autonomy: The allocation of resources should be matched to the assignment of responsibilities to subnational governments. Unfunded mandates or a mismatch between responsibility and financing capacity should be avoided.

  5. Actively support capacity building for subnational governments with resources from the national government: Additional financial resources need to be complemented with the human resources capable of managing them. This dimension is too often underestimated, if not completely forgotten, in decentralisation reform, and is particularly important in poor or very small municipalities. At the very least, subnational governments should have the responsibility and be able to monitor employee numbers, costs, and competencies.

  6. Build adequate co-ordination mechanisms across levels of government: Since most responsibilities are shared, it is crucial to establish governance mechanisms to manage these joint responsibilities. Creating a culture of co-operation and regular communication is crucial for effective multilevel governance and long-term reform success. Tools for vertical co-ordination include dialogue platforms, fiscal councils, standing commissions and intergovernmental consultation boards and contractual arrangements.

  7. Support cross-jurisdictional co-operation through specific incentives: Subnational horizontal co-ordination is essential to encourage investment in areas where there are positive spillovers, to increase efficiency through economies of scale, and to enhance synergies among policies of neighbouring jurisdictions. Intergovernmental bodies for horizontal co-ordination can be used to manage responsibilities that cut across municipal and regional borders. Determining optimal subcentral unit size is a context-specific task; it varies not only by country or region, but also by policy area – efficiency size will differ based on what is under consideration, for example waste disposal, schools, or hospitals.

  8. Allow for pilot experiences and asymmetric arrangements: Allow for the possibility of asymmetric decentralisation, i.e. giving differentiated sets of responsibilities to different types of regions/cities/local governments, based on population size, rural/urban classification and fiscal capacity criteria. Ensure implementation flexibility, making room for experimenting with pilot programmes in specific places or regions and constantly adjusting through learning-by-doing.

  9. Make room for complementary reforms: Effective decentralisation requires complementary reforms at the national and subnatiosnal levels in the governance of land-use, subnational public employment, regulatory frameworks, etc.

  10. Improve transparency, enhance data collection and strengthen performance monitoring: Data collection should be undertaken to monitor the effectiveness of subnational public service delivery and investments. Most countries need to develop effective monitoring systems of subnational spending and outcomes.

Source: Allain-Dupré, D. (forthcoming), “Assigning Responsibilities across Levels of Government: Challenges and Guiding Principles”, OECD Regional Development Policy Working Paper, OECD Publishing, Paris.

Annex C. Functional urban – and metropolitan – areas

Urban agglomerations are defined by their physical characteristics (such as population densities and developed land) but also by their functional relations that are expressions of the daily lives of their inhabitants. People live in one area, commute to another and go for dinner in even another. Friends might live in the same neighbourhood, but the shopping centre is located across town and business trips begin at the airport outside the city. For a single citizen, this is just a pattern of daily life. Taken together across all residents, these patterns make up the functional relations that define a city.

For several reasons, administrative borders in metropolitan areas rarely correspond to these functional relations. Often, they are based on historical settlement patterns that no longer reflect human activities. Due to population growth and improvements in transport technologies, formerly well-delimited villages have become part of the suburbs of a city or might even be fully integrated in the urban core. Often, no corresponding changes to administrative borders have occurred. Common reasons for the persistence of administrative borders are strong local identities and high costs of reforms, but also vested interests of politicians and residents.

Even if policy makers try to reorganise local governments according to functional relations within urban agglomerations, it is often difficult to identify unambiguous boundaries between functionally integrated areas. Urban agglomerations are not defined by a single functional relation, but by many overlapping ones. Generally, they are not identical in their geographical extent. For example, the functional relation defined by typical shopping patterns is different from the one defined by commuting patterns.

The mismatch between functional boundaries and administrative boundaries is well known and policy makers have long been aware of the co-ordination problems it might cause. In response, a wide range of metropolitan governance arrangements has emerged. While some countries have chosen to shift administrative boundaries to match the new urban form (e.g. via municipal mergers), others are encouraging municipalities to build partnerships – e.g. for service delivery, economic development planning – within a more or less institutionalised framework.

Source: Adapted from OECD (2015), The Metropolitan Century: Understanding Urbanisation and its Consequences, OECD Publishing, Paris,


← 1. Provincial council members are not directly elected to the Council, but are (elected) representatives from each corregimiento in the province (República de Panamá, 1972).

← 2. It is estimated that between 2010 and 2020 the population in Kuna Yala will have grown 22.2%, in Emberá 21.7% and in Ngäbe Bulgé 29.7%.

← 3. The official currency in Panama is the Panamanian Balboa (PAB). This currency has been tied to the United States Dollar since 1904; 1 PAB equals 1 USD (US dollar).

← 4. The OECD measures administrative fragmentation as the number of municipalities per 100 000 inhabitants.

← 5. Panama classifies its municipalities in four groups based on population and density per km2: metropolitan (over 250 000 inhabitants), urban (40 001-250 000 inhabitants and a density of 101-200 inhabitants per km2), semi-urban (6 001-40 000 inhabitants and a density of 41-100 inhabitants per km2), and rural (6 000 inhabitants) (República de Panamá, 2009).

← 6. These tend to centre on increased democratic governance and participation, public services that are better adapted to a population’s need, and increased transparency and accountability to citizens.

← 7. This Department is in the process of dissolution and will be replaced by Indigenous Services Canada and a department for Crown-Indigenous Relations and Northern Affairs Canada.

← 8. An output indicator is defined as an indicator to measure progress with an activity. It should be measurable, which implies that it must be quantitative – can be expressed numerically (i.e. physical or monetary units) – and time bound (i.e. limited to the lifetime of the corresponding activity). An outcome indicator can be broken down into two types: intermediate and final. Intermediate outcome indicators can be more directly attributed to public-sector activities than final outcome indicators which, while they significantly reflect the intended or unintended results of government actions, are also a function of other factors less within government control (OECD, 2013c).