Conditional recurrent grants
The expansion of the conditional grant system should be seen in connection with the Heavily Indebted Poor Countries (HIPC) Initiative and the establishment of the Poverty Action Fund (PAF) (box 3.1)
The large number of conditional grants has ensured funding for crucial service and infrastructure but has also created a number of challenges. Each grant has its own budget lines (restrictions on use), transfer modalities, and guidelines and reporting system, creating limited autonomy, flexibility, and efficiency in use—coupled with significant transaction costs for local governments in adhering to the complex modalities. This situation undermines the decentralization objectives and compromises the efficiency gains.