Grant Allocation Formula

The Grant Allocation Mechanism

The Grant Allocation Mechanism is the most important element of the MDP. This is the first time a performance-based formula has been used in conjunction with infrastructure grants in Palestine. The allocated fund under component 1 was distributed among all municipalities based on this criteria.

The grants are based on 50 percent on performance, 3 0 percent on population and 2 0 percent on needs.

Municipalities are ranked according to 16 basic accepted “good practices” performance indicators. Funds are allocated based on the municipal rank. Municipalities with higher rankings will be eligible for more funding than those with lower rankings. The MDP works closely with municipal leaders to help those in the lower levels move up to a higher ranking.

Grants Allocation Performance Indicators for MDPII

The municipal performance measuring system is created to provide the right incentives for the municipalities’ performance under MDP 3 following municipal progress during MDP 1 and MDP 2. It is developed based on three basic principles for KPIs:
                    i.            Outputs and Results. KPIs should be performance-based and focused on results achieved rather than the means by which the results are achieved. This includes some process indicators to strengthen certain steps to reach the outputs (e.g. a manual for O&M).

                  ii.            Transparency and simplicity: The performance system and its underlying KPIs (and how these are measured) should be transparent and the municipalities themselves should be able to predict and verify their results.  

                 iii.            Reform and Strategy. KPIs should support municipalities to implement government reforms guided by government sector strategy including strategies for financial sustainability, planning, electricity, and water.

Table 2: Municipal Grant System under the proposed MDP 3

Basic Grant (50%) allocated based on population and needs
Eligibility Conditions

        i.            Annual Budget approved by the Municipal Council and submitted to MoLG on a timely basis

       ii.            SDIP prepared according to new SDIP Guidelines (from  year 3)

Performance Grant (50%). Grant allocated to municipalities based on performance according to KPIs





No. of KPIs

3 KPIs

6 KPIs

6 KPIs

6 KPIs


Compliance of  all 3 KPIs

C: compliance of 2 out of 6

C+: compliance of (3,4) out of 6

C++: compliance of 5,6 out of 6

In addition to the KPIs in rank D

B: compliance of (2) out of 6

B+: compliance of (3,4)  out of 6

B++: compliance of (5,6) out of 6

In addition to the KPIs in rank D & rank C

A: compliance of (2) out of 6

A+: compliance of (3,4) out of 6

A++: compliance of (5,6) out of 6

In addition to the KPIs in rank D & rank C and rank B

Performance Areas

Key Performance Indicators Matrix

Financial Performance and Sustainability

At least 10% of the budget execution for O&M

O&M Plan in place

Year on Year Increase or more than 50 NIS municipally collected revenue per capita

Operational Surplus achieved

Staff Costs <45% WB or <70% GZ) of Operational and Capital expenditure

Separate banks Accounts for Enterprise revenues established

Separate financial accounting for enterprise revenues and expenditures established

No increase in net lending

Cost Accounting Systems set up

Institutional Performance

Financial Accounting Policies and Procedures in place

Executed Budget Statement for the previous FY submitted to MoLG on time

Unqualified  Audit Opinion from Annual external audit

IFMIS implemented

Fixed Asset Register in place and updated

At least 70% Budget Execution

Green Spaces implemented[1]

Transparency, Accountability and Participation

Public Disclosure of annual budget, SDIP and MDP performance ranking

Public Disclosure of executed budget and executed SDIP

Audit opinion disclosed to citizens and stakeholders

Municipal Complaint System established

Functional Municipal Complaint System following MoLG guidelines

[1] The indicator is related to the quality of urban livelihood and defined as follows: the municipality provides and maintains public green space (green areas, sport areas, play grounds, parks) of > 0.5 m² per capita in West Bank urban municipalities and > 0.3 m² per capita in Gaza and West Bank rural municipalities.