In addition to understanding the political economy dynamic of domestic actors and stakeholders in the context of decentralization reforms, it is important for development partners and providers of external development assistance to recognize the political economy forces influence their own actions and interventions. Some of the issues and challenges likely faced by task teams when operating in a multilevel public sector include:
- The central government counterparts of global development agencies are not neutral actors. With few exceptions, the institutional entry point for international development agencies is the central or national government level – either Ministry of Finance or Ministry of Planning. Whereas in the case of centralized public sector interventions, the central government – the counterpart ministry – is often also the main beneficiary of development assistance, this is not necessarily the case for development projects or programs that aim to strengthen decentralized governance, administration, or service delivery. While there are many examples where central government counterparts have strongly supported development projects that strengthen decentralized systems, there are also a large number of examples where the centralized viewpoints or narrow institutional interests of central ministry counterparts formed an important political economy obstacle in project design and implementation.
- The centralizing bias of the international development community. There is no doubt that it is easier to design and manage a development project that has a single central government counterpart versus a project that needs to be implemented by dozens or possibly even hundreds of local governments. Given that donor agencies and international financial institutions need to have their primary counterparts at the central government level, a combination of institutional self-interests—by the donor agency as well as their counterparts at the central government level—can bias the implementation of development projects to the central government level (Boex 2010).
- Strengthening decentralized systems requires a solid technical understanding of intergovernmental systems as well as political economy incentives faced by subnational stakeholders. While global development agency task teams are well-equipped to design and deliver technical interventions, task teams are often not equally well equipped to identify and deal with political economy constraints, which tend to be more prevalent in multilevel public sectors. In fact, in countries where public service delivery responsibilities are devolved to local governments, technical obstacles, such as institutional capacity limitation or inadequate resources, as well as political economy obstacles need to be considered. For instance, a local government’s failure to deliver public services in an efficient, inclusive or accountable manner may not be caused by technical limitations per se, but may find its origins in local political priorities or political economy forces acting on local leaders.
- Development partner programs can legitimize or delegitimize certain players. Whether intentional or not, the development and implementation of international development partner programs often have important implications for public sector governance. For instance, by focusing their dialogue and resources on the central government level instead of transferring their funds to the local government level through the intergovernmental transfer system, development partners can wittingly or unwittingly alter the balance of power and resources among stakeholders at different levels of the public sector. The situation is complicated further by the fact that international development agencies are often internally fragmented into silos or stove-pipes themselves (typically by sector), and that the bulk of external assistance therefore focuses on sectors and so, by definition, is earmarked. Although a sector program to provide funding to, say, local health facilities may be presented as “governance-neutral” because it by-passes the local government level, by the very fact that the program introduces a new funding stream, the program is likely to have a significant impact (for better or for worse) on the incentives and accountability relationship in the public sector.
- Improving the effectiveness of intergovernmental or vertical service delivery systems often requires working across stovepipes at different government levels. As suggested by the typology in Section 2, it is often the case that within a country and even within the same sector, there is a messy and simultaneous mix of central implementation, delegation, deconcentration, and devolution happening all at once. This means that efforts to improve the effectiveness of intergovernmental or vertical service delivery systems will often require successful task teams to work across different sectoral or thematic stovepipes, both at the central government level as well as at the subnational level.
 To complicate matters further, different sectoral programs may not be well-positioned to address cross-cutting local government challenges such as weak local financial management.