This study is about how the declining local government revenues affect the implementation of pro-poor policies in local governments in Uganda. Since the inception of Decentralisation Policy by the Government of Uganda in 1992, powers and responsibility to plan, budget, raise own revenue and implement programmes have been devolved from the centre to local governments. Decentralisation has been claimed to be the most effective way to take service closer to the people. The Government through the donor community also designed PRSPs/PEAP as a planning framework for local government to ensure pro-poor service provision through key national priority areas. This paper examines the relationship between fiscal decentralisation and service delivery. The focus is on the challenges local government encounter in the implementation of pro-poor policies like the LGDPII, taking the case of Sironko District. Local governments are constrained by the poor fiscal policy in place coupled with low taxable base, reliance on donor funds with their imposed conditionality, weak monitoring and supervision mechanisms, allegations of corruption and mismanagement of funds, poor staff capacity and politics of service delivery. However, these challenges are deeply entrenched in the programme design, the patronage and technocratic nature of the policy and the weak institutional frame work especially at the district level in implementing pro-poor service delivery. For effective pro-poor service delivery, there is need for strong monitoring, supervision, and fund management mechanism, an effective and achievable fiscal decentralisation and the full involvement of the community in the decision making process.