Statistics

This report presents the findings of the first assessment of PFM systems in the Municipality of Fier based on PEFA methodology. The objective of the assessment is to gain a better understanding of the strengths and weaknesses of municipal PFM systems as a basis for discussing PFM reform priorities and possible areas of support to the newly restructured municipality. The assessment is based on the performance of the PFM systems as at October 2016 and during the period prior to that as defined by PEFA methodology. It is focused on the amalgamated Municipality following the 2015 merger with nine former communes (Libofshë, Dermenas, Qendër, Mbrostar, Topojë, Levan, Frakull, Portez and Cakran) as part of the Territorial Administrative Reform (resulting in a more than doubling of the population), but covers for a number of issues the period back to FY2013 inclusive. It is one of a series of five assessments of Tirana and other municipalities financed by SECO and USAID/PLGP, with the sample selected so as to have a view of PFM in large, medium and small municipalities. Fier, with a population of 120,000 is the largest municipality assessed apart from the capital city, Tirana.

This PEFA report presents the findings of the first assessment of PFM systems in the Municipality of Kuçova. The objective of the assessment is to gain a better understanding of the strengths and weaknesses of municipal PFM systems as a basis for discussing sub national (local) PFM reform priorities and possible areas of support to the newly restructured municipalities in the aftermath of the Territorial and Administrative Reform. This PEFA assessment report is one of the of five PEFA assessments conducted at the sub national level in Albania with the support of USAID/PLGP and SECO.

In 2015, the Government of Albania (GoA) consolidated 373 municipalities and communes into just 61 larger municipalities. The creation of these larger municipalities was the first step in a broader plan to increase the role of democratically-elected local governments in the country’s system of public administration. Once local governments had been consolidated, the GoA passed a new framework law on Local
Self-Government (LSGL). This law transferred important service responsibilities to municipalities as own-functions.

The purpose of this paper is to explain the most important challenges that need to be addressed in order to move to the unconditional funding of these new services, and to recommend way that this might best be done. First, we trace the origins of the current situation and briefly characterize the most important problems that need to be addressed. We illustrate these problems by discussing the non-educational functions that have recently been decentralized and outline some recommendations about how their financing might be treated going forward. Finally, we focus most of our attention on preschool education because it is by far the costliest responsibility that the GoA has assigned to municipalities, and arguably the most important for Albania’s future.

This is the sixth edition of the Report, as an ongoing effort to provide policy–makers and analysts with reliable comparative data on municipal finances and intergovernmental fiscal relations in South–East Europe.

The report consists of four sections. The first reviews the data used in the report and discusses some basic methodological issues. The second begins with a presentation of the structure and functions of municipal governments in the region. The third section examines selected indicators of macro–economic performance and fiscal decentralization. The fourth section focuses on the evolution of intergovernmental finances in each NALAS’ member country or entity.

2018 NALAS’ Fiscal Decentralisation Report: Local services are exacerbated by the deterioration of local finance arrangements

-  There is an ongoing tendency of concentration of people in capital and metropolitan cities, despite the region’s diversity in terms of territorial organization. In Albania, Serbia, Macedonia and Montenegro over 20% of the population lives in the capital cities, which creates significant pressures and challenges for improved service delivery and intergovernmental finance systems.

-  Local government challenges to provide better services and improve the quality of life of citizens are exacerbated by a general stagnation or deterioration of local finance arrangements that are not able to keep up or quickly respond to local government needs and developments.

-  While it is difficult to judge the adequacy of local government revenues relative to their expenditure needs, there seems little question that in many places in the region municipalities are underfunded, and central governments are not giving them a fair share of the overall fiscal pie. On average, in 2017, SEE local government revenue as a share of GDP stood at 5.9%, almost half of their counterparts in the EU that benefit from an average of 10.7%.

-  The level of local fiscal autonomy is decreasing in many SEE countries. On average local government revenues in SEE decreased by 0.5% between 2015 and 2017, both as a percent of the GDP and Total Public Revenues. Further, compared to 2006, NALAS’s baseline year, the share of revenues over which local governments can exercise independent decision-making has decreased, while the share of conditional block grants and specific-purpose investment grants has increased by 50% and 30% respectively.

-  Local government powers to set and collect taxes, fees and charges are in continuous change – sometimes without a due process of consultation and/or compensation, under the general expectations of improved business climate and relieved fiscal burdens to taxpayers that would result in more job-creation. Unfortunately, this depresses local governments efforts too.

-- Regardless of level of development and membership to the EU, SEE local governments continue to face similar challenges as regards to own revenue generation, including the frequent and continuous amendment of the legal framework; outdated fiscal registers; weak tax compliance and enforcement, while commitment of policymakers to make local taxation effective is critical everywhere in the region. Additionally, there seems to be an inverse relationship between the level of decentralisation measured by the scope of the social functions devolved to the local governments and the size of the public sector. The data suggests that surprisingly decentralisation has gone furthest in places where the overall public sector is relatively small, and to minor extent where potentially national governments face significant trouble collecting taxes.

-  The functional allocation of expenditures shows that SEE local governments spend most of their budgets on Education and Housing and Community Amenities: Education takes 40-60% of municipal budgets in Moldova, Slovenia, Kosovo and Bulgaria - which is 2-3 times more than the EU28 average. In Albania, Croatia and Turkey, local governments spend one quarter to one third of all expenditures on housing and community amenities. Environmental protection is the function where almost all SEE countries spend the least.

-  SEE local governments spend, on average, a third of their budgets on personnel wages/salaries costs which is almost equal to the EU and, while the share of spending for capital investments is, on average, twice as much as their counterparts in the EU. The report provides a comprehensive analysis of the spending patterns of SEE as a region and individual countries, including historic data from 2006, both as a percent of the total, in million Euro or in Euro per capita.

This is the first edition of the NALAS Statistical Brief: Local Government Finance Indicators in South East Europe, as an effort of NALAS’ Fiscal Decentralisation Task Force to provide policy–makers and analysts with timely, accurate, relevant, reliable and comparable data on local government finance in South–East Europe.

The report is structured in two main sections. The first part provides an overview of the size and structure of local governments in the region and regional comparisons on the status of national and subnational government finance in South-East Europe in 2018, including also data in million of Eur and in Eur per capita besides the “common” data express in percent. The second section shows the patters and evolution of national and subnational government revenues and expenditures for the period 2006-2018 through selected indicators of macro–economic performance and fiscal decentralisation.