World Bank-Austria Urban Partnership Program
Municipal Finance in South-East Europe
Marjan Nikolov:
MUNICIPAL FINANCES IN MACEDONIA
CONTENT
EXECUTIVE SUMMARY ..................................................................................................................................... 3
1
BACKGROUND......................................................................................................................................... 6
2
LOCAL GOVERNMENT FUNCTIONS .......................................................................................................... 6
3
SCOPE OF DECENTRALIZATION.............................................................................................................. 11
4
DIFFERENTIATION AND CONCENTRATION............................................................................................. 14
5
EFFICIENCY OF LOCAL SPENDING........................................................................................................... 17
6
CAPITAL EXPENDITURES AT LOCAL LEVEL .............................................................................................. 19
7
LOCAL GOVERNMENT REVENUES .......................................................................................................... 21
8
GRANT DEPENDENCY ............................................................................................................................ 26
9
LOCAL FISCAL AUTONOMY.................................................................................................................... 28
10
MUNICIPAL BORROWING AND CREDITWORTHINESS ............................................................................ 29
11
REGIONS IN MACEDONIA ...................................................................................................................... 30
12
ANNEX .................................................................................................................................................. 33
LIST OF FIGURES
Figure 1. Local government expenditures by functional classification (programs) for the
period 2008-2012 in Macedonian Denars ................................................................................. 9
Figure 2. Local government expenditures for the period 2008-2011 in MKD by type of
municipalities ........................................................................................................................... 10
Figure 3. Local government expenditures for selected programs for 2008 and 2011 in MKD
by type of municipalities........................................................................................................... 11
Figure 4. Central and local government revenues as percentages of the GDP in Macedonia
for the period 1999-2011 and GD P in mln MKD ................................................................... 12
Figure 5. Capital expenditures at local government level in Macedonia by type of
municipality for the period 2008-2011 in MKD....................................................................... 21
Figure 6. Structure of the local government revenues in Macedonia by source and by type of
municipalities for 2008 and 2011............................................................................................. 22
Figure 7. Total revenues of local governments for the period 2008-2011 by type of local
governments in MKD ............................................................................................................... 23
Figure 8. Structure of the local government revenues in Macedonia by economic
classification for accounts 713, 717, 718 and 723 for 2008 and 2011 .................................... 25
Figure 9. Local government revenues in Macedonia by economic classification for accounts
713, 717, 718 and 723 for 2008 and 2011 in MKD ................................................................. 26
World Bank-Austria Urban Partnership Program - Municipal Finance Review
Figure 10. Transfers from central government to the local government for the period 20082011 in MKD............................................................................................................................ 28
Figure 11. Revenues by source per capita across NUTS III regions in Macedonia for 2008 . 31
Figure 12. Revenues by source per capita across NUTS III regions in Macedonia for 2011 . 32
LIST OF TABLES
Table 1. Descriptive statistics of population per km2 area across local governments in
Macedonia .................................................................................................................................. 7
Table 2. Distribution of Macedonian municipalities ................................................................. 7
Table 3. Local and central government revenues and expenditures over GDP in Macedonia
for the period 2008-2011.......................................................................................................... 11
Table 4. Own local government revenues in comparison with total own and grand total local
government revenues in MKD.................................................................................................. 13
Table 5. Descriptive statistics of revenues by source across local governments in Macedonia
for the period 2008-2011 in MKD per capita .......................................................................... 14
Table 6. Descriptive statistics of expenditures by source across local governments in
Macedonia for the period 2008-2011 in MKD per capita ....................................................... 15
Table 7. Inequality of own revenues across local governments in Macedonia for the period
2008-2011................................................................................................................................. 16
Table 8. Inequality of own expenditures across local governments in Macedonia for the
period 2008-2011 ..................................................................................................................... 16
Table 9. Descriptive statistics of unit costs across local governments in Macedonia for the
period 2008-2011 in MKD per capita...................................................................................... 17
Table 10. Descriptive statistics of unit costs across local governments in Macedonia for the
period 2008-2011 in MKD per capita by types of municipalities ............................................ 18
Table 11. Central and local government capital expenditures in Macedonia for the period
2008-2011................................................................................................................................. 19
Table 12 Structure of capital expenditures at local government level in Macedonia for the
period 2008-2011 ..................................................................................................................... 20
Table 13. Structure of the local government revenues in Macedonia by source for the period
2008-2011................................................................................................................................. 21
Table 14. Structure of the local government revenues in Macedonia by economic
classification for the period 2008-2011 ................................................................................... 23
Table 15. Structure of the local government revenues (transfers) as a share of total revenues
in Macedonia by economic classification for the period 2008-2011 ....................................... 27
Table 16. Structure of the local government own revenues as a share of total revenues in
Macedonia for the period 2008-2011....................................................................................... 28
Table 17. Stability of revenues at local government level in Macedonia for the period 20082011 in MKD............................................................................................................................ 29
Table 18. Borrowing at local government level in Macedonia for the period 2008-2011 in
MKD ......................................................................................................................................... 29
Table 19. Revenues by source in MKD per capita across NUTS III regions in Macedonia for
the period 2008-2011 ............................................................................................................... 30
Table 20. Illustration of the two-phased approach of fiscal decentralization in Macedonia .. 33
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
Executive summary
(1) Macedonia has one tier local government and the process of decentralization in
Macedonia started 1996. Macedonia signed the European charter for local
government in 1996 and ratified it in 1997. In 1998, the Ministry of local government
was established. Government adopted in 1999 Government program and the
Government strategy for reforming the public administration. Working team within
the Ministry of local government was established in March 1999 to start the process of
decentralization.
(2) The decentralization initiatives of 1999 gained new momentum with the
requirements of the new post OFA Constitution of Macedonia. In 2005 the
government adopted a detailed plan for the transfer of competences and resources. In
April, 2005, administrative decentralization was planned in terms of transfer of
institutions, assets, employees and documentation.
(3) The speed of decentralization reforms greatly accelerated during 2004 as the
Ministry of local government moved forward with a number of initiatives and
intensified its contacts with the ZELS.
(4) Macedonia have gradual two phase decentralization process. In accordance with
the law on financing local governments (LSG) (Official Gazette of the Republic of
Macedonia, no. 61/04) there are two phases of the decentralization process prescribed.
The first phase started on 1st July 2005. The second phase started on 1st July 2007. The
phased approach to fiscal decentralization is closely connected to the transfers from
central government. The major principle of this phased approach was to project a
gradual devolution of responsibilities proportional to the demonstration of greater
capacity by local governments to undertake those responsibilities, and to provide an
equitable and adequate transfer of funds for an efficient and ongoing execution of
transferred competencies.
(5) Macedonian municipalities are heterogeneous and analysing national averages
can only distort the reality. Out of 84 municipalities 43.87% of Macedonian
population lives in 67 municipalities with less than 40,000 inhabitants. Almost 38% of
Macedonian population lives in additional 13 municipalities out of 84 with size
between 40,000 and 80,000. The City of Skopje comprises 25% of Macedonian
population in 10 municipalities with population between 22,000 and 73,000
inhabitants. There are 16 municipalities with less than 5,000 inhabitants. Also, in
Macedonia there are 43 urban and 41 rural municipalities. Urban municipalities
comprise 1,625,098 inhabitants (80%) and the rural municipalities comprise 397,449
inhabitants (20%).
(6) The assigned competencies to Macedonian municipalities in general follow the
subsidiarity principle of the European charter for local government. Local
government expenditure’s growth in 2011 compared to 2008 is 41% but almost 50%
of this growth is due to the introduction of the second phase’s block grants for the
education during the period.
(7) However, the dynamic of the local government expenditures differ depending on
the type of government. The most dramatic change was in the City of Skopje with a
growth of 72% in 2011 compared to 2008 and the rural municipalities with 57%
growth in 2011 compared to 2008. These growth rates resulted in decrease of share of
urban municipalities in total local government share from 75% in 2008 to 70% in
2011. The share of the City of Skopje in total local government expenditures thus,
increased from 14% in 2008 to 17% in 2011.
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
(8) The decentralization process and the introduction of devolution of own revenues
improved the local government revenue generation trend in Macedonia. Local
government revenues as percentage in the GDP increased from 0.88% of the GDP in
1999 to 5.65% of the GDP in 2011.
(9) The global crises have impact on local and central government in Macedonia on
different economic grounds. The effect of global crisis on local government has
impact in 2009 with lower revenues and lower self-financing activities of the local
budget users. However, it looks like the local revenues in GDP recover quickly
probably because of non-elastic property taxes and because of the revealing the
potential fiscal capacity with higher local fiscal effort since the devolution in 2005/06.
The central government revenues in the same period decline because of the policy
change of introducing flat tax and overall tax burden easing and the effect of the
global crisis on the elastic central taxes (mainly VAT and PIT).
(10) There is relatively higher variation in Macedonian LSG’s revenues per capita.
The median own revenues per capita are always lower than the mean own revenues
per capita for the period 2008-2011 which illustrates that there are more than a half of
the LSGs (more than 42 LSGs) with lower than the average own revenues per capita
in Macedonia.
(11) The transfers per capita tend to lower the variation of own revenues and own
expenditures per capita among LSGs in the total LSG revenues and expenditures
per capita in Macedonia. The transfers from the central government (transfers are the
biggest share of financing kindergartens and schools) are more or less resulting (in
time) in more balanced expenditures per proper age group (user of service).
(12) The inequality among LSGs in Macedonia is varying in the period 2008-2011. In
2008 the 20% of the richest LSGs in Macedonia (17 out of 84) have total own
revenues that is 23.7 times higher than the poorest 20% LSGs in Macedonia (17 out of
84). The S80/S20 measure of inequality declined in 2009 but then it worsened again
and in 2011 it illustrates that the richest 17 LSGs in Macedonia have 24.2 times higher
revenues than the poorest 17 LSGs. The richest 17 LSGs (out of 84 LSGs) generate
more than 50% of the total own LSG revenues in Macedonia. In comparison, the
poorest 17 LSGs (out of 84 LSGs) in Macedonia generates from 9-12% of the total
own LSG revenues in Macedonia for the period 2008-2011.
(13) There is higher variation in the efficiency of local spending measured as unit
costs for proper age group. In Macedonia the earmarked and block transfers instead
of following function are following the existing assets (buildings) and employment.
There is no cost of services calculated for any program (function). That is why as a
minimum we can get sometimes 0 MKD just because in that particular municipality
there is no kindergarten and/or school and the LSGs seem not to have priority,
incentive and/or fiscal capacity enough to invest in these services.
(14) The global crises have impact on local and central government’s capital
expenditures in Macedonia on different economic grounds. Central government
capital expenditures over GDP in 2009 decreased as a result of the global crises and
since then are increasing reaching 3.8% in 2011. In the same period the local
government capital expenditures over GDP are continuously increasing from 0.95% of
GDP in 2008 to 1.55% of GDP in 2011 which is 63% increase. However, the local
government’s capital expenditures over total local government expenditures in 2008
were 21.17% while in 2009 they declined to 19.54%. Since 2009 the capital
expenditures over total local government expenditures are recovering and reaching
almost 25% of the total local government expenditures.
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
(15) The dynamic of the local government capital expenditures differ depending on
the type of government. The capital expenditures are growing for the period 20082011. The highest growth of 120% in 2011 compared to 2008 goes to the City of
Skopje. In rural municipalities the proper growth in 2011 compared to 2008 is 68%
whereas in urban municipalities it is 48%. Note again that urban population is 80%
and rural population is 20% in Macedonia.
(16) The transfers from the central government take a substantial share of the total
revenues of the local governments in Macedonia. The transfers amount from 68%
in 2009 when the impact of the global crisis was picking and then declining to almost
61% in 2011. The next largest share goes to the communal fees (from 13% to 19%)
and the property taxes (from 8% to 10%). Possibly because of the crisis, the share of
revenues from sale of land increase 0.7% in 2008 to 5.46% in 2011. Also increased are
the shares of other domestic borrowing (from 0.15% in 2008 to 1.82% of total
revenues) and shares of other non-tax revenues (from 0.58 in 2008 to 0.86 in 2011).
(17) Macedonian local government does not have rich experience with borrowing.
Credit expansion started in 2011 mainly with the on-lending credit line of the World
Bank administered within the Ministry of finance.
(18) The regional organization in Macedonia is in accordance with the NUTS III
level as the NUTS I and NUTS II is Republic of Macedonia. In Macedonia the local
government is one tier and the 8 regions are only administrative and proper regulation
for the regions is the law on balanced regional development (Official Gazette of the
Republic of Macedonia, no. 63/07). Skopje region is dominating the revenues
collection as it comprises 26% in 2008 and 27% in 2011 of total revenues in
Macedonia. Skopje comprises 29% of total population in Macedonia. The Pelagonia
region (18% of total Macedonian population) is the second with highest total revenues
in 2008 of 11.9% of total revenues in Macedonia; but in 2011 it is the Polog region
(15% of total Macedonian population) with the second highest total revenues of 10.7%
of total revenues in Macedonia. Lowest total revenues are accounted in East region in
2008 (6.6% of total Macedonian revenues with 9.0% of total population) and in
Vardar region in 2011 (6.8% of total Macedonian revenues with 7.6% of total
population).
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
1
Background
Objective of the report is to analyze local government (LSG) finances by using the
information and data from the Macedonian municipal1 finance Treasury dataset, State
statistical office dataset and other sources. The targeted audiences are the ZELS experts, the
Macedonian policy makers and experts and the international partners working on fiscal
decentralization issues.
The report aims to give an overview on the status of fiscal decentralization and examines the
trends in the period of the economic downturn since 2008. In the calculations in this report we
do not take into account the City of Skopje because it operates under a different law and also
because it might give us biased results in the indicators because of its size and fiscal capacity.
We do however; take into account in the analysis the LSGs within the City of Skopje and
sometimes give comparisons among types of municipalities like urban, rural and the City of
Skopje. The finances of the City of Skopje in the comparison among the types of
municipalities are taken solely of the City of Skopje as a separate unit of LSG and not
comprising the finances of the municipalities within the territory of the City of Skopje.
2
Local government functions
Background, profile and territory
Macedonia signed the European charter for local government in 1996 and ratified it in 1997.
In 1998, the Ministry of local government was established. The process of decentralization
was further supported by two important documents adopted in 1999, namely the Government
program and the Government strategy for reforming the public administration. As a result of
these two initiatives, a working team within the Ministry of local government was established
in March, 1999, to start the process of decentralization.
In 1999, the Kosovo conflict further complicated ethnic tensions in Macedonia and lead to an
armed interethnic conflict in 2001. The political crisis in Macedonia ended with the signing
of the Ohrid Framework Agreement (OFA) in 2001, thus, the decentralization initiatives of
1999 gained new momentum with the requirements of the new post OFA Constitution of
Macedonia. Essentially, the decentralization of particular functions has been delegated to line
ministries. The speed of decentralization reforms greatly accelerated during 2004 as the
Ministry of local government moved forward with a number of initiatives and intensified its
contacts with the Association of local governments (known by its Macedonian acronym,
ZELS).
In 2005 the government adopted a detailed plan for the transfer of competences and resources.
In April, 2005, administrative decentralization was planned in terms of transfer of institutions,
assets, employees and documentation. In that plan, the de-concentrated units of line
ministries were transferred to the local level as well. This, together with the new legislation,
provided an efficient legal framework for the new modern process of decentralization.
With the new law on territorial organization (Official Gazette of the Republic of Macedonia,
no. 55/04) adopted in 2004, the local governments in Macedonia were restructured into 84
municipalities (16 of which have less than 5,000 inhabitants) and with the city of Skopje as a
1
In this report we use LSG, local government and municipality interchangeable.
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
special unit comprising 10 municipalities in accordance with a separate law on the City of
Skopje (Official Gazette of the Republic of Macedonia, no. 55/04).
The population density in Macedonia is, on average, 452 persons per km2. However, there is
a wide range of differences. The most sparsely-populated municipalities have a minimum of
5 persons per km2, whereas the most densely-populated have 16,193 persons per km2. In
Macedonia, 68.3% of the population is between the ages of 15 and 65 years old. The aging
index (i.e. the ratio of persons over 65 to children up to 14) shows an average of 0.50 in the
entire country. This means that there are twice as many children up to the age of 14 as there
are persons over 65. But, as with other statistics, this is merely an overall national average.
The discrepancy across municipalities is high, with a minimum aging index of 0.13 and a
maximum of 2.30.
As illustrated in the table 1, the mean population per km2 of area in municipalities in
Macedonia is 452. However, the range of variation is from a minimum of 5 people per km2
to a maximum of 16,193 people per km2. The median is lower than the mean thus,
illustrating that most of the local governments in Macedonia have less than the national
average density.
Table 1. Descriptive statistics of population per km2 area across local governments in
Macedonia
Population per km2 area
Mean
Median
Maximum (Cair LSG)
Minimum (Novaci LSG)
Source: Author’s calculation on state statistical office data.
452
56
16,193
5
In the table 2 we illustrate the distribution of Macedonian municipalities. We can see that
43.87% of Macedonian population lives in 67 municipalities (out of 84) with less than 40,000
inhabitants. Almost 38% of Macedonian population lives in additional 13 municipalities out
of 84 with size between 40,000 and 80,000. The City of Skopje comprises 25% of
Macedonian population in 10 municipalities with population between 22,000 and 73,000
inhabitants. There are 16 municipalities with less than 5,000 inhabitants.
Table 2. Distribution of Macedonian municipalities
Population
range
Number
of
municipalities
Number of
municipalities
cumulative
% of total
municipalities
Total
population
Total
population
cumulative
% of total
municipalities
(cumulative)
1,001-2,000
1
1
1.2
1322
1322
0.07
2,001-3,000
2
3
0.3
5,291
6,613
0.33
3,001-4,000
6
9
10.7
20,784
27,397
1.35
4,001-5,000
7
16
19.0
30,304
57,701
2.85
5,001-6,000
3
19
22.6
16,680
74,381
3.68
6,001-7,000
3
22
26.2
19,379
93,760
4.64
7,001-8,000
3
25
29.8
22,304
116,064
5.74
8,001-9,000
5
30
35.7
42,183
158,247
7.82
9,001-10,000
2
32
38.1
19,181
177,428
8.77
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
10,001-11,000
3
35
41.7
31,651
209,079
10.34
11,001-12,000
4
39
46.4
46,659
255,738
12.64
12,001-15,000
4
43
51.2
53,891
309,629
15.31
15,001-20,000
10
53
63.1
176,707
486,336
24.05
20,001-40,000
14
67
79.8
400,900
887,236
43.87
40,001-80,000
13
80
95.2
766,820
1,654,056
81.78
more than 80,000
4
84
100.0
368,491
2,022,547
100.00
506,926
25.06
Skopje
10
10
11.9
506,926
Source: Author’s calculation on state statistical office data.
Note that in Macedonia there are 43 urban and 41 rural municipalities. Urban municipalities
comprise 1,625,098 inhabitants (80%) and the rural municipalities comprise 397,449
inhabitants (20%).
Competencies and decentralization process
The 2002 law on local government (Official Gazette of the Republic of Macedonia, no. 05/02)
regulates the competencies of the local governments. A wide range of responsibilities are
listed in the provisions of article 22 of this law which include: urban planning and space
arrangement; environmental and nature protection; local economic development; communal
services; cultural development, in accordance with the national program for culture; sports
and recreation; social care and child protection; foundation of education, financing and
managing of primary and secondary schools in cooperation with the central government;
organization of transport and food supplements for students and student housing; health care,
managing the system of public health organizations and primary health care; undertaking
measures for the protection and rescue of citizens and material goods in the case of
destruction in war, natural disasters and other accidents; fire protection that is provided by the
local fire departments; and supervision over activities regarding the municipality’s
responsibilities and other matters determined by law.
In accordance with the law on financing local governments (LSG) (Official Gazette of the
Republic of Macedonia, no. 61/04) there are two phases of the decentralization process
prescribed. The first phase started on 1st July 2005. The second phase started on 1st July 2007,
but only for LSG fulfilling certain criteria (see annex).
Phase I related only to the construction, maintenance and operation of premises, for
education, social services and culture. This coincided with the introduction of earmarked
grants. The system of earmarked grants was introduced, intended to cover the operation and
maintenance costs of the designated competencies (actually operation and maintenance of the
existing buildings and tangible assets). These comprised: utilities; heating; communication
and transport; materials and tools; repairs; current maintenance; and, contractual services.
Phase II was initiated in 2007, with devolution of teacher and other personnel salaries and
with the introduction of block grants. Under the second phase, block grants are paid, also for
operation and maintenance, but which, now, includes salaries and benefits for employees.
The phased approach to fiscal decentralization is closely connected to the transfers from
central government. The major principle of this phased approach was to project a gradual
devolution of responsibilities proportional to the demonstration of greater capacity by local
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
governments to undertake those responsibilities, and to provide an equitable and adequate
transfer of funds for an efficient and ongoing execution of transferred competencies.
In the figure 1 we can see the local government expenditures by functions for the period
2008-2011 in Macedonia. We can see that the expenditures growth in 2011 to 2008 is 41%
but almost 50% of this growth is due to the introduction of the block grants from the
education during the period.
27,000,000,000
Firefighting
22,000,000,000
Health improvement
Environment protection
Education
17,000,000,000
Social protection
Development programs
Sport
12,000,000,000
Culture
Communal activities
LED
7,000,000,000
Urban planning
Administration
Mayor
2,000,000,000
Council
2008
2009
2010
2011
-3,000,000,000
Figure 1. Local government expenditures by functional classification (programs) for the
period 2008-2012 in Macedonian Denars
In the next figure 2 we illustrate the share of expenditures from the City of Skopje, rural and
urban municipalities in Macedonia for the period 2008-2011 in Macedonian Denars (MKD).
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
30,000,000,000
25,000,000,000
20,000,000,000
Urban
15,000,000,000
Rural
Skopje
10,000,000,000
5,000,000,000
0
2008
2009
2010
2011
Figure 2. Local government expenditures for the period 2008-2011 in MKD by type of
municipalities
What we can see from figure 2 is that expenditures are increasing in time. The most dramatic
change was in the City of Skopje with a growth of 72% in 2011 compared to 2008 and the
rural municipalities with 57% growth in 2011 compared to 2008. These growth rates resulted
in decrease of share of urban municipalities in total local government share from 75% in 2008
to 70% in 2011. The share of the City of Skopje in total local government expenditures thus,
increased from 14% in 2008 to 17% in 2011. Note again that in Macedonia there are 43 urban
and 41 rural municipalities. Urban municipalities comprise 1,625,098 inhabitants (80%) and
the rural municipalities comprise 397,449 inhabitants (20%)
In the next figure 3 we can see the structure of expenditures of more than 85% of the total
expenditures that go for administration (Mayor, Council and administration programs),
education, communal and social programs for 2008 and 2011.
2008
Rural
Urban
Skopje
10,000,000,000
9,000,000,000
8,000,000,000
7,000,000,000
6,000,000,000
5,000,000,000
4,000,000,000
3,000,000,000
2,000,000,000
1,000,000,000
0
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
2011
Rural
Urban
Skopje
14,000,000,000
12,000,000,000
10,000,000,000
8,000,000,000
6,000,000,000
4,000,000,000
2,000,000,000
0
Figure 3. Local government expenditures for selected programs for 2008 and 2011 in MKD
by type of municipalities
We can see that these expenditures increased in 2011 compared to 2008 by 38% with highest
growth of communal expenditures of almost 45% (highest growth was in the rural
municipalities and they increased their share for education expenditures from 13% to 17% in
the total of these selected expenditures). Interesting is that these expenditures of the City of
Skopje in 2011 are higher than the proper expenditures of all rural municipalities in
Macedonia (in 2008 it was lower). Note that the City of Skopje comprises 25% of total
Macedonian population and the rural municipalities are comprising 20% of total Macedonian
population.
3
Scope of decentralization
In the next table 3 we can see that the local government finances over GDP (in revenues and
expenditures) increases in the period 2008-2011. The central government revenues in the
same period decline because of the policy change of introducing flat tax and overall tax
burden easing and the effect of the global crisis. The effect of global crisis on local
government has impact in 2009 with lower revenues and lower self-financing activities of the
local budget users. However, it looks like the local revenues in GDP recover quickly probably
because of non-elastic property taxes and because of the revealing the potential fiscal capacity
with higher local fiscal effort since the devolution in 2005/06.
Table 3. Local and central government revenues and expenditures over GDP in Macedonia
for the period 2008-2011
Total revenues over
GDP
2008
Total expenditures
over GDP
Local government total
(own/own plus self-financing2)
4.8 (2.1/2.4)
4.5 (2.0/2.2)
Total revenues
over GDP
Total
expenditures over
GDP
Central government
33.0
33.9
2
Own revenues are from the account 630. Self-financing activities are contributions from citizens for different
services (for example school excursions paid by parents) from the account 787.
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
2009
2010
2011
5.1 (2.0/2.2)
5.6 (2.4/2.6)
5.7 (2.5/2.7)
5.1 (2.1/2.3)
5.4 (2.3/2.5)
5.6 (2.5/2.7)
31.3
30.4
29.6
33.9
32.9
32.1
Source: Author’s calculation on MoF data.
From the next figure 4, we can see the growing trend of local government revenues in the
GDP from 0.88% of the GDP in 1999 to 5.65% of the GDP in 2011. The central government
revenues in the GDP are between 30% and 35% in the same period except for 2001 and 2002,
during and after the ethnic clashes, when it was 41% of the GDP. On the central and local
government sector size and its impact on the public sector, it is other literature that is
searching for the Leviathan which we will not consider here.
45
500,000
40
450,000
400,000
35
350,000
30
300,000
25
250,000
20
200,000
15
150,000
10
100,000
5
0
50,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
Central government revenues (share in GDP in %)
Local government revenues (share in GDP in %)
GDP in mln current denars
Figure 4. Central and local government revenues as percentages of the GDP in Macedonia
for the period 1999-2011 and GD P in mln MKD
We can see from figure 4 that the growth of local government’s revenue in Macedonia over
time has gained momentum since 2005 when the post OFA decentralization wave started. A
jump is to be noted from 2005 to 2006, which corresponds to the introduction of the first
phase of decentralization. The rates of growth of local revenue have remained buoyant
between 2006 and 2007 and make a second upward jump starting 2007 with the
implementation of the second phase of decentralization and the start of the block grant
transfers. At the same period the central government revenues over GDP decline since 2008
because of the policy change of introducing lower taxation and flat tax regime and because of
the global crises effect on the elastic taxes (mainly PIT and VAT).
In the next table we can see how the effect of devolution of administration of local property
taxes (property and property transaction tax, inheritance and gift tax, also communal and
business fees) continues to result in increasing of own revenues collection in the period 20082011 from MKD 5.7 bln. to MKD 6.7 bln. or by 17%. In the same period the transfers from
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
personal income tax (PIT) increased by 20% from MKD 180 mln in 2008 to MKD 216 mln in
2011.
The large increase of item 718 (business fees) in 2009 is because of the policy introduction
when producers of energy from fossil fuels must’ve pay to LSGs compensation for pollution.
Only 3 LSGs benefit from this fee. More than 50% of these fees are going to Bitola (the
largest thermal power plant being placed near Bitola in Novaci LSG).
What we can also suspect from the table 4 is that it looks like the global crises hits elastic PIT
(account 711) with longer time lag in 2011 while the non-elastic property taxes (account 713)
experienced decline in 2009 and then on are increasing. The total own LSG revenues (without
transfers, loans and self-financing activities of budget users within LSGs) are reflecting the
same trend as the own revenues (account 713-property tax + account 717-communal fees +
account 718-business fees) while the grand total revenues are continuously increasing (mainly
because of increasing block transfers).
Table 4. Own local government revenues in comparison with total own and grand total local
government revenues in MKD
711
713
717
718
713+717+718
Total own
(account 630 own rev.)
Grand total
(713+717+718)/630
(713+717+718)/grand total
2008
180,142,678
2,007,649,726
3,676,294,251
12,589,959
5,696,533,935
2009
190,506,426
1,885,921,310
2,653,779,470
36,475,943
4,576,176,722
2010
258,739,077
2,037,047,926
3,841,731,007
43,763,424
5,922,542,357
2011
216,254,233
2,171,679,079
4,446,814,126
49,468,435
6,667,961,639
8,823,145,744
8,140,142,153
10,367,771,345
11,507,904,456
19,739,517,940
20,928,420,824
24,131,713,807
26,160,439,863
64.56
56.22
28.86
21.87
Source: Author’s calculation on MoF data.
57.12
24.54
57.94
25.49
Conclusion here is that it might be that in Macedonia the local government tolerates less
impact from the global crises (even though it hits first local government in 2009 and two
years later in 2011 it hits the central government’s revenues) than the central government
because of two reasons. First, local governments benefit from non-elasticity of the property
taxes and second, local governments still experience benefit from its potential to increase
revenue collection from policy change of devolution of administration of own revenues.
General conclusion is that from 1999 to 2011, the total revenues of local government in
Macedonia has grown quite rapidly, due to the design of the overall decentralization process.
In terms of money, it grew from 1,983 mln MKD in 1999 (in nominal terms) to 26,160 mln
MKD, ten years later (in nominal terms). That is more than a ten-fold nominal increase. Due
to this rapid dynamic, the share of total local revenues in the GDP has increased, from a mere
0.88 percent in 1999 to 5.65 per cent in 2011. This share is still lower than it is in most EU
countries that became members between 2004 and 2007. Nonetheless, it is not abysmally
low, showing that the almost complete neglect of local government, prevailing before 2005,
has been somewhat attenuated.
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
4
Differentiation and concentration
The next table 5 illustrates the descriptive statistics of revenues per capita across local
governments in Macedonia. What we can see is that there is relatively higher variation in
Macedonian LSGs across revenues per capita by source. Also, we can conclude that the
transfers per capita tend to lower the variation of own revenues per capita among LSGs in the
total LSG revenues per capita in Macedonia. The median own revenues per capita are always
lower than the mean own revenues per capita for the period 2008-2011 which illustrates that
there are more than a half of the LSGs (more than 42 LSGs) with lower than the average own
revenues per capita in Macedonia. The coefficient of variation is worsening in 2011
illustrating that the variation in collection of own revenues per capita and PIT and VAT
shared taxes per capita are varying more in 2011 than in any year before 2011 in the period
2008-2011. The transfers per capita are illustrating lower variation across LSGs in
Macedonia measured with the coefficient of variation for the same period. Note that the
minimum of 0 MKD in transfers is because of the small rural LSG Vranestica which is the
only LSG not receiving transfer from central government.
Table 5. Descriptive statistics of revenues by source across local governments in Macedonia
for the period 2008-2011 in MKD per capita
2008
Mean
Median
Maximum
Minimum
Coefficient of
variation3
2009
Mean
Median
Maximum
Minimum
Coefficient of
variation
2010
Mean
Median
Maximum
Minimum
Coefficient of
variation
2011
Mean
Median
Maximum
Own
630
Donations
785
3,333
2,799
21,724
(Centar)
812
(Suto Orizari)
53
0
714
(Kriva Palanka)
5
0
421
(Karposh)
Self-financing
787
223
133
1,038
(Centar)
0
0
0
0.80
630
Loans
786
2.19
785
3,559
3,095
16,506
(Centar)
807
(Suto Orizari)
0
219
131
1,314
(Centar)
0
0
0
2.83
4,173
3,417
21,339
(Novaci)
1,244
(Aracinovo)
230
138
1,404
(Centar)
0
0
0
3.22
4,527
3,490
33,772
6.50
786
112
2
1,855
4,954
5,435
9,395
(Makedonski Brod)
0
(Vranestica)
8,786
8,958
23,598
(Centar)
1,918
(Aracinovo)
0.47
0.43
5,416
5,713
9,451
(Makedonski Brod)
0
(Vranestica)
10,024
10,012
32,998
(Novaci)
1,815
(Aracinovo)
0.42
0.45
5,816
5,919
9,407
10,773
10,343
43,686
1.09
787
97
0
3,416
0.51
930
17
0
796
(Kocani)
785
0.57
1.11
787
188
4
4,701
(Novaci)
0.75
630
NA
786
7,415
7,474
27,796
(Centar)
1,822
(Aracinovo)
930
NA
NA
785
Total
3,801
4,160
7,692
(Makedonski Brod)
0
(Vranestica)
1.06
787
54
0
1,178
(Karbinci)
0.68
630
9.17
786
Transfers
930
930
221
147
1,268
3
Coefficient of variation is a ratio of standard deviation to mean. It illustrates how much deviation there is from
the mean. Higher coefficient of variation means that LSGs are spread further from the mean and lower
coefficient of variation means that LSGs are closer to the mean.
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
Minimum
(Centar)
1,037
(Aracinovo)
Coefficient of
variation
(Ilinden)
(Ilinden)
(Centar)
(Tetovo)
0
0
0
0
(Centar)
2,107
(Zelino)
0.33
0.49
0.94
2.91
4.99
1.07
Source: Author’s calculation on MoF and state statistical office data.
As for the expenditures we can also see in table 6 the relatively higher variation in
Macedonian LSGs across expenditures per capita by source. Again, we can conclude that the
transfers per capita tend to lower the variation of own expenditures per capita among LSGs in
the total LSG expenditures per capita in Macedonia. The median own expenditures per capita
are always lower than the mean own expenditures per capita for the period 2008-2011 which
illustrates that there are more than a half of the LSGs (more than 42 LSGs) with lower than
the average own expenditures per capita in Macedonia. The coefficient of variation is
worsening from 2008 to 2011 illustrating that the variation in own expenditures per capita
plus expenditures from PIT and VAT shared taxes per capita are varying more in time in the
period 2008-2011. The expenditures from transfers per capita are illustrating lower variation
across LSGs in Macedonia measured with the coefficient of variation for the same period.
Note that the minimum of 0 MKD in expenditures from transfers is because of the small rural
LSG Vranestica.
Table 6. Descriptive statistics of expenditures by source across local governments in
Macedonia for the period 2008-2011 in MKD per capita
2008
Mean
Median
Maximum
Minimum
Coefficient of
variation
2009
Mean
Median
Maximum
Minimum
Coefficient of
variation
2010
Mean
Median
Maximum
Minimum
Coefficient of
variation
2011
Mean
Median
Maximum
Own
630
Donations
785
3,306
3,077
12,518
(Centar)
809
(Suto Orizari)
130
7
2,088
(Vevcani)
5
0
421
(Karpos)
0
0
0.58
630
Loans
786
2.35
785
3,616
3,059
20,031
(Centar)
801
(Suto Orizari)
0
0
0
0
3.21
785
4,490
3,557
29,760
96
2
1,865
0.44
229
4,674
143
5,127
1,277
8,594
(Centar) (Makedonski Brod)
0
(Vranestica)
0
8,601
8,868
26,714
(Centar)
1,864
(Studenicani)
1.11
0.46
0.43
230
5,260
138
5,596
1,412
9,365
(Centar) (Makedonski Brod)
0
0
(Vranestica)
9,770
9,887
33,388
(Novaci)
1,731
(Aracinovo)
6.50
786
930
1.09
787
97
0
3,416
7,281
7,568
18,411
(Centar)
1,526
(Aracinovo)
930
787
17
0
796
(Kocani)
Total
0.57
NA
786
191
5
4,784
(Novaci)
0.77
630
0
2.49
1.08
787
0
0
785
4,072
3,330
21,846
(Novaci)
1,159
(Aracinovo)
9.17
786
77
0
1,178
(Karbinci)
0.70
630
Self-financing
Transfers
787
930
214
3,625
120
3,975
1,056
6,823
(Centar) (Makedonski Brod)
0
0
(Vranestica)
0.41
0.46
5,648
5,780
9,243
10,550
10,039
39,307
930
219
134
1,210
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
(Centar)
1,133
(Aracinovo)
Minimum
Coefficient of
variation
(Ilinden)
(Ilinden)
(Centar)
0
0
0
0.90
2.90
5.02
1.08
Source: Author’s calculation on MoF state statistical office data.
(Tetovo)
0
(Vranestica)
(Centar)
2,407
(Zelino)
0.32
0.47
In the next table 7 we illustrate the quintile share ratio S80/S20 as a measure of inequality of
the own revenues collection across LSG in Macedonia for the period 2008-2011. The quintile
share ratio S80/S20 is an inequality measure to describe this uneven revenue distribution
across LSG in Macedonia and may be interpreted as follows: the own revenues of the richest
20% of the LSGs are higher by a factor of X than the own revenues of the poorest 20% of the
LSGs in Macedonia.
Thus, we can see from the table 7 that in 2008 the 20% of the richest LSGs in Macedonia (17
out of 84) have total own revenues that is 23.7 times higher than the poorest 20% LSGs in
Macedonia (17 out of 84). We can see that this measure of inequality declined in 2009 but
then it worsened and in 2011 it illustrates that the richest 17 LSGs in Macedonia have 24.2
times higher revenues than the poorest 17 LSGs.
The S80/total own revenues illustrates that the richest 17 LSGs (out of 84 LSGs) generate
more than 50% of the total own LSG revenues in Macedonia. In comparison, the poorest 17
LSGs (out of 84 LSGs) in Macedonia generates from 9-12% of the total own LSG revenues in
Macedonia for the period 2008-2011.
Table 7. Inequality of own revenues across local governments in Macedonia for the period
2008-2011
2008
S80/S204
S80/total own
revenues
50% poorest of all
2009
23.7
2010
19.2
52.6
50.9
8.9
11.6
Source: Author’s calculation on MoF data.
2011
21.1
24.2
50.9
10.2
53.2
9.0
In terms of own expenditures the situation of the inequality across Macedonian LSGs for the
period 2008-2012, as illustrated in the next table 8, is similar to that of the inequality
illustrated of the own revenues.
Table 8. Inequality of own expenditures across local governments in Macedonia for the
period 2008-2011
2008
S80/S20
S80/total
50% poorest of all
2009
2010
19.1
18.8
51.1
52.3
10.2
11.3
Source: Author’s calculation on MoF data.
2011
19.7
51.2
10.3
22.2
50.4
9.2
4
The quintile share ratio S80/S20=X is an inequality measure to describe uneven distribution across LSG in
Macedonia and may be interpreted as follows: the own revenues of the richest 20% of the LSGs are higher by a
factor of X than the own revenues of the poorest 20% of the LSGs in Macedonia.
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
5
Efficiency of local spending
In the next table 9 the unit costs are calculated as follows: we take the expenditures by
program (function) and divide them by the proper age group of population. For example, we
divide the expenditures for kindergartens with the age group of 0-4 of population. We divide
expenditures for elementary schools with the age group of population of 5-14 and we divide
the expenditures for secondary schools with the age group of population of 15-19. Note that
the elementary school in Macedonia begins with 6 years of age but since we do not have
proper age structure to fit this policy this is the best we can do with these data. For the capital
expenditures per capita, we take the account 48 from the economic classification of
expenditures and divide it with the total number of population and for the salaries per capita
we take the account 40 from the economic classification of expenditures and divide it with the
total number of population.
Note that in Macedonia the earmarked and block transfers instead of following function are
following the existing assets (buildings) and employment. There is no cost of services
calculated for any program (function). That is why as a minimum we can get sometimes 0
MKD just because in that particular municipality there is no kindergarten and/or school and
the LSGs seem not to have priority, incentive and/or fiscal capacity enough to invest in these
services.
One thing in common for the unit costs of kindergartens and schools is that their variation
measured with the coefficient of variation is decreasing from 2008 to 2011. This means that
the transfers from the central government (transfers are the biggest share of financing these
competencies) are more or less resulting (in time) in more balanced expenditures per proper
age group (user of service). For the elementary schools the mean is close to the median thus,
indicating almost no skewness in the normal distribution of the proper expenditures.
Salaries of LSG administration is also illustrating lower (in time) variation measured with the
coefficient of variation with mean and median close to each other.
The coefficient of variation of capital expenditures per capita is increasing in time. There can
be many factors behind this. Maybe some LSGs do not have enough fiscal space for more
capital expenditure simply because are too small or it can be that some LSGs lack good
managerial skills of the Mayor and the administration.
In comparison with the salaries per capita we can see that the difference between the mean
capital expenditures per capita and mean salaries per capita are increasing in the period under
observation i.e. average salaries per capita are increasing with higher rate than the average
capital expenditures per capita in Macedonian local governments.
Table 9. Descriptive statistics of unit costs across local governments in Macedonia for the
period 2008-2011 in MKD per capita
2008
Mean
Median
Macedonia
Maximum
Minimum
Kindergartens
7,163
0
9,580
64,095
(Centar)
0
Elementary
schools
20,627
21,260
20,184
60,098
(Novaci)
0
Secondary Capital exp. per
schools
capita Salaries per capita
6,152
1,439
3,616
0
1,062
3,885
15,193
1,935
4,401
37,160
9,615
7,151
(Tetovo)
(Centar) (Makedonski Brod)
0
85
351
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
(Vranestica)
Coefficient of
variation
2009
Mean
Median
Macedonia
Maximum
Minimum
Coefficient of
variation
2010
Mean
Median
Macedonia
Maximum
Minimum
Coefficient of
variation
2011
Mean
Median
Macedonia
Maximum
Minimum
Coefficient of
variation
1.52
0.61
1.58
9,086
25,827
0
26,102
11,504
23,453
79,872
64,502
(Centar) (Staro Nagoricane)
0
(Vranestica)
0
7,927
0
19,744
46,004
(Tetovo)
1.51
0
0.50
1.52
9,203
28,905
2,640
28,927
11,674
25,529
72,859
67,239
(Centar) (Staro Nagoricane)
0
(Vranestica)
0
9,302
0
22,418
51,966
(Tetovo)
1.44
0
0.46
1.48
9,847
30,948
4,656
30,040
12,087
26,842
81,373
67,296
(Centar) (Staro Nagoricane)
0
(Vranestica)
0
9,905
0
23,244
54,807
(Tetovo)
0
(Suto Orizari)
(Studenicani)
0.97
0.53
1,627
4,496
1,257
4,955
2,019
5,174
16,754
8,151
(Centar) (Makedonski Brod)
27
317
(Demir Hisar)
(Studenicani)
1.23
0.44
1,899
5,175
1,453
5,423
2,393
5,792
16,231
9,136
(Novaci) (Makedonski Brod)
177
451
(Studenicani)
(Aracinovo)
1.31
0.36
2,158
5,685
1,307
5,913
3,151
6,170
28,595
9,311
(Centar) (Makedonski Brod)
96
516
(Aracinovo)
(Zelino)
1.41
0.38
1.39
1.72
Source: Author’s calculation on MoF and state statistical office data.
0.29
In terms of type of municipalities in Macedonia only in one rural municipality (Ilinden) there
is a kindergarten (in 2008 and 2009) and one more in the rural Vevcani (in 2010 and 2011)
and there are no secondary schools in the rural municipalities in 2008-2010. In 2011 there are
secondary schools related expenditures in 3 rural municipalities (Centar Zupa, Mavrovo
Rostuse and Lipkovo). For the elementary schools, capital expenditures and salaries we
illustrate the urban and rural unit costs in the next table 10.
Table 10. Descriptive statistics of unit costs across local governments in Macedonia for the
period 2008-2011 in MKD per capita by types of municipalities
2008
Mean
Median
Macedonia
Maximum
Minimum
Coefficient of
variation
2009
Mean
Median
Elementary
schools
10,561
3,664
20,184
44,715
0
URBAN
Capital exp.
per capita
793
224
1,935
9,615
0
Salaries per
capita
2,129
815
4,401
7,151
0
RURAL
Elementary
Capital exp. per
schools
capita
10,066
645
0
0
20,184
1,935
60,098
5,715
0
0
1.15
1.63
1.15
1.50
1.78
1.35
12,409
4,734
902
70
2,472
940
13,417
0
726
0
2,023
0
Salaries per
capita
1,487
0
4,401
6,032
0
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
Macedonia
Maximum
Minimum
Coefficient of
variation
2010
Mean
Median
Macedonia
Maximum
Minimum
Coefficient of
variation
2011
Mean
Median
Macedonia
Maximum
Minimum
Coefficient of
variation
23,453
53,563
0
2,019
16,754
0
5,174
8,151
0
23,453
64,502
0
2,019
7,159
0
5,174
6,977
0
1.13
2.20
1.13
1.31
1.65
1.23
13,834
3,975
25,529
52,405
0
1,053
374
2,393
16,202
0
2,820
1,115
5,792
9,136
0
15,071
0
25,529
67,239
0
846
0
2,393
16,231
0
2,355
0
5,792
7,097
0
1.10
1.94
1.09
1.28
2.32
1.17
14,413
4,221
26,842
52,988
0
1,231
475
3,151
28,595
0
3,003
1,147
6,170
9,311
0
16,535
0
26,842
67,296
0
927
0
3,151
16,682
0
2,682
0
6,170
7,934
0
2.43
1.10
1.08
2.69
1.07
1.18
Source: Author’s calculation on MoF and state statistical office data.
From table 10 we can note that the nominal unit costs are increasing for the period 20082011. The diversity of elementary school unit costs and salaries per capita unit costs for urban
and rural municipalities is decreasing for the period measured with the coefficient of
variation. The capital expenditures unit costs diversity is higher in 2011 than in 2008
measured with the coefficient of variation.
The mean unit costs for elementary schools are getting higher in the rural than in the urban
municipalities for the period (except for 2008). The mean salaries per capita and capital
expenditures per capita are higher in the urban than in the rural municipalities.
6
Capital expenditures at local level
In the next table 11 we can see that the central government capital expenditures over GDP in
2009 decreased as a result of the global crises and since then are increasing reaching 3.8% in
2011. In the same period the local government capital expenditures over GDP are
continuously increasing from 0.95% of GDP in 2008 to 1.55% of GDP in 2011 which is 63%
increase. However, we can see the effect of global crisis in local government capital
expenditures over total local government expenditures in 2009. Namely, the local government
capital expenditures over total local government expenditures in 2008 were 21.17% while in
2009 they declined to 19.54%. Since 2009 the capital expenditures over total local
government expenditures are recovering and reaching almost 25% of the total local
government expenditures.
Table 11. Central and local government capital expenditures in Macedonia for the period
2008-2011
2008
Central government capital
expenditures
Over total central
Over GDP
government
expenditures
4.9
14.3
Local government capital expenditures
Over GDP
0.95
Over total local
government
expenditures
21.17
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
2009
2010
2011
3.3
9.6
0.99
3.5
10.7
1.17
3.8
11.9
1.55
Source: Author’s calculation on MoF.
19.54
20.65
24.62
As for the structure of the local government capital expenditures, we can see in the next table
12 that most of these expenditures are going on local roads (from 31% in 2011 to 38% in
2008). Next largest share goes to other capital expenditures (from 22% to 29%). Note the
increasing share of monuments from 6% in 2008 to almost 13% of total capital expenditures
in 2011 (more than 85% of these expenditures in 2011 goes to the municipality of Centar
within the City of Skopje). Buildings have largest share increase in 2011 to 8.29% compared
to 4.56% in 2008. Also, there is noticeable increase of share of expenditures for new vehicles.
Largest decline of share is in the furniture and water supply related capital expenditures.
Table 12 Structure of capital expenditures at local government level in Macedonia for the
period 2008-2011
Account
Budget item
2008
2009
2010
2011
480
Equipment and machinery
0.00
0.00
3.84
3.85
481
Buildings
4.56
4.47
5.06
8.29
482
Other construction
86.50
86.82
84.25
80.76
Roads
38.42
30.98
36.03
30.56
4822
Bridges
1.65
0.98
1.49
2.94
4823
Water treatment plan
2.68
5.38
5.12
3.59
4824
Landfill
0.09
0.18
0.15
0.04
4825
Telecommunications
0.01
0.02
0.00
0.01
4826
Monuments
5.62
11.91
12.44
12.52
4827
Water supply
7.69
9.05
5.60
3.00
4828
Energy assets
1.06
1.93
0.91
1.06
4829
Other
29.28
26.39
22.46
27.03
483
Furniture
7.24
6.65
0.72
0.61
484
Strategic reserves
0.00
0.00
0.00
0.00
485
Non-financial assets
1.43
1.86
3.62
1.99
486
Vehicles
0.25
0.20
2.50
3.96
489
Capital subsidies
0.01
0.00
0.00
0.55
48
Capital 2011
100.00
100.00
Source: Author’s calculation on MoF.
100.00
100.00
Of this:
4821
In order to present the size of the nominal amount of the capital expenditures per type of
municipalities we give the next figure 5.
20
World Bank-Austria Urban Partnership Program - Municipal Finance Review
6,000,000,000
5,000,000,000
4,000,000,000
Skopje
3,000,000,000
Urban
Rural
2,000,000,000
1,000,000,000
0
2008
2009
2010
2011
Figure 5. Capital expenditures at local government level in Macedonia by type of
municipality for the period 2008-2011 in MKD
From the figure 5 we can see that capital expenditures are growing for the period under
observation. The highest growth of 120% in 2011 compared to 2008 goes to the City of
Skopje. In rural municipalities the proper growth in 2011 compared to 2008 is 68% whereas
in urban municipalities it is 48%. Note again that urban population is 80% and rural
population is 20% in Macedonia.
7
Local government revenues
In the next table 13 we can see the structure of the local government revenues in Macedonia
by source for the period 2008-2011. We can see that Macedonian local governments have
own budget revenues coming from: property tax, a share of personal income tax (PIT), nontax revenues from communal taxes and administrative taxes, capital revenues from the sale of
assets, share from value added tax (VAT).
Donations, as a source category, are mostly coming from foreign donors especially in the
education sector. Self-financing activities are a source of revenue from the local
government’s budget users (schools and kindergartens) like the participation of parents and
the organization of excursions. Transfers from central government are mostly tax revenues
for the block and earmarked grants for wages/salaries for teachers and employees in
education, kindergartens and libraries and maintenance of the schools and kindergartens and
culture buildings.
We can easily see how the own revenues as a share in the total revenues drop in 2009 because
of the effect of the global crises. Since then the share of own revenues of the local
government in the total local government revenues is increasing.
Table 13. Structure of the local government revenues in Macedonia by source for the period
2008-2011
2008
Own
Donations
Loans
2009
45.4
0.5
0.1
2010
38.8
0.4
0.0
2011
42.9
0.8
0.1
44.0
0.7
1.8
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
Self-financing
Transfers
Total
4.7
4.2
49.3
56.7
100.0
100.0
Source: Author’s calculation on MoF.
3.8
52.4
3.4
50.2
100
100
In the next figure 6 we see the structure of local government revenues in Macedonia for 2008
and 2011 by type of municipalities and by source of revenues. We can see that the City of
Skopje with 25% of Macedonian population have higher own revenues than the rural
municipalities (20% of Macedonian population) and the urban municipalities (80% of total
Macedonian population). Self-financing revenues are important share in the City of Skopje as
well as loans in 2011. Share of transfers from central government are increasing in the City of
Skopje and rural municipalities in 2011 compared to 2008.
2008
100
90
80
70
60
50
40
30
20
10
0
Own
2008
Rural
donations
Urban
loans
self-financing
Skopje
transfers
2011
100
90
80
70
60
50
40
30
20
10
0
Own
2011
Rural
donations
Urban
loans
self-financing
Skopje
transfers
Figure 6. Structure of the local government revenues in Macedonia by source and by type of
municipalities for 2008 and 2011
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
In order to present the nominal amount of the total revenues and to compare the revenues
between urban and rural municipalities and the City of Skopje we give the next figure 7.
27,000,000,000
22,000,000,000
17,000,000,000
Skopje
Urban
12,000,000,000
Rural
7,000,000,000
2,000,000,000
-3,000,000,000
2008
2009
2010
2011
Figure 7. Total revenues of local governments for the period 2008-2011 by type of local
governments in MKD
We can see from figure 7 that total local government revenues are increasing for the period
2008-2011. Highest growth of 57% in 2011 compared to 2008 goes to the rural
municipalities. The proper growth for urban municipalities is 31% and for the City of Skopje
is 38%.
In the next table 14 we can see the dynamics of the local government revenues share in the
total local government share. We can easily see that the transfers from the central government
take a substantial share of the total revenues of the local governments in Macedonia. The
transfers amount from 68% in 2009 when the impact of the global crisis was picking and then
declining to almost 61% in 2011.
The next largest share goes to the communal fees (from 13% to 19%) and the property taxes
(from 8% to 10%). The share of business fees of the total local government revenues is
continuously increasing in the period under observation from 0.06% in 2008 to 0.19% in
2011. The share of revenues from sale of land has largest increase in the period under
observation from 0.7% in 2008 to 5.46% in 2011. Also increased are the shares of other
domestic borrowing (from 0.15% in 2008 to 1.82% of total revenues) and shares of other nontax revenues (from 0.58 in 2008 to 0.86 in 2011).
Table 14. Structure of the local government revenues in Macedonia by economic
classification for the period 2008-2011
Account
711
Budget item
Tax revenues
2008
2009
2010
2011
0.91
0.91
1.07
0.83
712
Social insurance revenues
0.00
0.00
0.00
0.00
713
Property taxes
10.17
9.01
8.44
8.30
714
Taxes on goods and services
0.00
0.00
0.00
0.00
717
Communal fees
18.62
12.68
15.92
17.00
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
718
Business fees
0.06
0.17
0.18
0.19
721
Additional property revenues
0.00
0.00
0.00
0.00
722
Administrative fees
0.37
0.34
0.35
0.60
723
Fees for services
4.71
4.39
4.06
3.60
724
Other government services
0.13
0.14
0.14
0.06
725
Other non-tax revenues
0.58
0.32
0.70
0.86
731
Sale of capital assets
0.15
0.13
0.06
0.05
732
Capital sale of goods
0.00
0.00
0.00
0.00
733
Sale of land
Transfers from central
government
Foreign donations
0.70
3.20
6.44
5.46
62.96
68.15
61.41
60.57
0.41
0.33
0.62
0.48
741
742
743
Capital donations
0.06
0.02
0.09
0.13
744
Current donations
0.00
0.00
0.01
0.04
751
Short term domestic borrowing
0.00
-0.03
0.05
0.00
754
Other domestic borrowing
0.15
0.23
Total
100.00
100.00
Source: Author’s calculation on MoF.
0.43
1.82
100.00
100.00
We also see from table 14 that transfers from central government have highest share in the
total revenues of local government in Macedonia from almost 63% in 2008 to almost 61% in
2011.
The revenues from accounts 713, 717, 718 and 723 from table 14 are the next highest shares
after the transfers from central government in the total revenues comprising 34% in 2008 to
29% in 2011. That is why in the next figure 8 we illustrate the structure of these accounts by
type of local government (urban, rural and City of Skopje).
We can see from figure 6 that highest share of property taxes from total of these revenues are
in the rural municipalities in 2008 (around 35%) and there is no change in the structure of
these revenues in 2011 for the rural municipalities. Communal fees take 60% of the total of
these accounts for rural municipalities. Fees for services take around 5%.
For the urban municipalities, on the other side, fees for services are also important and take
17% in 2008 and 14% in 2011. For the City of Skopje the communal fees are dominant (63%
in 2008 and 65% in 2011).
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
2008
2008
100
90
80
70
60
50
40
30
20
10
0
Rural
property taxes
communal fees
Urban
business fees
Skopje
fees for services
2011
2011
100
90
80
70
60
50
40
30
20
10
0
Rural
property taxes
Urban
communal fees
business fees
Skopje
fees for services
Figure 8. Structure of the local government revenues in Macedonia by economic
classification for accounts 713, 717, 718 and 723 for 2008 and 2011
Related to the nominal amount of these revenues to compare the revenues between urban and
rural municipalities and the City of Skopje we give the next figure 9.
25
World Bank-Austria Urban Partnership Program - Municipal Finance Review
7,700,000,000
6,700,000,000
5,700,000,000
4,700,000,000
Skopje
3,700,000,000
Urban
Rural
2,700,000,000
1,700,000,000
700,000,000
-300,000,000
2008
2009
2010
2011
Figure 9. Local government revenues in Macedonia by economic classification for accounts
713, 717, 718 and 723 for 2008 and 2011 in MKD
From this figure 9 we can see that the impact of global economic crisis hits Macedonian
municipalities in 2009 but they recover and their own revenues increase in 2010 and 2011.
8
Grant dependency
The law on financing local government (Official Gazette of the Republic of Macedonia, no.
61/04) envisions the following channels of transfers from the central government:
1. Value added tax (VAT) revenues (total fund equal to 3 % of the VAT collections in
the previous fiscal year). This unconditional grant is distributed by a formula which
states that at least 50% of the grant will be distributed according to population and not
more than 50% according to other criteria. These other criteria will be stipulated in a
methodology to be defined by the government in agreement with the commission to
monitor the development of the financing system. The central government sees the
VAT as an unconditional transfer for equalisation purposes even though it is defined
in law as an own revenue for local governments. In contrast, ZELS views VAT as a
kind of unconditional transfer with the stance that central government should
introduce a new equalisation transfer or to increase the PIT transfer share to local
government. In 2009 there are amendments to the law on financing local government
made where there is a new dynamic for gradual increasing of the VAT transfer
adopted as follows: 3.4% of GDP in 2010; 3.7% of GDP in 2011; 4% of GDP in 2012
and 4.5% of GDP in 2013.
2. Personal income tax (PIT) revenues are an unconditional grant distributed on an origin
basis. The total pool is calculated as 3% of the PIT from salaries allocated to the local
government where the employee resides and 100 % PIT collected from artisan
activities.
3. Earmarked transfers are allocated for operational costs in the areas of education,
culture and social policy. The appropriate ministries and agencies monitor the use of
these earmarked funds.
4. Capital transfers are distributed in accordance with programs specified by the
government.
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
5. Block transfers are the same as the earmarked grants plus the wages and salaries. The
appropriate ministries and agencies are responsible for defining the methodology and
criteria to be used in this transfer formula. For example, the ministry of education
defines the methodology and criteria for the block transfer and how it is to be
transferred to each municipality for primary and secondary education. The other
responsible ministries are the ministry of labour and the social policy, the ministry of
culture (for houses of culture), and the ministry of health (for primary health coverage
and preventive health care).
6. Funds received for delegated competencies from the central to the local governments.
In this case, the amount of funds is determined by way of a contract signed between
the mayor of the local government and the appropriate ministry responsible for the
competency.
In the next table 15 we can see that the largest share of the transfers are from the block grants.
Earmarked transfers are going to end once all LSGs enter the second phase of decentralization
(see annex). There are also capital transfers from the central government that reach 4.58% of
the total revenues.
Table 15. Structure of the local government revenues (transfers) as a share of total revenues
in Macedonia by economic classification for the period 2008-2011
Account
2008
2009
2010
2011
741111
Current transfers
0.33
1.07
0.44
0.09
741112
Transfers from the budget
0.44
0.34
0.10
0.06
741113
Transfers from the funds
2.76
1.94
1.32
1.15
741114
Operating surplus from previous year
0.45
1.41
2.23
0.91
741115
VAT share
5.01
5.52
4.96
4.45
741116
Culture earmarked
0.06
0.02
0.02
0.02
741117
1.33
1.09
0.63
0.39
741118
Education earmarked
Kindergartens and homes of elderly
earmarked
0.25
0.11
0.07
0.05
741119
Firefighting earmarked
1.38
1.37
1.17
1.07
Total earmarked transfers
3.02
2.60
1.88
1.52
741120
Block transfers
44.97
52.78
48.06
47.81
741121
Transfers for delegated competencies
0.00
0.00
0.00
0.00
741211
Capital transfers
5.98
2.48
2.43
4.58
741
Transfers from central budget
62.96
Source: Author’s calculation on MoF.
68.15
61.41
60.57
74111(6+7+8+9)
Budget item
In the next figure 10 we illustrate the transfers from central budget by type of municipalities.
We can see that transfers from central government are growing for the period 2008-2011. The
highest growth of 54% of transfers from central government in 2011 compared to 2008 goes
to the City of Skopje. The growth of transfers from central government in 2011 compared to
2008 for urban and rural municipalities accordingly are 24% and 37%.
27
World Bank-Austria Urban Partnership Program - Municipal Finance Review
27,000,000,000
22,000,000,000
17,000,000,000
Skopje
12,000,000,000
Urban
Rural
7,000,000,000
2,000,000,000
-3,000,000,000
2008
2009
2010
2011
Figure 10. Transfers from central government to the local government for the period 20082011 in MKD
9
Local fiscal autonomy
In the next table 16 we can see that own revenues for which LSG experience devolution of
power (to set tax and fee rate) as a share of total LSG revenues are decreasing in 2009
compared to 2008 but then on are increasing as a share in the total revenues (there is a small
decline of the share of property tax in 2011 of 8.30% of total revenues compared to 8.44% in
2010 even though nominally there is increase of property tax revenues). This is mainly due to
the large credit LSG expansion in 2011 (from 0.43% of the total LSG revenues in 2010 to
1.82% of the total LSG revenues in 2011).
Table 16. Structure of the local government own revenues as a share of total revenues in
Macedonia for the period 2008-2011
Account
713
Budget item
Property taxes
2008
2009
2010
2011
10.17
9.01
8.44
8.30
717
Communal fees
18.62
12.68
15.92
17.00
718
Business fees
0.06
0.17
Total
28.85
21.86
Source: Author’s calculation on MoF.
0.18
0.19
24.54
25.49
In the next table 17 we can see the PIT, own and VAT revenues of local government in
Macedonia. We can also see the proper VAT share, in the last row, which should go to the
local governments with the proper percentage as per the law on financing LSG in Macedonia.
We can see that nominally PIT transfers decline in 2011 manly because of the global crisis
impact. The own revenues decline in 2009 mainly as impact from the global crisis but local
governments adjust and started to increase own revenues for the period 2009-2011.
The VAT share seems to follow the legally prescribed amounts for the period 2008-2010 but
not for the period 2011. In 2011 the VAT share should’ve been 1.39 bln MKD but instead
they are 1.16 bln MKD which is almost 20% less than what the law prescribes.
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
Table 17. Stability of revenues at local government level in Macedonia for the period 20082011 in MKD
2008
PIT
Own
VAT
PIT+Own+VAT
Proper % of VAT in (t-1)5
10
2009
2010
180,142,678
190,506,426
258,739,077
7,009,562,809
6,360,377,868
8,760,295,155
989,000,000
1,154,248,444
1,195,862,000
8,178,705,487
7,705,132,738
10,214,896,232
988,860,000
1,085,190,000
1,195,882,000
Source: Author’s calculation on MoF.
2011
216,254,233
9,449,892,255
1,164,166,663
10,830,313,151
1,394,678,000
Municipal borrowing and creditworthiness
Macedonian local government does not have rich experience with borrowing. As we can see
in the next table 18, credit expansion started in 2011 mainly with the on-lending credit line of
the World Bank administered within the Ministry of finance.
Table 18. Borrowing at local government level in Macedonia for the period 2008-2011 in
MKD
2008
2009
2010
2011
751short term domestic loans
754 other domestic loans
In % of total
In % of total
In MKD
In MKD
revenues
revenues
0
0.00
30,148,070
0.15
-6,000,000
-0.002
48,097,050
0.13
13,000,000
0.05
103,960,413
0.43
0
0.00
476,289,480
1.82
Source: Author’s calculation on MoF.
Macedonian local government can borrow after consent from the government which is based
upon opinion from the ministry of finance. Public enterprises established by the LSGs can
also borrow but first a guarantee should be issued upon the decision adopted by the LSG’s
council. The Mayor reports to the ministry of finance about the issued guaranties. The
guarantee costs should be reserved with proper reservations in the LSG budget.
There can be short term and long term LSG borrowing. Short term non-interest bearing
borrowing is one from the central budget to overcome liquidity problems during the fiscal
year. There can be also long term non-interest bearing borrowing from the central budget.
This long term borrowing is due in no longer than 5 years. Macedonian LSGs can also issue
securities (muni-bonds) but cannot use as mortgage property that is used for public interest.
In general a LSG can borrow short term but it is due to pay back the loan within 12 months
from the moment of signing the short term borrowing contract. In this case the total short term
debt in the fiscal year cannot be higher than 30% of the realized total revenues of the currentoperational budget from the previous fiscal year.
LSGs can generate long term borrowing for financing capital projects and investments but
also to refinance debts, to cover for guarantees issued and in cases of natural or environmental
incidents. The LSG council approves the long term borrowing after a public hearing is
conducted. LSG can generate long term debt after a decision from the council. The decision is
5
Note that in 2009 there are amendments to the law on financing local government where there is a new
dynamic for gradual increasing of the VAT transfer adopted as follows: 3.4% of GDP in 2010; 3.7% of GDP in
2011; 4% of GDP in 2012 and 4.5% of GDP in 2013.
29
World Bank-Austria Urban Partnership Program - Municipal Finance Review
valid only in the same fiscal year when it is adopted. The annuity (principle, interest and other
costs) of the long term debt cannot be higher than 30% of the total revenues of the currentoperational budget from the previous fiscal year. The debt due (including guarantees issued)
cannot be higher than the total revenues of the current-operational budget from the previous
fiscal year.
Financial instability of the LSG occur if the LSG account is blocked for more than 6 months
or if in a period of 6 months continuously at the end of the calendar month the contingent
liabilities of more than 60 days are more than 80% of the realized revenues of the own LSG
budget of the previous fiscal year.
11
Regions in Macedonia
The regional organization in Macedonia is in accordance with the NUTS III level as the
NUTS I and NUTS II is Republic of Macedonia. In Macedonia the LSG is one tier and the 8
regions are only administrative and proper regulation for the regions is the law on balanced
regional development (Official Gazette of the Republic of Macedonia, no. 63/07).
In the next table we can see the revenues6 by source per capita across NUTS III region in
Macedonia for the period 2008-2011. In terms of own revenues, we can see that the Skopje
region is driving the Macedonian average up.
Interesting is that in 2008 the Pelagonia region have had the highest own revenues after
Skopje region and in 2009 it was the Southwest region. In 2010 and 2011 the highest own
revenues, after Skopje, are accounted in the Southeast region.
Table 19. Revenues by source in MKD per capita across NUTS III regions in Macedonia for
the period 2008-2011
Own
630
2008
Donations
785
Selffinancing
787
Loans
786
Transfers
930
Total
1
VARDAR
3,086
33
0
503
5,079
8,891
2
EAST
2,541
74
0
364
4,051
7,155
3
SOUTHWEST
3,304
31
0
183
2,950
6,561
4
SOUTHEAST
3,288
41
0
331
5,461
9,351
5
PELAGONIA
3,982
98
0
385
5,370
9,847
6
POLOG
2,152
4
0
156
4,768
7,190
7
NORTHEAST
2,453
127
0
281
5,106
8,267
8
SKOPJE
4,613
16
43
474
3,639
8,986
MACEDONIA
4,362
51
12
447
4,730
9,760
2009
630
785
786
787
930
630
1
VARDAR
3,441
45
0
483
6,591
10,424
2
EAST
2,706
63
0
345
4,891
8,084
3
SOUTHWEST
3,629
59
0
175
4,182
8,028
4
SOUTHEAST
3,228
113
0
297
6,529
9,854
5
PELAGONIA
3,560
55
0
374
6,287
10,274
6
Note that in these calculations the City of Skopje is not taken into account in the Skopje region but only the
LSGs within the city of Skopje.
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World Bank-Austria Urban Partnership Program - Municipal Finance Review
6
POLOG
2,240
5
0
145
5,565
7,940
7
NORTHEAST
3,005
24
0
270
6,560
9,759
8
SKOPJE
3,890
8
0
481
4,325
8,702
MACEDONIA
4,025
39
0
432
5,886
10,348
2010
630
785
786
787
930
630
1
VARDAR
3,536
104
0
501
6,934
11,038
2
EAST
3,471
128
167
360
5,069
9,190
3
SOUTHWEST
3,549
81
0
187
4,973
8,756
4
SOUTHEAST
4,897
234
31
347
6,920
12,440
5
PELAGONIA
3,642
123
0
356
6,546
10,649
6
POLOG
2,663
38
0
164
5,835
8,700
7
NORTHEAST
3,142
23
0
301
6,869
10,262
8
SKOPJE
5,342
44
0
490
4,672
10,564
MACEDONIA
5,126
91
18
453
6,255
11,931
2011
630
785
786
787
930
630
1
VARDAR
3,915
42
0
498
7,074
11,510
2
EAST
4,047
132
69
347
5,522
10,092
3
SOUTHWEST
4,023
31
3
171
5,289
9,515
4
SOUTHEAST
4,924
117
5
347
6,847
12,165
5
PELAGONIA
4,154
27
0
354
6,529
11,070
6
POLOG
2,667
41
0
168
6,339
9,204
7
NORTHEAST
3,220
96
0
324
7,090
10,692
8
SKOPJE
6,536
65
374
467
4,860
12,324
5,690
84
231
437
6,501
MACEDONIA
Source: Author’s calculation on MoF and state statistical office data.
12,934
In order to present the nominal amount of the total revenues and to compare the revenues
among regions in Macedonia we give the next figure 11 and figure 12.
5,100,000,000
4,100,000,000
3,100,000,000
2,100,000,000
1,100,000,000
100,000,000
transfers
self-financing
loans
donations
own
-900,000,000
Figure 11. Revenues by source per capita across NUTS III regions in Macedonia for 2008
31
World Bank-Austria Urban Partnership Program - Municipal Finance Review
7,200,000,000
6,200,000,000
5,200,000,000
4,200,000,000
3,200,000,000
2,200,000,000
1,200,000,000
200,000,000
transfers
self-financing
loans
donations
own
-800,000,000
Figure 12. Revenues by source per capita across NUTS III regions in Macedonia for 2011
We can easily see that Skopje region is dominating the revenues collection as it comprises
26% in 2008 and 27% in 2011 of total revenues in Macedonia. That region comprises 29% of
total population in Macedonia. Note how the Pelagonia region (18% of total Macedonian
population) is the second with highest total revenues in 2008 of 11.9% of total revenues in
Macedonia; but in 2011 it is the Polog region (15% of total Macedonian population) with the
second highest total revenues of 10.7% of total revenues in Macedonia. Lowest total revenues
are accounted in East region in 2008 (6.6% of total Macedonian revenues with ) and in Vardar
region in 2011 (6.8% of total Macedonian revenues with ).
32
World Bank-Austria Urban Partnership Program - Municipal Finance Review
12 Annex
Table 20. Illustration of the two-phased approach of fiscal decentralization in Macedonia
Phase
Starting
date
Assignment of responsibility
1.
st
1
Phase
1 July 2005
(with
amendments
on 30 Dec.
2004)
2.
3.
Transferring own revenues from tax
sources (the PIT sharing) to
municipalities
Developing a methodology for
transferring
the
capital
and
earmarked transfers
The local governments will start
with the plan implementation of
solving the arrears up to 31st of
January 2001
Assignment of the responsibilities (for
the block transfers):
Conditional on
If 90 % of the total municipalities
comprising 90 % of the total population
will provide:
1.
2.
1.
2.
1.
2.
3.
nd
2
Phase
Conditional
4.
Culture
Social welfare and child
protection (kindergartens and
homes for elderly)
Education
(primary
and
secondary school)
Healthcare
(public
health
organizations and primary care)
3.
4.
5.
6.
At least 2 financial officers
At least 3 tax experts
All the conditions from phase 1 are
satisfied
A proper capacity of the financial
officers (also in the phase I)
Viable results of 24 months for on
time
and
regular
reporting
confirmed by the ministry of
finance
There are no accounts payable
than usual ones (up to 90 days)
The phase commission will
evaluate if all the conditions are
satisfied
There is a written request from
municipalities to the proper
ministry and the ministry of
finance for granting block transfers
after all the conditions is satisfied.
33
Marjan Nikolov