Albania Local Finance Policy Note : Programmatic Public Expenditure and Institutional Review

Abstract

Albania has undertaken major reforms in
 its system of local government finance since 2000. What had
 been a system in which local functions were ambiguous and
 financing was largely provided through tightly controlled
 earmarked grants is now one in which functions are
 relatively clear and local governments have more autonomy
 over the allocation of funds. A new system of competitive
 grants for infrastructure investment has been introduced.
 Parliament has enacted a new law on local borrowing. Within
 this framework, however, several controversies remain which
 are addressed in this policy note. In the long term Albania
 must also grapple with certain organizational issues. One is
 the role of regional governments, which now lack any major
 clearly defined function. While the Government's
 decentralization strategy proposes a range of possible
 functions for regional governments, most of these roles
 could be carried out through other means. The other
 organizational issue is the consolidation of small communes.
 The Government's decentralization strategy proposes the
 eventual consolidation of small local governments into
 larger units. International experience, however, suggests
 that the efficiency gains of consolidation are limited and
 may not be sufficient to justify the political costs of
 doing so. Efforts to consolidate local governments should
 consider alternative solutions such as inter-municipal
 agreements and joint service companies before proceeding.