Intergovernmental Dialogue and Consultation Lead to Better Policies
Advancing Fiscal Decentralization Reform

By Elton Stafa – 

On December 4th, Parliament approved the Law on the Annual Budget for 2019. The Ministry of Finance and Economy (MoFE) highlighted that this law shows the continued support of the Government of Albania for the Territorial and Administrative Reform as well as for effective decentralization policies and legislation.

But what are the major implications for local governments?

The MoFE anticipates local revenues in 2019 to increase by 5 billion Lekë, or by 11% when compared to 2018, which will in turn support local investments and improved service delivery. This overall increase is due to both an expected increase in the revenues that local governments will collect through local taxes and fees (+21% when compared to 2018) and the increase in the unconditional grant for the third consecutive year (+6% when compared to 2018, and +42% when compared to the first year of implementation of the territorial reform in 2015).

The 2019 Budget Law also reforms the nature of the transfers dedicated to the financing of the new functions that were shifted to local governments in January 2016. As of January 2019, municipalities can exercise full discretion and convert previously earmarked specific transfers (which are ineligible for financing local functions) into sectoral unconditional grants. To avoid service interruptions, it is expected that local governments will likely continue to maintain the level of previous spending, despite their new authority over the grants.

Ultimately, and perhaps most importantly, the 2019 Budget Law introduces a major change in the system of preschool education finance. The MoFE, in collaboration with USAID and the Ministry of Education, Sport and Youth, increased funding for preschool education teachers in 2019 by 9.1% when compared to 2018. In addition, funds will be allocated to local governments based primarily on the number of pupils (as per Albanian legislation and in alignment with international best practices) as opposed to the current system based on the historical number of teachers. These two changes will prompt the hiring of at least 438 new preschool teachers (10% more) to be allocated in municipalities that have an urgent need based on the ratio of preschool pupils to teachers. This reduction in ratio (projected ranges at 15-18 down from the current 18-26 pupils: teacher) creates a better overall quality of service, both for teachers and students.

The 32 municipalities currently struggling with overcrowded preschool classes will receive funding as of January 1st, while the MoFE will provide clear guidelines and expectations for additional allocations and the increased number of preschool teachers. This reform positively affects 70% of Albania’s preschool-aged children.

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