Strengthening Local Government Public Finance Management in Albania

The overall objective

To contribute to the improvement of the subnational public financial management (PFM) in Albania to enable financial discipline, efficient use of public resources and improved service delivery. To this end, the project is supporting all 61 municipalities in Albania and the Ministry of Finance and Economy (MoFE) to develop and apply key PFM processes for more effective and efficient revenue collection, budget formulation, execution and monitoring, as well as internal control and audit.

COMPONENT 1: SUPPORT MUNICIPALITIES IN IMPROVING THEIR PFM CAPACITIES AND SYSTEMS.
This Project will support municipalities in three thematic clusters:
(i) Strategic planning and budget management: Municipalities have only limited scope for choice of allocation of resources and very few system tools with which to pursue locally formulated spending priorities, and align them with national priorities. This stream of activities will include:
• Support for the medium term budget process, capacity building and content of budget documentation; in particular and if appropriate, support for the use of the Financial Planning Tool;
• Improve programme budgeting and performance indicators in the budget framework, linked with service delivery planning and monitoring;
• Improve economic and financial planning and monitoring, in particular for capital investment projects;
• Provide support for commitment controls and management of accumulated arrears, i.e. developing a schedule and contingency plans.
(ii) Revenue management: Local revenue mobilization is plagued with serious organizational and institutional deficiencies not properly addressed in municipalities for decades. This stream of activities will include:
• Improvement of revenue forecasting and assessment of compliance rates;
• Support municipalities to comply with the new value based property tax system;
• Improve revenue collection, including working with tax agents to improve collections from households and establishing records of tax arrears;
• Promote tax education of local taxpayers to increase voluntary compliance.
(iii) Internal control, internal audit, financial reporting: For this cluster, the main challenges identified at the subnational level include weaknesses in the control environment, underdeveloped risk management systems, weak internal audit function, inefficient and inconsistent paper based financial recording and reporting. This stream of activities may include:
• Establish user-friendly templates for in-year and annual financial reports, in line with instructions from MoFE;
• Assist in the establishment of and/or increasing the effectiveness of the internal audit function; increasing organizational efficiencies of the internal audit function and align them with sound management practices; expand the scope and types of internal audits.
In the first stage (September 2018 to September 2020) the focus will be on a core group of 15 pilot municipalities. The sequencing of activities will be the following:
1) Elaboration of reform action plans in each of the 15 municipalities: The Project initial assessments will provide the basis for each municipality to define a limited number of reform objectives. For each reform objective a more detailed technical sequencing will be elaborated and put together in a reform action plan.
2) In a second stage (October 2020 to March 2023), support will be rolled out to all 61 municipalities. The specific areas of support will be defined according to the needs of the municipalities but also based on the experiences made with the core group of municipalities

COMPONENT 2: STRENGTHEN KNOWLEDGE EXCHANGE AMONGST MUNICIPALITIES
The second component aims to strengthen knowledge exchange amongst municipalities in the a.m. clusters. In cooperation with local training providers for the public service, the project establishes a platform for knowledge exchange and peer-learning initiatives in order to develop sustainable capacities amongst the municipalities in PFM related issues. The project will therefore support the establishment of a well-functioning platform where good practices established in certain municipalities – through this and other donor projects – can be spread more efficiently beyond the direct beneficiaries. This can induce higher consistency in the implementation of rules and procedures among municipalities.

COMPONENT 3: STRENGTHENING OF MOFE’S CAPACITIES IN DEALING WITH SUBNATIONAL PFM
The third component aims at supporting the MoFE to strengthen the Ministries´ capacities in dealing with subnational PFM. The project team provides advisory to various departments of the MoFE to develop tools and procedures to monitor the implementation of the new Law on Local Finance and to ensure adequate exchange of information with the municipalities.
The MoFE’s main interest is to ensure a consistent implementation of subnational PFM rules and procedures across all municipalities. While the new Law on Local Finances provides the basis, the MoFE needs tools and procedures to monitor its implementation and to ensure adequate exchange of information with the municipalities. At the same time, the MoFE needs to ensure that local governments do not have unfunded mandates that would eventually lead to less or worse quality of public services or expenditure areas. The MoFE is struggling to deal with these complex processes, due to limited human resources but also because there is as of yet no clear definition of priorities and of monitoring and coordination processes.