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2026-10-10 18:09:13Biznes SHKRUAR NGA REDAKSIA VOX

Albanian municipalities continue to rely significantly on central government funding, while the revenues they generate themselves cover only about half of local expenditures.

The International Monetary Fund (IMF) is calling for a reform of the local government financing system, warning that the current structure limits the financial autonomy and sustainability of the country's 61 municipalities.

In a technical assistance report, published on October 9, the IMF notes that fiscal decentralization in Albania has lagged behind administrative reforms and the expansion of local government responsibilities.

 Although the share of local revenues in total public revenues has increased from 9% to 14% over the last decade, municipalities' financial resources remain fragmented, unevenly distributed and dependent on unstable instruments.

One of the main problems, according to the IMF, is the significant reliance on the infrastructure impact tax, linked to construction activity. Revenues from this tax can fluctuate, making long-term planning of local finances more difficult.

For this reason, the Fund recommends that the periodic tax on real estate be transformed into the main pillar of municipal financing, through the transition to property valuation according to market prices and the improvement of the fiscal cadastre.

The report also highlights weaknesses in the current valuation system, including the separate treatment of land and buildings, data fragmentation, and broad tax exemptions.

The IMF suggests reviewing the relief that reduces the taxable value of the first apartment by 50%, arguing that it limits the tax base.

Instead of general relief, the institution proposes support oriented according to the economic situation, including the possibility of deferring tax payments for categories in difficulty, such as pensioners and the unemployed.

The recommendations also extend to other sources of financing. The IMF proposes considering increasing tax rates on the transfer of real estate to levels comparable to those in the European Union.

In the medium term, the report also suggests the possibility of a local surcharge on personal income tax, within a limited range and within a coordinated system at the national level.

Another problem is related to the way funds are distributed by the central government.

According to the IMF, unconditional transfers do not fully reflect the spending needs of municipalities, while the financial equalization mechanism remains limited and relies on realized revenues, not on real tax potential.

The Fund calls for a review of these mechanisms, a gradual reduction in the weight of sectoral transfers, and a strengthening of unconditional financing, to give municipalities more flexibility in the use of resources.

To coordinate reform, the IMF also proposes the creation or strengthening of an independent fiscal coordination mechanism, such as a council or commission reporting to Parliament.

The IMF recommendations come at a time when Albania is also changing the organization of local government. On October 9, the Parliament approved with 85 votes in favor the new administrative-territorial reform, which reduces the number of municipalities from 61 to 46, while the 12 regions remain unchanged.

In this context, the Fund's proposals for the financing and fiscal autonomy of municipalities take on particular importance, as the new territorial structure will have to face the existing challenges of securing revenues and providing local services. (AP)


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