OVERVIEW OF FISCAL DECENTRALISATION
North Macedonia’s governance structure is based on two levels: the central government and 84 municipalities.
Legal acts governing fiscal decentralisation
The legal framework of Macedonian fiscal decentralisation is set by the Law on Local Government Finances of 2005.
Qualifying fiscal decentralisation
The process of fiscal decentralisation in North Macedonia started in 2005 with a gradual devolution of competences and the creation of own resources for municipalities. The degree of decentralisation of the different municipalities is not homogeneous and neither is the composition of revenues/expenditures, as the set of devolved competences varies substantially.
Between 2007 and 2011, local government revenues as a share of GDP and of total public expenditures rose from 2.9% and 9% to 5.8 and 16%, respectively.
Despite this significant increase, the composition of municipal revenues reveals how these government bodies have limited revenue autonomy: real own revenues (property tax and communal fees) represent 29% of total municipal revenues, while block grants account for 53% of the total, shared taxes for 6% and earmarked grants the remaining 12%. The composition of municipal expenditures reflects the range of competences devolved to the sub-national level: 59% of total expenditures relate to education (primary and secondary) and social protection (mostly kindergartens), 17% relate to communal utilities, 12% to municipal administration and the remainder to the other sub-national competences.
Deficit, debt at sub-national levels and borrowing capacity
The possibility of accessing debt markets is a relative novelty in Macedonia, as prior to 2008 it was explicitly forbidden by state law. Until 2008 and, and still to a large extent, local governments relied exclusively on funding from the central government.
Despite a sharp increase between 2008 and 2011, when local governments’ debt in North Macedonia grew from 36 million Macedonian denar to 467 million denar, the total outstanding debt of municipalities at the end of 2011 accounted for just 2% of local government revenue. The biggest part of the municipal debt increase (73%) was generated by important funding agreements signed between local governments and the World Bank: the Municipal Services Improvement Project (MSIP I) for 18 million euros in 2009, and the MSIP II for 37 million euros in 2011.
The most recently available figures (for 2010) report that local governments’ debt accounted for 56 million euros, corresponding to 0.01% of GDP, the lowest figure for the whole Balkan region.
