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fiscal decentralization initiative fdi southern eastern europe

2. New stage of reforms in SEE. Comprehensive reform programs:Decentralization strategies: Albania (2000), Bulgaria (2002-2005), Political programs, external pressure: Macedonia: Ohrid Agreement (2002-2004), national tax reform (BiH, Serbia)Gradual, technical reforms: Croatia (2001), Serbia (2004-2006), Montenegro (2004), Romania.

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fiscal decentralization initiative fdi southern eastern europe

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    1. Fiscal Decentralization Initiative (FDI) Regional rapporteurs: Tony Levitas (anthony_levitas@dai.com) Gábor Péteri (gpeteri@lgidev.com)

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    3. 3 Increased international assistance Long term USAID funded projects: Albania (Urban Institute); Bulgaria (RTI); Macedonia, Serbia, BiH (Dai Inc.); Montenegro (ICMA, Urban Institute) Council of Europe activities: Stability Pact Conference (Zagreb, 2004); recommendations, “opinions” International organizations: UNDP (e.g. HD or Blue Ribbon Commission Reports); European Union (EAR, CARDS); OSI (LGI, National Foundations) Bilateral programs: DfID, GTZ, SIDA, Netherland, new EU states

    4. 4 What has been achieved? Devolution of government functions Administrative structures Own revenue raising Intergovernmental transfers Local administrative and management capacity

    5. 5 1. Scale of decentralization Modest measurable results: Local budgets: 5-7% of GDP; 13-20% of GGE Separation of devolved (own, optional) and delegated (mandatory) functions Limited impact on sectoral reforms: Property transfer is postponed Administration, supervision is centralized Ministry functions are slowly changing Lacking capital investment funding

    6. 6 2. Structural reforms One tier systems: BG, MAC, MNE, SRB Separation: MNE (new country), BiH (fragmented), SRB (diminishing provincial level) Regional planning, development: BG, RO, CRO Large city financing reforms: Skopje, Beograd, Sarajevo

    7. 7 3. Own source revenues Diverse municipal revenue base: Property tax is widely known, but underused Traditional land use & development fee, communal charge in ex-YU PIT surcharge: CRO, MNE Limited autonomy: BG, BiH, MD New rules of revenue sharing after VAT Limited borrowing, unsolved problems of inherited debt (MAC)

    8. 8 4. Intergovernmental transfers Scope: Attached to tax (BiH, MAC); % of GDP (SRB), Solidarity Funds (MD) => stabilize Incentives created locally: Gap filling: MD, BG (labor), CRO 2. General grant: ALB, CRO (in areas of special state concern), MAC, SRB 3. Standardized method on the revenue side: Albania, Serbia

    9. 9 4. Intergovernmental transfers, cont. Formula based equalization grant schemes: Focusing on shared revenues (VAT, business tax) Scope: 15-30% of local revenues Expenditure side: formula driven (population, area, length of road) Revenue side: +% of per capita revenues

    10. 10 4. Intergovernmental transfers, cont. Management: Gradual phasing in (BiH: 6 years, CRO: experiment with 32 cities) Lack of data (ALB: area) Transparency: Legislated in LG Finance Laws Grants Commission (SRB, MAC, MNE) Increased role of Associations

    11. 11 Civil service training: Institutes of Public Administration (e.g. RO, KIPA) Local Democracy Academy: CRO Associations: diverse influence (SRB <-> CRO) professional associations: finances (MAC), water (MNE, SRB), communal International, regional cooperation: NALAS

    12. 12 5. Local capacity, cont. Financial management: Computerized financial reporting (SRB, MAC, BiH); Asset management One-stop-shop, customer services

    13. 13 Issues of fiscal decentralization Reform of human/social services (further decentralization) Structural reforms: regional and sub-municipality self-governments, minorities Incentives created by transfers Dealing with the private sector (PPP, LED) Capital investment financing Revenue administration capacity Financial management: fiscal information, budgeting/reporting, audit, openness

    14. 14 Proposed further FDI activities Country specific actions (EU, new countries) Monitoring law enforcement, regular assessment of decentralization Horizontal exchange of professional experiences, network of policy designers Improving policy development (process, capacity at top level) Benchmarking local government financial management and performance

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