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17th March 2021, Skopje – Improved fiscal capacity and increased municipal revenues, strengthened fiscal discipline and transparency and accountability – these are the three pillars under the fiscal decentralization reform, a process implemented by the Ministry of Finance. The Ministry submitted an Information thereof to the Government, it was reviewed and adopted at the Government session held on Tuesday. Public consultations and discussions with ALGUs and the stakeholders will follow, in coordination with the Working Group entrusted with the continuation of the decentralization process, established by the Government, with the Ministry of Political System, Ministry of Finance, Ministry of Local Government and ALGUs as its members.

The first pillar, or improved fiscal capacity and increased municipal revenues, will be implemented through activities which envisage increase of the funds distributed to the municipalities on the basis of collected fees in the central Budget, increased own revenues of the municipalities and establishment of Funds to support the good performance.

It is envisaged for the percentage of PIT revenues distributed to the municipalities, collected from individuals with permanent or temporary place of residence in the respective municipality, to increase gradually.

In addition, amount of VAT grants will gradually increase in line with the municipalities’ performance. Two funds are envisaged to be established – Performance Fund and Equalization Fund. Municipalities showing positive results and higher own revenue collection will be awarded funds from the Performance Fund, while municipalities with lower revenues, but also showing fiscal effort and good results in collecting their own revenues will be awarded funds from the Equalization Fund.

Activities will be also undertaken towards increased municipal own revenues and determining new local revenues in line with the EU good practices, as well as enhanced criteria on distribution of funds for transferred competences in the field of primary and secondary education, child care and care for elderly and firefighting.

The second pillar, aimed at strengthening the financial discipline of the municipalities, arrears repayment and cost-effective operations, envisages activities aimed at measures for planning the actual revenues and expenditures of the municipalities, rationalizing the operations and reducing the unnecessary expenditures, regular servicing of arrears, strengthened financial discipline, procedures on declaring financial instability, issuance of municipal bond and analysis of the existing arrears of both the municipalities and the public enterprises.

For the purpose of increased transparency and accountability, government oversight will be strengthened, in particular by the Department for Public Sector Financial Inspection in terms of the Law on Reporting and Recording Liabilities and reporting non-compliance with the Law on Financial Discipline, measures will be adopted with respect to increased transparency at the municipalities by announcing the financial reports in a transparent and understandable manner, and activities will be undertaken for the purpose of strengthened accountability when using budget funds.

One of the priorities in the 2020 – 2024 Program of the Government of the Republic of North Macedonia is continuation of the decentralization process to the end of greater democratization, better public services and intensified local development. The objective is to transfer the competences to a management level most suitable for the citizens. In the coming period, municipal development policies, i.e. fiscal decentralization and equal regional development, will continue to be implemented, to the end of strengthening the municipalities’ financial sources, at the same time increasing the accountability and the transparency of their operations.

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