Law on Local Finances Need for a balanced approach PLGP conference in Tirana, 10 February 2016 Stefan Pfaeffli

Scope of a Law on Local Finances different interpretations Local Revenues Management of local finances UK: Local government finance act (2012) Serbia: Law on local government finance (2007) Kosovo: Law on local government finance (2008) Germany: Haushaltsgrundsätzegesetz (1969, last update 2013; Bund und Länder) Switzerland: Musterfinanzhaushaltsgesetz für Kantone und Gemeinden (2008) Turkey: Public financial management and control law (2005, Central state and institutions, local governments) Kosovo: Law on management of the budgetary system in the republic of Kosovo; (2008, central state and institutions, and local governments) A+B. Integrated Canada: Financial Administration Act (1985) Mongolia: Integrated budget law (2013)

The need for a law on Local finances Albanian municipalities under transformation More functions - more funds Bigger size - more professionalism Complex PFM legislation Stabilisation of local revenues needs strong legal anchor

The need for a balanced law No functions without adequate revenues.  However, resources are always scarce. Therefore, management of local finances matters. Effectiveness of resource allocation Efficiency of resource utilisation Transparency, reliability, accountability Fiscal discipline

Legislation for a sound management of local finances Comprehensive and in line with good international standards Consider IMF GFS Manual / PEFA requirements Bigger municipalities can do / should do more than in the past, with bigger responsibilities for functions and finances, fiscal risks become more substantial Drafting of PFM section of new law should be built on a «model» for local PFM; this model should be broadly discussed with stakeholders bevor law is drafted Existing PFM legislation should be cross-checked on its consistency with the agreed PFM model; when changes are needed, this should be addressed through the law making process

List of items for PFM section of law as discussed at Carlsberg workshop of 4 Feb. 16 Principles, such as lawfulness for revenue collection and expenditure, fiscal balance between revenue and expenditure, economy principle, effectiveness, polluter pays principle, compensation in case of particular economic benefits, PFM transparency Instruments for the management of public finances SDP, financial strategy, MTBP, annual budget, annual action plan, annual financial and policy report; for each PFM instrument: competences, content and elements, formal requirements, deadlines Performance management Performance plans, performance monitoring and evaluation Budget classification institutional, functional, economic, programme Budget rules binding character of the budget, supplementary credits, procedures in case of delayed approval of the budget Budget calendar including in-year and end of year report Improved templates for annual budget, annual financial report, balance sheet (specifying structure and minimum content including annexes)

List of items for PFM section of law as discussed at Carlsberg workshop of 4 Feb. 16 Financial management of public investments Asset management (financial and non financial) Payment procedures via single treasury account Accounting system and principles type of accounting system, gross principle, time of recording flows (commitment and payment), valuation rules for stocks and flows, … Consolidation requirements and procedures Financial control instruments: ceilings, financial key figures Financial control procedures and competences: ex ante budget control, in-year control, end of year control; role of internal control and audit, external audit, financial commission, council, oversight by MoF, financial inspection Monitoring of strategy and MTBP implementation competences and procedures Sanctions in case of non-compliance; insolvency proceedings, state supervision and liability (or exclusion of liability)

Envisaged support from dldp for drafting the new law Input on the PFM section of the new law Comments on draft of 2007, comments on new draft Rapid appraisal of current local PFM practices Identification of strengths and weaknesses of existing practices based on selected items taken from the new PEFA framework with conclusions for the law on local finances Discussion of important PFM reform issues foreseen for the law with local PFM experts Assess readiness of municipalities for PFM reform issues Identify need for future implementation support