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

2. 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)

3. 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

4. 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

5. 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

6. 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)

7. 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)

8. 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