REPUBLIC OF NORTH MACEDONIA

The Republic of North Macedonia is a unitary state and a parliamentary democracy. The president is the head of the state and is elected for a five-year term; the prime minister leads the government. The Parliament is a unicameral assembly composed of 120 to 123 representatives elected during general, direct and free elections and by secret ballot for a four-year term.

The Republic of North Macedonia is composed of a single tier of subnational government, at municipal level. The principles of local self-government and decentralisation are enshrined in the Constitution of 1991. Central authorities oversee the legality of municipal government’s acts and endeavours; whereas the municipalities, on the other hand, have the right to appeal to the Constitutional Court if the State authorities encroach on their prerogatives. In addition to the Constitution of 1991, legal provisions dealing with decentralisation and subnational government matters include the Law on Local Self-Government, the Law on Territorial Organisation and the Law on Financing of the Local Self-Government Units.

The municipal governing body is comprised of the Mayor (gradonacalnik) and the municipal council (sovet na opstinata) – the former being the executive body and the latter the representative body of the citizens. The mayor is elected by direct universal suffrage for a four-year mandate according to the majority electoral model. On the other hand, municipal councillors are elected by proportional vote. The number of seats depends on the population size of the municipality. The capital city of Skopje is an exception to this rule, and its council consists of 45 members.

After the country’s independence, the decentralisation process began in 1995 with the Law on Local self-government, and was further promoted in 1997 with the European Charter for Local Self-Government. Since 2002, when a new Law on Local Self-Government was adopted under the “Ohrid Framework Agreement” of 2001, decentralisation has been a recurrent theme. The 2002 Law, accompanied by the 2003-2004 Operational Programme for Decentralization of Powers, created a legal and institutional framework for decentralisation and at the same time started the transfer of some administrative responsibilities to the municipalities. In 2004, a law on the territorial organisation of local self-government reorganised local government units into 84 municipalities and further enhanced the transfer of responsibilities to local governments. In 2007, fiscal decentralisation began: municipalities with an improved fiscal situation became responsible for financing and managing all schools, cultural and social welfare institutions and received block grants to finance these new tasks.

Since the Accession Partnership of the Republic of Macedonia with the EU and the Framework Agreement, decentralisation reform has intensified. The government first committed to the 2015-2020 Programme on Sustainable Local Development and Decentralisation, which aimed at coordinating interactions between national and local levels in order to implement integrated development projects. In 2017, a partnership between the national government, the municipalities and the Association of Units of Local Self-Government (ZELS) accelerated local self-government reform with the aim of granting municipalities additional powers and financial resources. This partnership gave result to the Public Administration Reform Strategy 2018-2022. Recently, Fiscal Decentralisation Reform for the 2021-2024 period started implementation and the Ministry of Local Self-Government, with UNDP support, prepared the Programme on Sustainable Local Development and Decentralization 2021-2026 which focuses on sustainable development and good governance at the local level. A new ten-year Strategy for Regional Development 2021-2031 was adopted by the Assembly of the Republic of North Macedonia in April 2021.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2020)
80 municipalities (opstina) and the city of Skopje
Average municipal size: 25 586 inh.
81			81

OVERALL DESCRIPTION: The Republic of North Macedonia has a single-tier local government, territorially organized in 80 municipalities (opstina) while the City of Skopje is a separate Local Government Unit, which stems from its character of being the capital of the country. Out of the 80 municipalities, 43 are city-based, while the remaining 37 have their seats in a village.

In addition, eight planning regions are established for statistical purposes only. These regions have no administrative roles, they were created partly in accordance with the EU NUTS system and correspond to NUTS level 3. Each region has a council, which is made up of the mayors of its constituent municipalities.

MUNICIPAL LEVEL: From 1996 to date, the number of municipalities has been considerably reduced, as a result of multiple reforms affecting municipalities. In 1996, there were 123 municipalities. The number dropped to 84 in 2004 and then to 81 in 2013 when four municipalities merged to form the Kičevo municipality. Today, municipalities are large by international comparison: 25 586 inhabitants on average (vs 10 254 in the OECD and 5 959 in the EU). However, the median average is lower (13 585 inhabitants). Around 21% of municipalities have less than 5 000 inhabitants. Skopje accounted for 29% of the total population in 2020. The second largest city (Kumanovo) was home to around 98 000 inhabitants in 2020 while two other cities counted between 85 000 and 98 000 inhabitants (Bitola and Tetovo).

Urban and rural communities (villages and neighborhoods) can be established at the sub-municipal level within each municipality, with the objective of enabling the residents to take positions or address issues particularly relevant to their municipalities (1 783 units in 2019). The powers of such entities are defined by the municipalities and therefore vary from one municipality to the next. They are not political entities and can only make recommendations to the local governments, or work in the interest of their communities.

The capital city, Skopje, is recognised as having special status and consists of 10 independent municipalities (which are part of the overall number of 80 municipalities).

HORIZONTAL COOPERATION: Inter-municipal cooperation is not happening currently, but there are programmes at the EU level designed to support its development. On March 2022, the EU-funded programmes “EU for Municipalities” and “Cross Border Cooperation between North Macedonia and Albania” jointly organised the "EU for Municipalities" conference in Skopje, to support Albanian and North Macedonian municipalities in their efforts towards EU integration, good governance and local economic development. The conference gave the opportunity to formally sign co-financing agreements supporting the municipalities, provided by the Swiss Cooperation Agency and the Ministry of Local Self Government (with the main financing coming from the EU).

In parallel, a series of thematic platforms was launched for networking in priority sectors for North Macedonian municipalities, such as digitalisation, waste management and urban mobility. These sectors are embedded under the European Green Deal and the municipalities of Aerodrom, Ohrid, Radovish, Strumica, Tetovo, Veles, Vrapchishte and the City of Skopje have already committed to develop and implement innovative solutions with the support of the EU-funded grants.

According to Article 22 of the 2002 Law on Local Self-Government, municipalities have both own and delegated competences. Overall, Macedonia has a highly decentralised public sector with the municipalities undertaking responsibilities in important areas such as education, the provision of basic utilities and social welfare, economic affairs and transport, environment, health etc. According to the 1991 Constitution (Art. 115) and the Local Self-Government Act (Art. 23), a public administration body may also delegate the execution of specific tasks from its competence to the municipality. In these cases, the funds anticipated for the performance of these tasks shall also be transferred from the national budget. The delivery of the delegated competences may be adjusted to local conditions, in accordance with the relevant laws. Examples of shared competences include education, health, road maintenance, urban planning and building permits. The capital's independent municipalities have individual competences, some of which are shared with Skopje, and which set them apart from the country's other municipalities.

Education is the most important sector transferred to municipalities during the decentralization process. In 2005, municipalities were made the founding organs of all primary and secondary schools. Since then, they have been responsible for the establishment, financing and administration of the vast majority of primary and secondary schools in the country. Municipalities are also responsible of nurseries and kindergartens (they must keep a registry of the current nurseries and kindergartens as well as to hire and fire directors) and adult education.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Municipal level
1. General public services (administration)	Municipal administration; Oversight of all activities within the municipal competence
2. Public order and safety	Civil protection; Natural and other disasters; Fire protection
3. Economic affairs/transports	Local public transportation; Local economic development and planning; Entrepreneurial development; Construction and maintenance of local roads and other infrastructure facilities; Public parkings; Construction of markets
4. Environment protection	Environmental protection (water, atmosphere, land, pollution); Maintenance of forests; Green areas and parks; Rivers in urban areas; Sewerage; Drainage.
5. Housing and community amenities	Water supply; Waste collection and treatment; Natural gas and energy supply; Cemeteries; Public lighting; Regulation and maintenance of buildable land; Public hygiene; Management of state land (since 2011).
6. Health	Governance of the network of public health organisations and primary care buildings
7. Culture & Recreation	Cultural heritage preservation; Maintenance and construction of sports and recreational facilities; Cultural centres; Libraries; Museums.
8. Education	Pres-schools; Primary and secondary education (in coordination with central authorities), including the payment of teachers’ salaries; Transportation of pupils; Accommodation and dormitories.
9. Social Welfare	Social welfare, most notably for elderly, disabled and children, including children with special needs and persons exposed to social risk.

Scope of fiscal data: All municipalities including the city of Skopje

SNA 2008

Availability of fiscal data: Medium

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: Throughout 2004 and 2005, significant reforms were carried out with the objective of consolidating the local public finance system. The 2004 law on local government finance indicates that SNGs are financed through own-source revenues, shared revenues, grants from the budget of the republic and from the budget of the funds, and borrowing. The 2004 law abolished the previous Law on Limitation of Own Source Revenues, transferring full responsibility in administering and collecting local taxes and establishing the rights of SNGs to receive either a share of or all tax revenues collected within their respective jurisdictions by the central government. A Committee for Monitoring and Development of Local Government Finance System whose members are issued from national and local governments has been established.

As of March 2021, the government began its fiscal decentralisation reform, which has three main objectives: (i) improving fiscal capacity and increased municipal revenues, (ii) strengthening fiscal discipline and (iii) promoting transparency and accountability in the use of public resources.

Subnational government expenditure by economic classification
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	880	5.2%	13.6%	100%
Inc. current expenditure	725	4.3%	12.1%	82.3%
Compensation of employees	471	2.8%	37.9%	53.5%
Intermediate consumption	177	1.0%	34.9%	20.2%
Social expenditure	3	0.0%	0.1%	0.3%
Subsidies and current transfers	73	0.4%	7.6%	8.3%
Financial charges	1	0.0%	0.4%	0.1%
Others	0	0.0%	-	0.0%
Incl. capital expenditure	156	0.9%	34.2%	17.7%
Capital transfers	2	0.0%	1.9%	0.3%
Direct investment (or GFCF)	153	0.9%	44.9%	17.4%

EXPENDITURE: In 2020, subnational government expenditure amounted to 5.2% of GDP and 13.6% of public expenditure, percentages which were significantly below OECD unitary country averages in 2020 (12.7% of GDP and 27.5% public expenditure), despite large areas of responsibility transferred to municipalities (education, healthcare, social services being the three most important, according to NALAS). In that sense, North Macedonia can be considered a fiscally constrained economy at the local government level, despite relatively large municipalities.

Subnational government expenditure is mostly comprised of current expenditure (82.3% of their expenditure), and more than half of the current subnational government expenditure is related to staff compensation (53.5%). The share of staff spending in total subnational government expenditure has kept increasing since 2016 (+3.1 percentage points). This high level of municipal staff spending is explained by the fact that municipalities are in charge of paying teachers and non-pedagogical staff’s wages in primary and secondary education, as well as hiring and firing school directors and setting school budgets.

DIRECT INVESTMENT: Subnational government investment represented 17.4% of total subnational government expenditure in 2020, a ratio that is on par with the average for OECD unitary countries, which stood at 17.6% in 2020. Local governments undertook nearly half (44.9%) of total public investment in 2020, a significant increase compared to the ratio of 2016 (33.7% of total public investment), putting local governments in North Macedonia close to the average level of the OECD for unitary countries (48.9% in 2020) and to the EU27 average (54.4% in 2020). More than half of investments, however, continue to be generated in the capital city of Skopje. To reduce this concentration and encourage investment at the local level, the government established free zones in which investors are exempt from utility taxes and fees for land building permits.

At the country level, the Program for Sustainable Local Development and Decentralisation is harmonized with the European Green Deal, the Economic and Investment Plan for the Western Balkans, the Green Agenda for the Western Balkans, as well as the strategy “Europe Ready for the Digital Age”. In fact, within the framework of the Economic and Investment Plan for the Western Balkans, up to EUR 9 billion of funding for the period 2021-2027 will be mobilised to support sustainable transportation, clean energy, environmental protection and the digital transition. For North Macedonia, this plan will finance wind parks and solar power plants to achieve a 50% renewable energy share in electricity production by 2024, the construction of gas pipelines and gas interconnections with Kosovo and Serbia, and regional waste management plants.

ⓘ No detailed data available for this country

Subnational government revenue by category
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	862	5.1%	17.0%	100%
Tax revenue	198	1.2%	6.7%	23.0%
Grants and subsidies	613	3.6%	-	71.1%
Tariffs and fees	36	0.2%	-	4.1%
Income from assets	15	0.1%	-	1.8%
Other revenues	0	0.0%	-	0.0%

OVERALL DESCRIPTION: The 2004 Law on Local Government Finance established the legal ground for fiscal decentralisation, which is based mainly on shared taxes (PIT), local taxes (e.g. property/ inheritance tax, real estate transaction), local fees (utility fees or administrative fees), local charges (e.g. construction, urban and spatial planning charges); property revenues, loans (with approval from the central government); and subsidies and grants (purpose or block grants).

Subnational government revenue has been on the rise in the last decade, from 1.9% of GDP in 2005, to 5.1% in 2020, signalling progress in the fiscal decentralisation process. Despite this improvement, the responsibilities of Macedonian municipalities often go unfunded. Despite the 2004 law on local government, subnational governments still increasingly depend on central government transfers, which represented 71% of their revenue in 2020 (vs 64% in 2016), way above the EU27 average (46.6% in 2020), while tax revenue and other sources of own revenues (tariffs, fees and property income) are still low by international standards (40.1% in the EU27).

The fiscal decentralisation reform for the 2021-2024 period, mentioned above, aims at improving fiscal capacity and increased municipal revenues through funds distributed to the municipalities on the basis of collected fees in the central budget, new sources of municipalities’ own revenues and the establishment of new funds to support good performance.

TAX REVENUE: Local government tax powers are regulated in the 2004 Law on Local Government Finance, the Law on the Property Tax, the Law on Communal Taxes, and other sectoral laws that influence the local public finance system. In 2020, subnational government tax revenues stood well below the averages for the EU27 (27.1% of public tax revenues and 7.2% of GDP) and for the OECD unitary countries (18.7% of public tax revenues, 4.5% of GDP in 2020).

Tax revenue comprises both shared taxes and own-source taxes. Shared taxes are very limited. They include 100% of the personal income tax (PIT) from the self-employed and 3% of revenues generated from the PIT of other residents in the form of wages where the employer is responsible for paying the PIT on behalf of the employee. As a part of its 2021 Fiscal Decentralisation Reform, the Government envisages increasing the percentage of PIT revenues distributed to the municipalities, collected from individuals with permanent or temporary place of residence in the respective municipality. Shared revenues from the PIT stood at 6.3% of SNG tax revenues and 1.4% of subnational government revenues in 2020.

Regarding own-source taxes, since the 2004 law on local government finance, SNGs have full responsibility in administering and collecting three taxes: the property transfer tax, the inheritance and gift tax and the recurrent property tax. The base and the rate of these tax instruments are set by law, while municipal councils approve the final rates for their respective jurisdictions within these legal limits.

The recurrent property tax is paid by legal entities and individual owners. It is levied on land (agricultural, forest, and pastures) and buildings (residential buildings, flats, business premises, administrative and recreation buildings, etc.). It is charged on the basis of the estimated market value of the property, as determined by municipal staff based on a methodology defined by the central government and approved by the association of municipalities (ZELS). Property tax rates are set by municipal councils. They are proportional and range from 0.10% to 0.20%, according to the type of the property. Although the collection of property tax has improved over the years, there remain significant disparities in the capacity of different municipalities to tap into the property tax base. The recurrent property tax accounted for 17.1% of SNG tax revenues, 3.9% of total SNG revenue and 0.2% of GDP in 2020, which is low compared with 1.0% in the OECD on average.

Several municipalities are working towards improving the collection process. Some local councils also collaborate with the public revenue office to limit tax evasion by blocking the accounts of uncompliant taxpayers, while others take on a more administrative approach in updating their fiscal registers. The 2021-2024 Fiscal Decentralisation Reform also aims at increasing municipal own revenue by improving property tax collection, mainly through: (i) a higher tax rate for calculation and collection within the determined range in accordance with the Law on Property Taxes, and (ii) increasing the property tax rate on high-value properties accompanied by assessment and auditing capacities in order to avoid declaring property at a lower value. In addition, the reforms plan other ways to increase local revenue sources in line with EU good practices, in particular a better coverage of the tax base of the real estate tax for natural persons and legal entities and value reassessments of real estate.

Finally, other sources of tax revenue are utilities fees (for the use of municipal infrastructure) and administrative fees.

GRANTS AND SUBSIDIES: Intergovernmental transfers include resources from the central budget as well as from different specific funds such as the Road Fund, the Water Fund, and the Fund for Balanced Regions.

There are six different categories of transfers/grants. 1), the block grants which are used to finance the major municipal services, mainly primary and secondary education (in particular the payment of teachers’ salaries) based on a formula that takes into consideration enrolment, employment, number of children entitled to free school transportation, number of pupils and teachers, etc. They also receive a block grant for culture and fire protection services. Municipalities are autonomous in their management of funds received through the block grants. 2), municipalities receive Earmarked Grants which include operation or maintenance costs (wages not included) resulting from education, social care, and firefighting. 3), SNGs also receive a share of the VAT (Value Added Tax), up to 4.5% of total VAT collection. Shared VAT revenues are distributed in the form of an equalisation grant scheme to narrow the revenue disparities among rural and urban subnational governments, and 65% is distributed on a per capita basis. Each municipality decides on its use depending on municipal priorities.. Municipalities finance capital projects through 4), capital grants transferred from the central government according to annual plans for such projects. 5), to finance a recent delegated competency from the central government, such as elderly care, municipalities receive specific grants, which are determined by the contract signed between the mayor and the line ministry. 6) finally, municipalities have access to a Regional Development Fund whose goal is to promote balanced regional development by allocating money to regions according to a formula, which is specified in the law on regional development. The Regional Development Fund is planned to be set at 1% of GDP, although as of today, it accounts for around 0.08%. Overall, current grants accounted for 95% of total grants in 2020 (+4 percentage points in comparison with 2016) and capital grants for the remaining 5%.

The Fiscal Decentralisation Reform plans to increase the amount of VAT grants in line with the municipalities’ performance. Two new funds are envisaged to be established: (i) the Performance Fund and (ii) the 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. The Performance Fund will be established during a piloting process, which will be accompanied by support from central government institutions in order to strengthen the local fiscal authorities in the municipalities showing significant fiscal underperformance.

OTHER REVENUE: Besides municipal utility fees and administrative fees, municipalities can charge fees on buildable land, on urban and spatial plans, and on municipal services delivery. They are provided by utility companies, and consumers pay directly for their services. Revenues from tariffs and fees accounted for 4.1% of SNG revenues in 2020 (-3.4 percentage points in comparison with 2016), which is below the OECD average for unitary countries and EU27 average (respectively 9.1% and 10.3% in 2020).

Property revenues are generated from the sales of properties, rent revenue and interest rate revenue. These revenues are determined and collected by the local authorities. In addition, SNGs also receive revenues from concessions (e.g., on water and minerals) and since 2018, 50% of concessions on agricultural land, a ratio that has risen from 10% in 2015. Property income accounted for 1.8% of subnational government revenue in 2020, above the OECD (unitary countries) and EU27 averages (respectively 1.1% and 1% in 2020).

ⓘ No detailed data available for this country

FISCAL RULES: According to the Budget Law, the Budget of the Republic of Macedonia and the budgets of the municipalities must follow the principle of budget balance, which means that the total revenues and inflows shall cover the appropriations. A “sound Financial Management“ is requested, meaning that execution of the budget in accordance with an effective and efficient internal control as a process which is implemented on all the levels of management of funds.

In order to overcome unreal projecting of the budgets of municipalities and therefore accrued unpaid obligations in previous years, a fiscal rule was established in November 2018 (amendments to the Law on Financing of Local Self-Government Units), stating that municipal own revenue of the core budget would be limited to an increase by a maximum of 10% based on the average revenues of the past three years. In 2019, the threshold was increased from 10% to 30% in order to make their fiscal position more flexible.

Finally, the 2021-2024 Fiscal Decentralisation Reform plans aim to strengthen municipal fiscal discipline through better planning of the actual revenues and expenditures of the municipalities, rationalizing the operations, reducing unnecessary expenditures and creating procedures to declare financial instability. Also, higher transparency and accountability is expected as a result, particularly, of a strengthened government oversight 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.

DEBT: Under the 2004 Law on Local Government Finance, municipalities have the right to borrow but under strict borrowing rules. Borrowing from foreign entities requires the consent of the Ministry of Finance. Short-term borrowing can be used only for covering temporary cash deficits and it cannot exceed 20% of the overall revenues from the current-operational budget of the municipality in the preceding fiscal year. Long-term borrowing is allowed only to finance capital assets or investment projects (“Golden Rule”). The limit on the total annual debt-service amount from long-term borrowing in one fiscal year is 15% of the overall revenues in the current operating budget of the municipality in the preceding fiscal year. Still, total outstanding long-term borrowing including all guarantees shall not exceed the total amount of revenues in the current operating budget of the municipality in the preceding year. Further, commercial banks are required to report all loans to municipalities to the Ministry of Finance.

Subnational government borrowing remains very limited. In order to boost subnational government investment, the central government has provided credit lines from international financial institutions (World Bank, EIB, KfW and EBRD), which have provided for substantial investments, especially in reconstruction and rehabilitation of local streets and bridges, improvement of public hygiene and energy efficiency, construction and reconstruction of the water supply and local spatial landscaping. The central government also intends to help municipalities to begin issuing municipal bonds as an additional instrument for improving liquidity and providing financial resources for capital and municipal projects. However, municipal bonds are not reported on the Macedonian Securities Exchange Market, mainly because of inadequate legal regulations, constraining local financing laws, insufficient information regarding the importance of municipal bonds, lack of professional knowledge of the local authorities about bonds, political instability in the country, and sanctions imposed from the central authorities.

TERRITORIAL MANAGEMENT OF THE CRISIS: In February 2020, the central government first established a national crisis management unit (as indicated in the 2005 Law on Crisis Management) and activated the Crisis Management Body of the Ministry of Health (MoH), the Steering Committee for coordination and crisis management and the Assessment Group. At the local level, a crisis situation was decreed in the municipalities of Debar and Centar Zhupa, followed by quarantines in several municipalities. The institutional response was strengthened through the Main Crisis Coordination Headquarters, headed by the prime minister, along with a March 18 declaration of a state of emergency with the validity for a maximum of 30 days (extended until December 2021).

Coordination of the local response was done through Municipal Crisis Headquarters. Some of the municipalities included representatives from the local communities in these groups, and Prilep included representatives from the non-governmental and private sector. Municipal headquarters held regular meetings, widely disseminated their decisions, and maintained good cooperation with other local entities. However, the gap in the normative framework resulted in certain limitations, such as lack of full operational force for decision implementation, lack of information sharing powers, and lack of financial resources for the work of headquarters in smaller municipalities.

The overall crisis response and the vaccination process management were led by the Ministry of Health, through both existing health agencies and new ones created during the pandemic, including the National Institute of Public Health (IPH), the National Commission for Infectious Diseases, the Coordinator of Human Resources in the Hospital Sector, the National Technical Working Group on Covid-19 Vaccination and the National Vaccination Commission. At the local level, regional Centres for Public Health were responsible for the surveillance of cases and for performing contact tracing, with direct support and coordination from the IPH. The IPH collected and processed these surveillance data, preparing reports and disseminating them to the relevant audiences, including the health ministry and the general public.

SUBNATIONAL EMERGENCY MEASURES TO COPE WITH THE CRISIS: The central government implemented measures through four support packages since the start of the pandemic. The first two were implemented between March and May 2020 and were intended to provide support to the economy and to the health sector, including revenue measures for civil servants, a 20% increase in salaries for medical staff, a tax deferral system for VAT returns and excise duties for selected goods (mainly auxiliary medicines and disinfectants).

At the municipal level, most often, municipalities were involved in providing services of local interests such as: disinfection of public spaces and public buildings, establishment of teams to support vulnerable categories of residents, and free provision of personal protective equipment for the most vulnerable groups of the population.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: In aggregate terms, the pandemic does not seem to have had a significant impact on municipal total revenues and expenses as of end 2020. All municipalities were not impacted in the same way, and according to the UNDP, in the second quarter of 2020 (when the economic effects of the pandemic started to show) urban municipalities saw a decline of 2.2% in revenues and a decline of 28% in expenditures, making them the most affected category of municipalities.

The crisis severely impacted municipalities' own revenue. Between 2019 and 2020, subnational government tax revenue fell by 11%, municipal fees fell by 46% and property income by 9%. Overall, these decreases were compensated by an increase in grants from the central government, which increased by 10% year-on-year. Those transfers from the central government were exclusively used to finance increases in expenditure incurred by the COVID crisis in specific municipal competencies (education, culture, kindergartens, fire protection), including the salaries of teachers, and therefore local governments could not use these funds for other contingency (urgent) needs.

ECONOMIC AND SOCIAL STIMULUS PLANS: On May 17, 2020, the government introduced a third support package to boost economic recovery and stimulate local consumption further. The measures included a 40% of base wage reward for medical staff, support for MSMEs of the agriculture sector and direct support to green oil farmers and grape processors, among others. The first three packages together were worth 5.5% of GDP.

The fourth support package, adopted in September 2020, worth about 4.7% of GDP, was a direct extension of the previous ones. It included an amendment to the law regulating the Financing of Local Self-Government in order to provide municipalities with stable revenues during the crisis and a reduced VAT rate in different fields (exemption for donations, 10% for food and beverage for onsite consumption and catering services starting 1 January 2021).