North Macedonia

North Macedonia - Monitoring report

Date of the monitoring visit: from 5 to 7 December 2011
Report adopted on: 26 February 2013

The present report on local and regional democracy in “the former Yugoslav Republic of Macedonia” follows upon Recommendation 217 adopted in 2007. It expresses satisfaction that “the former Yugoslav Republic of Macedonia” has made marked progress towards better local democracy and decentralisation and that cooperation between municipalities and the central government works well. It takes note, however, that legislation needs improvement as regards the competences of local authorities and financial equalisation and that the great disparity in wealth and development between urban and rural municipalities is cause for concern. It also takes note of the low level of citizen participation in local affairs and particularly of women in local political life.


The Congress recommends that the government of “the former Yugoslav Republic of Macedonia” enhance the portfolio of the Ministry of Local Self-Government as the main actor in the decentralisation process, clarify the issue of overlapping competences, adopt a clear legislation on equalisation providing precise guidelines, increase the own-source taxes in local budgets and transfer property of land to local authorities in an effort to increase local autonomy.  It also recommends that the role and functions of Skopje as capital city and as local authority dealing with 10 sub-entities be clarified. It encourages the government to sign and ratify the Additional Protocol to the European Charter of Local Self-Government on the right to participate in the affairs of a local authority (CETS No. 207) as well as the Convention on the Participation of Foreigners in Public Life at Local Level (ETS No. 144).

Article ratified Ratified with reservation Non ratified
Compliance Partial compliance Non compliance To be determined
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Article 2
Constitutional and legal foundation for local self government - Article ratified

The principle of local self government shall be recognised in domestic legislation, and where practicable in the constitution.

Local Self-Government and decentralisation are intrinsically related to a successful and sustainable implementation of the OFA and, therefore, are part of the fundamental principles of the State in its current form. Municipalities should gradually receive greater responsibility for managing their own affairs as well as the capacity and resources to do so. Overall, the changes required for implementing the OFA have produced positive effects, as confirmed and underlined by all interlocutors. This impression is matched by the wide consensus over the OFA which cuts across political parties, and represents the general attitude within the institutions and among Mayors as confirmed by the interviews.


Constitutional Provisions


Local Self-Government is considered as one of the fundamental constitutional values (Article 8) and is directly regulated in Section V of the Constitution. Articles 114-117 provide, inter alia, for the right of citizens to local self-government, the establishment of municipalities and the possibility to establish forms of neighbourhood self-government within municipalities, autonomy as regards competences, guarantee for “own” financial sources as well as State funding for municipalities, and the definition of the City of Skopje as a separate unit of local self-government to be regulated by a separate law.


Legislative Provisions


The Law no. 5/2002 on Local Self-Government (hereafter LSG Law) is an organic law and the central piece of legislation implementing the above constitutional provisions. According to the LSG Law, municipalities are legal entities which have their own territory and name (and may have a coat of arms), their own regulations among which the statute is the one of highest rank, their own and delegated competences, their own and other sources of financing, their own organs elected by the citizens and inhabitants who are citizens with permanent residence on the territory of the municipality.


The system of local self-government is also regulated by a series of further ordinary laws, among which can be cited three important laws adopted in 2004: the Law on Financing of the Units of Local Self-Government, Law on Territorial Organisation no 55/2004, and the Law on the City of Skopje of 16 August 2004. Further laws include the Law on local elections, the Law on participation of citizens in the decision-making process, the Law on inter-municipality cooperation, the Law on the State Inspectorate for Local-Self Government, and the Law on Balanced Regional Development.


The process of decentralisation, which started on 1 July 2005 after the establishment of the normative and institutional framework, has not yet been completed.


Responsibilities in the areas of urban planning and development, education, water, agricultural land and economic development were to be transferred together with - parts of - the relevant staff to local authorities. In order to achieve these objectives, more than 30 laws have been adopted to provide for the transfer of competences in conformity with Article 22 of the LSG Law, but also for the transfer of funds, facilities and personnel from central to local level. Altogether, more than 80 laws contain provisions related to local self-government.


In the Rapporteurs’ opinion, this splitting into numerous legal bases bears the risk of fragmentation and confusion. While formally extensive powers and responsibilities are attributed to municipalities by the LSG Law, numerous special laws determine important details for their effective use. Among the special regulations there might also be some reservations regarding the conferred powers as well as the parallel transfer of sufficient resources (e.g. education and transport of pupils, see below) – despite the principle of concomitant financing anchored in Article 21 para. 2 of LSG Law.


Not only the LSG Law, but also the Laws on local finances, on territorial organisation and on the City of Skopje as well as laws related to culture, language, education, personal documents and the use of symbols are subject to the double majority requirement (see para. 17).


The guarantees for all communities, such as those regarding language rights and political participation of different communities, provided at municipal (and central) level by the constitutional changes through the OFA, constitute the basis of the current constitutional and legal system.


Decentralisation should further improve the conditions for democratisation, peaceful co-existence of different communities, economic stability and prosperity through development as well as for accession to the EU. Its importance for local democracy lies in its objectives: Enhancing the quality of political decision-making through the inclusion of local authorities and through strengthening their autonomy, and for increasing political participation by reaching out to the citizens. 

Article 3.1
Concept of local self government - Article ratified

Local self-government denotes the right and the ability of local authorities, within the limits of the law, to regulate and manage a substantial share of public affairs under their own responsibility and in the interests of the local population.

Consult reply indicated at article 2

Article 3.2
Concept of local self government - Article ratified

This right shall be exercised by councils or assemblies composed of members freely elected by secret ballot on the basis of direct, equal, universal suffrage, and which may possess executive organs responsible to them. This provision shall in no way affect recourse to assemblies of citizens, referendums or any other form of direct citizen participation where it is permitted by statute.

Consult reply indicated at article 2

Article 4.1
Scope of local self government - Article ratified

The basic powers and responsibilities of local authorities shall be prescribed by the constitution or by statute. However, this provision shall not prevent the attribution to local authorities of powers and responsibilities for specific purposes in accordance with the law.

In practice, local authorities have full discretion to take initiatives within the scope of their competence regarding some competencies among which communal activities, the issuance of construction permits, or questions related to urbanism, local economic development, own finances and finance planning, legal acts.


Shared competences between the local and central government primarily concern the mandates of the inspection bodies. For example, there is a State Construction Inspectorate as well as a local one. The same is true for the Education Inspectorate, the Communal Inspectorate, and the Traffic Inspectorate. In some cases, mandates have been clearly defined by means of bye-laws, but there are also cases of overlapping mandates whereby local authorities must address central government inspectorates for advice. For example, should one municipality plan to open a new school or close an existing one, the municipality needs to obtain advice and opinion from the central government in addition to the decision of the Municipal Council. In order to clearly distinguish the mandates of both instances, a joint working group between ZELS and the Ministry of Education and Science was set up, tasked with the drafting a bye-law.


For the performance of the so-called obligatory (social) competences, the State must provide minimal standards and equal access to the services for all citizens and to withdraw transferred powers in single cases, if these minimum standards are not guaranteed (Article 21 para. 3 of the LSG Law and specific laws, e.g. education and health services).


According to ZELS and other interlocutors and based on the assessment of the EU Commission’s 2011 Progress Report, decentralisation should be encouraged to a greater extent by the central government and vis-à-vis the line ministries which are often still attached to the ideas of central spending and control, and more competences should be transferred to local authorities in social services (housing, and primary health care as delegated competence), public security (e.g. local order and traffic regulation), agricultural land and cultural matters.


The delegation was informed during the visit of coordination problems between the Ministry of the Interior and municipalities, an example of which is the appointment of the (local) Chief of Uniformed Police. Normally, the decision of choice between the candidates proposed by the Ministry remains with the municipal council, but there are cases where due to the politicisation of the decision, the position has remained vacant for years. It seems to the rapporteurs that problems of this nature could be resolved by a different procedure.


The “own” competences of municipalities are listed and specified in Article 22 of the law; they comprise urban and rural planning, protection of the environment, nature and space regulation, local economic development, communal activities, culture, sport and recreation, social welfare and child-protection, education, healthcare, civil protection, fire-fighting, supervision of municipal activities as well as “other activities determined by law”.


Article 23 of the law provides for the delegation of “the execution of certain tasks” by and from “public administration bodies”, linking these delegated competences with the obligation of transferring funds from the central budget. However, so far no delegation according to this article has yet been made.


The allocation of competences is symmetrical for all municipalities: there is no difference in competences and functions among them. The only differentiation concerns the City of Skopje and the ten municipalities within it and is regulated by a special law. For example, the City of Skopje has authority over secondary schools, whereas its ten municipalities have authority over primary education (elementary schools).


The Law provides for a division of local authority competences in line with the principles of the Charter. The Mayor is responsible for the organisation and operation of the administration and also proposes acts for adoption, while the Council adopts decisions to be implemented by the Mayor.

Article 4.2
Scope of local self government - Article ratified

Local authorities shall, within the limits of the law, have full discretion to exercise their initiative with regard to any matter which is not excluded from their competence nor assigned to any other authority.

Consult reply indicated at article 4.1

Article 4.3
Scope of local self government - Article ratified

Public responsibilities shall generally be exercised, in preference, by those authorities which are closest to the citizen. Allocation of responsibility to another authority should weigh up the extent and nature of the task and requirements of efficiency and economy.

Consult reply indicated at article 4.1

Article 4.4
Scope of local self government - Article ratified

Powers given to local authorities shall normally be full and exclusive. They may not be undermined or limited by another, central or regional, authority except as provided for by the law.

Consult reply indicated at article 4.1

Article 4.5
Scope of local self government - Article ratified

Where powers are delegated to them by a central or regional authority, local authorities shall, insofar as possible, be allowed discretion in adapting their exercise to local conditions.


Consult reply indicated at article 4.1

Article 4.6
Scope of local self government - Article ratified

Local authorities shall be consulted, insofar as possible, in due time and in an appropriate way in the planning and decision-making processes for all matters which concern them directly.


Consult reply indicated at article 4.1

Article 5
Protection of local authority boundaries - Article ratified

Changes in local authority boundaries shall not be made without prior consultation of the local communities concerned, possibly by means of a referendum where this is permitted by statute.


According to the LSG Law, a ”municipality shall be established on the territory of one or more populated places where the citizens are connected by common needs and interests, where there are conditions for material and social development and for participation of the citizens in the decision-making process on their local needs and interests” (Article 16). The territory on which a municipality is established should represent a naturally, geographically and economically linked entity, with communication among populated places and gravitation towards the common centre, and it should have infrastructure facilities as well as facilities of social standard built therein (Article 17).


With the territorial re-organisation as part of the implementation of the OFA (Article 116 of the Constitution providing the constitutional base for an organic Law on Territorial Division, which was adopted in 2004), the number of municipalities has been reduced from 124 to 84. The logic behind the new territorial division was to create larger and thus more functional municipalities, but also to have more bilingual ones by reaching the necessary 20% threshold for communities. Although the reform had met fierce criticism, a series of referendums against the new Law did not pass. As further legislation or amendments are subject to the double-majority requirement, smaller communities are protected against unilateral changes of the new territorial design.


These mergers have created problems in some cases. In particular, the co-existence of urban and rural units within the same municipality is often difficult due to the disparity in their situations. The rural parts of the new and bigger municipalities often need to improve their infrastructure, waste management and water supply, but these are not perceived as priorities by the urban municipalities, which already provide these services and functions to the majority of the population in the urban parts (which also constitutes the majority of the voters).


In the Rapporteurs' opinion, these problems could probably be resolved by a systemic approach which takes the differences between urban and rural units fully into account. One way to do so would be to determine mandatory tasks or essential services each municipality has to fulfil before engaging in other fields of its competences. The Rapporteurs have noted that Article 22 para. 3 of the LSG Law which contains a reference to such a possibility, has not been used so far by the legislator.


In addition, special funds for the development of rural areas might be set up in order to provide financial incentives to municipalities for the development of these areas. Although the LSG Law already provides for such an option (Article 12), again this has not been used. It has now been replaced by the Law on Balanced Regional Development (BRD). According to the BRD Law, 70% of funds available under the law shall be devolved to the new Planning Regions, while 20% are to be reserved for poorer Regions and the rest (10%) is to be used for underdeveloped municipalities. The Rapporteurs think that reserving specific funds for the underdeveloped parts of municipalities should be considered within this new framework, permitting to treat urban and rural areas (merged into one municipality) differently, i.e. according to clear criteria with the objective to create cohesive and sustainable units of local self-government.


According to Article 19 of the LSG Law, a special law (i.e. the 2004 Law on territorial organisation) determines the territory, names, seats and borders of the municipalities, the procedure for their establishment and other issues regarding the territorial division.


The principle of prior consultation of the concerned population in case of a change of boundary is not expressly included in the LSG Law 2002 (as opposed to its predecessor from 1995, Article 15). It could however be considered as a binding principle in the (monistic) legal system of “the former Yugoslav Republic of Macedonia”, due to the binding force of Article. 5 of the Charter. This being said, a procedure for consultation of the populations concerned on the modalities of such modification would benefit from being clearly laid out in the law to ensure the smooth running of consultations. The Rapporteurs have noted that, although the adoption of the Law on territorial organization in 2004 has been criticised for insufficient prior consultation before its adoption, the principle is contained in the provisions of Article 2 of the same law: “A new municipality can be established (amalgamated, divided and the boundaries can be changed) after prior consultation with the citizens in the municipality concerned”.

Article 6.1
Appropriate administrative structures and resources for the tasks of local authorities - Article ratified

Without prejudice to more general statutory provisions, local authorities shall be able to determine their own internal administrative structures in order to adapt them to local needs and ensure effective management.

Capacity-building programmes are being implemented to assist municipalities in the areas of property tax administration, human resources and financial control. Financial affairs units were established in three more municipalities; 52 municipalities set up internal audit units and, in 46 municipalities, an internal auditor is operating. More than 1000 municipal civil servants have been trained, and progress was made in implementing annual training programmes.

Article 6.2
Appropriate administrative structures and resources for the tasks of local authorities - Article ratified

The conditions of service of local government employees shall be such as to permit the recruitment of high-quality staff on the basis of merit and competence; to this end adequate training opportunities, remuneration and career prospects shall be provided.

Consult reply indicated at article 6.1

Article 7.1
Conditions under which responsibilities at local level are exercised - Article ratified

The conditions of office of local elected representatives shall provide for free exercise of their functions.

Municipalities perform part of the public services through local public institutions and public enterprises.


Local public institutions perform the competences in the field of education, culture, child protection and protection of elderly people, which have been transferred on the basis of special laws. Funds for the performance of these competences are provided from the central budget.


Public enterprises are established by municipalities for the purpose of performing services in the field of utilities infrastructure (water supply, sewerage waste, transportation, etc). Municipalities can use their own property pursuant to the Law on Local Self-Government and the Public Procurement Law.


Supervision over the operation of municipal authorities and their organs is regulated in Title IX of the LSG Law 2002 (Articles 69-73): In the sphere of “own” competences, supervision is limited to the legality and verification of local authorities’ financial operations in the performance of their functions. It is carried out by the Ministry responsible for the fulfilment of functions related to local self-government and by the State Audit Bureau as regards financial operations. With regard to the performance of delegated competences, supervision also includes an efficiency-control which is carried out by the State administration whose competencies are delegated. Prior supervision is possible in cases determined by law. Municipal organs are obliged to cooperate with the supervisory authorities.


The Law on the State Inspectorate for Local Self-Government (2010) establishes a supervisory authority controlling the legality of all acts adopted by the municipal council or the Mayor. The State Inspectorate for Local Self-government is a body within the Ministry for Local Self-government. Subject to its control is the legality of regulations adopted by the municipalities in order to guarantee conformity of all activities and decisions with the Constitution and with the relevant laws, international agreements and other legal regulations. The surveillance takes regular and unannounced forms and includes checking the removal of contested irregularities (Article 17). Should the Inspectorate determine that there is reasonable suspicion for a violation or a criminal act, i.e. that administrative or other measures have to be taken, it is obliged to initiate offence or criminal procedures, and to immediately notify the competent body for proceeding with the measures in question.


According to the information provided to the delegation, it is not clear whether and how it is possible to remove a Mayor from office or to apply sanctions against a Mayor who does not fulfil his/her obligations. The Rapporteurs believe that, for legal certainty, procedures and conditions under which such measures can be adopted in extreme cases should be determined and regulated in legislation.


However, there are other types of administrative control as well, especially regarding the areas of education, environmental protection, communal activities, urbanism and spatial planning, financial works, auditing, etc. Specific laws regulate the procedures in these special areas, such as urbanism and spatial planning, education, protection of the environment, communal activities, etc.


Administrative acts of municipalities that are adopted in violation of public interest or protection of personal data are annulled. Should a municipality fail to assume its responsibilities, the obligation to act is taken over by a relevant state body. Article 21 para. 3 of the LSG Law authorises the withdrawal of transferred powers in single cases, if established in specific laws. For example, education and health services are under the surveillance of State inspectors and penalties and procedures for withdrawal are established in case minimum standards are not fulfilled. The same applies to specific laws on construction, urban planning and taxation. These are temporary measures, until municipalities are able to fulfil these functions properly.


The Directorate for Personal Data Protection also has separate competences and authorities; it ensures that regulations are respected and verifies alleged violations of citizens’ personal information. The procedures are established and regulated by specific laws. Regarding general administrative law, the Law on Inspection Control might also be applicable to the supervision of local authorities. The employees of local authorities might be subject to supervision by the State Inspectorate for Public Administration as well. The latter performs the supervision of administrative acts in a special procedure.


Financial audit of municipalities and public enterprises at local level is carried out according to the Law on State Audit. The State Audit Office (SAO) carries out different types of audits: compliance audits, performance audits and horizontal audits (e.g. regarding construction land) and thematic audits for a systematic inquiry of weaknesses, e.g. regarding the establishment and collection of municipal taxes. All resulting reports are published on the SAO website and submitted to the Parliament (they are also sent to the Ministries of Local Self-Government and of Finance). The delegation was informed during the visit that the SAO conducted performance audits in 12 municipalities, examining the efficiency of procedures for determining and collecting revenues such as local taxes and fees etc. While international standards incorporated in national legislation serve as a framework, the compliance with procedures is examined as well as the compliance with the indicators set by the municipality concerned itself. In 2012, the SAO will conduct a performance audit of regional development. The audit will encompass the eight planning regions in addition to the Ministry for Local Self-Government and the Bureau for Regional Development.


Having noted the progress made in setting up and developing supervision processes, the Rapporteurs have also taken note of the EU Commission’s assessment, according to which “significant additional efforts are needed at central and local levels in order to strengthen the administrative capacity of certain municipalities, particularly in the areas of financial control, strategic planning, human resources management and economic development. The State Audit Office reported numerous shortcomings by the Ministry of LSG in applying financial control standards and procurement rules, as well as poor follow-up of previous recommendations.” (EU Commission, Progress Report, October 2011).


To sum up, three main problems concerning supervision can be identified: i) Although the State LSG-Inspectorate created within the Ministry of Local Self-Government is the main supervisory authority monitoring the legality of municipalities’ activities, line Ministries remain involved in some kind of monitoring and supervision related to their specific competences (in particular related to transferred competencies, such as currently land-management, transport, education, etc.). These parallel tracks imply a high number of interlocutors for municipalities and might require coordination or concentration in one supervisory authority. ii) A general procedure for reacting to cases of incapacity or serious mismanagement by Mayors does not seem to exist (e.g. temporary removal and substitution by an appointed commissioner). The lack of pre-established procedures and measured might carry the risk of political pressure from central government and/or lead to an early use of the criminal law, not always suited for these cases. iii) Regarding the internal audits, technical qualification and capacity still seems to be a major problem. Strengthening the administrative capacity of municipalities in this field is important also for the transfer to the next stage in the decentralisation process.

Article 7.2
Conditions under which responsibilities at local level are exercised - Article ratified

They shall allow for appropriate financial compensation for expenses incurred in the exercise of the office in question as well as, where appropriate, compensation for loss of earnings or remuneration for work done and corresponding social welfare protection.

Consult reply indicated at article 7.1

Article 7.3
Conditions under which responsibilities at local level are exercised - Article ratified

Any functions and activities which are deemed incompatible with the holding of local elective office shall be determined by statute or fundamental legal principles.

Consult reply indicated at article 7.1

Article 8.1
Administrative supervision of local authorities' activities - Article ratified

Any administrative supervision of local authorities may only be exercised according to such procedures and in such cases as are provided for by the constitution or by statute.

Consult reply indicated at article 7.1

Article 8.2
Administrative supervision of local authorities' activities - Article ratified

Any administrative supervision of the activities of the local authorities shall normally aim only at ensuring compliance with the law and with constitutional principles. Administrative supervision may however be exercised with regard to expediency by higher-level authorities in respect of tasks the execution of which is delegated to local authorities.

Consult reply indicated at article 7.1

Article 8.3
Administrative supervision of local authorities' activities - Article ratified

Administrative supervision of local authorities shall be exercised in such a way as to ensure that the intervention of the controlling authority is kept in proportion to the importance of the interests which it is intended to protect.

Consult reply indicated at article 7.1

Article 9.1
Financial resources of local authorities - Article ratified

Local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers.

Municipal property contains land, facilities, financial resources (money) and rights. With the exception of possible delegated functions (in future), all municipalities have the same expenditure responsibilities; only the City of Skopje has special legal provisions for sharing the competencies with its 10 constituent municipalities.


Legislation determines how municipalities may dispose and manage their assets. The Law on Financing Units of Local Self-Government of 2004 (hereafter the “Finance Law”) has re-opened the process of fiscal decentralisation.


In 2005, in accordance with the above Law, municipalities received the authority to fully administer and collect property tax and the tax on sale of property as well as certain local fees. The level of taxes and fees is determined by a lower and upper limit allowed by laws and the Municipal Councils are responsible for determining the exact percentage of these charges. For example, the Law on property taxes determines that property taxes can range from 0.1 to 0.2% of the estimated value of the property of a citizen. Each Municipal Council can decide what the amount applied in the respective municipality will be. Only one municipality (Gjorče Petrov) has actually determined the maximum amount of 0.2%, while all other municipalities apply the minimum amount.


Local resources and taxes


Municipal sources of revenues and their comparative size are (Article 4 of Finance Law): Local taxes established by law and administered by local bodies are the property tax, the inheritance and donation tax, the real estate transaction tax, and 100% of the personal income tax of individual craftsmen. Local fees which the local authorities determine and are entitled to collect are communal fees and administrative fees. Local charges, in particular construction land arrangement charge, charges for urban and spatial plans and communal services utilisation charges. Property revenues: revenues from property sale or rent and interest rate revenues. Penalty revenues which are determined and collected as sanctions for the violations of municipalities’ regulations. Donations (currently foreign donations are relevant). Loans (upon authorization by the central government). Subsidies from various funds, e.g. fund for economically underdeveloped areas, fund for communal activities and roads, fund for water pipes and sewages. Grants: purpose grants, non-purpose grants, block grants for expenditure, grants for capital investments, grants for delegated competencies.


Shared revenues, in particular share in national taxes


Shared revenues are coming from the personal income tax and the Value Added Tax (VAT): municipalities receive a share of 3% from both. By 2013, the VAT share is to be increased to 4.5% (in practice, by the end of 2011, the quota had already reached 3.7%).


VAT grants are general grants which are not subject to any conditions and which can be fully used in line with the needs of a municipality. Their distribution is in line with the criteria determined in the Decree on Methodology for Distribution of VAT Revenues by Municipality. Total VAT revenues, collected in the previous fiscal year, are to be distributed both by a fixed amount (3,000,000 Denars, approximately 48,580 Euros) to all municipalities (including Skopje and its municipalities), and as a variable portion (12% goes to Skopje and its municipalities and 88% to all the others). The latter portion is distributed according to the following criteria: 65% according to the number of inhabitants, 27% according to the area of the municipality and 8% according to the number of settlements.


The average share of tax revenues in the local authority budgets has been around 30%. In 2007, they participated with 37.8%; in 2008, they accounted for 21.2% of the total and, in 2010, they amounted to 24.6%, as a result of the increase of transfers from the central budget in the form of block grants to the municipalities which had moved to the second stage of fiscal decentralisation.


Provisions in special laws have further increased the revenue of municipalities, in particular by sharing the income from concessions for exploitation of mineral resources (22% State – 78% municipalities) and for the sale of construction land (20% State – 80% municipalities) which is transferred from the Ministry for Transportation and Communication to those municipalities which fulfil certain administrative criteria. Currently 14 municipalities are entitled to manage land.




Grants from the State budget and the budgets of various funds provide additional revenues. Capital grants are used to finance investment projects on the basis of a program determined by the Government and their use are monitored by line Ministries and the Agency for State Roads. Earmarked grants are used for financing specific activities of municipalities that are in the first stage of fiscal decentralisation for education, culture, social policy and child protection as well as fire-fighting. Line Ministries propose and monitor the distribution of earmarked grants by municipality, project, institution and/or program.


Municipalities argue that this financial instrument should be transferred to them so that they themselves can decide which investments will be financed (instead of a decision by central authorities). In fact, cases have been reported where central government decided to build a school in a municipality without prior consultation, although the municipality had other priorities.


In the second stage of the fiscal decentralisation process, municipalities finance the transferred competences with block grants which include expenditure related to salaries and costs pertaining to maintenance of buildings, goods and services. Line Ministries propose the methodology for determining the criteria for the distribution of block grants. Each year the central government adopts a Decree on Methodology and Criteria for Distribution of Block Grants, the total amount of which may not be less than the amount of funds from the central budget used for the same purpose in the year before the transfer of a certain competence.


Fiscal decentralisation


Fiscal decentralisation is an important part of the whole decentralisation process as budget and fund transfers to municipalities must accompany the transfer of (new) competences.


The Finance Law provides for the implementation of fiscal decentralisation in two phases (starting on 1 July 2005). In the first phase the fulfilment of two conditions is required (Article 46) according to which, municipal administrations should have at least two employees qualified to work on financial management, budget preparation, budget execution, accounting and financial reporting, and three employees qualified to work on determination and collection of taxes.


In order to access the second phase (which was supposed to start in July 2007, but had been postponed to January 2008), municipalities have to meet the following criteria: a) fulfilment of the two conditions of the first phase; b) good financial results in the previous 24 months; c) adequate staff capacity for financial management; d) timely and regular notification to the Ministry of Finance regarding good results and verification by the same Ministry; e) no outstanding liabilities vis-à-vis suppliers or other creditors that overcome the usual payment condition.


For monitoring and assessing compliance with these conditions, a Commission has been established in January 2007 which meets four or five times a year. It consists of a President, nine members and a secretary. Among the members there are the President and Vice-President of ZELS, Mayors, representatives of line Ministries, academics and international experts. There is also an inter-ministerial working group meeting regularly, every two months.


According to the information provided to delegation during the visit, by the end of 2011, 79 out of 85 municipalities had entered the second phase of decentralisation, and only six (all from the Western part of the country) remained in the first phase. However, four of these six municipalities have sizeable debts, and two of them lack financial management capacity. Additional efforts are needed in order to prepare them for moving to the second phase.


Municipal debts, borrowing and financial equalisation


Before the adoption of the Finance Law, there was no instrument envisaged for the purposes of equalising the financial situation of local governments set in the legislation on local self-government. However, there were transfers and funds. Although not originally designed for this purpose, in practice they were used for equalisation purposes. Under the new law, the only defined equalisation instrument is the revenue that will be transferred from the yield of the value added tax. Although not explicitly mentioned, block grants are also considered as instruments the government can use to equalise the financial situation of local authorities. In the City of Skopje and its municipalities, a joint fund has been established for the purposes of equalisation (in accordance with a specific methodology for distribution of the funds).


In order to overcome the liquidity problems of the municipalities, a new instrument has been introduced in the form of short- and long-term loans (up to ten years) from the central budget. The Government has approved 23 such loans, 13 out of which are short-term and 10 are long-term (with a repayment period of up to five years). By approving long-term loans, a positive effect has been achieved, overcoming liquidity problems.


Pursuant to the Law on Local Government, municipalities cannot go bankrupt, but the Finance Law has provisions for declaring a state of financial distress. In the latter case, the Mayor adopts a decision to declare financial distress and informs the Municipal Council, the Ministry of Finance, the Ministry of Local Government and ZELS thereof within three days. A Coordinating Body consisting of five members monitors the coordination of the process to overcome financial distress. The Mayor then submits a draft plan of measures, which are implemented through the supplementary budget or the budget of the municipality for the respective fiscal year. The Mayor decides when to declare the situation of distress over.


In order to take loans, municipalities must consult with the Ministry of Finance, which controls the level of borrowings and loans, as well as deficits of local budgets. The criticism made of the restrictions created by a case-by-case authorisation system which goes contrary to the Charter’s Article 9 para. 8 has been met with the adoption of new Law on Public Debt and the Law on Local Financing. In June 2011, the Ministry of Finance adopted two Rulebooks (published in the Official Gazette, no. 83/2011) on the form and content of borrowing by the public institutions and public enterprises owned by public institutions, respectively.


The Parliament is also involved in this situation because indebted municipalities are considered to be part of the general public debt and therefore, all municipal borrowing has to be approved by the Parliament. The latest example is of a loan from the European Bank for Reconstruction and Development (EBRD) to the City of Skopje approved by the Parliament. In cases where municipalities are charged by commercial banks, only the opinion from the Ministry of Finance is required, i.e. the Parliament does not get involved.


Municipalities borrow on a long-term basis for financing capital projects and investments, for re-financing debts incurred to finance capital projects and investments, for liabilities incurred under “sovereign guarantees” or on the basis of loans from the central budget and protection and elimination of consequences caused by natural disasters or environmental disasters. Borrowing is limited: annual instalments must not be higher than one third of the budget of the previous year.


Municipalities have access to the capital market in order to realise capital projects for the improvement of infrastructure and utility services. They can also issue municipal bonds to be used for planned development projects. A “Guide for Issuance of Municipal Bonds” has been prepared for the purpose of informing the municipalities as regards the manner, procedure and the advantages of issuance of municipal bonds.


Evaluation of the financial situation


Although local self-government spending results in 17.2% of the total budget, municipal revenue does not seem sufficient for addressing the assigned tasks efficiently. Most municipalities, therefore, are still struggling to harvest their own income and the State still finances most of them.


This is illustrated by the example of the city of Zhelino: 25 Euros per capita (compared to 100 Euros in the City of Skopje) are simply not enough for fulfilling the municipality’s competences. The municipal administration does not employ an architect for urbanism, an internal inspector (or auditing unit), or an environmental inspector. Maintaining infrastructure for services is problematic: there are still private homes and settlements without electricity; only 2 out of 18 settlements have water-pipelines and the school building which was destroyed by a fire will only be replaced next year when the replacement is included in the budget of the Ministry of Education.


Among the main causes of the insufficiency of financial resources figure the – still – centralised management of State-owned land, the inadequately monitored or insufficiently implemented property tax collection and tax-payer databases which are not updated. The administrative capacity of some municipalities, in particular the smaller ones, remains low in the areas of financial management, tax administration and financial control. Transparency and accountability of local government administrations is still inadequate.


The Rapporteurs have noted that, in order to improve the situation of small and rural municipalities, the application of the new formula for a “guaranteed minimum-income” appears to be a promising step in the right direction: a minimum of 3 million Denars is guaranteed for each municipality. Further resources are added according to the VAT and income-tax quotas (criteria: 50% per capita, size of the area and the number of settlements). With this new method of calculation and allocation, no municipality should have an income of less than 4 million Denars.


ZELS position paper for 2011 requests an increasing share in VAT for municipalities from the current 3% to 6% (against the 4,5% actually envisaged as objective for 2013) as well as an increase in the amount of personal income tax-share from the current 3% to 15%.


Despite the achievement of some important results in the decentralisation process, several problems remain, such as the great disparities among the municipalities and in their capacity to perform specific functions. As a consequence of their budgetary problems it is difficult for local authorities to participate in EU funded projects which necessitate co-financing of resources. Consequently, rural municipalities in particular are dependent on grants, since they cannot rely on taxes from buildings or resources from land. Although criteria for grants for capital investment (infrastructure) are well-defined by international donors (IMF, World Bank), this does not always seem to be so in the case of State grants.


In the opinion of the Rapporteurs, more central coordination, support and supervision is necessary in the area of transferred competences. This is illustrated by the frequently mentioned example of education-related competences: once secondary education became mandatory, the problem of covering the additional costs for pupils’ transport has emerged everywhere, but the Ministry of Finance seems to ignore it, referring to block grants for these functions, which are not earmarked. The Ministry’s message seems to be: “Just organize procurement better and save!”.


The Rapporteurs are of the opinion that local authorities should be duly consulted in respect of Government investments in their localities whilst the grants afforded to them should not impinge on the fiscal autonomy as provided under the Charter.


The Rapporteurs also note that the planning of expenses regarding education seems to be inadequate and prone to coordination problems. While the Ministry of Finance transfers earmarked funds to municipalities for maintenance and heating expenses of school buildings, the salaries of employees and transportation of pupils and priorities of capital investment for schools are defined in the annual program prepared by the Ministry of Education which transfers funds directly to the schools, depriving municipalities of the financial means to invest in the schools.


To overcome these problems, ZELS has suggested the establishment of criteria for the allocation of funds for capital investments in schools as well as its own involvement in the planning process of the central authorities regarding these funds.

Article 9.2
Financial resources of local authorities - Article ratified

Local authorities' financial resources shall be commensurate with the responsibilities provided for by the constitution and the law.

Consult reply indicated at article 9.1

Article 9.3
Financial resources of local authorities - Article ratified

Part at least of the financial resources of local authorities shall derive from local taxes and charges of which, within the limits of statute, they have the power to determine the rate.

Consult reply indicated at article 9.1

Article 9.4
Financial resources of local authorities - Article ratified

The financial systems on which resources available to local authorities are based shall be of a sufficiently diversified and buoyant nature to enable them to keep pace as far as practically possible with the real evolution of the cost of carrying out their tasks.

Consult reply indicated at article 9.1

Article 9.5
Financial resources of local authorities - Article ratified

The protection of financially weaker local authorities calls for the institution of financial equalisation procedures or equivalent measures which are designed to correct the effects of the unequal distribution of potential sources of finance and of the financial burden they must support. Such procedures or measures shall not diminish the discretion local authorities may exercise within their own sphere of responsibility.

Consult reply indicated at article 9.1

Article 9.6
Financial resources of local authorities - Article ratified

Local authorities shall be consulted, in an appropriate manner, on the way in which redistributed resources are to be allocated to them.

Consult reply indicated at article 9.1

Article 9.7
Financial resources of local authorities - Article ratified

As far as possible, grants to local authorities shall not be earmarked for the financing of specific projects. The provision of grants shall not remove the basic freedom of local authorities to exercise policy discretion within their own jurisdiction.

Consult reply indicated at article 9.1

Article 9.8
Financial resources of local authorities - Article ratified

For the purpose of borrowing for capital investment, local authorities shall have access to the national capital market within the limits of the law.

Consult reply indicated at article 9.1

Article 10.1
Local authorities' right to associate - Article ratified

Local authorities shall be entitled, in exercising their powers, to co-operate and, within the framework of the law, to form consortia with other local authorities in order to carry out tasks of common interest.

The LSG Law 2002 promotes various voluntary forms of cooperation between municipalities. The instruments therefore are regulated in detail in the Law on inter-municipal cooperation (2009) and include (Article 9 of the law): forming joint working or administrative bodies; establishing of mutual public services; and concluding agreements on joining of funds and performance of certain work by one municipality on the behalf of another or more municipalities.


In practice, inter-municipal cooperation seems to be widely used. According to the delegation’s various interlocutors, 80% of the municipalities engage in such cooperation agreements, which are also necessary for entering the second stage of the fiscal decentralisation process.


There are numerous examples of cooperation between municipalities in order to make savings in financial and human resources, among which can be cited the cooperation between three small municipalities near Strumica: Vasilevo, Bosilovo and Novo Selo.


All 84 municipalities of “the former Yugoslav Republic of Macedonia” and the City of Skopje are members of ZELS, the internal organisation of which comprises an assembly (85 Mayors gathering once or twice a year), a managing board (19 Mayors from different political parties comprising opposition at national level; decision-making by consensus), one President and two Vice-Presidents (one of which, by statute, has to be a member of an opposition party; one is Albanian), 13 committees (Mayors) and networks (municipal administrative staff).


ZELS carries out training activities for elected officials as well as for civil servants and administrative staff through its own Training Centre for about 1 500 persons per year. Currently, the main topic for training is management of (construction) land in order to prepare municipal staff for the required certification in that area. ZELS has also provided translation-equipment for 32 municipalities for meetings as well as training (including the publication of a handbook) for the Committees of Inter-ethnic Relations. In the field of “e-government/e-municipality”, ZELS is developing an ICT-strategy and provides web-design services and software on its server. Problem-communication by citizens, energy efficiency software and construction land are the main areas covered. By 2012, software for the electronic issuance of building permits, the register for underground cadastre and for electronic payments to the municipality by citizens will follow.


Agreements on transfrontier cooperation as well as membership in international organisations of local government is regulated by several laws, including the law on the ratification of the Charter which contains, in its article 10, the principles laid down by the Charter regarding intermunicipal and transfrontier cooperation and the law on local self-government which provides for cooperation with local authorities of other countries and international organisations of local communities and local authorities (Article 14 para. 4). Hence the collaboration with NALAS, the Network of Associations of Local Authorities in South-Eastern Europe, of which ZELS is a founding member.


Since 2010, ZELS (together with the City of Skopje) has an EU office in Brussels. ZELS is also one of the founding members of NALAS, the Network of Associations of Local Authorities in South Eastern Europe, and actively participates in its activities; it acted for one year as NALAS Secretariat in 2007.

Article 10.2
Local authorities' right to associate - Article ratified

The entitlement of local authorities to belong to an association for the protection and promotion of their common interests and to belong to an international association of local authorities shall be recognised in each State.

Consult reply indicated at article 10.1

Article 10.3
Local authorities' right to associate - Article ratified

Local authorities shall be entitled, under such conditions as may be provided for by the law, to co-operate with their counterparts in other States.

Voir réponse indiquée à l'article 10.1

Article 11
Legal protection of local selfgovernment - Article ratified

Local authorities shall have the right of recourse to a judicial remedy in order to secure free exercise of their powers and respect for such principles of local self-government as are enshrined in the constitution or domestic legislation.

The LSG Law (2002) distinguishes between the protection of the constitutional position of municipalities and the “ordinary” judicial protection.


The constitutional position of municipalities can be protected through the submission of an initiative, by the municipal council or the mayor, before the Constitutional Court in order to assess the constitutionality of a law, or the constitutionality and legality of general acts of the Ministries and other organs of the State administration which might infringe upon the constitutional position or constitutionally guaranteed rights of municipalities (Article 87). In practice, there have not been any constitutional complaints for alleged violations of LSG rights (Article 110); conflicts of competence between the State and local authorities have not given rise to controversies.


The notion of “general legal acts”, which are examined by the Constitutional Court on procedural conformity with the Constitution, includes acts adopted by municipal councils. Based on Article 87 of the Constitution, mayors have frequently challenged acts adopted by municipal councils granting additional benefits or fees, mostly with success.


Individuals can also submit an initiative for constitutional review before the Constitutional Court (actio popularis). This has occurred in only few occasions. The Constitutional Court only controls the formal and legitimacy of procedures, while details and discrimination in single cases is left to the administrative courts. One such complaint regarding procedural consultation rights has led to the annulment of the “Skopje 2014” urban planning procedure by the Constitutional Court and the procedure had to be repeated.


Against acts and activities of the organs of the State administration and the Government, which impede the performance of municipal competences determined by the Constitution and law, municipalities are guaranteed judicial protection before competent Courts (Article 88).


The Law on Administrative Disputes was amended in order to establish a High Administrative Court with jurisdiction to decide on appeals against decisions of the Administrative Court, which itself hears appeals against decisions of misdemeanour commissions in the administrative bodies, government second instance commissions and the acts of local authorities. The court became operational in July 2011.


As mentioned before, international treaties are taken into consideration as integral parts of the legal system. Thus, direct reference to the Charter has been made in two cases before the Constitutional Court regarding budget issues quoting large parts of the Charter.


There is no special commission or procedure for disputes between municipalities. There has been one exception which arose due to different interpretations of the provisions of a law and it was overcome by forming a joint committee of the affected municipalities and the proposed amendment helped in overcoming the reasons of their disagreement.


to the Council of Europe


of the European Charter of Local Self-Government


Local Self-Government is considered as one of the fundamental constitutional values (Article 8) and is directly regulated in Section V of the Constitution.

30Ratified provision(s)
0Provision(s) with reservation(s)
0 Unratified Provision(s)
4Compliant Provision(s)
0Partially Compliant Provision(s)
1Non-compliant Article