When it comes down to it, reform without financing is reform without empowerment. Sustainability of the reform should be front and centre of all planning processes and this includes changes in the fiscal landscape.
At the end of last year, I was in Tashkent at the first regional Forum “Local Self-Government in Central Asia”, representing SALAR International to talk more about fiscal reform and local financing including challenges and opportunities from territorial reform processes in Armenia, Sweden and Albania. An outcome for the Forum was to explore setting up a sustainable platform to address common subnational development issues in Central Asia, including local self-governance and community development, creating a favourable investment climate, environmental protection, promotion of women’s and youth participation, intra-regional and cross-border partnerships.
Interest for EU candidate countries’ experiences was high on the agenda in Tashkent, with the region looking to the EU accession process as an inspiration for its own future. More specifically, although not a candidate country, Armenia was highlighted as a relevant example due to its geopolitical position close to Central Asia. Within SALAR International’s project in the country focusing on support to the decentralisation reform, a fiscal gap analysis was conducted showing clearly that a) a well planned fiscal decentralisation can result in a better balance in national development and b) mitigate regional inequalities through addressing an overly narrow tax base and growing fiscal disparities. Local governments are also better positioned to identify and respond to local needs and avoid overlapping functional assignments and there is clearer responsibility for sustainable outcomes and in turn, avoiding what can be termed as ‘unfunded mandate traps’. In sum, amalgamation is the best way forward with the establishment of more functional units with greater capacity, but there needs to be clarity early in the process for the post-amalgamation phase and the financing needs to follow suit.
In Moldova, the amalgamation reform incentivises voluntary local mergers through a package of financial and structural support. The government will provide a total incentive budget of 6.49 billion MDL for 2026–2030, plus an €8.8 million broader reform budget to streamline governance and improve public service access. The key financing factor underpinning the reform is also based on EU pre-accession funds kicking in by 2028, and giving an added incentive to assist local public authorities in ensuring that newly amalgamated clusters can hit the ground running after the local elections in 2027.
Yet, there are challenges and lessons learned amalgamation reforms from other countries. Albania’s fiscal decentralisation focuses on giving local governments more authority over their finances through a mix of revenue sources and intergovernmental transfers, but faces challenges due to fiscal gaps, administrative capacity, and a historically centralised system. Key points include local governments having some power over local taxes like property and user fees, receiving central government transfers (both conditional and unconditional), and a 2015 administrative reform aiming to create more functional units. Despite these efforts, financial disparities between local governments remain. Moldova is more decentralised compared to Albania in terms of assigned local government competencies, particularly in the funding and management of social sectors and this bodes well for the implementation of the amalgamation reform, despite the more complex political risks involved. Despite the reform in Albania, many local governments still struggle with sufficient capacity to provide services adequately, especially in managing financial resources and providing services.
In Sweden in the 1970s, while highly successful at centralising welfare services, the amalgamation reform caused serious challenges regarding democratic representation and regional geographic disparities. The larger municipal tax bases enabled a more equal distribution of wealth and resources, ensuring that citizens received similar standards of care regardless of their region’s economic outputs. The reform also realised long-term economies of scale in general administrative expenditures, centralizing operations that were previously fragmented and inefficient. On the other hand though, by forcing hundreds of smaller municipalities into larger entities, the state heavily prioritised administrative efficiency over civic engagement. And that is the key difference with Moldova, where amalgamation is voluntary until it becomes normative ahead of the general local elections in 2027. The government is giving time to local public authorities to get it right, before it enforces its decision. It has also had time to look and learn at other countries’ reform trajectories while crafting its own.
From a Swedish perspective, it could be argued that amalgamation would need to be much more drastic to achieve a more reasonable structure. There is a strong case to be made that voluntary amalgamation without clear norms, criteria and maps of units that could and should be amalgamated, will lead to suboptimal results with certain cherry-picking among neighbours and the potential of some local public authorities being left behind. In any case, the mandatory amalgamation will also need to rearrange (some or several?) voluntarily amalgamated units to make sure that all come on board in meaningful clusters or constellations. Then again, this is perhaps as much as can be done for now, considering the high number of units (892 in total) and the need for change from the current status quo.
In the context of the local public administration reform and the pathway to EU accession, all eyes are now on Moldova. It’s happening fast, but as the saying goes, there’s no time like the present!
