The primary fiscal challenge that municipalities in Montenegro have faced for years is an inadequate legal framework across a number of different areas that directly affects local budgets, as well as the insufficient influence of municipalities on the content of legislative solutions, emphasised the Secretary General of the Union of Municipalities of Montenegro Mišela Manojlović at the panel “Innovative Financing Strategies for Sustainable Growth of Western Balkan Cities”, held as part of the conference “Synergy between Local Governments in Regional Cooperation”, organised in Tirana by the Western Balkans Fund (WBF) and the Embassy of Japan in Albania.
Regulations governing local public revenues create opportunities for certain lawyers to abuse procedural rights in order to claim procedural costs, resulting in outflows of millions of euros from local budgets.
“We have reached an agreement with the Ministry of Finance on the direction of these amendments, as well as on regulating the rescheduling of municipalities’ tax debt. Amendments to tax regulations will result in significantly higher inflows from local public revenues in all municipalities, put an end to abuses in taxation procedures, and redirect funds to local communities instead of lawyers. This is a significant step forward, but also an example of effective cooperation with the central authorities that we are striving to establish with other ministries as well,” Manojlović emphasized.
Manojlović also recalled that, back in 2017, municipalities were stripped of their authority over spatial planning, while the state did not, in practice, have the capacity to respond to their requests for the adoption of local plans. As a result, numerous development investments were hindered, which had a negative impact on local budgets in several ways. Throughout this period, the Union of Municipalities has advocated for the restoration of this authority to municipalities, which finally took place this year with the full understanding and support of the competent ministry of the 44th Government. We therefore expect more dynamic development of all municipalities in the coming period.
In addition, the long-standing central policy of directing development towards the Capital City and the Montenegrin coast has led to the stagnation of development in the north and significant depopulation of these areas, which has not only created a problem
of revenue for northern municipalities, but also a shortage of qualified professional staff.
“Innovative models of municipal financing are certainly welcome. I would particularly highlight the Fund for the Pre-financing of Municipal Donor-Funded Projects, intended for municipalities that have signed grant agreements but lack the funds needed for the initial phase of project implementation until reimbursement by the donor, which can take up to a year. The necessary funds are provided through the Pre-financing Fund, which operates on a revolving basis. This means that, once reimbursed, a municipality returns the money to the Fund, after which it is made available to other municipalities for the same purpose. The Fund was established back in 2019 through the efforts of the Union of Municipalities and represents an example of good practice in the region. To date, municipalities have drawn approximately EUR 4 million from the Fund and repaid EUR 2 million. The Fund has enabled the implementation of numerous projects that would not have been possible without this instrument,” explained the Secretary General of the Union of Municipalities of Montenegro.
She also pointed out that the Union of Municipalities is working to establish a Fund for Financing Project Documentation, which is one of the prerequisites for accessing donor funding for infrastructure projects. “Project documentation is costly, and most municipalities cannot afford it. This Fund would therefore increase municipalities’ absorption capacities and accelerate their development,” Manojlović emphasized.
Local authorities can balance fiscal constraints with the need to invest in essential infrastructure and public services in several ways, Manojlović says. The Equalisation Fund is a common mechanism, but much can also be improved through higher-quality legislation that recognises and strongly protects the public interest. The Union of Municipalities contributes to this by drafting initiatives and amendments and through advocacy efforts.
Other important mechanisms include a regional development policy aimed at directing capital investments towards development projects that create employment and improve living conditions in local communities, strengthening human resources across all professional fields, particularly capacities for accessing EU and other funds, and the timely preparation of projects, all of which ultimately generate higher revenues.
She stated that the Union of Municipalities supports the development-oriented approach of municipalities by proposing local policies that can accelerate development by relying on their own resources and capacities. One example is a sustainable local development policy focused on harnessing the natural and environmental advantages of rural areas in the context of health tourism, organic agricultural production, environmental protection and healthy lifestyles. This has the potential to extend the tourist season into a year-round tourism offer and to brand Montenegrin municipalities as BIO-ECO destinations. This represents an opportunity to generate significantly higher revenues for local budgets, thereby enabling greater investment and better services for citizens. The Union will finance the preparation of a feasibility study to analyse the best ways of achieving this objective.
Manojlović pointed out that the Union finances the preparation and review of project documentation for less developed municipalities, thereby strengthening their capacity to apply for donor funding.
“We particularly encourage municipalities to provide certain services jointly and to share the costs of financing them. We have succeeded in having this approach incorporated as a solution into several laws, which we are particularly pleased with, as it helps overcome problems arising from a lack of in-house staff or other resources. As for knowledge-sharing mechanisms, one form of our support is networking local professionals from all municipalities who perform the same tasks. This contributes to greater legal certainty, harmonises legal practice and reduces costs,” Manojlović emphasised.
Another form of support is the Network of External Experts for the Preparation of Applications for EU and Other Funds, which the Union established at the end of 2024 and made available to municipalities. “We also provide mentoring to local officials in the preparation of EU-funded projects, at the Union’s expense. A particularly important role is played by our Training Centre, which each year provides training to a significant number of municipal officials on this and other topics of importance to municipalities,” emphasised the Secretary General of the Union of Municipalities of Montenegro.
