Cities are the heartbeat of local communities, shaping daily life even as broader political dynamics often overshadow them. Throughout history, regardless of governance models—from monarchies to republics—cities have remained vital centers of human interaction and development. Unlike larger political frameworks, cities prioritize residents' needs over ideological considerations. By 2050, nearly 70% of the global population is expected to live in urban areas, reinforcing cities’ role as hubs of development and power.

Cities serve as laboratories for innovation, offering spaces where social challenges can be tested and addressed through collaboration, grassroots engagement, and policy experimentation. Recognizing this, the recent regional conference, Synergy among Local Governments in Regional Cooperation, hosted by the Western Balkan Fund in Albania with support from the Japanese Embassy, RESPA, NALAS, and the Visegrad Fund, convened city leaders from the Western Balkans and the Visegrad region. Discussions centered on cities’ role in fostering regional cooperation, crisis management, and resilience-building.

For over two decades, Helvetas, through Swiss Development Cooperation (SDC) and, more recently, the Swedish International Development Agency (SIDA), has championed urban and suburban development in the Western Balkans. Through three generations of local development projects, Helvetas has introduced innovative governance practices. Yet, despite their historical role as buffers against crises, are cities truly prepared for an increasingly uncertain future?

Decentralization has empowered cities in the Western Balkans, but financial disparities persist. Local governments in the region receive significantly less revenue per capita (EUR 274) than their counterparts in neighboring EU member states (EUR 874), despite providing comparable or greater services. These disparities are particularly evident in local capital investments, which are critical for economic development. Research from the World Bank, European Commission, and national fiscal authorities highlights that Western Balkan countries allocate only 5-6% of GDP to local governments—far below the 40-50% in the EU. Similarly, while local governments in the EU manage 55% of public expenditure, in the Western Balkans, this figure stands at just 15-16%.

The NALAS Observatory confirms that fiscal autonomy remains a major challenge, with local governments chronically underfunded and lacking a fair share of national fiscal resources. Strengthening local financial resilience is imperative for long-term sustainability. However, cities in the Western Balkans underutilize innovative financial instruments. Traditional borrowing remains low, exceeding 2-4% of GDP only in the Republic of Srpska (of BiH) and Montenegro, while remaining negligible in Albania, North Macedonia, Serbia, and the Federation of Bosnia and Herzegovina. Green bonds, a promising tool for sustainable development, have seen limited adoption in Serbia, BiH, and North Macedonia. The COVID-19 pandemic further exacerbated financial instability, with local government debt rising by 84% in the Western Balkans compared to a 36% increase in Southeast Europe.

Fiscal governance, including responsibility frameworks and infrastructure investment, is central to the EU accession agenda. Helvetas, supported by SDC, the EU, SIDA, and national governments, has introduced performance-based grants to municipalities, incentivizing improved service delivery, financial management, and community engagement. These grants promote data-driven decision-making, particularly in sectors like waste management in Albania, governance reforms in Albania and Kosovo, and property tax incentives in Serbia. Such efforts align with the broader Growth Plan for the region, advancing economic development and EU integration through enhanced governance and public services.

To overcome financial constraints, municipalities must explore innovative funding mechanisms. In Durres, temporary taxes have successfully financed public education infrastructure, generating 80,036,600 ALL (EUR 806,520) for capital investments. Diaspora Investment Platforms have facilitated joint infrastructure projects, such as road development in Dajç, leveraging remittances for public benefit. Crowdfunding initiatives have supported social entrepreneurship and cultural heritage projects across Albania. Meanwhile, Environmental and Social Impact Bonds (SIBs) are emerging, particularly in waste management, where private-sector payments are linked to recycling targets. Cross-border cooperation further strengthens financial mechanisms by fostering partnerships among local governments, civil society, and the private sector, particularly in tourism and environmental sustainability.

Improved fiscal enforcement has also yielded tangible results. Municipalities such as Elbasan and Fier have enhanced tax collection through taxpayer engagement campaigns and enforcement actions, including asset restrictions and bank account freezes. These measures, now scaled to 18 Albanian municipalities, increased the cleaning fee collection rate from 76% to 87% between 2021 and 2023, significantly improving waste management services. Helvetas continues to drive innovation in local financing, piloting and implementing advanced practices to enhance sustainability and resilience.

Regional cooperation offers municipalities a pathway to stronger development. By pooling resources, designing cross-border solutions, and leveraging complementary strengths, cities can address complex challenges such as migration and climate change—shifting from crisis management to sustainable growth. Strengthening collaboration across governance levels, particularly at the regional level, builds resilient communities capable of navigating economic and security challenges.

Regional cooperation platforms are beginning to recognize the pivotal role of cities, and cities, in turn, are leveraging international instruments to elevate their global profile through city diplomacy. Supporting cities is essential to empowering local communities and ensuring democratic governance.

*Dr. Valbona Karakaçi is Helvetas Regional Advisor