Ten years after the implementation of the Administrative-Territorial Reform, which reduced the number of local government units from 373 municipalities and communes to 61 municipalities, local government continues to face significant financial, administrative and institutional challenges.

At a time when the debate has begun on a possible reorganization of the territory and the merger of several municipalities, the Institute for Municipalities has published the report “Local Governance in Albania 2025 – Municipalities between decentralization and local centralization”.

The report analyzes the reform's progress during its first decade and highlights a strong contradiction: while more functions and responsibilities have been transferred to municipalities, their financial and administrative autonomy remains limited.

The 2015 reform aimed to reduce territorial fragmentation, increase administrative efficiency, improve public services and strengthen decentralization. However, according to the analysis of the Institute for Municipalities, the results achieved are uneven, and the capacities of municipalities differ significantly from each other.

In financial terms, municipalities have recorded an increase in their own revenues. According to the data cited in the report, the own revenues of municipalities increased from Lek 11.7 billion in 2015 to Lek 29.4 billion in 2021, or about 2.5 times more.

The total financial resources of local government have also continued to grow. In 2025, they reached about Lek 92 billion, while revenues from local taxes and fees reached about Lek 45.1 billion, or approximately half of the total.

However, the increase in financial resources does not automatically mean an increase in fiscal autonomy. A significant proportion of municipalities, especially small and rural ones, continue to depend on central government transfers.

Another important indicator is the level of per capita spending. For 2025, the local budget in Albania is estimated at around Euro 400 per inhabitant, while in European Union countries, local government spending in 2024 was on average around Euro 4,437 per inhabitant. The difference shows the limitation of the financial capacity of Albanian local government in relation to European standards.

According to the Institute for Municipalities, this difference is reflected in the capacity to finance public investments, the quality of services, and the administrative capacity of municipalities to fulfill their responsibilities.

The Institute recommends a gradual increase in the unconditional transfer from around 1% of GDP to at least 2% of GDP, as well as improving fiscal equalization mechanisms between municipalities.

One of the most important sources of municipal revenue is the real estate tax. However, according to the report, revenues from this tax remain low by regional and European standards. Currently, they represent about 0.3% of GDP, while the average for countries in the region is estimated at 0.8%, and in OECD countries it is about 1.1%.

The report also links this situation to shortcomings in the administration of information on real estate. For this reason, it is recommended to improve the fiscal cadastre, update data, and more effective exchange of information between municipalities and responsible institutions.