16^th Plenary Session of the Congress – Strasbourg (France)

Debate on the international financial crisis: consequences for European territorial authorities

4 March 2009

Speech by Vladimir Moskov,. NALAS Vice-President

I am honoured to take part in this important debate about the impact of financial crisis and give you the perspective of local authorities from South East Europe, as I was invited here as the Vice-President of NALAS, but I will illustrate more precisely the situation in Bulgaria which is comparable with some other NALAS countries. I will also present some of the conclusions and recommendations which were developed by NALAS and NAMRB in the past couple of months which were addressed to the LGs in the region.

At the NALAS meeting in Tirana last November 2008, Mayors from SEE discussed the global financial crisis and its’ possible consequences for the local governments in our region. Back then, we initially assessed that the spill-over effects of the global crisis were not yet strongly felt by most of the local governments in SEE. While it was evident that the countries with more developed economies were already in recession, we made the prediction that other relatively weaker economies might as well be dragged in through reduced foreign direct investments, liquidation of local assets, weaker net exports, lower remittances, exchange rates, decline of property value, etc.

Indeed, negative effects of the global crisis on the Bulgarian municipalities, for instance, began to appear in the final months of 2008. NAMRB analysis expects impacts on municipal finances in Bulgaria in 2009 in the form of significant reduction of own revenues of municipalities, mainly due to stagnation of the property market and in particular of local tax revenue; but we also expect reduction of income from municipal taxes due to reduced demand; incapability of individuals to pay their municipal taxes and fees in due time; increased demand for social assistance programs due to the growing unemployment; and so on.

Most of Governments in SEE consider that their banking and monetary systems are relatively stable, but they are very well aware that their rate of the economic growth will decline and about the urge to take preventive measures.  NALAS recommends that in these circumstances the central governments should intensify their dialogue and cooperation with local government authorities and their associations. They should be open for new, innovative and even informal forms of dialogue. Local governments are there to point out on the most needed capital investment projects which central governments might decide to finance as one of their measures of alleviating the consequences of the financial crisis.

Furthermore, NALAS recommends that the central governments of SEE support local government in utilizing the available EU programs and funds, both structural funds for EU member countries and IPA for the candidate countries. Additional funding should be made available to local governments for co-financing IPA projects and for bridging any financial gaps during project implementation to maintain liquidity.

The message we sent to local governments in SEE is that they have a cautious approach with the budget projections for 2009 and 2010. Their estimations on tax incomes should be conservative while other budget risks should be carefully estimated. At the same time the local authorities should making maximum use of grant funds.

Other measures that we recommend to local authorities have to do with monitoring the large firms/employers (including public enterprises) that may be at risk of lay-offs or plant closures, prepare catalogue of investments projects that could be implemented rapidly in support of national government, and finally connect with citizens and assure them that in spite of the hard times, the taxes will not be raised, but that they need to at least pay what they are due.

Following the NALAS recommendations, NAMRB has organized training for municipal councilors, mayors of municipalities and financial experts. They prepared a method for sample preparation, adoption and implementation of municipal budgets for 2009 in view of the consequences of the global financial crisis.