A New Approach to the 2027 Budget and Territorial-Administrative Division through Municipal Bonds

Territorial-administrative division can no longer be treated merely as a question of the number of municipalities, territorial boundaries, or the distribution of responsibilities. At its core, it is a question of the economic and financial capacity of territories to generate revenues, finance public services, and invest in their own development.

This is precisely where the traditional approach to local public finance begins to reveal its limitations. A system in which municipalities depend heavily on central government transfers may ensure the distribution of funds, but it does not necessarily guarantee the development of local financial capacity. If territorial size, economic base, population, wealth, and revenue potential are not translated into financial capacity, then changing the administrative map does not solve the problem it is intended to address.

In this context, the 2027 Budget should be viewed not only as a document for allocating public funds, but as a test of how Albania conceptualizes the financing of territorial development.

Until now, the debate on decentralization has focused primarily on how much money is transferred from the state budget to municipalities. The next stage of the debate should focus on the financial capacity that territories themselves can generate and on the instruments capable of transforming that capacity into long-term investment.

This shifts the analysis from transfers to capacity, from spending to investment, and from administrative division to the financial architecture of the territory.

The new territorial reform of 2026 aims to create a more consolidated structure of local government, but administrative consolidation is not the same as financial consolidation. A municipality may be larger in territory and population, but this does not automatically mean that it has a sufficient revenue base to finance the investments required for its development.

This is why any review of the territorial division, if undertaken, should not begin solely with the number of municipalities. It should be based on the territorial size and structure that create the strongest capacity to finance services and investment.

From this perspective, population is only one of the variables. The analysis should also include the taxable base, economic activity, property, tourism, infrastructure, land values, administrative capacity, service levels, and the ability to generate sustainable revenues.

A territory with economic potential but without financial instruments to mobilize that potential remains dependent on the centre. By contrast, a territory capable of linking its own revenues to long-term investment begins to build another form of autonomy: financial autonomy.

The 2027 Budget should open this chapter.

If the 2027 Budget remains merely a mechanism for increasing transfers and financing local expenditure, Albania will continue to operate a model in which local government is primarily a recipient of resources determined at the central level.

But if the 2027 Budget is used to create a new financial architecture, it could become the starting point for a model in which municipalities have greater opportunities to finance their own development.

This is where an instrument that is still not part of the mainstream discussion on local public finance in Albania comes into play: municipal bonds.

In international markets, municipal bonds are not simply a way of borrowing. They are part of a broader ecosystem connecting local government, fiscal discipline, transparency, institutional investors, and long-term infrastructure financing. International experience shows that such markets function when clear rules, sound financial management, transparency, and institutions capable of generating trust exist simultaneously.

The issue, therefore, is not to copy a financial instrument from the United States, Japan, or the Nordic countries. The issue is to understand the institutional infrastructure that Albania needs to build in order to create opportunities for territories with sufficient capacity to finance their own long-term projects.

From “Municipal Bond” to “Municipal Finance Ecosystem”

International experience is particularly relevant because it demonstrates that municipal bonds do not develop in a vacuum.

In Japan, Sweden, Finland, Denmark, France, and New Zealand, intermediary institutions have been established to pool demand from multiple local government units, standardize financing, and provide smaller municipalities with access to capital markets.

This is a particularly important lesson for Albania.

It is not necessary for every municipality to be able to issue bonds individually. On the contrary, an Albanian model could begin with a joint local-government financing mechanism, allowing municipal projects to be structured, assessed, and financed according to more standardized principles.

This would also change the way municipal size is understood.

A small municipality that individually lacks the scale required to access capital markets should not automatically be excluded from long-term financing. It could become part of a joint financing structure.

Thus, economies of scale would not necessarily have to be achieved through administrative mergers, but through financial pooling.

This represents a fundamental shift in how territorial reform could be conceived.

Territorial Division Should Also Be Measured by the “Bankability” of the Territory

A future territorial reform should not be limited to demographic and administrative indicators.

It should also incorporate the financial capacity of territories to support long-term investment.

In practice, this would mean developing a financial profile for each municipality that includes:

• own-source revenue capacity;
• the economic and tax base;
• public assets and their economic potential;
• debt levels and debt-servicing capacity;
• co-financing capacity;
• the investment project pipeline;
• administrative capacity to implement projects;
• potential for green and social financing;
• the possibility of generating project-related revenues.

This would create a map of the financial capacity of the territory, which would be far more useful for policymaking than a map showing only population and administrative boundaries.

GSS+ Bonds Open Another Dimension…

International experience also shows that local financing is increasingly moving toward impact-linked instruments. Green, social, and sustainability bonds are being used to finance clean transport, energy efficiency, social infrastructure, water systems, climate resilience, and other projects with measurable impact.

This is particularly relevant for Albania because many of the investments municipalities need to finance are precisely of this nature: water supply and wastewater systems, public transport, waste management, energy efficiency, schools, urban regeneration, flood protection, and tourism infrastructure.

Therefore, a new approach should not necessarily begin with the immediate creation of a broad municipal bond market in Albania.

A more useful approach would be to establish a pilot local investment financing programme, based on clear fiscal standards, transparency, and impact measurement, before creating a fully developed market.

International experience suggests precisely such an approach: starting with limited issuances, high levels of transparency, fiscal discipline, and technical support before expanding the market.

The Most Important Change Is the Shift from Fiscal Decentralization to Capital Decentralization

For years, policymakers, experts, and the public have discussed fiscal decentralization primarily in terms of responsibilities and revenues. The next stage should be the decentralization of capital.

A municipality cannot be considered financially autonomous merely because it collects certain local revenues. It must also have the capacity to develop a multi-year investment strategy and mobilize financial resources to implement it.

This would require a change in the philosophy of budgeting, moving from transfer → expenditure → investment

toward territorial capacity → project → financing → revenue/impact → long-term service.

Under this model, the central budget would not lose its role. On the contrary, its role would become more strategic: establishing rules, standards, fiscal limits, and safeguards, while giving territories greater space to mobilize capital.

This Open Discussion Brings the Issue of Territorial Division Back to the Centre

If this logic is accepted, the debate on territorial-administrative division changes significantly.

It is no longer sufficient to ask whether a municipality is too large or too small.

It must be assessed whether the current structure:

creates economies of scale;

enables services to be delivered at reasonable cost;

has a sufficient economic base;

can mobilize revenues;

can finance investment;

can attract capital;

and, above all, can build a sustainable cycle linking the local economy, public revenues, and investment.

If the answer is negative, the problem is not automatically solved by merging or dividing municipalities.

It may be more efficient to establish shared financial mechanisms, shared services, joint projects, and common financing instruments.

This would represent a much more modern approach than mechanically redrawing the administrative map.

Albania Does Not Need Only Larger Municipalities, but More Financially Capable Territories

This is precisely where two debates that are usually conducted separately come together: the 2027 Budget and territorial reform.

In fact, they are part of the same problem.

A territorial division is functional only if the structure it creates is capable of financing the services and development expected from it.

Therefore, the next reform should not simply aim for a different number of municipalities. It should aim for a different architecture of territorial financing.

This would require Albania to move from a model in which territories wait for resources from the central budget to a model in which territories build capacity, structure projects, and mobilize capital.

International experience with municipal bonds shows that this is not merely theoretical. Cities and local institutions in the United States, Japan, the Nordic countries, France, South Africa, and elsewhere have used different financing structures to connect local fiscal capacity with long-term investment.

The key lesson for Albania is not that it should replicate these markets. The lesson is that territorial size is not the only way to create economies of scale. Financial institutions, standardization, transparency, and inter-municipal cooperation can create that scale without necessarily changing administrative boundaries.

The 2027 Budget can be treated as a traditional fiscal planning exercise. But it can also be used as the starting point for a much broader approach about how to finance Albania’s territories over the next decade.

If the answer remains limited to central government transfers, decentralization will also remain constrained by the capacity of the central budget.

If Albania begins to build a system in which municipalities have the capacity to generate revenues, structure projects, cooperate financially, and gradually access capital markets, decentralization acquires a new dimension.

In this sense, municipal bonds are not the objective.

They are only one of the possible instruments within a broader model for financing territories through their own economic capacity—and this also changes the logic of territorial-administrative division.

Territorial-administrative division should be assessed on the basis of the territorial architecture that gives Albania the greatest capacity to finance services, investment, and local development in a sustainable manner.

This is the debate that can genuinely bring together the 2027 Budget, fiscal decentralization, and territorial reform within a single public-policy agenda.