Fiscal Decentralisation in the MENA Region: Challenges and Solutions for Stronger Local Governance 

Countries in the Middle East and North Africa remain among the world’s most centralised governance systems. This limits the ability of local governments to raise, manage and spend resources according to local needs and foster local development. 

For this article, we spoke with The Hague Academy expert on decentralisation, Alfonso Garcia Salaues, and two participants from the Shiraka Local Governance course, Lanja Karim from the Directorate of Migration and Crisis response at the Slemani Governorate, and Mounsif Hachemi from the Algerian Ministry of Interior. 

Alfonso Garcia Salaues in discussion with a group of participants.

What makes fiscal decentralisation challenging?

Fiscal decentralisation focuses on the transfer of taxing, spending, and decision-making powers from central to subnational governments to provide the latter with the opportunity to tailor their finances according to local needs.

According to Alfonso Garcia Salaues, local governments in the MENA region depend heavily on funds from their central government.

“If fiscal transfers are subject to constant approval from the central governement, the fiscal autonomy of the local government gets reduced. This does not incentivise generating local revenue nor motivate innovating service delivery on a local level. ”

This dependency creates several challenges. Local governments often lack own-source revenue, meaning they raise only a small share of their income themselves. They also come up against issues like:

• The low creditworthiness: Lenders consider them risky, and thus avoid giving out funds

• Countries with stringent regulatory barriers are usually not competitive enough in the financial markets

• The lack of private-sector financing through Public-Private Partnerships

For Lanja Karim, Manager of Planning and Preparations for the Directorate of Migration and Crisis response in the Slemani Governorate, and participant of the Shiraka Local Governance course, the challenge is also political:

“A key challenge is the political power struggle between central and regional authorities, like in Iraq, which can hinder effective fiscal autonomy. To overcome this, political agreements on roles and equitable resource distribution are essential”.

Mounsif Hachemi, Chief Administrative Officer of the Training Department and Project Manager for the Algerian Ministry of Interior, and also a participant of the Shiraka Local Governance course, paints a similar picture in Algeria: The country has achieved some fiscal decentralisation at the local level through taxes, such as the Professional Activity Tax, corporate profit taxation, as well as property, housing, and environmental taxes. However, one of the main challenges remains the strong tendency of the central state to maintain fiscal control and oversight over local revenues and expenditures.

Melissa van de Bank, The Hague Academy trainer on fiscal decentralisation, recognises these trends.

“In decentralisation processes, governments often start with administrative decentralisation followed by fiscal decentralisation. But political decentralsation is often overlooked while this brings in true accountability between different tiers of government, and more importantly, from the government to the citizens.”

What can enable stronger local finance?

Despite the major challenges, experts and practitioners agree that fiscal decentralisation is achievable, with clear rules, reliable revenues, and transparent systems in place.

Alfonso underscores that local governments need a legal and institutional framework that clearly defines their responsibilities and gives them the authority to raise and manage part of their own revenues. This requires diversified local revenue systems, including property taxes, user fees, service charges, and land-based financing. These tools can help local governments build more stable funding, improve their financial credibility, and invest in local priorities.

Simultaenously, local governments vary heavily, demograohically and geographically, and not all local governments are able to levy sufficient taxes. Therefore, fiscal equalisation is an important tool within fiscal decentralisation.

Mounsif highlights that Algeria already implemented solutions: “The Algerian state has established financial equalisation and compensation mechanisms to support local budgets and reduce territorial inequalities between municipalities and regions.”

Successful fiscal decentralisation builds on own source revenue of local governments (revenue assignment) and intergovernmental fiscal transfers. Both are needed to support responsive governments and in assuring equal service delivery across a country.

Would you like to learn more about how to support fiscal decentralisation processes in your context? Are you curious about how to improve political decentralisation? Would you like to learn more about what indicators countries use to calculate their fiscal equalisation fund? See our course on Fiscal Decentralisation and Local Finance.