Reforming Arrears Management To Ensure Financial Stability In Local Government

Structural reforms post-1990s, in politics and economy, have been accompanied by deep reforms in the management of public finances at the central and local level. In recent years, significant reforms have been implemented across all cycles and procedures of public financial management. A "good" budget document is characterized by its ability to provide sufficient information in a format that enables policymakers to allocate insufficient resources efficiently and effectively, ensuring spending aligns with priorities. Arrears continue to pose a threat to the financial health of local self-government units, although the stock of arrears has decreased year on year. At the end of fiscal year 2016, a stock of 12.9 billion ALL was recorded and currently, at the end of 2023, the stock of arrears is 4.8 billion ALL, marking a reduction of approximately 63% of it. Despite the reduction of this stock, arrears remain a threat to the financial stability of local self-government units. In recent years, it has been observed that local self-government units, even with existing arrears, ended their fiscal years with unspent budget funds. In order to prevent the creation of arrears and improve their management, several legal changes were made in 2023. These changes include calculating the weight of arrears against the actual budget rather than the projected budget and utilizing inherited funds to pay off arrears. This paper analyzes and evaluates the risk of creating arrears using statistical models and the use of time value of money formulas.