The present report provides a review of the financing of Macedonian education as the country
comes close to completing the first phase of decentralization. Soon all municipalities will find
themselves in the second phase of decentralization, so the natural question is, what has been
accomplished and what should be the next steps. Is decentralization complete, and if not, what
remains to be done.
A more specific technical question concerns the financing of decentralized education in
Macedonia, and in particular the functioning of per student allocation formulas, in use since
2006. Properly managed and updated, allocation formulas may be a strong policy instrument
of the Government.
The key findings of the report are as follows:
1. The allocation formula does not serve as an effective policy instrument. In particular,
it is adopted in an ordinance long before the Budget Circular Letter defined budget
limits for each sector and before next year’s student numbers are known. Key financial
elements of the formula are not routinely made public. The formula has been changed
only once and few people in Macedonia understand its impact.
2. The preference which the formula gives to small municipalities to support them in
maintaining unavoidably smaller classes is a rational policy of the Ministry. However,
analysis shows that this preference, resulting from simultaneous use of the lump sum
and population density weights, is excessive and hence the allocation is not very
efficient (small municipalities received relatively too much compared to the cities).
3. The use of buffers for allocation of grants to primary education has not been the
subject of public discussion in recent years. It seems that the buffers are used more to
limit the allocation than to provide stability of funding from year to year. Future use of
the buffers should be dependent on their clear and universally accepted function in the
allocation process.
4. The equity of education finance in Macedonia is insufficient. While some small
municipalities are generously supported with increased education grants, others
receive relatively little when assessed on the per class basis.
5. Despite overall significant support to small municipalities, the allocation mechanism
probably forces some of them to make significant local contributions to the received
grants. In other words, lack of equity has real and negative effects on a number of
small municipalities.
6. The entry to the second phase has not been accompanied by an appropriate increase of
managerial powers of local governments. Many legal regulations still reflect the
centralized mindset. Hence even completion of the second phase of decentralization
will not constitute a breakthrough in the financing and management of education. A
third phase is needed, to align financial responsibilities with increased managerial