The document summarizes PFM reforms in Montenegro. It discusses how Montenegro implemented reforms following a 2008 PEFA assessment, including establishing a Supreme Audit Institution, developing public procurement systems, and introducing program budgeting. A new budget code was adopted in 2014 that introduced fiscal rules targeting surpluses, deficits below 3% of GDP, and debt below 60% of GDP. Future focus areas include further developing medium-term budget frameworks, implementing program and performance budgeting, regulating the public sector wage bill, and continuing fiscal consolidation efforts to reach a balanced budget.
3. GENERAL OVERVIEW 3
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GDP and Revenue growth rate
PFM Reform in Montenegro - Bojan Paunović
-15
-5
5
15
25
35
2007 2008 2009 2010 2011 2012 2013
Nominal GDP growth rate
Real GDP growth rate
Public revenues growth rate
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GENERAL OVERVIEW
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2012 was one of the economically worst performing years
in the recent Montenegro’s history
GDP contracted by 2.5%
External factors, combined with activated state guarantees
and structural weaknesses caused lower public revenues
and increased public spending with deficits of 6.1%
PFM Reform in Montenegro - Bojan Paunović
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REFORMING PFM SYSTEM IN MONTENEGRO
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PEFA done in 2008, covering the period 2005-2007
Repeated PEFA in 2013, covering the period 2010-2012
Concerning areas were:
» Underdeveloped medium-term budget planning, and no clear link
between annual and multiannual budget planning and government
policies
» Underdeveloped commitment control
» Underdeveloped public procurement system
» Treasury account not including different aspects of the government
spending
In most of the concerning areas reforms were underway, and
improvements were captured. Though, due to the financial
crises, some reforms were delayed
PFM Reform in Montenegro - Bojan Paunović
8. General reforms implemented:
» Founding of the SAI;
» Developing public procurement system (implementing and
controlling bodies formed);
» Introduction of the SAP system in the Treasury;
» Program budgeting, with program structure implemented for the
whole central government (not including performance budgeting);
» Consolidation of all the central government units (including state
owned funds) within single treasury account;
» Pension system adjustments: retirement age from 65 to 67 for men,
60 to 67 for women, changes in the pensions adjustment formula.
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REFORMING PFM SYSTEM IN MONTENEGRO
9. Measures implemented in 2013:
» VAT for 17% to 19%;
» Introducing different temporary taxes for 2013 and 2014;
» Measures to suppress grey economy;
» Freeze of pensions in 2013 and continued in 2014;
» Further expenditure restrictions.
2013 ended with deficit of about 5% of GDP, but excluding
one-offs (call of the state guaranties of 3.5%) deficit would
be about 1.5%
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REFORMING PFM SYSTEM IN MONTENEGRO
10. New budget code adopted in April 2014, Budget and Fiscal
Responsibility Act.
4 new areas in the law:
» Fiscal policies and rules;
» MTBF and spending ceilings;
» Budget inspectors and monitoring of compliance with fiscal rules;
» Accountability measures and penalties;
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LATEST DEVELOPMENTS AND FOCUS IN FUTURE
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Fiscal rules
» Primarily surplus
» Deficit below 3% of GDP
» Public debt below 60% of GDP
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LATEST DEVELOPMENTS AND FOCUS IN FUTURE
In case of breaching fiscal rules, Government to submit to
the Parliament the Plan of convergence
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LATEST DEVELOPMENTS AND FOCUS IN FUTURE
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Fiscal Strategy
• Covers period of 4 years
• Central bank giving its
opinion
• Adopted by the
Parliament at the
beginning of the
Government term
Fiscal Policy
Guidelines
• Adopted annually
• Covering period of 3 years
• Consists: medium-term fiscal
goals; basic macro-fiscal
indicators; spending limits;
Annual
Budget
Budget planning process
1 2 3
13. Budget inspectors and compliance with fiscal rules
» Budget inspectors support and reinforce the control of the budget
spending ex-ante (during the year), compared to the ex-post role of the
external auditors
» In case budget inspector observe irregularities in public spending, it
has authority to initiate misdemeanor proceedings
» Assessment of the application of the fiscal rules done by SAI ex-post
within annual reporting to the Parliament
» Ministry of finance bearing most of the responsibilities for effective
application of the fiscal elements provisions
» However, accountability measures and introduced to the individuals
and institutions for irresponsible behavior
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LATEST DEVELOPMENTS AND FOCUS IN FUTURE
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14. Focus of PFM development in future:
» Further development of MTBF
» Continuing implementation of program and performance budgeting
» Regulation of wage-bill in public sector
» Further development in pension reform
» Further rationalization in public procurement system
» More efficient and effective debt management
» Implementation of ESA 2010
» Continuing further budget consolidation and reaching budget balance
» Harmonization with EU acquis
» …
Montenegro started its PFM reforms marathon, though with the
hottest part of the day still ahead
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LATEST DEVELOPMENTS AND FOCUS IN FUTURE
27/6/2014PFM Reform in Montenegro - Bojan Paunović