New report on the Public Finance Management Reform (PFM) Programme

We have prepared a report on on the implementation of Public Finance Management (PFM) Reform Programme, which cross-refers the official data and covers some of the less studied aspects of the PFM reform.

According to the official Government reports on the implementation of the Public Finance Management (PFM) Reform Programme, one-third of the planned activities were implemented in 2017 and 2018, however, the reports do not always explain the figures provided for some of the performance indicators.

The Government of Montenegro did not comply with the budget planning timeline, and the quality of the spending units’ requests for budget allocations, which we had analysed, is not satisfactory. Out of the 19 such requests for 2018 that we covered by our review, 10 did not include any explanatory notes concerning the requested funds.

Although the Ministry of Finance (MoF) produces monthly, quarterly, bi-annual and annual reports on budget execution, in-year reporting is deprived from detailed breakdown of expenditure per institutions, key functions and programmes.

The MoF did not use the statutory possibilities to organise public discussions on the budget. The improvement of programme budget development is lagging behind. The 2019 Budget Law does not include the set of indicators for the specific number of budgetary programmes, which should have constituted the first step towards establishing programme budgeting. Project, which was supposed to bring about improved programme budgeting started implementing in late 2018. However, initial progress was made with regard to the cost estimates of strategic documents. Comparing to less than 20 per cent of strategies, adopted in 2017, which contained the overall estimate of financial means for their implementation, in 2018 this percentage increased to 46% of new strategies providing the overall financial estimate. Still, most of the challenges remain in providing precise cost estimates for implementation of all activities envisaged by strategic documents.

In addition to the selective and insufficient reporting on the execution of the overall budget, the Capital Budget transparency was at a particularly low level. Key information on the cash flows in the construction of the Bar-Boljare highway were hidden from the public. On principle, the introduction of tax and trade secrets as the grounds for restricting access to information set back the transparency of public finance.

The harmonisation of the public procurement procedures with the EU regulations was undermined by the 2017 amendments to the Public Procurement Law. The Government showcased as a major success the increase in the tax and customs revenues. However, the State Audit Institution established that the tax arrears records in early 2017 were inaccurate and underestimated the total amount by more than €15 million.

The e-registry of state property has not been established to date. The results of the State Property Inspectorate were insufficient: during 2017 and in the first half of 2018, only 32 inspections were carried out, i.e. approximately 10 per inspector. The inspections, although infrequent, point to the alarming situation of some immovable property.

The legal framework for managerial accountability and internal financial controls was partly improved. The Law on management and internal financial controls in public sector was adopted and it entered into force in November 2018. This Law more clearly defines accountability of the heads of spending units and of persons exercising delegated authority. Still, ministers are reluctant to delegate the powers to manage funds. Only two ministries provided decisions delegating some powers to the heads of the authorities subordinate to them.

The State Audit Institution adopted its new Strategic Development Plan, Guidelines for the Final Budget Account audit and Guidelines for assessing the application of the fiscal responsibility criteria. The Strategic Development Plan, however, lacks measurable objectives and performance indicators. Our review showed a relatively low share of public administration authorities covered by the audits in 2017 and 2018.

The key steps forward in the implementation of the Reform Programme materialised with regard to the preparatory activities, mainly improvements to the regulatory and strategic frameworks.

Report on the Public Finance Management Reform in 2017 and 2018: “The other side of the coin” can be downloaded here.

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