Transcript Document

Achievements and Challenges in the
Management of the Public Finances
in Kosovo
(Miami, 21-25 May, 2007)
Behxhet Brajshori
Deputy Minister of the Ministry of Economy and
Finance
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Agenda
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Kosovo in context
Development of financial institutions
Economic Indicators
Budget Process
Treasury Responsibilities
KFMIS Overview
Procurement in Kosovo
Internal Audit
PEFA Indicators
Lessons learned
 Opportunities and Challenges
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Facts:
 Capital: Prishtina
 Surface are: 10,877 km2
 Population: 2,2 milion
 Languages: Albanian, Serbian
and English
 Currency: Euro
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Background
 Until 1989, Kosovo enjoyed a high degree of autonomy within
the former Yugoslavia, when Serbia altered the status of the
region, removing its autonomy and bringing it under the direct
control of Belgrade, the Serbian capital.
 During 1989 -1998 period former Serbian regime applied
discriminating measures in all the areas in Kosovo, including
the economy, by implementing the so called “Economy
integration” of the public enterprises in Kosovo with those in
Serbia
 The Kosovar Albanians strenuously opposed the move.
 Despite these measures the situation in Kosovo escalated
again with the start of the war in the beginning of the 1998
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Key Events
 NATO supported and
reinforced the Contact Group
efforts by agreeing on 30
January to the use of air strikes
if required, and by issuing a
warning to both sides in the
conflict.
 Serbia refused to comply, and
on 23 March the order was
given to commence air strikes
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Key Events
 On 10 June the UN Security Council passed the resolution
(UNSCR 1244), installing United Nation Mission in Kosovo
 The NATO troops entered Kosovo on 12 June, 1999.
 By 19 June, the Serb troops withdrawal from Kosovo was
complete.
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Key Events
 Following the elections in November 2001 the Provisional
Institutions of Self-Government were established which
include the President, the Assembly, and the Government of
Kosovo.
 Kosovo has gone through four different elections:
- Two for the local government and
- Two for the National Parliament
 Currently Kosovo has full consolidation of the institutions in
both levels local and national
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Development of the Financial Institutions
 Kosovo infrastructure and economy was damaged heavily
during the war, and there was a need for development of a
fiscal management system
 UNMIK established Central Fiscal Authority (CFA) to manage
public finances (UNMIK/REG/1999/16)
 CFA consisted of four divisions (Tax, Customs, Budget and
Treasury) and the Internal Audit function.
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Ministry of Economy and Finance Policies
 Ministry of Economy and Finance is accountable for
coordination and financial management of Kosovo
Budget. Main activities of Ministry include:
 Development and implementation of fiscal policies and
administration systems
 Economical analyses and macroeconomic forecasts;
 Budget planning;
 Development and implementation of centralized Tax
administration;
 Development and implementation of a centralized Treasury and
Accounting system.
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Economic Indicators
Some macro indicators, euro milion
Description
GDP per capita (real terms)
GDP grwoth
Inflation (CPI)
Unemployment (registered unemployeed 35- 45%)
Currency
Primary balance/GDP
2004
2005
2006
2007
2008
2009
2010
1,280
1,315
1,330
1,333
1,341
1,362
1,395
2.1
0.3%
3.1%
2.8%
2.1%
4.5%
3.4%
-1.4
-1.4
0.7%
-0.2%
-0.3%
0.5%
0.3%
-6%
Euro
-3.1%
Euro
3.5%
Euro
3.8%
Euro
-1.4%
Euro
-0.5%
Euro
0.0%
Burimi i të dhënave: FMN, Banka Botërore, Ministria e Punës dhe Mirëqenies Sociale
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Economic Indicators
Selected macro indicators in milion euros
2004
2005
2006
2007
2008
2009
2010
Total investment
Private
Donor
Government
Consumption
Private
Government
wages and salaries
goods and services
Donor wages
Exports
Cross-border exports
Donor exports (consumption)
Imports
572
320
83
169
2,630
1,921
376
184
192
333
358
213
145
1,277
583
397
35
151
2,676
1,998
338
195
143
340
320
204
116
1,340
683
508
41
133
2,617
1,940
347
204
143
331
349
175
174
1,437
730
530
40
160
2,660
1,986
385
219
166
289
375
218
157
1,529
814
563
38
213
2,693
2,081
410
228
182
202
389
265
124
1,630
870
613
38
219
2,730
2,137
403
220
183
190
428
308
120
1,690
936
659
38
238
2,755
2,172
405
217
188
178
472
356
116
1,723
GDP
2,283
2,239
2,212
2,236
2,266
2,338
2,439
2004&2005 IMF figures
2006&2010 MEF figures
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Budget Process
Government approves the Medium Term
Expenditure Framework (MTEF), based on
government priorities of different sectors
Government also approves different
projects for capital investments
Kosovo Consolidated Budget is based on
three year MTEF macroeconomic
projection
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Budget Process
May – Budget Organization submit their initial
requests for continuing projects and for the new
programs
June – Submission of the budgets from the
budget organizations
August – Budget hearings
September – Government approves draft budget
October – 2008 Budget Submission to the
Parliament
December – Parliament approves the budget
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Publications
Financial Reports (monthly, quarterly, bi-annually,
annual)
Budget Planning
Property Tax Policy
Monthly bulletins on economic and business activity
in the western Balcans
Miscellaneous Information
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Treasury
Main Treasury responsibilities are envisaged within the
Law on LPFMA. The responsibilities include:
 Management of the Kosovo Consolidated Fund,
 Management of Bank Accounts,
 Management of Funds Expenditure,
 Establishment of Processes for Collection of Public
Funds,
 Set up and Maintenance of Accounting Records,
 Preparation of Financial Accounts, and
 Maintenance of Financial Rules
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Treasury Organization
 Revenues Division
 Payments Division (five regional offices)
 Reporting and Accounting Division
 Fund allocation and Cash and Debt Management
 Financial Management and Control Division
 Administration and Information Technology Division
 Grants division
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Project Goals
 Treasury overall vision is to achieve best practice in
management of public funds by the Government of
Kosovo.
 Financial management system to help control
government financial processes
 Provide with means to record the entire budget cycle
from planning, to execution, to accounting for the
actuals, revenues and forecasting for future years
 Provide with tools to account and report on the
macroeconomic indicators
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Project Goals
 Transparency and accountability
 Must comply with multiple accounting and
reporting requirements – World Bank Treasury
Reference Module, International Monetary Fund
Government Finance Statistics, International
Public Sector Accounting Standards, bestpractices, donors, creditors, administrative
rules, and regulations
 Support local capacity building and
sustainability
 Multi-language capability (Albanian, Serbian
and English)
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Early days
Late 1999 meeting with WB and IMF about
challenges in transition governments.
Early 2000 – FreeBalance arrives in Kosovo
26 days later FreeBalance Foundation installed –
original configuration – six months of data captured reports to CFA and donors
No custom code – configuration regularly modified
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Treasury System Characteristics
 KFMIS is designed specifically for government
 Rapid deployment
 Flexible configuration
 Processes not over engineered (intuitive – easy to learn)
 Scaleable
 Expandable solution (core system can be extended via
modules)
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KFMIS Overview
Kosovo Financial Management Information
System (KFMIS) implemented to record,
manage and report on all budget, commitment,
expenditure and treasury management functions
Multi-language system (English, Albanian, and
Serbian) supports budget process and timely
processing of government payroll for over
70,000 civil servants
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KFMIS Overview
Electronic processing of transactions
Central database with decentralized process
implementation where decentralized institutions
(ministries, agencies, municipalities etc) are
provide with direct connectivity access for real
time transaction processing and reporting
Integrated system forms enable standardization
of forms used by all budget spending units thus
preventing corruption and data entry mistakes
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Treasury Development
 CBAK interface – 95% of all payments transmitted
electronically to central bank
 15000+ Vendors entered in and stored in system
linked to unique bank accounts
 Upgrade of key software and hardware –this
commenced large rollout of new functions in 2005
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Financial Internal Control within KFMIS
 Financial Legal Framework underpinned by KFMIS by
integrating key processes and decisions into KFMIS
(commitments, approving and spending public monies)
 Enhanced internal controls within budget spending units by
creating separate roles (functional classes) and groups of
users (user groups) with access to the system in accordance
with budget spending unit’s position hierarchy
 Treasury determines user level of access (reporting,
commitment, revenue recording)
 High quality certification program for the budget spending
units and their staff, to ensure the correctness of data and
reduce errors during transaction processing
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KFMIS Results
KFMIS is a critical component of Kosovo’s
democratic development and economic
liberalization program.
Kosovo now has a comprehensive, uniform
financial management system.
All budget organizations and all major revenue
agencies are now connected to the KFMIS.
Enables comparison of accounting data at all
levels of government and between all institutions
in real time.
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Procurement
On June 9th, 2004 the Assembly approved the
Law on Public Procurement, establishing two
central institutions for public procurement:
– Public Procurement Regulatory Body
– Public Procurement Agency
About 110 contractual authorities are established
in the municipalities, ministries and public
enterprises
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Public Procurement Regulatory Body
 Responsible for the development of the entire public
procurement system in Kosovo
 Ensures that the public funds are spent in a
transparent, effective and rational manner, in order to
encourage competition and respect the equality of
bidders in the public procurement process
 Has the authority to ensure compliance with the Law
on Public Procurement in Kosovo
 The Board of Public Procurement Regulatory Body
consists of five members, nominated by the
government and selected from the Assembly of
Kosovo
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Public Procurement Agency
 Public Procurement Agency is formed by the
Government of Kosovo
 Director is proposed by the government and nominated
by the Assembly of Kosovo.
 Acts on behalf of contractual authorities for complex
procurements (based on the requests of the contractual
authority)
 Manages and leads long term contracts and major
procurements used by two or more contractual
authorities (only if authorized by the government)
 Reviews and approves procedures negotiated without
public contract
 Reviews and approves Item 30.3 of the Public
Procurement Law when there are less than three bidders
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Internal Audit
The Internal Audit function is established
by the Law on Public Finance and
Accountability in the year 2000
Capacity building is financed by the
European Agency for Reconstruction
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Internal Control of Public Finance (ICPF)
The system consists of four core elements:
– The system of ICPF and Finance
Management
– Internal Audit
– Central Office on Financial Management and
Control within Treasury Department
– Central Office of Internal Audit within MEF
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Public Expenditure and Financial
Accountability (PEFA) Indicators
Main Indicators based on PEFA assesment report
INDICATOR
2006
Budget Credibility
1
Aggregate Expenditure Outturn compared to approved budget
(B)
2
Composition of expend. outturn compared to approved budget
(D)
3
Aggregate revenue outturn compared to approved budget
A
4
Stock and monitoring of expenditure payment arrears
D+
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PEFA Indicators
Transparency and Comprehensiveness
5
Classification of the budget
D
6
Comprehensiveness of information in budget documentation
D
7
Extent of unreported government operations incl. donor funds
C+
8
Transparency of Intergovernmental Fiscal Relations
A
9
Oversight of aggregate fiscal risk
C+
10
Public access to key fiscal information
A
Policy-based Budgeting
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Orderliness and participation in the annual budget process
B+
12
Multi-year perspective in fiscal policy, planning, & budgeting
D+
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PEFA Indicators
Predictability and Control in Budget execution
13
Transparency of taxpayer obligations and liabilities
B+
14
Effectiveness of taxpayer registration and tax assessment
C
15
Effectiveness in collection of tax payments
B
16
Effectiveness of cash flow planning, mgt. & monitoring.
B+
17
Recording & management of cash balances, debt and guarantees
(A)
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Effectiveness of payroll controls
D+
19
Competition, value for money and controls in procurement
D+
20
Effectiveness of internal controls.
C+
21
Effectiveness of internal audit
C
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PEFA Indicators
Accounting, Recording and Reporting
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Timeliness and regularity of accounts reconciliation
B
23
Availability of resource info received by service delivery units
D
24
Timeliness, quality and dissemination of in-year exec. reports.
B+
25
Timeliness of audited financial statements submitted to the legislature.
A
External Scrutiny and Audit
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The scope, nature and follow up of external audit reports.
D+
27
Legislative scrutiny of the annual budget law
B+
28
Legislative scrutiny of external audit reports.
D
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Lessons Learned
Technology is an early building block in
creating good governance and must be
introduced in a phased implementation to
allow absorption of key government
reforms.
Technology should be supported by sound
governance legislation: rules, regulations,
finance administrative instructions etc.
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Lessons Learned
 The Kosovo environment was unique, the fiscal
management requirements were NOT
 System implementation can be achieved in a matter of
weeks, financial management reform takes years
 Donor cooperation and coordination was essential Donor
funding is time sensitive and need driven
 Success breeds success – donor funding flows to
successful projects – gov is energized by progress
 Ongoing buy-in from key stakeholders is critical for longterm success (there are winners and losers in change –
external encouragement)
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Lessons Learned
 Think big, start small, scale up
 Phased implementation to allow absorption of key reforms
 Achieve high-profile wins early to ensure buy-in
 Ownership within the government
 Comprehensive Training and Certification Program and
mentoring of local staff - some are still with Treasury after
five years
 High quality team of international budget planning and
execution, procurement, and FMIS experts are necessary
to ensure best-practice design and implementation
 Long-term sustainability - total cost of ownership
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Challenges & Opportunities
Several fundamental challenges faced by
Kosovo:
Managing final status resolution.
Generating new sources of economic growth.
Ensuring macroeconomic stability.
Reducing poverty and unemployment.
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Thank you for your attention!
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