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Speech Milovan Filimonovic, SIGMA, Paris, 4 December 2015


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Speech by Milovan Filimonovic, State Secretary of the Ministry of Finance of Serbia, made at the regional conference on Public Administration Reform Challenges in Western Balkan Countries held at the OECD in Paris, 4 December 2015.

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Speech Milovan Filimonovic, SIGMA, Paris, 4 December 2015

  1. 1. 2 Rue André Pascal 75775 Paris Cedex 16 France Tel: +33 (0) 1 45 24 82 00 Fax: +33 (0) 1 45 24 13 05 This document has been produced with the financial assistance of the European Union. It should not be reported as representing the official views of the EU, the OECD or its member countries, or of beneficiaries participating in the SIGMA Programme. The opinions expressed and arguments employed are those of the author(s). This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Speech by Milovan Filimonovic State Secretary, Ministry of Finance of Serbia « Enhancing accountability and delivering services within a sustainable fiscal framework » Regional ministerial conference on public administration reform challenges in Western Balkan countries Paris, France 4 December 2015
  2. 2. The Government of Serbia has initiated and is currently in the process of implementing a series of reform measures aimed at stabilising public finances and reforming its public administration by reducing excessive government expenditure, reducing the fiscal deficit and level of public debt whilst at the same time improving the functionality of public institutions in line with the European Public Administration space, as part of the EU accession process. Stabilising public finance and ensuring a sustainable fiscal policy have been top priorities of several Governments of Serbia since 2008 in an attempt to mitigate the effects of the economic and financial crisis whose consequences are still felt throughout the EU and region. The 2015 Fiscal strategy stipulated a 10% reduction in salaries in the public sector and pensions, a public sector pay freeze until 2017, job cuts of 5% per annum across the public sector over the next three years and restructuring of state owned enterprises, with the goal of stabilising the general government debt to GDP at approximately 76, 9% in 2017. The measures stipulated in the Fiscal Strategy have been strongly reinforced by the Stand by Arrangement with the IMF, which was endorsed in early 2015. The conclusions of the most recent IMF monitoring mission to Serbia, which took place last month, confirmed that Serbia has made “significant progress since the economic program started and that the fiscal consolidation measures which were introduced in late 2014 have started in bear fruit, that the financial and public sector reforms are progressing as planned and on track, ad that the comprehensive measures aimed at restricting State-owned Enterprises have started at yield positive impacts on their efficiency and financial discipline.” The fiscal outturn in the first three quarters of 2015 was well within the targets agreed with the IMF and the general government fiscal deficit amounted to 51.1 billion Serbian dinars which is well below the adjusted program target of 143.6 billion, owing to both conservative projections, improved revenue collection (80%) and under-execution of expenditure (20%). Despite the fact that current expenditures are in line with the Budget, the Government has recognised that if under-execution of capital expenditure continues, it will definitely have a negative impact on economic growth on the long run. The Government deficit at the end of this year is expected to be 4.1 % of GDP, slightly above the adjusted projection of 4% but still way below the original target of 5.9 % for 2015. Significant progress was made in the reforms of the general government employment and wage system in 2015 including the creation of a Task Force to strengthen the control of the public sector Wage bill in June 2015, the adoption of the appropriate legislative framework to ensure full coverage of public sector employees and for setting ceilings on the number of employees in public sector institutions. A Decision was adopted by the Government, stipulating a reduction of at least 14.500 employees compared to the number in the Public Registry as of the end of December 2014. Despite the noticeable achievements of the Serbian Government in stabilising public finances in 2015, there are still significant challenges and obstacles to growth that need to be addressed within the comprehensive reform framework adopted by the Government throughout 2015. As a candidate country for EU membership, which is on the verge of officially opening the first Negotiation Chapters, which is expected next week, the Government of Serbia has taken an active approach to meeting EU accession requirements and conditions and at the same time, invested a lot of consideration and effort into making the best of them.
  3. 3. The Government adopted its first National Economic Reform Program in early February 2015, with a slight delay due to prolonged negotiations with the IMF, which caused a subsequent delay in the adopting of the Fiscal Strategy, which provided the basic macro-fiscal framework and high level structural reform agenda for the NERP. Even though an explicit EU requirement, the Government of Serbia took advantage of the occasion and the means and extended its scope and coverage beyond EU requirements and promoted it to the level of a high level, medium term framework for national economic policy and development, exerting full ownership throughout its preparation and current implementation. The preparation of the ERP for 2016 is in an advanced stage and is currently being pursued within an improved institutional framework and with a revised scope which will provide an extensive high level economic reform agenda, into which the Public Administration Reform Strategy and the Public Financial Management Reform, as a crucial component of the previous, with be embedded. The primary focus of the Government in 2016 will be on further reduction of mandatory expenditures by implementing an organisational and functional restructuring of the general government in line with the Public Administration Reform strategy, reducing government employment in line with the targets agreed with the IMF and implementing the Public Financial Management Reform Program for the period 2016-2020, which was adopted by the Government last Saturday. In line with the 2016 Fiscal Strategy, which was adopted at the same Government session, the Government adopted the 2016 National Budget yesterday, even though with delay in comparison to the Budget Calendar. I would take this opportunity to make a remark with regrets to these delays as they weren’t incurred due to administrative inefficiency or inherent deficiencies within the public financial management system. They are the result of the scheduling of quarterly monitoring missions of the IMF, and the required adjustments to the macro-fiscal and budgetary framework that had to be made, in line with the conclusions and recommendations of the mission. I mention this not only to clarify but and also to bring this issue to the attention of the colleagues from SIGMA so that these circumstances can be reflected in an appropriate manner in their 2016 Assessment for Serbia. In summary, the budget for 2016 foresees a 3% reduction on salaries with approximately 150 billion dinars for capital investments and anticipates an economic growth rate of 1.7% in 2016. Bringing public finances on to a sustainable path is the overarching priority of the Serbian Government as public services need to be delivered within a financial framework that is affordable and sustainable. Having partially achieved this, the Serbian Government is aware that the next challenge is to develop a public service that can play its part in helping the economy grow, deliver jobs and increase the standard of living for its citizens. In order to this, the public sector needs to deliver services to both citizens and businesses in order to attract the kind of investments that can grow the economy and create jobs. Governments do not create jobs but they are responsible for creating an optimal environment in which businesses create jobs and this can only be done through a public service which works efficiently and can implement the policies that the Government sets out.
  4. 4. There is a strong line between the Public Administration Reform Strategy and the Public Financial Management Reform Program. Change needs to be delivered within a financial framework and reforms at the central level come at a cost and need to be paid for. An effective and constructive partnership between the Ministry of Finance and the Ministry of Public Administration and Local Self-Government in Serbia is key to the successful implementation of these reforms. There is of course room for improvement and the Government has taken steps with regards to conducting functional reviews, identifying and eliminating overlaps and duplication of responsibilities across budget beneficiaries.