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.

1. PFM REFORM IN MONTENEGRO
10th Annual Meeting
of CESEE Senior Budget Officials
Bojan Paunović – Ministry of finance
Den Haag, 26-27 June 2014

2. OUTLINE
General overview
Reforming PFM system in Montenegro
Latest developments and focus in future
27/6/2014
2
PFM Reform in Montenegro - Bojan Paunović

3. GENERAL OVERVIEW 3
27/6/2014
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

4. GENERAL OVERVIEW 4
27/6/2014
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2008 2009 2010 2011 2012 2013 2014 2015 2016
Foreign debt
Domestic debt
Surplus/deficit
Public debt and deficit
PFM Reform in Montenegro - Bojan Paunović

5. 5
GENERAL OVERVIEW
27/6/2014
 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

6. GENERAL OVERVIEW 6
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
Actual balance
Structural balance
Structural vs Actual balance
27/6/2014PFM Reform in Montenegro - Bojan Paunović

7. 7
REFORMING PFM SYSTEM IN MONTENEGRO
27/6/2014
 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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27/6/2014PFM Reform in Montenegro - Bojan Paunović
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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27/6/2014PFM Reform in Montenegro - Bojan Paunović
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
27/6/2014PFM Reform in Montenegro - Bojan Paunović

11. 11
Fiscal rules
» Primarily surplus
» Deficit below 3% of GDP
» Public debt below 60% of GDP
27/6/2014PFM Reform in Montenegro - Bojan Paunović
LATEST DEVELOPMENTS AND FOCUS IN FUTURE
 In case of breaching fiscal rules, Government to submit to
the Parliament the Plan of convergence

12. 12
LATEST DEVELOPMENTS AND FOCUS IN FUTURE
27/6/2014PFM Reform in Montenegro - Bojan Paunović
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
27/6/2014PFM Reform in Montenegro - Bojan Paunović

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

15. Thank you for your attention
QUESTIONS