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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. Agenda. Kosovo in context Development of financial institutions Economic Indicators Budget Process

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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

agenda
Agenda
  • 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
facts
Facts:
  • Capital: Prishtina
  • Surface are: 10,877 km2
  • Population: 2,2 milion
  • Languages: Albanian, Serbian and English
  • Currency: Euro
background
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
key events
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
key events6
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.
key events7
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
development of the financial institutions
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.
ministry of economy and finance policies
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.
budget process
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
budget process13
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
publications
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
treasury
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
treasury organization

TreasuryOrganization

TreasuryOrganization
  • 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
project goals
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
project goals18
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, best-practices, donors, creditors, administrative rules, and regulations
  • Support local capacity building and sustainability
  • Multi-language capability (Albanian, Serbian and English)
early days
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
treasury system characteristics
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)
kfmis overview
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
kfmis overview22
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
treasury development
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
financial internal control within kfmis
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
kfmis results
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.
procurement
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
public procurement regulatory body
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
public procurement agency
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
internal audit
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
internal control of public finance icpf
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
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+

Public Expenditure and Financial Accountability (PEFA) Indicators
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

11

Orderliness and participation in the annual budget process

B+

12

Multi-year perspective in fiscal policy, planning, & budgeting

D+

PEFA Indicators
pefa indicators33

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)

18

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

PEFA Indicators
pefa indicators34

Accounting, Recording and Reporting

22

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

26

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

PEFA Indicators
lessons learned
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.
lessons learned36
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 long-term success (there are winners and losers in change – external encouragement)
lessons learned37
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
challenges opportunities
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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