Allocation of Public Expenditures in the Post-War Kosovo: a Critical Analysis
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Rochester Institute of Technology RIT Scholar Works Theses 7-2020 Allocation of Public Expenditures in the post-war Kosovo: A critical analysis Leonita Krasniqi [email protected] Follow this and additional works at: https://scholarworks.rit.edu/theses Recommended Citation Krasniqi, Leonita, "Allocation of Public Expenditures in the post-war Kosovo: A critical analysis" (2020). Thesis. Rochester Institute of Technology. Accessed from This Senior Project is brought to you for free and open access by RIT Scholar Works. It has been accepted for inclusion in Theses by an authorized administrator of RIT Scholar Works. For more information, please contact [email protected]. Allocation of Public Expenditures in the post-war Kosovo: A critical analysis An Honors Society Project Leonita Krasniqi Advisor: Venera Demukaj, PhD Second reader: Besnik Bislimi, PhD July 2020 ALLOCATION OF PUBLIC EXPENDITURES IN KOSOVO Abstract How public expenditures are allocated can have profound effects on the macro-fiscal environment of a country. This research project analyzes how the Government of Kosovo allocates its public expenditures. Two particular strategic documents are examined—the Economic Vision 2011-2014 and the National Development Strategy 2016-2021. It does so by analyzing whether or not the priorities set in these strategies are translated in Medium-Term Expenditure Frameworks and the Budget Laws. Finally, this research project examines how the allocated public expenditures are realized. The research concludes that despite the well- established written strategies, a wide gap exists between the priorities set and their actual execution. 1 ALLOCATION OF PUBLIC EXPENDITURES IN KOSOVO Acknowledgments To the professors who have encouraged me to follow the path of economics. Forever grateful to their unravelling advice and support. To the professor who keeps inspiring me to stay positive and tackle challenges to their core. To the professor who has left me with a never-ending eccentric reading-list. To my family who kept supporting and nourishing me despite, the so-called by them, ‘room lockdowns’. To my friends bearing with my ups and downs through this journey. 2 ALLOCATION OF PUBLIC EXPENDITURES IN KOSOVO Table of Contents Abstract ........................................................................................................................................... 1 Acknowledgments .......................................................................................................................... 2 List of Abbreviations ...................................................................................................................... 5 List of Tables .................................................................................................................................. 7 List of Figures ................................................................................................................................. 7 Introduction ..................................................................................................................................... 8 Literature Review ........................................................................................................................... 9 Defining Public Expenditures ..................................................................................................... 9 Politics and Public Expenditures .......................................................................................... 11 Optimal allocation of government expenditures ....................................................................... 12 Public Expenditure Management (PEM) .................................................................................. 13 Budget Process .......................................................................................................................... 14 Formal procedures ................................................................................................................ 15 Budget Implementation ......................................................................................................... 17 Various Actors that Influence the Allocation of Public Expenditures .................................. 18 Features of Public Expenditures ........................................................................................... 18 Economic and Political Environment ................................................................................... 19 Background Information ............................................................................................................... 20 Development policies prior to independence ............................................................................ 20 Budget process in Kosovo ........................................................................................................ 21 Governments Expenditures in Kosovo ..................................................................................... 22 Methodology ................................................................................................................................. 23 Constraints ............................................................................................................................ 25 3 ALLOCATION OF PUBLIC EXPENDITURES IN KOSOVO Analysis and Discussion ............................................................................................................... 25 Analysis of the Economic Vision 2011-2014 ........................................................................... 26 Characteristics of the Economic vision 2011-2014 .............................................................. 26 MTEF 2012-2014 ..................................................................................................................... 27 Annual Financial Reports 2012-2014 ....................................................................................... 29 Discussion ................................................................................................................................. 31 Analysis of the National Development Strategy 2016-2021 .................................................... 32 Characteristics of the Strategy .............................................................................................. 33 MTEF 2016-2018 ..................................................................................................................... 39 MTEF 2017-2019 ................................................................................................................. 40 MTEF 2018-2020 ................................................................................................................. 47 MTEF 2019-2021 ................................................................................................................. 53 Annual Financial Reports 2016-2021 ....................................................................................... 55 Discussion ................................................................................................................................. 57 Conclusion .................................................................................................................................... 59 Recommendations ..................................................................................................................... 59 APPENDIX A: DECISION ON APPROVAL OF PRIORITIES OF ECONOMIC DEVELOPMENT ......................................................................................................................... 65 APPENDIX B: DECISION ON THE APPROVAL OF THE DEVELOPMENT STRATEGY 2016-2021 ..................................................................................................................................... 66 APPENDIX C: ROADMAP FOR IMPLEMENTATION OF NATIONAL DEVELOPMENT STRATEGY 2016-2021 ............................................................................................................... 68 4 ALLOCATION OF PUBLIC EXPENDITURES IN KOSOVO List of Abbreviations CARDS - Community Assistance for KSIP – Kosovo Standards Implementation Reconstruction, Development and Plan Stabilization KSIP – Kosovo Standards Implementation DFID - Department for International Plan Development LDK – Democratic Union of Kosovo [in EPAP - European Partnership and Action Albanian] Plan LLFG - Law on Local Government Finance ERA – European Reform Agenda LPFMA - Law on public financial ERP – Economic Reform Programme management and accountability EU – European Union MEF – Ministry of Economy and Finance FDI – Foreign Direct Investment MIPD - Multi-annual Indicative Planning Document GAP - Institute for Advanced Studies GAP MoF –Ministry of Finance GAWP – Government Annual Work Plan MTEF – Medium-Term Expenditure GDP – Gross Domestic Product Framework IMF – International Monetary Fund NAO – National Audit Office IPA - Instrument for Pre-Accession NATO – North Atlantic Treaty Organization Assistance NDS – National Development Strategy KAS – Kosovo Agency of Statistics SPO – Strategic Planning Office KDSP – Kosovo Development and Strategic NPISAA – National Program for Plan Implementation of the Stabilization KEK – Kosovo Energy Corporation Association Agreement KIESA - Kosovo Investment and Enterprise OECD - Organization for Economic Co- Support Agency operation and Development 5 ALLOCATION OF PUBLIC EXPENDITURES IN KOSOVO PDK – Democratic Party of Kosovo [in SAA – Stabilization Association Agreement