PUBLIC EXPENDITURE AND FINANCIAL ACCOUNTABILITY (PEFA) - PERFORMANCE ASSESSMENT REPORT MONTENEGRO December 2019 © 2018 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: [email protected]. 2 Acknowledgments The World Bank, PEFA Assessment team gratefully acknowledges the extensive cooperation and assistance from officials of the Government of Montenegro. In particular the team would like to recognize the leadership exercised by the Ministry of Finance in coordinating the assessment. The Assessment team greatly appreciates the contributions of all institutions and participants that took part in assessment meetings and interviews and attended the launch and dissemination workshops. The team likewise values the guidance received from the World Bank management, and extended cooperation by the Delegation of the European Union in Montenegro. Prepared in line with the 2016 PEFA Framework Successive Assessment (previous PEFA assessments in 2009 and 2013) Country’s currency: Euro Indicative exchange rate: 1 EUR = 1.145 USD (as of December 31, 2018) Government’s fiscal year: January 1 to December 31 3 MONTENEGRO PEFA ASSESSMENT 2019 The PEFA Secretariat confirms that this report meets the PEFA quality assurance requirements and is hereby awarded the ‘PEFA CHECK’. PEFA Secretariat January 6, 2020 4 Table of Contents ACKNOWLEDGMENTS .............................................................................................................................. 3 EXECUTIVE SUMMARY ........................................................................................................................... 11 1. INTRODUCTION .................................................................................................................................. 18 1.1 Rationale and purpose ............................................................................................................................................. 18 1.2 Assessment management and quality assurance .................................................................................................... 18 1.3 Assessment methodology ........................................................................................................................................ 19 2. COUNTRY BACKGROUND INFORMATION ........................................................................................... 22 2.1 Country economic situation .................................................................................................................................... 22 2.2 Fiscal and budgetary trends..................................................................................................................................... 24 2.3 Legal and regulatory arrangements for PFM ........................................................................................................... 26 2.4 Institutional arrangements for PFM ........................................................................................................................ 29 2.5 Other key features of PFM and its operating environment .................................................................................... 34 3. ASSESSMENT OF PFM PERFORMANCE ............................................................................................... 35 3.1 PILLAR ONE: Budget reliability ................................................................................................................................. 35 PI-1 Aggregate expenditure outturn ................................................................................................................................. 35 PI-2 Expenditure composition outturn.............................................................................................................................. 35 PI-3 Revenue outturn ........................................................................................................................................................ 38 3.2 PILLAR TWO: Transparency of public finances ........................................................................................................ 39 PI-4 Budget classification .................................................................................................................................................. 39 PI-5 Budget documentation .............................................................................................................................................. 40 PI-6 Central government operations outside financial reports ......................................................................................... 43 PI-7 Transfers to subnational governments ...................................................................................................................... 45 PI-8 Performance information for service delivery ........................................................................................................... 49 PI-9 Public access to fiscal information ............................................................................................................................. 51 3.3 PILLAR THREE: Management of assets and liabilities ............................................................................................. 53 PI-10 Fiscal risk reporting ................................................................................................................................................. 53 PI-11 Public investment management ............................................................................................................................. 56 PI-12 Public asset management ....................................................................................................................................... 61 PI-13 Debt management .................................................................................................................................................. 63 3.4 PILLAR FOUR: Policy based fiscal strategy and budgeting ....................................................................................... 66 PI-14 Macroeconomic and fiscal forecasting ................................................................................................................... 66 PI-15 Fiscal strategy .......................................................................................................................................................... 68 PI-16 Medium-term perspective in expenditure budgeting ............................................................................................. 70 PI-17 Budget preparation ................................................................................................................................................. 72 PI-18 Legislative scrutiny of budgets ................................................................................................................................ 74 3.5 PILLAR FIVE: Predictability and control in budget execution .................................................................................. 77 PI-19 Revenue administration........................................................................................................................................... 77 PI-20 Accounting for revenue ........................................................................................................................................... 81 PI-21 Predictability of in-year resource allocation ............................................................................................................ 83 PI-22 Expenditure arrears ................................................................................................................................................. 85 5 PI-23 Payroll controls ........................................................................................................................................................ 87 PI-24 Procurement management...................................................................................................................................... 89 PI-25 Internal controls on non-salary expenditure ........................................................................................................... 93 PI-26 Internal audit ..........................................................................................................................................................