Anita Angelovska-Be ž oska National Bank of Republic of Macedonia

1. Winter 2008 Conference, WashingtonCountry Perspectives on Advancing Public Financial Management Reform-What Really WorksPFM REFORM LANDSCAPE Anita Angelovska-Bežoska National Bank of Republic of Macedonia

2. Content • Objectives of the PFM reforms; • Budget Planning Reforms: • main features; and • implementation problems. • Budget Execution Reforms: • main features; and • implementation problems. • Requirements for successful reforms; • Conclusion.

3. Objectives of the PFM reforms • Three main objectives of the PFM system: • fiscal control; • strategic allocation of resources; and • efficient and effective use of public resources.

4. Is there a trade off among the objectives? • Short-run against long-run perspective; • Priorities at different stages of development; • Gradual approach: • fiscal control; • fiscal control + strategic allocation of resources; • fiscal control + strategic allocation of resources + efficient and effective use of resources.

5. Budget preparation reforms Main features: • focus on results (output /outcome) rather than inputs; • higher degree of flexibility for budget managers in line ministries (consolidation of line items, reallocations, end-of-the-year flexibility); • higher responsibility focused on results (performance measurement); • medium-term perspective(greater certainty about the availability of funds and longer-term view on fiscal position); • transparency and accountability.

6. Budget preparation reforms Implementation problems: • weak political support by the government; • absorption capacity at the spending units level limited; • ˝big-bang˝ approach; • reluctance for broadening the coverage of the budget document (off-budget funds); • pro-forma program budgeting; • unclear definition of strategic priorities;

7. Budget Execution Reforms • Main features: • improving cash management (min. borrow. cost and maximize return); • introducing comprehensive TSA in order to: • improve cash management; • enhance control and monitoring; and • improve reporting and transparency; • improving financial planning and forecasting;

8. Budget Execution Reforms • Main features (cont.): • controlling all stages of expenditures (commitment control) in order to: • prevent arrears; • support budget planning; and • support cash management. • introducing higher flexibility in the use of resources on a line-item level; • improving payment system infrastructure.

9. Budget Execution Reforms Implementation problems: • reluctance of spending units to give up own accounts for introduction of TSA; • reluctance of executing expenditures financed by special revenues through the TSA; • specific requirements by donor institutions (managing foreign aid); • weak coordination of budget preparation and budget execution reforms, as well as accounting and reporting reforms;

10. Budget Execution Reforms Implementation problems (cont.): • weak coordination with monetary policy; • limited cash management operations due to macroeconomic constraints; • difficulties in keeping up with the increased workload ; • lack of training of the spending units.

11. Requirements for successful reforms • capacity of administration to manage reform: • improved capacity at the central level; • strengthened capacity of the spending units • political support by government; • sufficient internal control mechanisms; • appropriate legal framework;

12. Requirements for successful reforms (cont.) • appropriately sequenced reforms; • strong coordination of foreign donors; • external TA if internal capacity is insufficient is also helpful; • structural conditionality in IMF programs.

13. Thank you for your attention. AngelovskaBA@nbrm.gov.mk