Budgeting EU F unds in Estonia

1. Budgeting EU Funds in Estonia Siim Sikkut Ministry of Finance, Estonia Seminar on Budget and EU FundsSkopje, 14-15 May 2007

2. ABC of Estonian budgeting system • Budget entails all revenues, expenditure and planned financial transactions • Medium-Term Budgeting Framework = State Budget Strategy • Based on sectoral and ministerial development plans/strategies • Basis for annual budget preparation • 1+3 years on a rolling basis; • Fiscal strategy + activity strategy + financial framework • Budget in administrative classification, sub-division by economic classification

3. Estonian experience with EU funds • Pre-accession assistance • EU Structural Funds and Cohesion Fund from 2004 • 2007-2013 Structural Funds + Cohesion Fund volume 3,4 bln euros • Rural Development and Fisheries fund additional 800 mln euros • Foreign funds represent minor part of budget (11,4% in 2007 budget) – EU funds most of it (95% of foreign funds)

4. EU funds integration to budgeting system: SNAPSHOT • Planning: fully integrated • Execution: partially integrated • Audit: partially integrated • Reporting: fully integrated • Monitoring and evaluation: separate

5. Fully integrated planning of EU funds • For 2004-2006 Structural Funds period, a separate planning document (Single Programming Document) prepared as basis for MTBF • For 2007-2013 Structural Funds strategy (NSRF) prepared as part of MTBF – longer-term strategic “roof” for rolling 4-year MTBF • State Budget Dept. in charge of most foreign financing planning (with exception of specialized funds – Schengen, INTERREG, bilateral funds, etc.)

6. EU funds in budget bids • Ministerial budget bids include all EU and other foreign funds – for both 4-years MTBF and annual budget • Foreign financing and co-financing identified per project (if the institution is beneficiary) or measure/programme (if intermediary body) in the bid • As part of budget bid, subject to budget negotiations each year – absorption capacity considered

7. EU funds in annual budget law • Foreign financing directly allocated to lowest possible state institution as intermediary body implementing the funds – decentralized allocation in the budget • All foreign financing given per institution and economic main category as lump-sum – (EU) funds not separated in budget document • Division by fund and explanations given in budget memorandum for each foreign financing line • During budget planning, a separate overview prepared on foreign funds in the budget – included in memorandum

8. Budget picture (hypothetical figures) • Ministry of Economic Affairs governing area REVENUES • Foreign funds 225 EXPENDITURE • Purchase of Material Goods 200 • Incl co-financing of foreign funds 25 • Ministry of Economic Affairs • Transfer to Estonian Enterprise Foundation 100 • Incl co-financing of foreign funds 25 • Estonian Road Administration • Operating expenses 200 • Incl co-financing of foreign funds 25

9. Co-financing in the budget • Included as lump-sum per institution’s economic activity for all foreign funds – on separate budget lines (i.e. earmarked) • Division by fund and explanations given in budget memorandum for each co-financing line • The state institutions have the right to show as co-financing all their expenditure (with exception of expenditure from foreign funds) – limited by the eligibility rules of funds • The institution has to make sure co-financing funds are reported in uniform manner in state budget execution and foreign funds utilization reporting

10. Foreign funds during budget execution • Separate management and payment system for foreign funds (most EU funds in particular) in place • Cabinet has the right to make changes into the administrative and economic division of foreign funds related expenditure in the parliamentally approved annual law during the fiscal year • State institutions can take multi-year commitments when giving structural funds support - within the limit of the measure/programme volume

11. Bridge financing • Used to facilitate the absorption of funds • Rather centralised: the MoF prepares the Cabinet order, Cabinet decides per project or programme basis • Annual budget law determines the total bridge financing level for state (35% in 2007 budget) • Bridge financing can also be used for paying back the recovered sums to donors • Treasury’s business – as opposed to Payment/Certifying authority in charge of foreign funds execution in general

12. Carrying funds over to next fiscal year • Carry-over allowed once for: • All investment expenditure • All foreign financing related expenditure (incl. co-financing) • 3% of other expenditure lines • The purpose has to stay the same

13. Audit and reporting • For audit, the general system of internal audit used more and more as it develops • Separate Audit Authority for Structural Funds • Accounting and related reporting same as for other budget funds • In state annual economic report, • overview of execution given for each budget line • separate overview of foreign funds utilization per fund

14. Monitoring and evaluation • For budgetary funds at large, no real monitoring and evaluation to date • A requirement for foreign funds, especially EU funds – import of evaluation culture • Current aim: to cover the whole budget (State Budget Strategy implementation) with monitoring and evaluation – integrate EU funds monitoring and evaluation • To start in spring 2008 with 2007 budget’s execution report • Tied with funds’ coordination effort

15. Challenge: moving to program budgeting • Experimentations through MTBF which is prepared and adopted as program-based • Need to elaborate the system for making multi-year commitments under the programmes • Need to integrate state own funds under programmes: currently a third category, additional financing created in state budget (in addition to foreign funds and co-financing lines) • For 2007-2013 period, to reinforce the Structural Funds programmes in key fields with national money • Specified on separate budget lines per institution and economic activity – like co-financing

16. Thank you! siim.sikkut@fin.ee