Monitoring of Public Administration Reform Results in the Area of Public Finance in 2015

Indicators of some objectives and activities set by the Revised Action Plan 1 (RAP1) are marked as “realized” in reports of BiH Public Administration Reform Coordinator’s Office (PARCO).

Nevertheless, the quality of output documents, representing the results of those objectives, is unsatisfactory, and objectives were not fully realized. Such situation is the consequence of the fact that RAP 1 indicators are mainly indicators of process and not success. In preparation of the new strategic framework for reform of public finance and monitoring system, it is recommended to abandon the practice of monitoring of process indicators and to establish the results-oriented system of monitoring; to put accent on the quality of improvement, and not only on registering if the changes had occurred.

Full implementation of program budgeting in BiH public administration was not achieved, but technical prerequisites were met. Implementation of public finance long-term planning with Budget Planning and Management Information System for the level of BiH, FBiH and RS was realized in relation to software procurement and installation. During 2015, Budget Framework Paper and budgets for 2016 were prepared using Budget Planning and Management Information System, but they are still not being adopted in accordance to program classification, but according to economic and organizational ones.

Introduction of international accounting standards for public sector and accrual accounting has been achieved only in RS since 2013. Introduction of treasury operations in the whole public administration is the activity that still requires significant engagement and funding in FBiH. All municipalities in RS, except for the newly-formed municipality of Stanari, are included in RS treasury system, and RS Pension and Disability Insurance Fund is included since January 1, 2016.

To introduce the system of Public Internal Financial Control (PIFC) in BiH, it is necessary to ensure coordination and harmonization in creating framework regulations in the area of financial management and control and internal auditing at all government levels in BiH. The work of Coordination Board, which is in charge of coordination and harmonization, was halted. Although obliged to do so, not all central units for harmonization prepare the annual report on internal audit and financial management and control.

It is obvious that there is consolidated budget deficit and increase of public debt in BiH, and it is therefore necessary to perform fiscal consolidation that will gradually decrease budget deficit and, in a medium-term, also decrease the level of the public debt. Increase of efficiency in public debt management is also emphasized in BiH Reform Agenda for the period 2015 – 2018. There was no improvement in increasing efficiency of public debt management compared to the planned activities from RAP 1.

RECOMMENDATIONS

Challenges to public finance reform implementation are the high level of the public debt, continuous increase of foreign debt in the period 2008-2015, significant dependence on donor funding, partial development of capacities for internal auditing, financial management and internal control and insufficient financial discipline.

Recommendation is to have continuous cooperation, communication and control of budget and expenditure planning during the whole fiscal year. All government levels need to put additional effort in introduction of program budgeting and monitoring of public spending by programs, and that would be achieved by adopting budgets in program format in parliaments.

In order to have parliament and public included in process of budgeting and reporting, the reporting process needs to be continuously improved, and preparation and dissemination of “budget for citizens” must be obligatory. Establishing the Coordination Body that contains representatives of financial units (FBiH, institutions of BiH and BD) should determine the exact capacity for introduction of international accounting standards for public sector and accrual accounting model. FBiH, institutions of BiH and BD need coordination with the aim of obtaining donors’ support in introducing international accounting standards and accrual accounting.

Since the system of treasury operations has not been introduced in significant number of municipalities in FBiH, it is recommended to look for donors’ support in funding introduction of treasury system in FBiH municipalities, FBiH Social Welfare Funds and at cantonal level.

All government levels need to continue to work on a comprehensive development of PIFC because, along with ensuring legality and compliance in the expenditure of funds, it is also necessary to achieve prudence, efficiency and effectiveness in the management of public budgetary resources. It is necessary to have the work of Coordination Board resumed, and all central harmonization units should engage in PIFC strategy implementation.

BiH should put an effort into decreasing the level of public debt. It is necessary to have all levels of government in BiH agree on adopting the unique methodology of public debt management, and to establish better coordination between Entities and BiH Council of Ministers. In 2015, FBiH adopted the Strategy of Debt Management for the period 2016 - 2018, and it is recommended for other levels of government to speed up adoption of their debt management strategies.

Monitoring of Public Administration Reform Results in the Area of Public Finance in 2015