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Achievements and Challenges in the Management of the Public Finances in Kosovo


Achievements and Challenges in the Management of the Public Finances in Kosovo (Miami, 21-25 May, 2007) Behxhet Brajshori Deputy Minister of the Ministry of Economy ... – PowerPoint PPT presentation

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Title: Achievements and Challenges in the Management of the Public Finances in Kosovo


Achievements and Challenges in the Management of
the Public Finances in Kosovo (Miami, 21-25 May,
Behxhet Brajshori Deputy Minister of the
Ministry of Economy and Finance

  • Kosovo in context
  • Development of financial institutions
  • Economic Indicators
  • Budget Process
  • Treasury Responsibilities
  • KFMIS Overview
  • Procurement in Kosovo
  • Internal Audit
  • PEFA Indicators
  • Lessons learned
  • Opportunities and Challenges

  • Capital Prishtina
  • Surface are 10,877 km2
  • Population 2,2 milion
  • Languages Albanian, Serbian and English
  • Currency Euro

  • Until 1989, Kosovo enjoyed a high degree of
    autonomy within the former Yugoslavia, when
    Serbia altered the status of the region, removing
    its autonomy and bringing it under the direct
    control of Belgrade, the Serbian capital.
  • During 1989 -1998 period former Serbian regime
    applied discriminating measures in all the areas
    in Kosovo, including the economy, by implementing
    the so called Economy integration of the public
    enterprises in Kosovo with those in Serbia
  • The Kosovar Albanians strenuously opposed the
  • Despite these measures the situation in Kosovo
    escalated again with the start of the war in the
    beginning of the 1998

Key Events
  • NATO supported and reinforced the Contact Group
    efforts by agreeing on 30 January to the use of
    air strikes if required, and by issuing a warning
    to both sides in the conflict.
  • Serbia refused to comply, and on 23 March the
    order was given to commence air strikes

Key Events
  • On 10 June the UN Security Council passed the
    resolution (UNSCR 1244), installing United Nation
    Mission in Kosovo
  • The NATO troops entered Kosovo on 12 June, 1999.
  • By 19 June, the Serb troops withdrawal from
    Kosovo was complete.

Key Events
  • Following the elections in November 2001 the
    Provisional Institutions of Self-Government were
    established which include the President, the
    Assembly, and the Government of Kosovo.
  • Kosovo has gone through four different elections
  • - Two for the local government and
  • - Two for the National Parliament
  • Currently Kosovo has full consolidation of the
    institutions in both levels local and national

Development of the Financial Institutions
  • Kosovo infrastructure and economy was damaged
    heavily during the war, and there was a need for
    development of a fiscal management system
  • UNMIK established Central Fiscal Authority (CFA)
    to manage public finances (UNMIK/REG/1999/16)
  • CFA consisted of four divisions (Tax, Customs,
    Budget and Treasury) and the Internal Audit

Ministry of Economy and Finance Policies
  • Ministry of Economy and Finance is accountable
    for coordination and financial management of
    Kosovo Budget. Main activities of Ministry
  • Development and implementation of fiscal policies
    and administration systems
  • Economical analyses and macroeconomic forecasts
  • Budget planning
  • Development and implementation of centralized Tax
  • Development and implementation of a centralized
    Treasury and Accounting system.

Economic Indicators
Economic Indicators
Budget Process
  • Government approves the Medium Term Expenditure
    Framework (MTEF), based on government priorities
    of different sectors
  • Government also approves different projects for
    capital investments
  • Kosovo Consolidated Budget is based on three year
    MTEF macroeconomic projection

Budget Process
  • May Budget Organization submit their initial
    requests for continuing projects and for the new
  • June Submission of the budgets from the budget
  • August Budget hearings
  • September Government approves draft budget
  • October 2008 Budget Submission to the
  • December Parliament approves the budget

  • Financial Reports (monthly, quarterly,
    bi-annually, annual)
  • Budget Planning
  • Property Tax Policy
  • Monthly bulletins on economic and business
    activity in the western Balcans
  • Miscellaneous Information

  • Main Treasury responsibilities are envisaged
    within the Law on LPFMA. The responsibilities
  • Management of the Kosovo Consolidated Fund,
  • Management of Bank Accounts,
  • Management of Funds Expenditure,
  • Establishment of Processes for Collection of
    Public Funds,
  • Set up and Maintenance of Accounting Records,
  • Preparation of Financial Accounts, and
  • Maintenance of Financial Rules

Treasury Organization
Treasury Organization
  • Revenues Division
  • Payments Division (five regional offices)
  • Reporting and Accounting Division
  • Fund allocation and Cash and Debt Management
  • Financial Management and Control Division
  • Administration and Information Technology
  • Grants division

Project Goals
  • Treasury overall vision is to achieve best
    practice in management of public funds by the
    Government of Kosovo.
  • Financial management system to help control
    government financial processes
  • Provide with means to record the entire budget
    cycle from planning, to execution, to accounting
    for the actuals, revenues and forecasting for
    future years
  • Provide with tools to account and report on the
    macroeconomic indicators

Project Goals
  • Transparency and accountability
  • Must comply with multiple accounting and
    reporting requirements World Bank Treasury
    Reference Module, International Monetary Fund
    Government Finance Statistics, International
    Public Sector Accounting Standards,
    best-practices, donors, creditors, administrative
    rules, and regulations
  • Support local capacity building and
  • Multi-language capability (Albanian, Serbian and

Early days
  • Late 1999 meeting with WB and IMF about
    challenges in transition governments.
  • Early 2000 FreeBalance arrives in Kosovo
  • 26 days later FreeBalance Foundation installed
    original configuration six months of data
    captured - reports to CFA and donors
  • No custom code configuration regularly modified

Treasury System Characteristics
  • KFMIS is designed specifically for government
  • Rapid deployment
  • Flexible configuration
  • Processes not over engineered (intuitive easy
    to learn)
  • Scaleable
  • Expandable solution (core system can be extended
    via modules)

KFMIS Overview
  • Kosovo Financial Management Information System
    (KFMIS) implemented to record, manage and report
    on all budget, commitment, expenditure and
    treasury management functions
  • Multi-language system (English, Albanian, and
    Serbian) supports budget process and timely
    processing of government payroll for over 70,000
    civil servants

KFMIS Overview
  • Electronic processing of transactions
  • Central database with decentralized process
    implementation where decentralized institutions
    (ministries, agencies, municipalities etc) are
    provide with direct connectivity access for real
    time transaction processing and reporting
  • Integrated system forms enable standardization of
    forms used by all budget spending units thus
    preventing corruption and data entry mistakes

Treasury Development
  • CBAK interface 95 of all payments transmitted
    electronically to central bank
  • 15000 Vendors entered in and stored in system
    linked to unique bank accounts
  • Upgrade of key software and hardware this
    commenced large rollout of new functions in 2005

Financial Internal Control within KFMIS
  • Financial Legal Framework underpinned by KFMIS by
    integrating key processes and decisions into
    KFMIS (commitments, approving and spending public
  • Enhanced internal controls within budget spending
    units by creating separate roles (functional
    classes) and groups of users (user groups) with
    access to the system in accordance with budget
    spending units position hierarchy
  • Treasury determines user level of access
    (reporting, commitment, revenue recording)
  • High quality certification program for the budget
    spending units and their staff, to ensure the
    correctness of data and reduce errors during
    transaction processing

KFMIS Results
  • KFMIS is a critical component of Kosovos
    democratic development and economic
    liberalization program.
  • Kosovo now has a comprehensive, uniform financial
    management system.
  • All budget organizations and all major revenue
    agencies are now connected to the KFMIS.
  • Enables comparison of accounting data at all
    levels of government and between all institutions
    in real time.

  • On June 9th, 2004 the Assembly approved the Law
    on Public Procurement, establishing two central
    institutions for public procurement
  • Public Procurement Regulatory Body
  • Public Procurement Agency
  • About 110 contractual authorities are established
    in the municipalities, ministries and public

Public Procurement Regulatory Body  
  • Responsible for the development of the entire
    public procurement system in Kosovo
  • Ensures that the public funds are spent in a
    transparent, effective and rational manner, in
    order to encourage competition and respect the
    equality of bidders in the public procurement
  • Has the authority to ensure compliance with the
    Law on Public Procurement in Kosovo
  • The Board of Public Procurement Regulatory Body
    consists of five members, nominated by the
    government and selected from the Assembly of

Public Procurement Agency
  • Public Procurement Agency is formed by the
    Government of Kosovo
  • Director is proposed by the government and
    nominated by the Assembly of Kosovo.
  • Acts on behalf of contractual authorities for
    complex procurements (based on the requests of
    the contractual authority)
  • Manages and leads long term contracts and major
    procurements used by two or more contractual
    authorities (only if authorized by the
  • Reviews and approves procedures negotiated
    without public contract
  • Reviews and approves Item 30.3 of the Public
    Procurement Law when there are less than three

Internal Audit
  • The Internal Audit function is established by the
    Law on Public Finance and Accountability in the
    year 2000
  • Capacity building is financed by the European
    Agency for Reconstruction

Internal Control of Public Finance (ICPF)
  • The system consists of four core elements
  • The system of ICPF and Finance Management
  • Internal Audit
  • Central Office on Financial Management and
    Control within Treasury Department
  • Central Office of Internal Audit within MEF

Public Expenditure and Financial Accountability
(PEFA) Indicators
PEFA Indicators
PEFA Indicators
PEFA Indicators
Lessons Learned
  • Technology is an early building block in creating
    good governance and must be introduced in a
    phased implementation to allow absorption of key
    government reforms.
  • Technology should be supported by sound
    governance legislation rules, regulations,
    finance administrative instructions etc.

Lessons Learned
  • The Kosovo environment was unique, the fiscal
    management requirements were NOT
  • System implementation can be achieved in a matter
    of weeks, financial management reform takes years
  • Donor cooperation and coordination was essential
    Donor funding is time sensitive and need driven
  • Success breeds success donor funding flows to
    successful projects gov is energized by
  • Ongoing buy-in from key stakeholders is critical
    for long-term success (there are winners and
    losers in change external encouragement)

Lessons Learned
  • Think big, start small, scale up
  • Phased implementation to allow absorption of key
  • Achieve high-profile wins early to ensure buy-in
  • Ownership within the government
  • Comprehensive Training and Certification Program
    and mentoring of local staff - some are still
    with Treasury after five years
  • High quality team of international budget
    planning and execution, procurement, and FMIS
    experts are necessary to ensure best-practice
    design and implementation
  • Long-term sustainability - total cost of ownership

Challenges Opportunities
  • Several fundamental challenges faced by Kosovo
  • Managing final status resolution.
  • Generating new sources of economic growth.
  • Ensuring macroeconomic stability.
  • Reducing poverty and unemployment.

  • Thank you for your attention!