Serbia

This report was prompted by a concern, voiced by the Ministry of Finance and Economy, the Fiscal Council and some members of the donor community that local governments... Show More + in Serbia are contributing too little to the resolution of Serbia's current fiscal problems. Since the onset of the European economic crisis in 2008, the central government has confronted declining real tax revenues and stubbornly high expenditure obligations. While it has been slow to adjust, there is evidence that the new government now intends to make significant fiscal adjustments, by both raising revenues and cutting spending. Local governments, on the other hand, have been partially shielded from the revenue downturn, through a recent increase in their share of the payroll tax and a relaxation of subnational debt ceilings. As a result, local governments are now part of the deficit problem, rather than part of the deficit solution. This report is aimed at reversing this situation; at finding ways in which local governments can contribute to the reduction of the consolidated fiscal deficit. In the process, it examines the nature of local government spending, the functions that local government provide, with an eye to identifying how these services might be provided more cost effectively. Show Less -

Serbia's ability to achieve macroeconomic stabilization and restructure its public finances has been, and will continue to be, impacted by the policy actions of its... Show More + sub-national governments. For the purposes of this paper, these include the province of Vojvodina and municipal governments. In many countries, the fiscal performance of sub-national governments has created problems for macroeconomic management through the running of deficits, accumulation of arrears, or the incurring of debts which must eventually be covered by the central government. This chapter examines the experience to date and the institutional mechanisms for macroeconomic management at the sub-national level in Serbia. The next section of this chapter reviews the fiscal performance of Serbian sub-national governments, especially in relation to the Republican government's ongoing efforts to restructure the public sector. A key finding is that the composition of public expenditures evolved quite differently at the Republican and sub-national levels, especially during the successful fiscal consolidation of 2003-2005, when control of spending on wages and salaries and on enterprise subsidies at the central level was not matched at the sub-national level. The increase in subsidies to municipal enterprises, combined with the growing arrears of such firms, points to a need to focus on their restructuring and governance. The third section reviews the institutional framework for macroeconomic management in the sub-national governments. Since 2002, a number of important laws have strengthened the framework for regulating the finances and borrowing of sub-national governments. The capacity of the Ministry of Finance to monitor and report on fiscal outcomes has also improved significantly. As a result, over the last several years, sub-national governments have broadly adhered to their spending and debt limits. However, further delays in the restructuring of municipal enterprises, coupled with the likely emergence or growth of new financing sources for sub-national governments (including borrowing and the proceeds from privatization and other asset sales), could create additional spending pressure and lead to larger deficits at the sub-national level. The fourth and final section summarizes the main conclusions of this chapter. Show Less -