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 public sector wage bill constitutes a significant share of total government expenditure. At present, it is significantly higher than in most neighboring European... Show More + Union (EU) member countries. This is largely due to higher average levels of compensation, rather than higher levels of staffing. While wage spending has fallen recently this is not the occasion to be sanguine about the Government's wage and employment policies. There are two reasons. First, continuing control over the wage bill is a key part of the Government's overall deficit reduction strategy. Given the Government's reluctance to raise taxes and the difficulty it confronts in reducing other major categories of expenditures (particularly pensions), restraining the wage bill is critical to fiscal sustainability. In connection with its standby arrangement with the International Monetary Fund (IMF), the government is committed to enacting fiscal responsibility legislation which would cap wage bill spending at eight percent of gross domestic product (GDP) over the medium term. To date, the Government has been relying on blunt instruments to achieve this target; most importantly a freeze on nominal wages and a partial freeze on the creation of new positions, both introduced in 2009. As the current recession eases, pressures to increase wages are mounting. The wage freeze is becoming politically unsustainable. More nuanced methods of restraining the wage bill are required. Second, over the longer term, the present policy of continuous wage and position freezes would undermine the quality of public administration. Persistent wage freezes would make it difficult to attract and retain competent staff. Persistent position freezes would lock in existing patterns of over- and under staffing. On the other hand, a reversion to the former system of ad hoc adjustments in staffing and wages could set the stage for unsustainable wage bill growth in the future. Structural reforms are therefore required. 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 -

The primary objective of this Public Financial Management (PFM) assessment is to provide an assessment of the strengths and weaknesses of the PFM system in the Republic... Show More + of Serbia, which can help the government to prioritize and measure progress in PFM reform. This assessment of Serbia's PFM performance is based on 28 indicators developed by Public Expenditure and Financial Accountability (PEFA) and organized around 6 pillars representing core dimensions of PFM performance. PFM performance, as measured by PEFA indicators, informs of key outcomes in public expenditure management (fiscal discipline, allocative efficiency, and operational performance). PEFA assessments provide snapshots of a country's PFM performance allowing for international comparisons. Repeated assessments aim at assisting governments in monitoring the progress of PFM performance over time. The scores are assigned in accordance with the interpretations and the scoring methodology provided by PEFA. Show Less -

Beginning in the late 1990s, Montenegro's economic reform program reached momentum in the early 2000s. Its reform program rested on two broad pillars: macroeconomic... Show More + stabilization, and market-oriented structural reforms. However, the macroeconomic and structural reforms have yielded modest economic recovery and transition, holding a current account deficit, which although still high, is improving; yet its principal human welfare indicators such as poverty, life expectancy, and adult literacy remained moderate and stable. But significant challenges remain. Three key challenges confront policy makers in Montenegro. First, past economic growth has been inadequate. Second, the limited growth recovery has not been accompanied by employment growth. Third, despite reforms, Montenegro has become less competitive over the last four years: its real exchange rate, based on movements in unit labor costs, has risen much faster than that of the European Union (EU) zone and the United States. Therefore, recommendations suggest key labor market reforms need to be undertaken to increase employment, growth, and competitiveness, through specific measures to: control the rapid wage growth witnessed in recent years; relax some aspects of the labor regulations; and, reduce the high rates of labor taxation, in a fiscally responsible way to encourage formal employment. Enterprise privatization and restructuring needs to: speed up the restructuring of the mass-voucher- privatized companies, and, speed up the consolidation into majority shares of the companies' shares being traded on stock exchanges. Furthermore, key constraints facing the emerging private sector, including businesses in the informal sector, must be removed, reducing specific governance and regulatory bottlenecks, and the backlog of commercial court cases, to speed up contract enforcement; while in addition, land title transparency and property rights must be improved. The cost of capital needs to be reduced, and financial intermediation improved, while employment creation, growth, and competitiveness should be increased through Government's help, by undertaking fiscal reforms. Finally, tourism holds considerable promise for Montenegro's export-oriented growth, and employment creation. Show Less -

This Public Expenditure and Institutional Review (PEIR) aims to help the government of the Federal Republic of Yugoslavia (FRY) in taking their public expenditure reforms... Show More + further. It analyzes public expenditure practices, and institutions of the two Republics - Serbia and Montenegro - and of the Federal Government, and, evaluates their decision-making, and implementation processes. The cross-cutting topics of the PEIR are: sustainability of public expenditures; strategic allocation of public spending, to maximize growth and welfare within fiscally sustainable limits; and, accountability of the public expenditure system, needed to maintain domestic, and international support for the reconstruction programs of the two Republics. The success of reforms depends on difficult strategic choices: 1) the inherited, distorted fiscal systems, and inefficient budget management practices, call for a realistic focus in selecting the goals of reform; 2) the best solution choice must be derived from the existing structures, and practices; and, 3) the Governments of Serbia and Montenegro should focus on deepening the reforms already initiated, rather than launching a number of new ones. The first volume provides an overview of the public expenditure reform agenda; volume two focuses on the Republic of Serbia and the Federal Government, while volume three discusses public expenditure management issues in Montenegro. The public expenditure problems of the Federal level receive a somewhat limited treatment, as the contours of the future union government takes shape. Similarly, challenges of fiscal decentralization below the Republic level, receive only a brief treatment, actually only in the Serbia volume. Show Less -

This Public Expenditure and Institutional Review (PEIR) aims to help the government of the Federal Republic of Yugoslavia (FRY) in taking their public expenditure reforms... Show More + further. It analyzes public expenditure practices, and institutions of the two Republics - Serbia and Montenegro - and of the Federal Government, and, evaluates their decision-making, and implementation processes. The cross-cutting topics of the PEIR are: sustainability of public expenditures; strategic allocation of public spending, to maximize growth and welfare within fiscally sustainable limits; and, accountability of the public expenditure system, needed to maintain domestic, and international support for the reconstruction programs of the two Republics. The success of reforms depends on difficult strategic choices: 1) the inherited, distorted fiscal systems, and inefficient budget management practices, call for a realistic focus in selecting the goals of reform; 2) the best solution choice must be derived from the existing structures, and practices; and, 3) the Governments of Serbia and Montenegro should focus on deepening the reforms already initiated, rather than launching a number of new ones. The first volume provides an overview of the public expenditure reform agenda; volume two focuses on the Republic of Serbia and the Federal Government, while volume three discusses public expenditure management issues in Montenegro. The public expenditure problems of the Federal level receive a somewhat limited treatment, as the contours of the future union government takes shape. Similarly, challenges of fiscal decentralization below the Republic level, receive only a brief treatment, actually only in the Serbia volume. Show Less -

In designing country-specific legal reform assistance, the World Bank uses legal and judicial assessments to identify problem areas, facilitate discussions with governments... Show More + to define reform objectives, and plan specific activities. The Legal Department of the World Bank undertook a Diagnostic Study of the legal, judicial and institutional framework of the Federal Republic of Yugoslavia (FRY)with a view to identifying the nature and extent of the reforms that might be necessary to modernize the Yugoslav system of justice. The Diagnostic Study describes the Yugoslav legal and judicial system at the federal level and at the level of the constituent republics, Serbia (with the exception of Kosovo which is under the administration of the United Nations) and Montenegro. It identifies the principal problems and needs, assesses the capacity of key legal institutions, and recommends policy reforms required to support the country's long-term development objectives. The Diagnostic Study also provides a brief overview of the international organizations and donors involved in legal and judicial reform in the FRY and the reform program of the World Bank in particular, and the coordination of donor assistance to the FRY. Show Less -

This report focuses on the major normative concepts of the Yugoslav system as reflected in the Constitution of 1974, in the legislation emanating from it, and in the... Show More + extensive discussions about system questions which were and still are being conducted. It is restricted to those concepts which directly or indirectly affect matters of economic management. Volume I, An Economic System in Evolution, includes a brief overview from 1954 until the present, as well as a discussion of medium-term prospects. Volume II sets out in a systematic fashion the basic framework within which economic management of the Yugoslav system is to function. With this as a point of reference, Volumes III and IV present the development issues. Strengths and weaknesses and costs and benefits of the system are addressed whenever the evidence is strong. Volumes V and VI comprise the appendices, with Volume VI devoted entirely to input-output analysis. Show Less -

Yugoslavia has been moving progressively from a centrally planned economy towards a decentralized market-oriented economic system based on workers self-management and... Show More + increased exposure to international competition and trade. Since 1968 the economy has been characterized by a rapid increase in production, the emergence of serious inflationary pressures and increasing balance of payments deficits. Inflationary pressures reflect excess demand as well as cost push factors. A major legislative reform was recently adopted which is expected to impose financial discipline and increase the effectiveness of demand management. An income policy is also being developed. Improvements in the mechanism and criteria for resource allocation are necessary. Moreover, regional disparity in incomes has tended to increase, and the balance of payments situation remains a serious constraint. The objectives of the Five-Year Plan include controlling inflationary pressure, improving the balance of payments situation and reducing import elasticity, and improving resource allocation. Prudent external debt management is also necessary. Show Less -