Mr. President of the Parliament, Prime Minister, Ministers of Finance, Diplomatic Community,
Ladies and Gentlemen,
I am pleased to have the opportunity on this 26th Anniversary of Macedonia’s first budget to share with you some thoughts on how Macedonia’s ongoing efforts to strengthen public financial management has the power to increase trust in government, ensure the sustainability of public finance, and reinforce wider societal shifts towards inclusion and growth.
Governments that are efficient and accountable are better at delivering services, protecting the poor, and creating an environment that supports private sector growth and job creation. But more than half the global population expresses distrust in government institutions; businesses and individuals pay an estimated $1 trillion in bribes annually; in many countries, too little taxes are collected to cover basic services; and available public resources are not always spent well
Addressing challenges of the PFM system should be a central part of any government’s reform agenda as part of a broader effort to ensure transparency and sustainability of public finances. I am glad to see this is the case in Macedonia today.
In 1992, as a new nation, Macedonia enacted its first budget. Less than a dozen years later, it was a regional leader in terms of transparency of its public finances. It exercised fiscal prudence by using fiscal surpluses in good times to prepay part of its public debt in 2008. This put Macedonia in a strong position to face the global financial crisis with enough fiscal reserve to support its citizens and economy with countercyclical policy response.
However, in more recent history, there have been some setbacks over the past five years. Budget planning became less reliable and more focused on the short-term. Arrears reemerged—currently standing at 3.5 of GDP. Off-budget spending increased. And transparency deteriorated.
But today, the path forward seems promising. The Government has put strong public financial management among its top priorities. It has adopted a comprehensive reform program that is ambitious in design, and when implemented, would address important weaknesses. And, it is not just talk -- implementation has started, including measures that are already radically increasing the transparency of the budget process. Let me highlight four specific actions:
- To improve the engagement of citizens in the budget process, a citizens’ budget accompanied the supplementary budget for 2017, and the same practice was followed for the 2018 budget.
- All agreements on public procurement are now available on the Public Procurement Bureau’s website allowing for comparisons of costs across public entities.
- A backlog of Government Financial Statistics Yearbooks have been published using the IMF’s internationally recognized statistical reporting framework. This is an important element in strengthening the capacity to formulate fiscal policy and monitor fiscal developments.
- Fiscal data on local governments and a complete set of macroeconomic indicators (including forecasts) have been published for the first time.
Furthermore, the Ministry of Finance is working on new Organic Budget Law, a new Debt Law, and a new Treasury system—all of which will support significant improvements to PFM functions and outcomes.
This is an impressive start!
Going forward, the priorities that the World Bank sees for public financial management reform are aligned with those identified in the Government’s Strategy.
In the short-term, we see as top priority developing a strategy for the clearance of arrears that is orderly, transparent and credible.
In the medium-term, let me note six areas:
- Strengthening the treasury information system, including through better ability to control and monitor commitments
- Strengthening macro-fiscal forecasting and reporting by enhancing the capacity within the MOF and increasing accountability for forecasting
- Developing a comprehensive Medium-term Budget Framework that prioritizes and allocates resources within a multi-year planning horizon
- Ensuring that public investment management considers costs/benefits and screens against implementation readiness
- Increasing competitiveness in public procurement contracts; and
- Reducing fiscal risks including through monitoring and reporting on off-budget operations and controlling and managing fiscal risks.
I would also like to emphasize how important it is to increase efficiency of public spending to make the economy more competitive and the overall quality of public service delivery more effective. A comparison of actual spending with the amount that should be necessary to achieve the same output suggests that there could be savings of more than 13 percent. This is equal to the total capital spending every year.
The forthcoming Public Finance Review done by the Bank in collaboration with the Government, suggests that significant efficiency improvements can be achieved in education, social protection, health, infrastructure maintenance, and agriculture.
PFM reforms that increase transparency can increase trust in government. Strong PFM systems provide the tools for sustainable public finance and inclusive policy making. And transparent, stable systems increase the confidence of private business to invest and grow the economy.
In closing, let me highlight three ingredients that we see in successful PFM reform programs around the world.
First is the leadership and commitment – at both the political and technical level.
Second are the reforms that take on board international good practices but makes sure that they are appropriate to each country’s own unique context.
Third is a reform process that is adaptive, iterative and inclusive – that monitors, learns, and makes needed adjustments during implementation.
From what I see, Macedonia has the ingredients to make its reforms successful. The World Bank, along with other development partners, stand ready to support.