Strengthening mechanisms for public finance to reduce regional disparities in Montenegro

In the next two years UNDP will contribute to Montenegro’s efforts to  strengthen public finance at the local level in terms of responsible management of municipal budgets, debts and assets. Funded by the Kingdom of the Netherlands with about €800.000, this project should assist municipalities in achieving more professional, accountable, transparent and efficient public finance management so that they may better serve its citizens.

The project was initiated by UNDP, in close cooperation with the Ministry of Finance, Ministry of Internal Affairs, Union of Municipalities. In order to reflect the actual needs as realistically as possible, the project was developed on the basis of concrete suggestions that all municipalities submitted in response to a specifically tailored questionnaire.

The project “Strengthening mechanisms for public finance at the local level in Montenegro” aims to introduce more responsible spending of the budget that will be based on the results and planning of capital investments and strategic priorities in the country and  municipality level. The aim is also to raise standards in the field of public finance at the local level through training of officers and councilors in the municipalities in the area of budget planning and monitoring of its execution. Increasing knowledge will facilitate access to European funds and other sources of funding such as the use of municipal bonds.

The framework for further and stable financing of local governments has been set up through new regulatory arrangements enforced in January this year, and the government expects that completion of the project will ensure safety, stability and sustainability of public finances at the local level.

The Ministry of Finance hopes that the project implementation will help achieve transfer of knowledge and best practices in the area of ​​public finance management. Ms. Biljana Šćekić, Assistant Minister of Finance for tax and customs system said: “For us it is very important that this project will further build the capacity of local governments for the evaluation of the fiscal capacity of the law, as well as for efficient planning and revenue. Here we expect especially the transfer of knowledge in terms of best practices in the areas of ​​public finance and more efficient collection of revenue.”

According to the Ministry of the Interior, the project is primarily significant because of its transparency and sustainability. Through the strengthening of public finance mechanisms, citizens will be enabled to participate in the work on preparation and budgeting in each local government, and active participation of NGOs will be increased. Assistant Minister of the Interior for local self-governance Mr. Mladen Jovović explained that the relationship between municipalities would be regulated with the development strategy of inter-municipal cooperation, which the Government will adopt by the end of the month, while budgets will be designed in accordance with the results of local governments. “Citizens and non-governmental sector will participate in the work on preparation and budgeting of each local government an this will, most notably, increase the sense of responsibility in budgeting. Also, transparency as a new element in this project will be very important for the future position of the NGO sector which has been clearly defined by the local government legislation; because the NGO sector has been enabled to participate in the work of all local governments. Transparency and accountability are also expected by the providers of financial support,” Mr. Jovović emphasized.

The Union of Municipalities sees concrete benefits from training in various segments of the public finance management, exchange of experiences and mutual cooperation. Mr. Rajko Golubović, Association of Municipalities Secretary said: “All these activities should contribute to strengthening the administrative capacity of local governments and their professionalism, which is one of the requirements to be met by Montenegro on the path of European integration. The Union of Municipalities has for these reasons given strong support to this project, and all of its capacity will be involved in its implementation. In particular we see the benefit from training in various segments of the public finance management, strengthening of the municipal bond market and enhancing mechanisms for promoting fiscal equalization in Montenegro, as well as exchange of experiences with colleagues, study visits and other interactive forms indicated in the project.”

The Royal Netherlands Embassy also expects positive results of the project. Not only municipalities but also the state will benefit, it is their opinion. “The project for the strengthening of public finance at the local level in Montenegro is aimed at the specific needs of municipalities and will include strengthening the capacities of members of the Commission for monitoring of fiscal equalisation system. It should stimulate municipal cooperation and exchange of experiences, transparent and effective sustainable public finances. Accountable, transparent and efficient public finance management is the hallmark of professional local government that wants to be in the service of its citizens, and it is also essential in the fight against corruption and organized crime. In the end, accountable and transparent financial management is important for full membership in the European Union,” said H. E. Mr. Erik Petersen, Representative of the Embassy of the Kingdom of the Netherlands.

UNDP Democratic Governance Cluster Leader in Montenegro Ms. Sanja Bojanić thinks that one of the main goals of the project is to contribute to creating conditions for the alleviation of regional disparities, which is very important for Montenegro. “It is about supporting the implementation of the national Law on Regional Development, and this project will provide the technical and professional assistance to two of the less developed municipalities in terms of preparation of strategic plans and capital budgets. Estimation of the fiscal capacity of all local governments is also planned, as well as a series of trainings aimed at improving the understanding how fiscal equalisation system functions. The project’s purpose is also to raise standards through training of municipal officials for planning budgets and council members for supervising their execution. Exchanges of experiences are also anticipated in domain of using municipal bonds to finance infrastructure projects, debt management, municipal property and public debt. All this is important from the functional aspect of municipalities, but also from the perspective of the European integration process on which there is a lot of talking in terms of raising knowledge to the level that will facilitate access to European funds and other forms of financing.”

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The purpose of the project „Strengthening mechanisms for public finance at the local level in Montenegro“ is providing support to improve the capacity of partners at local and state level for introducing transparent and accountable budgeting based on results, followed by planning of capital investments and strategic priorities at the local and state level.

The project consists of three components:

1.     The introduction of mechanisms for transparent and accountable management of public finances at the local level and their implementation;
2.     Strengthening municipal bond market in Montenegro through a better understanding of the benefits and opportunities for municipalities;
3.      Improving mechanisms for fiscal equalization in Montenegro.

The Agreement on project implementation was signed in December 2010, between the Montenegrin Ministry of Finance and UNDP Office in Montenegro, with financial support from the Kingdom of the Netherlands. Key project partners are the Ministry of Finance, Ministry of Internal Affairs, Union of Municipalities of Montenegro and municipalities themselves.

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