2007年-世界发展银行全球_Kosovo___Policy_Note_on_Public_Investment_Management_35页_1mb

Summary of the Policy Note on Public Investment Management in Kosovo

A. Introduction

Kosovo has been increasing its public capital spending program since 2000, which now accounts for about 21% of total expenditure under the Kosovo Consolidated Budget (KCB). However, a significant decline in the execution of the capital budget occurred in 2006, raising concerns about the capacity of the authorities to implement a larger capital program. The Ministry of Finance and Economy (MFE) initiated a review to understand the reasons for underspending, which this policy note examines.

The main conclusions are that the lack of medium-term planning and institutional capacity constraints in the public finance management (PFM) system are the fundamental causes of the capital budget underspending. The note outlines the current status of capital spending, the institutional framework, and the challenges in execution and management.

B. Public Investment Spending in Kosovo

Levels of Public Capital Spending

• Capital spending has grown significantly since 2000, reaching €192 million in 2004 before decreasing to €138 million in 2006.
• Capital outlays make up about 21% of total public expenditure in 2006, which is relatively high compared to other countries in Central and South-Eastern Europe (Figure 1).

Sectoral Composition of Capital Spending

• In 2006, 45.2% of capital spending was allocated to the economic matters sector, primarily transport and energy infrastructure.
• 39% was spent on public order and safety.
• Education and health accounted for slightly under 7%.
• These spending patterns reflect the priorities of the Kosovo authorities to rehabilitate economic infrastructure and strengthen public governance.

Capital Spending by Level of Government

• Local governments account for nearly one third of total capital spending.
• Since 2005, local government capital spending has primarily been financed by own source revenues (OSRs).

Role of External Financing

• External assistance to Kosovo declined from €273.4 million in 2003 to €138.0 million in 2005.
• Designated Donor Grants (DDGs) account for only 7% of total capital spending in 2006.
• Donor-funded capital projects are mostly off-budget, with limited alignment with the KCB.

Capital Budget Performance

• Execution rates for capital spending increased from 61% in 2004 to 87.5% in 2005, but fell to 70% in 2006.
• This decline is well below execution rates for other economic categories and has raised concerns about the capacity of the authorities to manage an expanded capital program.

C. Institutional Framework for Public Investment Management

The MTEF and Budget Planning Cycle

• The Medium-Term Expenditure Framework (MTEF) was first introduced for the 2006 KCB and has been rolled forward for the 2008 KCB.
• The MTEF is intended to link the Kosovo Development Strategy Program (KDSP) with the KCB, but this has not yet been fully achieved.
• The 2008-10 MTEF was finalised in early 2007, but its resource ceilings include only limited analysis of capital spending priorities.

The Public Investment Program (PIP)

• The PIP was introduced as a tool to seek and manage development partner support.
• It is now more aligned with the budget process and focuses on domestically financed capital projects.
• The PIP procedures, developed with the assistance of the European Agency for Reconstruction (EAR), require a detailed analysis of investment proposals, including cost-benefit analysis and cross-cutting impacts.
• However, these procedures are seen as potentially too complex for many smaller projects.

Capital Spending Allocations in the Annual Budget

• The Law on Public Finance Management and Accountability (LPFMA) requires a Capital Spending Plan to be included in the annual budget documentation.
• The plan should detail the total cost of each project, broken down by year.
• However, the current KCB only shows allocations for the current year and any carry-over from the previous year, without detailing the total cost or future expenditures.

Budget Execution and Procurement

• The treasury system in Kosovo is robust and provides timely financial reports.
• BOs know their allocations and can proceed with commitments once the KCB is approved.
• Procurement is regulated by the Law on Public Procurement (LPP), which was amended in 2007 to streamline processes.
• The minimum period between Contract Notice and tender deadline for projects over €250,000 was reduced from 52 to 40 days.
• The PPA and BOs handle procurement, with designated officers and a complaints procedure in place.

D. Causes of Capital Budget Underspending

What Should be Considered a Normal Level

• A 70% execution rate is considered normal for capital budgets in Kosovo.
• However, this rate is still lower than the execution rates for other expenditure categories.

The MFE Study of Underspending

• The MFE conducted a study in early 2007 to investigate the reasons for underspending.
• The study identified capacity constraints and procedural bottlenecks as key factors.

Addressing the Underspending Issue

• The study highlights the need for better medium-term planning and institutional capacity building.
• There is a lack of coordination between the MTEF and the annual budget process.
• The PIP process is also not fully integrated with the budget cycle, leading to inefficiencies in project identification and preparation.

E. Capital Investment Identification and Development

Strategic Basis for Investment Planning

• The PIP procedures are based on the Government's strategy and the strategies of individual Budget Organisations (BOs).
• Investment proposals must align with these strategic priorities.

Sequencing of Project Identification and Preparation

• The PIP process involves three steps: identifying the investment requirement, appraising options, and detailing the preferred option.
• The process is designed to ensure that projects are justified, cost-effective, and aligned with strategic goals.

Absence of a Resource Constraint

• The lack of a clear resource constraint in the PIP process may lead to over-ambitious project proposals.

Single Year Focus to Investment Planning

• The current system focuses on a single-year planning horizon, which is not conducive to long-term capital investment management.

Subordination to the Time Deadlines of the Annual Budget

• The PIP process is often subordinated to the annual budget cycle, which can limit the flexibility and strategic focus of capital spending.

F. Budget Preparation and Financing

• Many projects are included in the budget despite being inadequately prepared.
• There is a large number of small investment projects, which may complicate budget management.
• The time horizon for capital spending programs is short, limiting long-term planning.
• Cash-based appropriations have replaced non-lapsing commitment-based ones, increasing the need for timely implementation.
• Municipal capital spending is increasingly financed by local own source revenues (OSRs).
• Externally financed projects are often off-budget and not included in the KCB.
• Publicly owned enterprises (POEs) have their own financing arrangements, which are not always aligned with the central budget process.

G. Capital Budget Execution, Procurement and Monitoring

• Project management is an important component of the capital spending process.
• Preparation for implementation is essential to ensure timely execution.
• Delays in committing funds can significantly impact the start of implementation.
• The procurement process is time-consuming, with a focus on open tendering.
• Multi-year contracts are not widely used, which can lead to inefficiencies in resource allocation.
• Some factors beyond the control of BOs, such as delays in approval, affect budget execution.
• Monitoring of capital spending is an ongoing challenge, as the system lacks the capacity to track long-term projects effectively.

H. Conclusions and Next Steps

The Underlying Causes of Underspending

• The main causes include the lack of medium-term planning and institutional capacity constraints.
• The current PIP and MTEF processes are not fully aligned with the annual budget cycle.
• There is a need for improved coordination and a more strategic approach to capital investment planning.

Next Steps

• Strengthen the medium-term planning framework (MTEF) to align with the annual budget process.
• Enhance institutional capacity for public investment management.
• Improve the integration of the PIP with the KCB and ensure it reflects a realistic and strategic approach to capital spending.
• Address the complexity of PIP procedures to better suit the needs of smaller projects.
• Develop a more comprehensive monitoring system to ensure effective implementation of capital spending programs.