20220710-IMF-North_Macedonia_Technical_Assistance_Report_-_Public_Expenditure_and_Financial_Accountability_Performance_Assessment_183页_1mb

Summary of the Public Expenditure and Financial Accountability (PEFA) Performance Assessment in North Macedonia

Core Content

This document is a Technical Assistance Report on the Public Expenditure and Financial Accountability (PEFA) performance assessment in Republic of North Macedonia, prepared by the International Monetary Fund (IMF) and the World Bank (WB). The report was completed in December 2021 and delivered in January 2022, following the 2016 PEFA Framework. It is the second successive national PEFA assessment in the country, with the first conducted in 2015 using the 2011 PEFA Framework.

The assessment aimed to evaluate the performance of the country's Public Financial Management (PFM) system and support the government in identifying reform priorities. It covered the last three completed fiscal years (2018–2020) and was based on 31 PEFA indicators across seven PFM pillars. The PEFA Secretariat confirmed the report meets quality assurance requirements and is endorsed with the "PEFA CHECK" label.

Main Findings

Key Strengths

• Budget formulation, credibility, and transparency: Deviations between executed and original budgets are generally manageable, except for revenue in 2020 due to the pandemic. Budgets are presented in line with administrative, economic, functional, and program classifications.
• Budget execution: Predictability of funds is robust, supported by cash flow forecasting and monitoring. Hard controls at the payments stage ensure adherence to approved allocations. Expenditure arrears are low, and internal controls, including payroll controls, are generally sound.
• External audit and parliamentary scrutiny: The State Audit Office (SAO) is independent and audits the central government’s budget execution annually and in a timely manner. Parliamentary procedures for reviewing the annual budget and audit reports are appropriate and timely.
• Debt management: The Ministry of Finance is responsible for government borrowing, and a three-year debt management strategy is in place with public reporting.

Key Weaknesses

• Medium-term planning and budgeting: While the government has adopted a three-year Fiscal Strategy, it lacks quantification of fiscal impact, explanations of changes in revenue and expenditure, and progress tracking towards fiscal outcomes.
• Fiscal risk management, public investment, and asset management: These areas are underdeveloped and lack comprehensive regulations, guidelines, or standard criteria. Risk monitoring is basic, and there is no dedicated system for managing capital investments or public assets.
• Performance information and management: Program budgeting is underdeveloped. There is no established mechanism for comparing results with targets, and the reliability of performance data is uncertain.
• Accounting and reporting: In-year budget execution reports are only comparable at the administrative and highly aggregated levels. There is no information on commitments or liabilities. Annual financial statements are submitted on time, but accounting standards are not disclosed.

Key Areas for Improvement

• Enhancing medium-term planning: The current system is formalistic and provisional, and the introduction of a fiscal rule could be detrimental to fiscal discipline.
• Strengthening fiscal risk management: A more comprehensive and institutionalized approach is needed, especially for public corporations and local governments.
• Developing program budgeting and performance management: Formal adoption of program budgeting and performance measurement systems is essential for efficient service delivery and long-term impact maximization.
• Improving transparency and data integrity: Consolidated financial statements and more detailed reporting on revenue and expenditure are required to ensure comprehensive fiscal oversight.

Methodology and Timeline

• Assessment Type: Second national PEFA assessment, funded by the IMF and WB, with an in-kind contribution from the government.
• Methodology: Followed the PEFA Secretariat's guidance, including the use of PEFA Handbooks.
• Timeline:
  • April 21, 2021: Training on PEFA methodology.
  • April 22 to May 21, 2021: Data collection mission.
  • May to July 2021: Drafting the report and additional data requests.
  • Final report delivered in January 2022, endorsed with the "PEFA CHECK" label and published in English and Macedonian.

Scope of the Assessment

• Coverage: Central government, social security funds (Health Security Fund, Employment Agency, Pension and Disability Fund), and extra-budgetary units (EBUs).
• Indicators: All 31 PEFA indicators across seven PFM pillars were applied.
• Data Sources: Primary data was gathered through interviews with officials and review of government documentation. Additional input came from non-government stakeholders, including international organizations and donors.

Conclusion

The PFM system in North Macedonia has shown overall improvement compared to the 2015 assessment, particularly in budget formulation, execution, reporting, and external oversight. However, medium-term planning, fiscal risk management, public investment and asset management, and performance measurement remain areas for continued reform. The assessment highlights the need for more formalized and comprehensive systems to ensure fiscal sustainability, efficient service delivery, and transparent governance. Major reforms are pending parliamentary approval of the relevant authorizing legislation.

Key Indicators and Scoring

The report includes a detailed chart of PEFA performance indicator scores for 2021, indicating an overall improvement from the 2015 assessment. 11 indicators maintained the same rating, 11 indicators showed improvement, and 6 indicators showed deterioration (two due to reinterpretation of evidence). The most improved areas include monitoring of arrears, tax administration, public procurement, internal controls, in-year budget reporting, external audit, and legislative scrutiny.

Notes

• The assessment cut-off date was June 30, 2021, used for data collection and analysis.
• The country fiscal year runs from January 1 to December 31.
• The exchange rates used were 1 EUR = 61.6940 MKD and 1 USD = 50.2353 MKD (as of December 31, 2020).
• The PEFA Secretariat and IMF provided oversight and coordination during the assessment process.