Republic of Montenegro: Public Expenditure and ... - Vlada Crne Gore

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88 Chapter 6: Beyond the National Budget: Fiscal Risks of Local Governments and State-owned Enterprises Table 6.3. Montenegro: Selected Financial Indicators for State-owned Enterprises, 2002-04 (millions €) 2002 2003 2004 EPCG Assets 1,025.8 991.3 1,118.5 Equity 827.9 798.3 918.1 Sales 140.7 157.0 138.9 Operating Balance -35.9 -25.1 -10.8 Idem (in percent of GDP) -2.8 -1.7 -0.7 Operating balance + financing cost -33.5 -30.5 -14.2 Idem (in percent of GDP) -2.6 -2.1 -0.9 PCG Assets 23.5 23.5 24.4 Equity 20.1 18.5 20.7 Sales 13.0 12.7 12.5 Operating Balance -0.9 -2.4 -0.9 Idem (in percent of GDP) -0.1 -0.2 -0.1 Operating balance + financing cost -0.4 -1.6 -0.1 Idem (in percent of GDP) 0.0 -0.1 0.0 Montenegro Airlines Assets 30.6 33.8 35.8 Equity 26.5 26.6 26.6 Sales 16.3 24.5 29.6 Operating Balance 0.1 0.1 0.2 Idem (in percent of GDP) 0.01 0.01 0.01 Operating balance + financing cost 0.0 0.0 0.0 Idem (in percent of GDP) 0.00 0.00 0.00 Memorandum Nominal GDP 1,302.0 1,441.0 1,531.0 Real GDP growth (in percent) 3.8 2.7 7.2 Source: Enterprises' annual reports. Government Oversight D. CONCLUSIONS AND RECOMMENDATIONS 6.18 The state government urgently needs to strengthen oversight over local governments and SOEs. The MoF gathers partial information on local governments (i.e., excluding their extra-budgetary activities), does not check its accuracy, nor sanctions delays or inadequate reporting from local governments. In addition, there is no centralized information on the SOE sector, and SOE liabilities guaranteed by the government are the only data available on the SOE sector at the MOF. Thus, if the financial position of local governments or SOEs were to weaken unexpectedly, the state government could find itself in a situation where it is asked to provide financial support without adequate information. 6.19 To strengthen oversight, the MoF should set up a unit to monitor the operations and financial activities of local governments and SOEs. The unit should collect and compile quarterly statements on consolidated municipal government accounts (including extra-budgetary activities), and liabilities (including arrears and overdrafts). This information should be
Chapter 6: Beyond the National Budget: Fiscal Risks of Local Governments and State-owned Enterprises 89 reconciled with data on municipal bank accounts that would be provided by the central bank. The unit should also create a database on SOEs, collect and compile quarterly information on SOE liabilities including arrears, and receive the income statements from the electricity company, ElektroPrivreda Crne Gore (EPCG). Coverage of Fiscal Accounts 6.20 The coverage of the fiscal accounts does not provide an adequate basis for formulating fiscal policy and identifying fiscal risks and needs to be broadened. The fiscal coverage in reports published by the government includes extra-budgetary funds and partial information on local government, but excludes the SOE sector. Furthermore, the MoF does not report all local government liabilities in the public sector debt statistics. Thus, the government is not in a position to identify key fiscal risks that may be arising from local government and SOE operations. 6.21 Expanding the coverage of fiscal and debt statistics could be divided into three steps. These are as follows: (i) include all local government liabilities (of which arrears and bank overdrafts) in the public sector debt data, with the liabilities of SOEs that are not guaranteed by the government and arrears marked as a memorandum item; (ii) include local government extrabudgetary activities in the operations of general government; and (iii) add the operating balance of EPCG in the fiscal tables as a memorandum item. A wider coverage of fiscal operations to include that of SOEs is not recommended in the short run, in light of the other priorities. Private Participation in Infrastructure 6.22 There is an urgent need to develop an institutional framework for handling private participation in infrastructure (PPI). While local governments intend to foster PPI, there is currently an absence of adequate legal or institutional mechanisms to develop these projects in an orderly fashion. To prevent the emergence of fiscal risks related to these contracts, the government should develop a sound legal and institutional framework that covers the various aspects of PPI. In this context, the government also needs to strengthen its overall investment planning and procurement processes. Furthermore, it should build state and local government capacities to handle PPI projects, including assessing value-for-money and fiscal risks. Over the medium term, when PPI contracts become effective, the government should monitor these activities through its municipal reporting mechanisms.
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Report No. 36533 Republic of Monten
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CONTENTS ACKNOWLEDGMENTS ..........
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TABLES Table 1.1. Montenegro’s Gr
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ACKNOWLEDGMENTS This is the first v
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ii Executive Summary and procuremen
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iv Executive Summary 2006-2010 is p
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vi Executive Summary bill in the ke
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viii Executive Summary 23. Going fo
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x Executive Summary 27. The impleme
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2 Chapter 1: The Economic and Insti
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10 Chapter 1: The Economic and Inst
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Republic of Montenegro: Public Expenditure and ... - Vlada Crne Gore

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