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

Executive Summary
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protection, standardization and accreditation of products, processes and services, national
statistics, visa, asylum, and border management, civil aviation, and meteorology—which
have to date been carried out at the State Union level with Serbia. In addition, several
institutions will need increased staffing and resources—the Civil Service Agency,
internal audit, the Supreme Audit, the Administrative Court, the Ombudsman, the Public
Procurement Commission, the Public Procurement Administrative Authority (yet to be
established)—for better public sector governance, transparency, and accountability.
• Control the pace of, and target, annual wage increases. Granting across-the-board
increases in public sector salaries erodes the fiscal space needed to decompress the salary
structure to attract and retain the most qualified people. Future increases in real salary
rates should be highly targeted rather than implemented across-the-board.
9. The case of education, the largest contributor to the government wage bill,
illustrates the challenges as well as what the government can do. Out of the total recurrent
expenditure on general education in 2004, 82.3 percent was spent on the wage bill, leaving only
17.7 percent of total recurrent expenditure for non-staff items, which includes spending not only
on classroom materials and teacher training but also on utilities. A closer look at the fiscal
structure in the sector shows, again, that the Government faces a clear choice between a sharp
rise in salaries and staff costs on the one hand, and spending on non-salary expenditures to pay
for the school reform agenda and improve education quality on the other. Some key steps that the
government should take:
• Control the rapid wage increases. The average annual salary of a teacher in Montenegro,
including all the allowances is €7,103, which amounts to over 160 percent of GDP per
capita. This puts the salaries of Montenegrin teachers well above the OECD comparative
average. Furthermore, in January 2006 average salaries for both teaching and nonteaching
staff in non-university education increased by between 8 and 9 percent against a
planned salary budget increase of only 3 percent. The larger-than-planned increase was
the outcome of a branch (sectoral) collective agreement and negotiation, which resulted
in higher salary coefficients. In light of this, the Government may wish to more strongly
engage the teacher unions with a view to re-negotiating the collective agreement so that
wage increases fit within the resources available. In the future, collective bargaining
should include a careful and transparent analysis of the impact of the salary increases on
the education budget.
• Reduce salary costs through staff reductions. In addition to controlling wage increases,
the Government may want to implement further staff reduction measures –mainly
through school consolidation--to contain salary costs, and protect the already low nonstaff
spending in education.
• Create budgetary space to implement the schools reform program. Savings from staff
reduction and wage control are needed to implement the government’s education reform
program, which calls for school renovation and equipment, and a new curriculum and
associated textbooks, assessment arrangements and teacher training. A cost analysis
based on recently reformed schools shows that the cost of school reforms each year in