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

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Executive Summary
2006-2010 is projected to rise to two or three times the annual spending to date (€1.8
million in 2005).
10. While there are potentially significant savings to be made through staff reductions, and
rationalizing the school network without reducing educational quality and, in some cases, even
improving it, the government needs to actively manage staff reductions, including the use of
involuntary separation.
Modernizing Public Administration
11. Second, while containing the costs of public employment, the government must
strongly pursue the tasks of creating a modern and effective public administration,
compatible with European principles and standards. The key challenge is to re-orient and
reorganize the role and functions of the State Administration, a process which began with the
Government’s adoption of its Public Administration Reform (PAR) strategy in 2003.
12. Since 2003, Montenegro has shown commendable progress in putting in place the legal
framework necessary for modernizing the public administration and bringing it closer to
European standards. All the major pieces of legislation envisioned in the PAR strategy have
been adopted and a number of new institutions have been created that will either assure
compliance with the laws or be charged with implementing them. In reform of the civil service,
major steps have been taken to encourage merit-based recruitment and advancement.
Nevertheless, creating an effective and sustainable public administration structure – capable of
implementing EU standards – will require continued, high-level political leadership.
13. Indeed, several medium and long term challenges remain. As discussed, the cost of
the public employment is already quite substantial as a share of GDP. Plans to introduce
performance-based pay are commendable, but the current practices still give heavy emphasis to
tenure. Development of a performance appraisal system is a critical element in moving toward
performance-based pay, but thus far, too few resources have been devoted to developing the
system in a credible or sustainable manner.
14. The key near-term priority measures should be to:
• Ensure continued high-level political leadership and support to the PAR implementation,
including development of a sequenced action plan and resource implications. The interministerial
committee for PAR has met rarely, and has thus played little role in
substituting for a stronger center-of-government coordination. The lack of a tradition
within Montenegro of inter-ministerial coordination structures suggests that there is a
need for a strong, high-level leadership for PAR.
• Develop and implement a medium term civil service pay strategy that will further
decompress the salary structure for positions that are most difficult to recruit and retain
and that can be implemented within a fiscally sustainable resource envelope. Despite
modest progress in 2005, the system is still highly compressed compared to European
standards. This will continue to make recruitment and retention difficult. While
concerns over fiscal pressures limited the government’s scope for decompression in 2005,