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

60 Chapter 4: Public Financial Management and Procurement
amount (EUR 439 versus 449), and a similarly high level is expected for 2005. Despite
variations that occur across economic classifications and across ministries, the annual budget
appears to be a credible representation of government’s spending priorities for the year. Apart
from the decision in 2004 to repay credits to financial institutions, there was no major overspending
either by economic classification or by ministry.
4.14 Notwithstanding the aggregate stability, some significant shifts in the composition of
expenditures sometimes occur that could undermine the quality of public expenditure in
the future. Two categories of expenditure that suffered in 2004 were “cost of recurrent
maintenance” and “investment maintenance of infrastructure.” While it is not uncommon among
governments to reduce maintenance spending when there is a cash shortfall, a pattern of
consistent under-spending on maintenance of assets could generate large future liabilities.
Problems may also arise due to unanticipated reductions in allocations to specific ministries.
The Ministry of Health and the Ministry of Maritime and Transport stood out in 2004 as those
with the lowest rates of budget execution (36 percent and 46 percent respectively). Apart from
the negative effect on operations, such large shifts may increase skepticism about the credibility
of budget allocations and may encourage exaggerated estimates from line ministries and may
contribute to accumulation of arrears.
Program Budgeting
4.15 Program budgeting is still in its infancy. Though program budgeting has been the most
prominent of reforms introduced by MoF in the last few years, it has yet to result in any
profound changes in the budget planning process within government. Since 2004, when the first
two ministries piloted program budgets, more have been added each year. By 2006 most of the
major ministries had been included in the piloting of program budgets, and many of the others
will be added in 2007. The gradual roll-out has in part reflected capacity concerns within MOF.
But even as the number of ministries has increased, neither the quality of the output nor the
impact on the process has changed much.
4.16 In reviewing the program budgets for 2006, several weaknesses stand out in how
pilot ministries have undertaken the process, starting with the structure of programs. For
example, ministries have defined their programs in a way that appears to reflect their past
administrative or organizational structure rather than any strategic regrouping of missions and
primary objectives. The programs are defined inconsistently even within the same ministry.
They are sometimes highly fragmented and do not reflect a prioritization of key missions. For
example, in the Ministry of Education and Science there are a few large programs that consume
most of the resources, but there are also several very narrow activities that are each defined as
programs and use very little budget. At the very least, it presents the ministry as fragmented
activities without a coherent or unifying theme.
4.17 The lack of understanding about how to define programs also stands out in the case
of the Ministry of Interior. Though they are supposed to have a program budget, in fact, the
budget reflects little more than a single program. Policing involves a few different functions, but
it is defined by the Ministry as a single program that consumes about 85 percent of the budget.
There are only two other programs defined by the Ministry, one of which uses only about 1