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

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Chapter 5: Public Investment Planning and Institutional
Issues: The Case of Transport Infrastructure
preliminary data for 2005 suggest that the primary deficit was just over 1 percent of GDP. A
fiscal tightening—on the order of 1 percent of GDP—is needed to achieve fiscal sustainability.
5.12 On the other hand, Montenegro’s fiscal space for infrastructure investment has
been potentially increased by the high volume of privatization proceeds received in 2005,
estimated at about 10 percent of GDP. A recent IMF report 64 recommended that the
privatization proceeds be used primarily to reduce the stock of domestic debt. While some of the
proceeds have already been used by the Government to pay off domestic debt and, to a lesser
degree, arrears, considerable balances still remain. It would seem then that the Government has
some fiscal space for investment in infrastructure. 65 However, since capital expenditures are
deficit-increasing, the extent to which infrastructure investment is financed from privatization
proceeds will need to be carefully managed within the constraints of the overall macroeconomic
position to avoid over stimulating aggregate demand in the economy, and adversely affecting the
current account and fiscal sustainability.
5.13 Furthermore, in order for the government to meet its macro-fiscal objectives, and
consider funding of investment in infrastructure from the privatization proceeds, it would
need to consolidate proceeds of privatization into a single fund. Under current legislation a
significant proportion of the privatization proceeds are owned by the Development Fund and the
extra-budgetary funds. For the Development Funds, these proceeds would be primarily aimed at
financing its initiatives to boost the SME sector of the economy. If centralized, the Development
Fund should then be allocated budget funds for its SME development policy as part of the
general government budgetary process.
D. CHALLENGES WITH PUBLIC INVESTMENT PLANNING AND CAPITAL BUDGETING
5.14 Public investment planning is almost non-existent in Montenegro. At present, there
are a number of agencies and spending units presenting their annual capital expenditure needs to
the Ministry of Finance, with little evident coordination or prioritization of proposed investment
projects. No one agency has an overall responsibility of coordination. This institutionally
fragmented approach to investment planning leads to a situation where there is no holistic
strategic vision for the Government to set priorities.
5.15 Capital expenditures in Montenegro currently have a one year horizon, with little
attention paid to the medium-term budgetary needs for completing capital projects. The
MTMA is one of the pilot ministries in which program budget was introduced in 2004. The
MTMA and the Budget Department of the MOF worked together to produce a budget for 2005
that is linked to policy objectives based on a transport strategy. While these efforts are to be
commended, the transport sector strategy is not yet finalized and work is still needed to
strengthen the strategic vision of the MTMA and to produce a 3 year horizon plan. The lack of a
medium-term perspective to capital budgets have undermined predictability of funding and
proper planning for capital projects.
64 See IMF, “Managing the Proceeds of Privatization, Improving Debt Management Capacity and Assessing Future
PFM Reform Requirements,” September, 2005.
65 The exact amount is not known, but estimated to be at least 4-5 percent of GDP.