Montenegro declared its independence from the State Union of Serbia and Montenegro in 2006. Two years later, the country applied for EU membership. The accession negotiations started in 2012, and the country could possibly become an EU member state in 2025.

Its continuous pro-European and pro-reform foreign policy drive distinguishes this country from other Western Balkan countries struggling for a clearly set and steadily maintained foreign policy orientation. Although often considered a region´s role-model in this respect, various challenges and setbacks persist. These relate mainly to the government’s capacity to implement reforms in the area of public administration, strengthening transparency, and improving the judicial system, which negatively impacts the overall business environment.

Public Finance for Development in Montenegro

SINCE: 2010

Slovakia has gained a solid reputation in Montenegro by supporting the country in the process of gaining its state sovereignty. In the context of Slovak development cooperation efforts, Montenegro was assigned a priority country status in the national ODA strategy in 2009. Montenegro is no longer explicitly defined as a priority country in the current strategy, but the Western Balkans is included among priority territories.

ACTIVITIES: The activities in Montenegro have been guided by local strategic materials. Within the first comprehensive support from Slovakia, the Ministry of Finance of Montenegro received assistance with improving the public sector accounting and reporting systems. As of late, the cooperation has expanded to include new areas, such as capacity building to increase gambling revenues, strengthening effective public financial management at the local level, macro-economic and fiscal forecasting, and public debt management.

I. Reform of Public Accounting and Reporting

Governmental accounting is gradually moving to accrual accounting, given that the original accounting system (based on a modified cash basis) does not fully meet the requirements for information by the EU and international financial institutions. The Strategy for the transition to accrual accounting was adopted in March 2015. Furthermore, the Government adopted an Action Plan for the establishment of a single state property register, as the exhaustive recording of state assets is one of the necessary preconditions for proper functioning of accrual accounting.

The project provides the Ministry of Finance with technical assistance in preparing the legislative and procedural preconditions for the transition to accrual accounting, while increasing capacities of the Ministry and other central government authorities to apply accrual accounting and reporting under the International Public Sector Accounting Standards (IPSAS).

II. Transparent and Accountable Public Finance at the Local Level

Local self-governments in Montenegro find themselves in a difficult situation, characterized by indebtedness and outstanding liabilities which cause many problems in their functioning and service delivery. The reasons are numerous. Among them are regulation changes governing the financing system of local self-governments, and a high level of public spending at the local level. Changes in the local–level government regulations bring new obligations and possibilities.

The Public Finance for Development programme provides technical assistance based on the Slovak experience within the public finance management areas in order to improve the PFM on the local level and make use of the opportunities for local development.

III. Budget support – gambling regulation

From 2018 to 2021, the Ministry of Finance of the Slovak Republic provided 1 million EUR for sectoral budget support to cover the budget deficit of Montenegro. The mutually agreed indicators of the budget support contract focus on improving the conditions of electronic fiscalization in gambling and taxing. The financial support is directly linked to the provision of technical assistance based on the Slovak expertise. The aim is to provide capacity support to the Montenegrin Games of Chance Administration, and to online supervision, i.e. software solutions to track gambling revenues.

More here.

Outcomes – public finance at the national level

  • Completion of secondary legislation (2 bylaws) to the Law on Public Sector Accounting.
  • Finalization of a Rulebook on the Uniform Classification of Accounts for the Public Sector Entities (“Central Chart of Accounts Rulebook”).
  • Finalization of a Rulebook on Accounting Methodology, Accounting Transactions and Procedures.
  • Policy, methodological, legal, and capacity support for the transition to accrual accounting.
  • Review of the medium-term strategy for the transition to accrual accounting, and the Slovak experts provided recommendations for improvements.
  • Proposal for a working group and a project implementation teamwas developed to strengthen the technical and political support for the transition to an accrual-based system.
  • Communication plan for the transition to accrual accountingwas developed to inform about content, and importance on the use of an accrual system, targeting future providers and users of new financial reports and statements.
  • Analysis of accounting transactions in the public sector designed expected treatment in the accrual accounting system and European System of Accounts (ESA) reporting.
  • Chart of accounts (CoA) was updated in line with IT system development, accrual accounting, and reporting needs. The Ministry of Finance of Montenegro can use the proposal to further develop the central CoA to provide full information on assets and liabilities, accrual revenues, and accrual expenses.
  • Public sector accounting law was developed with the consulting contribution of Slovak experts.
  • Assessment of the public sector accounting and reporting systems was done in 2011 and 2018 which provided an overview of the progress and possible lacunae in reaching the desired system. Significant progress has been achieved in Montenegro since the first assessment in 2011.
  • Public sector staff capacity building activities consisted of workshops on the accrual accounting concept, current public-sector accounting developments in the EU, on-the-job trainings/coaching on IPSAS, and their implications compared to the current system along with possible implementation in the Montenegrin legislation.
  • Capacity building through partnership with the Centre of Excellence in Finance has been taking place since 2015. The Ministry of Finance of Montenegro initiated the Public Accountants Certification Training (PACT) project. The Center of Excellence in Finance delivered this education programme in cooperation with CIPFA, and was funded by the Public Finance for Development In the 2015 – 2020 period, more than 100 public sector accountants were trained, and 75 of them received CIPFA certificates. The vision is that the Ministry of Finance of Montenegro, together with the Montenegrin Human Resources Management Authority would fully overtake the responsibility for the professional training of public accountants.
  • Capacity development in other fields of public finance management. The assistance in public debt managementwas delivered to the State Treasury Sector at the Ministry of Finance of Montenegro. It aimed at improving institutional set-up for public debt management, internal processes related to the public debt management, and preparation for a risk management system. The activity was completed in 2011.
  • A know-how exchange programme has been established in order to increase transparency and credibility of the macroeconomic and fiscal prognoses and analysesof the Montenegro´s Ministry of Finance. Slovak experts from the Financial Policy Institute created interest and momentum for establishing a similar analytical department in Montenegro. The activity was completed in 2015.

Outcomes – public finance at the local level

  • Preparation of 6, 2020 Citizen Budget Guides for the cities of Podgorica, Bar, Bijelo Polje, Mojkovac, Pjevlja, and Tivat. The guides enable citizens to better understand and control their city budget.
  • Methodology and procedure development for assessment of the fiscal risk within public enterprises and local governments, and for improved revenue collection.
  • Development of a transparent formula for allocation of resources from the Equalisation fund for underdeveloped municipalitiesand a corresponding software to calculate these allocations. The project also helps in establishing a mechanism to assist the municipalities in the pre-financing of the EU funded projects – the Revolving Fund.
  • The Law on Local Self-Government Financing requires harmonisation of the existing regulations concerning local self-government financingStudy visits to Slovakia provided an opportunity for the representatives of the Montenegrin local self-governments to exchange knowledge and good practice with the Slovak colleagues in this area.
  • The Regulatory Impact Assessment (RIA) was formally introduced in the Montenegrin legal framework in 2012 and is also now required from the Local Governments. The project supported development of the RIA manual and analytical skillsamong the local administration.

A significant number of business barriers still persist at the local level, hindering economic growth and creating a fertile ground for an informal economy and corruption. Through the local community and online meetings, the interested parties are given the opportunity to recognise and report these hurdles. The project engaged moderators for a dialogue with the business community who steered the debate, and assist with proposal framing for regulatory reform.