Montenegro declared its independence from the State Union of Serbia and Montenegro in 2006. Two years later, the country applied for EU membership. 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 governmen’s capacity to implement reforms in the area of public administration, strengthening transparency, improving the judicial system which negatively impacts the overall business environment.

The country faces economic challenges, including the labour market structure, high unemployment, relatively large segment of informal economy, and trade deficit. Macroeconomic and fiscal stability were strengthened but further efforts are required to address persistent challenges, most notably, the high public debt burden.

Public Finance for Development Programme in Montenegro

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. Slovak Ministry of Finance started its engagement in Montenegro in February 2010 under the Public Finance for Development Programme. The focused activities have included strengthening effective public financial management, mainly through building capacities in public accounting and reporting, but also in other areas such as macro-economic and fiscal forecasting and public debt management.

Reform of Public Accounting and Reporting and Public Sector Capacity Development in PFM

In the framework of the Public Finance for Development Programme, the Ministry of Finance of Montenegro has received assistance with improving the public sector accounting and reporting systems. The activities in Montenegro have been guided by the consecutive Public Administration Reform Strategies.  

The country set out plans to move to accrual accounting, given that the existing accounting system (based on a modified cash basis) does not fully meet the requirements for information by external users (primarily 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 steps for transition to accrual accounting.

The project helped to create conditions for the transition to accrual accounting, and increased capacities of the Ministry and other central government authorities to apply accrual accounting and reporting under the International Public Sector Accounting Standards (IPSAS).

The following outputs were delivered by the project:

  • 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 recommendations for improvements were provided by the Slovak experts.

Proposal for a working group and a project implementation team was developed to strengthen the technical and political support for the transition to an accrual-based system.  

Communication plan for the transition to accrual accounting was 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 and designed their 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 Centre of Excellence in Finance delivered this education programme in cooperation with CIPFA, and was funded by the Public Finance for Development Programme. Thus far, more than 80 accountants have attended the certification level of the project. 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 management was 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 finalized in the year 2011.

A programme to exchange know-how has been established in order to increase transparency and credibility of the macroeconomic and fiscal prognoses and analyses of 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 finalized in 2015.

Technical Assistance Tied to Budget Support Provided by Slovak Ministry of Finance

The Ministry of Finance of the Slovak Republic is providing 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 Slovak expertise. The assistance is being channelled through PFD, with the aim of providing capacity support to the Montenegrin Games of Chance Administration and to online supervision, i.e. software solutions to track revenues. The following activities are being implemented under the technical assistance:

  • Support to drafting technical specification for revenue monitoring solutions
  • Strengthening capacities of the Games of Chance Administration

Transparent and Accountable Public Finance
at Local Level

The 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, regulation changes governing the financing system of local self-governments and a high level of public spending at the local level. The changes in the local–level government regulations bring new obligations and possibilities.

The Public Finance for Development 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. 

The following activities are being implemented

2018 - 2019

  • The project supports development of methodology and procedures for assessment of the fiscal risk within public enterprises and local governments, and for improved revenue collection.
  • It also supports development of a transparent formula for allocation of resourced from the Equalisation fund for underdeveloped municipalities and 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 financing. Study visits to Slovakia provide an opportunity for the representatives of the Montenegrin local 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. Therefore, the project supports development of the RIA manual and analytical skills among the local administration.
  • A significant number of business barriers still persist at the local level, hindering economic growth and creating 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 engages moderators of the dialogue with the business community who steer the debate, and assist with proposal framing for regulatory reform, as well as bring international good practices to this area.