As one of the post-Yugoslavian countries, Serbia is facing a number of challenges influenced by the crash of the socialism system, civic war, and the sharp economic decline of the 1990s. The Serbian government focuses on modernization, macroeconomic stability, socioeconomic and governance reforms with European Union accession as an overall objective. The main challenges include ensuring tight management of the government austerity, economic recovery and growth agenda at central and local levels, adjusting the institutional architecture and strengthening capacities required for European integration.

Serbia officially applied for EU membership in 2009, and in 2014 the accession negotiations commenced. The EU integration outlook is somewhat hindered by the issue of Kosovo relations normalisation, and weaknesses related to fulfilling economic criteria, such as the relatively high level of informal employment, unemployment, the underdeveloped private sector and an unpredictable business environment with difficult and costly access to finance.

 Public Finance for Development Programme in Serbia

Serbia is constructively engaged with other enlargement countries and neighbouring EU Member States and is an active participant in regional cooperation. The country is a natural and traditional partner of Slovakia with number of developments similarities, and is also one of the priority countries of the Official Slovak Development Assistance. Slovakia´s focus on supporting good governance and strong institutions, in connection with one of the main UNDP priorities in Serbia, accountable and representative governance institutions serving people, led to Serbia to becoming a target country for the Public Finance for Development programme.

The cooperation between the Slovak and Serbian Ministry of Finance developed to concrete cooperation in 2018. It is based on two main pillars:

  • Support for improving governance and economic planning at the local level
  • Support to Ministry of finance and Tax Administration Office in Serbia

Support for Improving Governance and Economic Planning at the Local Level

Regional disparities in the Republic of Serbia are among the highest in Europe. While Belgrade is currently enjoying Gross Domestic Product (GDP) per capita of almost 180% of the national average and generates the largest share of GDP, the rest of Serbia is approximately at 70% of the national average and contributes to GDP with less than 15%.

Ineffective governance practices decrease the capacities and the ability of local self-governments (LSGs) to implement reform and manage complex activities related to municipal planning and economic development. Although the majority of them have Sustainable Development Strategies in place, these are not being updated on a regular basis to address the changing circumstances and environment, or the need for additional measures and risk mitigation. Budgets are still mostly planned annually in spite of legislative requirements that take into account three-year investment needs.

Bearing in mind the complexity of these challenges and needs of LSGs in Serbia, the project intervention opts for a multi-layered approach. Its overall goal is to improve the public finance management on the local level including setting the conditions for its more effective application. It aims to support to selected local self-governments in:

  • Assessing and identifying governance issues – primarily those related to the internal organization, internal control, and resources allocation,
  • Designing and updating policies, regulations, policy and planning documents,

Building the capacities of the local administrations in project planning and implementation in order to increase their absorption capacities for external financing.

Support to Ministry of finance and Tax Administration Office in Serbia

The second component of the project focuses on technical assistance for the Serbian Tax Administration and Ministry of Finance in various areas that are going through the reforms or and setting the implementation modalities. The areas of cooperation are based on bilateral discussions among the Slovak Financial Administration and Serbian Tax Administration Office in 2018, that identified the needs of Serbin partners and existing expertise on Slovak side.

In 2019, the focus of the technical assistance will be aimed on support to the tax administration reform, specifically the development and improvement of the function of identification of taxpayers for controlling and managing controls through risk monitoring.

The objective is to establish an effective operational risk management system as part of the planning and decision-making process and controlling modality of individual groups of taxpayers to detect and avoid unreported and unpaid tax liabilities

Following areas of cooperation

  • Support for the Public Investment Management (PIM) project working group with Slovak experiencing setting the PIM practices (e.g. setting the Value for Money instrument within Slovak administration);
  • Support to the Central Harmonization Unit in improving the learning processes and the preparation of national legislation for introducting the new system for cetifying internal auditors in the public sector.