MACEDONIA: FISCAL TRANSPARENCY REPORT

UNCLAS SKOPJE 000181

SIPDIS

SIPDIS

DEPT FOR EEB/IFD/OMA A. SNOW AND R. FIGUEROA;
EUR/ACE M. YOUTH; EUR/PGI T. CUNNINGHAM; EUR/SCE;
PLS PASS TO USAID
TREASURY FOR W.LINDQUIST

E.O. 12958: N/A
TAGS: EFIN EAID ECON PREL PGOV MK
SUBJECT: MACEDONIA: FISCAL TRANSPARENCY REPORT

Relatively High Fiscal Transparency
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1. The GOM has developed a relatively high degree of fiscal
transparency, as a result of reforms it has undertaken as part of
its effort to join NATO and the European Union. Macedonia, as an EU
candidate country, is in the process of raising its budgetary
practices to EU standards and receives support from the EU for this
purpose. The IMF's Report on Observance of Standards and Codes
(ROSC) for Macedonia, published in July 2006, stated that "the
annual budget process is transparent, and the budget presentation is
rapidly moving toward international best practice."

Budget Information Publicly Available
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2. The Organic Budget Law provides the legal framework for the GOM's
budgetary practices, and transparency is one of the explicit guiding
principles of the law. The law mandates "public awareness of all
phases of preparation and execution of the budget," and is
implemented in practice. Soon after Parliament passes the annual
budget, the full detailed budget is published in the publicly
available Official Gazette and is posted on the Ministry of
Finance's (MOF) internet site. This budget document provides
accurate and meaningful information on all revenues, expenditures,
and financing. The accompanying budget execution law that provides
further instruction on the implementation of the budget is also
posted on the MOF internet site. In addition, a more readable and
citizen-friendly version of the budget, called "Budget in Brief,"
has been published for three years, with the support of the U.S.
Department of the Treasury.

U.S. Assistance For Budget Transparency
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3. The U.S. Department of the Treasury's Resident Advisor assists
the GOM with its budgetary process. The Resident Advisor has helped
with the drafting of the Organic Budget Law and amendments to the
law, to develop the budget classification system, and to
institutionalize modern budget practices. In addition, the
Department of the Treasury program is assisting the GOM in
developing performance indicators to show in quantitative terms the
major activity performed by a budgeted program. For the 2008
budget, output indicators were implemented for over 90 percent of
the budget programs, an exponential increase over previous years.
These budget indicators are included in the published budget and
posted on the MOF internet site, allowing citizens to see the
projected outcomes of specific government programs.


4. As part of its assistance, USAID provided the GOM with a
software system to efficiently prepare the national budget and
monitor its execution. This system allows the various government
budget users to electronically prepare and submit their annual
budget to the MOF. Once the budget is approved, the system allows
the MOF to electronically monitor spending by the budget users. The
GOM used this system for the first time in 2007 to prepare the 2008
budget, providing improved internal transparency and oversight of
the budget preparation and execution.


5. Since July 2005, the GOM has decentralized many government
activities to the local municipalities, and is now transferring
funds from the central government budget to municipal governments to
implement those new responsibilities. USAID has provided extensive
support to Macedonian local governments to improve the effectiveness
and transparency of their budgetary procedures and financial
management. As part of this initiative, USAID introduced budget
hearings and citizen involvement in the budget process of
municipalities. Our assistance is also focused on reducing the
amounts of "other services and costs" categories from the municipal
budgets, which will lead to increased transparency of municipal
expenditures.


6. The USAID Parliamentary Development program is helping to
strengthen the capacity of the Macedonian Parliament, including its
oversight function. As the parliament's oversight capacity has
increased, it is becoming more proactive in reviewing the GOM's
proposed budget. In 2007, the parliament for the first time
demanded and secured significant changes to the GOM's proposed
budget.

Navratil