Financial Reforms and Accountability in Albania Presented by

Financial Reforms and Accountability in Albania Presented by Dr. Sherefedin Shehu MP, Budget & Finance Committee, Albania International Symposium on the Changing Role of Parliaments in the Budget Process 23 -25 September, 2010 – Afyonkarahisar, Turkey

Parliaments Have to Sustain Budgetary Reforms l l Through us citizens are ensured that the nation’s priorities are adequately reflected in the budget. Better governance and greater accountability are drivers of change in budgetary systems. Sound budgetary systems are crucial to make progress in reducing poverty and managing inequality Hilary Benn, former UK Secretary of State for ID states: "Politics matters. Politics changes things. And it is democracy that makes politics possible. "

Sound Budgetary Reforms Help to Build the Public Trust l l Votes given in exchange for electoral promises Promises are kept if they are: l Lined up in Policy Documents: l Government Program l National Strategy l Sector Strategies l Converted into measurable policy objectives and performance indicators l Converted into budgetary spending programs

Citizens Elect, Keep or Fire the Ruling Government l Elect l States during the election campaign, in measurable indictors, what their government will produce, l Keep l l the Government which: the Government when: It performs as promised (stated indicators achieved ), Otherwise, Fire it

Moving Forward - Reform Areas • From Annual to Medium Term Planning • MTBP - based on good resource documents: Strategies, Programs, Projects, etc. • Budget - from Outlays to Outcomes • Nature of control changing - from compliance with rules to results • From Budget Secrecy to Transparency • From Financial Compliance to Performance or Value For Money Auditing • From Administrative Control to Managerial Accountability - integrated Public Internal Financial Control (PIFC) approach

Albania: The Reality Four Years Ago l Confusion in policy, planning and budgeting roles, responsibilities and tools … for example: l l There was a National Strategy for Social and Economic Development (NSSED), in which everything was a priority In practice, it attempted to duplicate key aspects of the budget process Medium term Budget Programme (MTBP) implemented in pilot ministries Fragmented investment budget

Goals of Budgetary Reforms l Transparency l l l Increasing the role of Parliament in approving of expenditure allocation and their monitoring; More information and transparency for the community on the budget and public accounts Performance l l Improving public expenditure management and their value for money; Establishing new rules for increasing autonomy and accountability of spending agencies

Reforms to Make the Difference l Integrated Planning System (IPS) established l l Medium Term Budget Program (MTBP) system became the core of the IPS and fully implemented European Integration, Public Investments and External Assistance became important components of the IPS New legislation on FM developed & adopted New institutions and systems established, i. e. : l l l Strategic Planning Committee (SPC) makes key strategic planning and budgeting decisions; Government Modernization Committee (GMC) supports the SPC and monitors the progress National Strategy for Development and Integration (NSDI) and Sector Strategies developed

2005 - Integrated Planning System (IPS) Approach Adopted *Foreign Aid Management *Government Program NSDI *European Integration *Public Investment Management MTBP Annual Budget Appropriations

IPS Ensures an Informed Budget NSDI SECTOR/ CROSSCUTTING STRATEGIES MTBP ANNUAL BUDGET Sector Strategies Reflect: q The Government program q Euro/Atlantic integration q Public investment q External assistance Sector Strategies: q Feed in the National Strategy for Development and Integration (NSDI) q Promote policy coherence and a common sense of longer term direction within the sector

New Legal Framework Supported Reforms l l l In 2008 adopted a modern Law on Management of the Budget System that explicitly requires policy and output-oriented budgeting focused on service delivery; Fiscal rules established in the law (debt to GDP 60%) Other laws contributing to strengthening Public Financial Management approved l l The law on Financial Management and Control, 2010 The law on Internal audit, 2007 & 2010 The Law on Financial Inspection, 2010 The laws on Supreme Audit and Procurement

Leadership, Management and Coordination Strengthened l l Parliament informed and monitors the MTBP process from the early stages Council of Ministers (Co. M) – through SPC, GMC and Department for Strategy & Donor Coordination (DSDC) implements the strategic planning and government program Ministry of Finance (Mo. F) restructured to be capable for preparing a policy & output based MTBP and implementing a modern public expenditure and investment management system Ministry of European Integration restructured to provide harmonisation of EU agenda with IPS and MTBP and ensure adequate incorporation/funding of EU Integration activities in the budgets

New Functions and Management Arrangements Strenghtend PFM l l l New internal control environment: l External & Internal audit strengthened l Pubic Internal Financial Control improved l Inspections function established l Central Harmonization Unit (CHU) established for developing & promoting FMC and IA methodologies New management arrangements: l MTBP Management Team in the Mo. F l Groups for Strategy, Budget & Integration (GSBI) and Program Management Teams (PMT) in each Line Ministry and Central/Autonomous Agency; l Public Investment Management brought into the Mo. F and integrated to the MTBP Integrated monitoring system established

Constraints and Challenges • Cultural: • Partisan Climate • Executive Dislike for Legislators • Managing the shock of moving from annual budget towards MTBP • Weak Civil Society/Media and Ethical Base • Technical: • Strengthening management and accountability arrangements for all involved institutions • Quality of budget submissions: Performance Indicators & Reporting • System modernization for Budgeting and Public Investment Programme • Building capacities to fully implement new services