Strengthening public financial management in Montenegro

4. Budget oversight and transparency

The LBFR provides the Parliament with powers to carry out its role regarding the consideration and approval of the budget but does not provide it with a role for debating the economic background, and key deadlines are regularly missed. Recommendations for reform include:

• Enhancing parliamentary oversight by ensuring sufficient time for the Parliament to consider the proposed budget and the final accounts of the year.

• Expanding the capacity of the Parliamentary Budget Office to provide better support to parliamentarians throughout the budget process.

• Completing the establishment of the FC in line with the intended level of resources for it to fulfil its mandate.

• Parliament making better use of SAI reports and supporting the SAI’s efforts to ensure that its recommendations for auditees are implemented.

• Developing a dedicated budget transparency portal consolidating key documents to enhance accessibility.

• Identifying effective ways to increase public understanding of the budget, including through public engagement.

4.1. Role of Parliament

The Constitution provides that the Government proposes the Budget and the Final Account of the year and that the Parliament adopts them. The Parliament approves the Government’s FS, which applies for the fixed term of the Government’s mandate. However, the Parliament does not debate or approve the MTBF, which is presented as an Annex to the annual Budget Law.

Under the LBFR, the Government is required to submit the executive budget proposal to the Parliament by 15 November, and the Parliament adopts the annual budget law before the beginning of the fiscal year on 1 January (Table 3). The Parliament has about six weeks to discuss the executive budget proposal. This is not aligned with the OECD Best Practices for Budget Transparency that recommends a minimum of three months for parliamentary scrutiny of a draft budget (OECD, 2002, p. 8[3]). In practice, the time available can be shorter than the legal deadline; in 2023 the draft Budget was submitted on 12 December. The Parliament subsequently adopted the budget on 28 December, reducing the parliamentary review and approval period to just over two weeks instead of the usual six weeks.

This deviation from the established timeline undermines the Parliament's role in the budget approval process and creates uncertainty for public bodies, adversely affecting their planning for the upcoming fiscal year. It also limits the opportunity for Parliament to engage the public engagement during the approval stage. Such engagement can enhance public understanding of the budget. Adhering to the budget timetable is a fundamental aspect of an effective budget system and should be treated as a priority. The timeframe of August to end-October for negotiations between the MoF and the line ministries could be shortened by a month to provide more time for the Parliament’s deliberations.

Table 3. Parliamentary approval of the budget

Budget Task	Timetable
Developing and approving the annual budget law	By 15 November (year n-1) the draft budget for year n is submitted to Parliament By 31 December (year n-1): the State Budget Law for year n is approved by Parliament
Audit of budget execution	By 30 June (year n+1), the Government submits final account of the executed budget for year n to the SAI for auditing By 15 October (year n+1), the SAI submits annual audited report on the executed budget for year n to Parliament The Parliament approves the audited report on a date that it chooses

There are 14 committees in the Parliament. In the annual budget debate, the Committee for Economy, Finance and Budget (Budget Committee) is the key committee although all sectoral committees provide opinions. The staff of each committee prepares an “informative overview” of the draft Budget ahead of each session, as a guide for the MPs. This analytical material varies in quality; in some committees it is an extract from the draft Budget, while in others it contains historical data, data on the work of the institutions themselves, performance budget elements and proposed conclusions. This information is not proactively published but can be accessed via Freedom Of Information upon request.

In order to help the Budget Committee examine the budget bill, sectoral committees formulate opinions, which contain general conclusions about the bill, key findings from internal discussions as well as, in some cases, recommendations. Once the Budget Committee receives all opinions, it reviews them, and based on the recommendations, formulates motions for amendment to the bill. The Budget Committee also gathers opinions from NGOs and other entities outside the Government, such as trade unions, and chambers of commerce. They can contribute to the debate in the form of “extended sessions” organised by the Budget Committee.

In terms of analytical capacity, the parliament has access to several sources:

• Each committee has its own specialised staff (e.g. the Budget Committee is assisted by five experts)

• Parliamentary Research Service, which conducts research and analysis, and provides information materials to the MPs

• Parliamentary Budget Office (PBO), which consist of three officials and, since 2021, is independent of the Research Service; this helps deputies to understand budgetary documents and to extract the information most relevant for them

• State Audit Office, which focuses on the final accounts and since 2014 assesses the application of the fiscal rules on an ex-post basis; and also audits the fiscal rules, until the FC is up and running

• It is planned that from 2025, the FC will serve the Parliament and the public at large with its analytical capacity.

The Parliament members are allowed to propose amendments to the draft Budget but they are required to identify sources of funding so that the overall expenditure limit is not increased. Typically only a few amendments are adopted in the plenary session and they seldom have a significant effect on the totals.

The Parliament provides limited oversight during the implementation stage of the budget. There is no mid-year budget review; such a review would facilitate parliamentary oversight of budget implementation. This in-year monitoring need not necessarily involve all the deputies at all times. It could be performed by the Budget Committee, which would report to the plenary having been supported by the expertise of the new FC.

The Parliament’s exercise of its role regarding the public finances is limited. It is notable that the Parliament has not adopted the final accounts for 2021 and 2022. The fact that a deadline for discharging these accounts is not set in legislation may be a factor here. In addition, it has not appointed a President of the SAI since July 2022. However, during the adoption of the 2024 Budget, the Parliament adopted a conclusion requiring the Government to report on the implementation of the capital budget on a quarterly basis.

The Parliament relies upon the analytical resources of the PBO. However, the PBO has limited capacities on public finance expertise. In contrast, in several OECD countries, public finance expertise in PBOs has contributed to greater parliamentary scrutiny and debate on budgeting and public finance (Box 2).

Box 2. Parliamentary Budget Offices in Austria and Ireland

In Austria, the PBO (Budgetdienst) directly supports the Budget Committee to improve the ability of Parliament and the Budget Committee to engage with the budget process and providing analysis of budget documents (particularly performance budgeting). Specifically, the PBO provides independent analyses on all budget-related documents focussed on fiscal policy, development of income and expenditure, tax revenue and the adequacy of budget allocations in relation to economic forecasts, performance information and gender budgeting.

In Ireland, two bodies – the Oireachtas PBO and the Fiscal Advisory Council – provide independent analysis to inform budget debate and provide transparency and accountability. The council is required to monitor and assess the Government’s compliance with the budgetary rule and is also required to assess the official forecasts of the Government and to provide a view on the fiscal stance. The PBO is a specialised unit within the Houses of the Oireachtas Service that serves to deliver independent and unbiased information, analysis, and advice to the Houses of the Oireachtas (Parliament).

4.2. The fiscal council

The LBFR was amended in 2023 to establish an independent Fiscal Council. The council is not yet operational owing to delays in appointing members of the Council. Once appointed, the Council members will require a functioning secretariat and this may also take time.

The LBFR provides for the independence of the Council. It is funded from the State Budget and its allocation is published. It allocates its resources autonomously, except where it requires consent from the Minister of Finance to pay secretariat employees a 30% wage supplement in excess of civil service standard salary rates. Regardless of this salary incentive, it may be challenging to find well-trained macroeconomists in a small country.

The Council is elected by the Parliament after being nominated by the President of Montenegro, the Budget Committee and the Minister of Finance. Members must be appropriately qualified for the role in terms of educational qualifications, professional experience and nationality. The preconditions may contribute to why it has proven difficult to complete appointments to the Council.

The law provides that the Council will have access to the information it needs to perform its role and the scope of the Council’s activities is broad. It will provide opinions (normally within 15 days) on the following:

1. how proposals tabled in parliament conform with the no additional cost requirement (i.e., no proposal may ultimately worsen the budget balance)

2. the fiscal impact of the Government’s proposals whenever the Government is obliged by law to prepare such proposals (e.g., corrective action on a higher-than-expected deficit or whenever the debt/GDP ratio surpasses 60%)

3. the Government’s FS

4. the Government’s MFPG

5. annual law on the final budget account of the year

6. draft State Budget Law.

Moreover, the Council is required to analyse macro-fiscal flows, fiscal risks and impacts of the pension and health system, planned and granted concessions, planned and concluded contracts on PPPs, operations of municipalities and companies in which the state or municipality has a majority ownership share on the sustainability of public finances and the application of fiscal responsibility criteria. While the Council will operate independently of the Parliament, individual deputies may ask the Council for a fiscal impact assessment on policy proposals that they may wish to submit to the Parliament. Ex ante assessment of fiscal rules will be moved from the SAI to the Council. These duties are extensive and it is possible that the Council will be overwhelmed by these requirements in its initial operation until it is fully resourced.

4.3. State Audit Institution

The Constitution and the Law on the SAI (Article 38) guarantee the functional and institutional independence of the SAI, protecting it from external interference in carrying out its auditing responsibilities. The SAI has the autonomy to:

• Use its financial resources as allocated in the annual budget law, with no control from the Executive.

• Organise and manage its operations and personnel, including adopting its internal organisation and systematisation act, which sets detailed requirements for employment. The Senate decides on and approves recruitments, employee rights, duties, and responsibilities.

• Determine its audit priorities. Based on strategic goals, the Senate adopts the Instructions for the preparation of the Annual Audit Plan by October 20 each year.

According to Article 144 of the Constitution: “The National Audit Institution shall audit the legality of and success in the management of state assets and liabilities, budgets, and all the financial affairs of entities whose funding comes from public resources or state property.” Despite its legislative independence, the SAI has faced practical challenges. Criticism and threats from Government-aligned parliamentarians have been reported in recent years. In September 2023, the INTOSAI Development Initiative (IDI) launched a SAI Independence Rapid Advocacy Mechanism to safeguard the SAI's independence. The IDI noted that delays in appointing the SAI president and a fifth Senate member infringed on its independence and represented parliamentary interference.

Between 2021 and 2023, the SAI conducted 134 audits, including 17 performance audits (approximately five annually) across five sectors. In March 2024, it adopted a three-year Quality Management Strategy to ensure audit quality. While quality assurance processes are strong, feedback from auditees on audit quality and recommendations could be further encouraged. Capital budgets are consistently part of the annual audit programme.

The SAI annually audits the State Budget’s final accounts, often issuing negative opinions, particularly regarding compliance audits. In addition to the final accounts, approximately a dozen mandatory financial and compliance audits are conducted annually by law. Recent audits revealed issues such as:

• Incomplete financial statements, including the omission of liabilities.

• Insufficient evidence for service and supplementary work contracts.

• Delays in capital project execution and the absence of progress reports.

• Procurement inefficiencies and non-transparent criteria.

• Outdated and inadequate internal controls for core and high-cost activities.

In 2022, the SAI published 36 reports with 883 recommendations, of which 46% were implemented by the end of 2023. To monitor recommendations, the SAI uses software that allows auditees to draft action plans and report progress. Auditors review these updates and conduct follow-up audits if progress is unsatisfactory.

The SAI submits all audit reports to Parliament, which then publishes them. However, Parliament makes little use of these reports. The Committee for Economy, Finance, and Budget – the primary link between Parliament and the SAI – held only one hearing in 2023, focused on the 2022 State Budget audit. Other committees occasionally discuss subject-specific reports, but hearings with auditees are rare. Of note, the annual accounts of the State Budget Law for 2022 and 2023, on which the SAI provided a qualified opinion, have not been considered by the Parliament. This means that parliamentary oversight of public finances in those years remains incomplete.

All SAI reports are public and widely covered in the media. The SAI communicates with stakeholders, including Parliament, the Government, the Prosecutor’s Office, civil society, and the media, following its communication guidelines. In 2023, the SAI issued over 100 press releases and held press conferences for key reports, such as the audit of the 2022 State Budget proposal.

4.4. Budget transparency

While budget documents are publicly available, there is room for improving budget transparency in Montenegro. The Open Budget Survey 2023 gave the country a score of 48/100 for transparency; however, there are several positive factors:

• All revenue and expenditures are included in the Annual Budget Law and the financial reports

• With the exception of a Mid-Year Budget Review, the standard budget documents are published and they detail the sources of revenue, allocations to ministries and proposed policy changes

• The Government’s annual budget proposal is published along with supporting documentation when it is submitted to the Parliament

• A citizen-friendly summary of the budget is prepared annually upon submission of the Government’s draft budget and is published on the Parliament’s website

• The cost of new measures in the budget is included in the budget documentation

• The imminent establishment of the FC will likely encourage more debate and greater transparency.

Nevertheless, there are also areas where improvements are possible:

• no mid-year review is published, which is necessary for effective parliamentary oversight of the execution of the annual budget

• the Government balance sheet is not compiled

• no information is presented in the budget proposal about

  • quasi-fiscal activities

  • tax expenditures

  • earmarked revenues

  • the sensitivity of the budget with respect to macroeconomic assumptions

  • how resource allocation relates to policy priorities

  • a comparison of budgeted expenditure versus actual expenditure for the previous year, to highlight year-on-year variations, whether positive or negative.

• While budgetary data are published in machine readable and open-source format, the system has limited digital features and analytical tools that would allow users to delve into the detail of fiscal reports, to structure queries, and to generate reports and infographics.

• The MoF analyses discrepancies between the budgets of public bodies and actual expenditures but does not publish the findings. Publishing this analysis would enhance transparency and accountability, as it would highlight instances where budgets were exceeded and provide greater transparency regarding fiscal discipline.

• Finally, the final account of the Budget should include comparisons between borrowing estimates and actual outcomes, comparisons between planned nonfinancial outcomes and actual outcomes, as well as comparisons between the original macroeconomic forecast and actual outcomes.

Another step would be to develop a comprehensive budget transparency portal that makes all primary budget documents easily accessible in one place, including the adopted budget, MFPG, year-end budget execution report, and audit reports. This would bridge the gap between technical documents and public understanding of budget processes.

Developments in theses area would help promote greater budget understanding by key stakeholders and the public, and contribute to greater transparency.