Public Budgeting

Case Study: Republic of Kosova

9/12/2013

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Contents

1.0. Introduction 3
1.1. Problem Statement 3
1.2. Report Structure 4
2.0. Methodology 4
3.0. Analyses 4
3.1. Overview of Public Budgeting 4
3.2. Public Budgeting in Kosova 5

Executive Summary

Based on ‘Public Budgeting’ book, public budgeting is defined as making and implementing decision regarding the acquisition, allocation, and use of resources by government, with a primary focus on money in the modern age. Similar to budgeting of private companies as well as budgeting of families, public budgeting deals with generation of income, and then planning and monitoring how that incomes are being spent.
This study aims to explain and understand the budgeting process in the Republic of Kosova by investigating which are the pros and cons in their process.
To compile the report, only secondary data have been used such as literature and publications taken on official websites.
Public budgeting, involves in itself some other tasks that sometimes could be incompatible and may erode the ability to perform the other task. These tasks includes: setting goals and priorities, linking goals to actions, managing the economy, promoting accountability, controlling the use of public resources, promoting efficiency and effectiveness, social planning and reform, keeping the process manageable.
The Kosovo budget is prepared by The Ministry of Finance in coordination with organizations, and has to be approved in the end by the Assembly of Kosova.
The budget process in Kosovo is regulated by the Law on Public Financial Management and Accountability. The budget process goes through different stages:Budget formulation, Budget enactment,Budget execution, and Budgetary oversight and auditing.
Kosovo uses a mixture form of top-up and bottom-down method on planning the expenditures, where a good ineraction in this respect between budget organization and the Ministry of Finance is there. The reporting and managing of budget through budget organization is enabled by sophisticated technology such as installing special software for budget.
However, the lack of transperancy from the Ministry of Finance on reporting the Kosovo Assembly, as well as publishing expenditures is present.

1.0. Introduction

Budget planning, what to spend and where to spend, is always a concern especially for public organization. As public budgeting affects the whole society, it is considered to be one of the most important tool for government which should reflect on the development of the economy as well. Based on ‘Public Budgeting’ book, public budgeting is defined as making and implementing decision regarding the acquisition, allocation, and use of resources by government, with a primary focus on money in the modern age. Similar to budgeting of private companies as well as budgeting of families, public budgeting deals with generation of income, and then planning and monitoring how that incomes are being spent.
However, the most part of public budgets comes from taxes. Therefore public budgeting is closely related to fiscal policies.
Kosova is governed by two levels: central and municipal. The law on Local Self Government foresees municipalities to have fiscal autonomy, therefore have their own budget and finances. Kosovo has been drafting and executing its own budget since establishment of Provisional Instituions of Self-Government(PISG), initially known as Kosova Consolidated Budget. After the declaration of independence the competence for drafting the budget remained the responsibility of Republic of Kosova, whereas before the declaration of independence in majority of cases, the state budget was adopted accelerated procedure or even by using reserved competences of SRSG.
1.1. Problem Statement

This study aims to explain and understand the budgeting process in the Republic of Kosovo, focusing mainly in this point:
1. Which is the process through which budgeting in the Republic of Kosova goes?
1.2. Report Structure
This report is structured as follows; first the methodology used to compile the report will be described. Next, there will be the Analyses section, in which facts about the topic will be presented. Then, in the discussion about the topic will follow. And finaly, based in the overall findings the conclusion will be drawn in the end. Last but not least the Biblography of sources used will finish the structure of this report.

2.0. Methodology

This report is based only on secondary sources. Different literatures for public budgeting have been used, as well as different publication by reliable sources.

3.0. Analyses
3.1. Overview of Public Budgeting
Public budgeting in other words is planning revenues and expenditures in a way that will meet each other. Even though public budgeting can be similar to private budgeting, public budgeting can involve different influences, and is more complex and more heavily regulated than private budgeting. Public budgeting, involves in itself some other tasks that sometimes could be incompatible and may erode the ability to perform the other task. These tasks includes: setting goals and priorities, linking goals to actions, managing the economy, promoting accountability, controlling the use of public resources, promoting efficiency and effectiveness, social planning and reform, keeping the process manageable.
Public budgeting is complex, and involves several phases and actions, which in themselves form the cycle which is repeated every fiscal year.
This cycle in most of the cases include: preparation of a budget proposal, enacting the budget, budget execution, review and audit.
There are two ways for preparation of a budget proposal, bottom-up and top down. Whereas, in order to prepare the proposal, different forecasting methods are being used. They vary from very simple model to complex statistical models with numerous equations and many variables. Forecasting in inadequate way can cause money being wasted on unnecessary programs, unmet future needs, or unexpected gaps between revenues and spending.
3.2. Public Budgeting in Kosova

The Kosovo budget is prepared by The Ministry of Finance in coordination with organizations, and has to be approved in the end by the Assembly of Kosova. A number of actions are involved in so called budgetary process until it reaches a final form as Draft-low on budget and is being sent to the Assembly for approval. The next year budget is prepared during the current year. According to the Law on Public Financial Management and Accountability, "budget organization means any authority or public undertaking that directly receives an appropriation."
There are two forms of interactions between budget organizations and Ministry of Finance.
The first form is, from bottom-up, when budget organizations plan the expanses and ask for budget based on their plans. Whereas, the second form is from top-down, when these organization are allocated a budget based on their previous expanses without taking into consideration their plans for the upcoming year.
Kosovo applies a mix of two forms, budget organizations prepare their budget and make their proposals but are limited because of the budget ceilings.
The budget process in Kosovo is regulated by the Law on Public Financial Management and Accountability. The budget process goes through different stages:
- Budget formulation, when the budget is developed by the government;
- Budget enactment, when the budget plan is considered and approved by parlament;
- Budget execution, when the budget policies are carried out by the government, and
- Budgetary oversight and auditing, when the actual expenditures of the budget are accounted for assessed for effectiveness.
During budget preparation, there are limited opportunities for direct participation of civil society and there is no mechanism for formal consultation during the process.
Below, there is shown the cycle of budget process in Kosovo.

As regards, to expenditure reporting, the expenditures are reported in two directions. First, budget organizations have to report to the Ministry of Finance, and second Ministry of Finance reporting the Assembly of Kosova. A special system, so called ‘Free Balance’ is a software installed in all budget organization is the primary mean to reporting expenditures to Ministry of Finance. This software also helps budget organization manage their expenditures by sending notifications such as: stop spending, slow down spending, and the need for additional allocations.
However when it comes to publishing the expenditure a very small number of budget organizations publish their expenditures. Out of 19 ministries, only the Ministry of Justice publishes its detailed report on budget expenditures, whereas others publish only the final reconciliatory report.

4.0. Disscusion

Similarly to other public budgeting process of other countries, the budgeting process in the Republic of Kosova goes through the cycle each year and it is prepared by an interaction of the Ministry of Finance and budget organization
According to the study of GAP institute, the budgeting process in Kosova lacks a lot in transparency on spending of the public money. Other organization as well, such as OSCE, in their reports complain that Ministry of finance prepare the budget behind the closed doors.
Therefore, it can be said that besides that interaction between the budget organization and the Ministry of Finance seems to be quite good, the reporting of expenditure of the Ministry of Finance to the Assembly of Kosova and publishing the financial dates is quite confusing and not very clear.
5.0. Conclusion

According to the analyses section as well as discussion section it can be concluded that Kosovo’s budget preparation goes through four main phases: budget preparation, budget enactment, budget execution, and budget oversight and auditing.
Kosovo uses a mixture form of top-up and bottom-down method on planning the expenditures, where a good ineraction in this respect between budget organization and the Ministry of Finance is there. The reporting and managing of budget through budget organization is enabled by sophisticated technology such as installing special software for budget.
However, the lack of transperancy from the Ministry of Finance on reporting the Kosovo Assembly, as well as publishing expenditures is present.
Therefore it can be concluded, that Kosovo budgeting process needs to be reviewed and avoid confusion on their financial publication.

6.0. Bibliography

• GAP-policy brief ‘Kosovo Budget-transparency and forms of budget reporting’
• Reference Book for Civil Society Organization
• Nice, David ‘Public Budgeting’
• http://www.institutigap.org
• http://mf.rks-gov.net/

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