Macedonia

Capital budgeting

Ministry of Finance - Republic of Macedonia

Basis for Budget Preparation

DEFINITION: Budget of the Republic of Macedonia is a annual plan of revenues and expenditures, that refers to a period of a 12-months.

TIMEFRAME: Fiscal year begins on January 1st and ends on December 31st.

ASSUMPTIONS: Basis for the preparation of the budget are:

- the strategic priorities of the Government - the Fiscal Strategy - the draft strategic plans of the budget users.

RESPONSABILITY: The Minister of Finance

General Government Budget

Central Government Budget

Budget of the local self-government units

Central Budget Budget of the budgetary funds

Base budget

Budgets of self-financed activities

Pension and Disability Fund

Health Insurance Fund

Employment Agency

Road Fund

Budgets of donations

Budgets of loans

Budget of Republic of Macedonia (Economic classification)

Revenues Expenditures

• Tax revenues • Social

contributions • Non tax revenues • Capital revenues • Foreign donation

• Wages and allowance • Good and services • Transfers • Interest • Capital expenditures

Budget of the Republic of Macedonia (Functional classification)

1. General public services 2. Defence 3. Public order and safety 4. Economic affairs 5. Environmental protection 6. Housing and community 7. Health 8. Recreation, culture and religion 9. Education 10. Social protection

Budget and Medium term

framework

Preparation of budget request and

development plan

Strategic priorities of the Government

Fiscal Strategy and macroeconomic policy

Budget circular

Draft Budget to the Government

and Parliament

Prioritization of capital projects and adjustment

of budget requests

Budget andB dudget audget adium tedium tedium teamewo

udget aBUDGET CYCLE

Strategic Priorities of the Government The Government of the Republic of Macedonia

determines the strategic priorities for the next year at latest by April 15th of the current year Budget users prepare three-year strategic plan covering programs and activities for realization of the strategic priorities of the Government, including capital expenditures

It is mandatory that budget users include the strategic priorities, as a sum of goals and initiatives, in their budgets.

Fiscal Strategy and Maedium term framework

The Ministry of Finance prepares a mid-term (three-year) fiscal strategy, proposing directions and objectives of the fiscal policy, macroeconomic projection and public debt. The Fiscal Strategy is adopted by the Government by May 31st of the current fiscal year at the latest

Based on the Fiscal Strategy, Government determines the maximum amounts of appropriations for the next fiscal year by budget users by end-May of the current fiscal year at the latest

Budget Circular Based of the adopted Fiscal Strategy and

determined maximum amounts of appropriation, the Ministry of Finance delivers, by June 15th at the latest, to the budget users instructions-budget circular. Contents of the Budget Circular:

Projection of the macroeconomic aggregates, Strategic priorities determined by the

Government, Maximum amounts of expenditures, Instructions for budget request and

development plan preparation.

Development program – Plan of development programs is a medium-term

presentation of programs that are intended for development investment – Budget users propose a plan of development

programs to submit for approval to the Government no later than July 15 in the current year. – Government approved them no later than August

15 in the current year.

Submission of Budget Requests

Budget users prepare the budget request in accordance with the instructions and guidelines contained in the Circular,

The budget users' programs and sub-programs from the development program plan (capital projects) which were approved by the Government shall be included in the draft budget request.

Budget users submit budget request for their activities covered in the programs to the Ministry of Finance by September 1st.

Adjustment of Budget Requests Ministry of Finance check the adjustment of the draft

budget requests with : -reference to the adopted maximum amounts of

appropriations, -their harmonization with the directions and

instructions given in the Circular and - their adjustment with reference to the efficiency,

priority and rationality of the request.

The Minister of Finance adjust the budget request drafts with the heads of the budget users.

Budget Draft Budget of the Republic of Macedonia submitted to the Government by November 1th.

The Government shall submit the Draft Budget of the Republic of Macedonia to the Parliament by November 15th of the current year at the latest.

The Parliament of the Republic of Macedonia shall adopt the Budget of the Republic of Macedonia until December 31st at the late. Medium term Fiscal strategy is a enclosed document to the Budget.

Capital budgeting and program budgeting

Program budgeting actually means provision of resources to achieve the goals, defined in the programs and monitoring of their realization via the achieved results.

As of 2009 defines development programs related to multi-investment projects (capital projects) and projects financed by IPA funds.

All development programs are separate subprograms and its presents in different Development part of Budget for three years.

Capital budgeting and program budgeting

The appropriations in the subprograms of development part of the Budget that will be not used during fiscal year, 50% are transmitted as approved funds for the first half of next fiscal year.

The Program approach in financing provides

greater transparency and enables the public to see the earmarked usage of budget resources.

Macroeconomic policy

-6

-4

-2

0

2

4

6

8

102000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Inflation GDP Trend of GDP

CURRENT SITUATION IN FISCAL STRATEGY 2011-2013

Projected revenues of the consolidated government budget in the

next three-year period decreased by 34.5% of GDP in 2011 to 32.5% of GDP in 2013.

Continuity in a disciplined budget policy, providing reduced total of 37% of GDP in 2011 to 34.4% of GDP in 2013.

The budget deficit is projected to optimum sustainable level of about 2% of GDP.

ASSUMPTIONS ABOUT THE MEDIUM-TERM PROJECTIONS OF REVENUE

Further reducing the tax burden, Continuity in reducing tax evasion, Projected structure of income

-tax revenues about 55%, -social contributions about 30% -non-tax and capital revenues about 12%

ASSUMPTIONS ABOUT THE MEDIUM-TERM PROJECTIONS OF EXPENDITURE

Strict control of new employment and freezing the wages in the public sectors

Reducing unproductive expenditures

Full and timely payment of pensions, social benefits and subsidies in agriculture

Improve the cost structure by increasing capital expenditure on account of reduction of current expenditure

Structure of Budget and Capital expenditures

Structure of expenditure

Salary14%

Social allownces41%

Interest2%

Capital expenditures

15% Material costs10%

Transfers to the LG9%

Subsidies9%

Trend of capital expenditures and % of GDP

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

2005 2006200720082009 20102011 201220132014

year

mil.

dena

rs

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

Capital expenditures% of GDP

Capital budgeting by sectors

3,7

29,8

7,8

1,4

9,2

6,46,0

9,8

1,3

14,5

10,1

0,0

5,0

10,0

15,0

20,0

25,0

30,0

Capital expenditures by sectors

Energy

Transport and communication

Agriculture and utility infrastructure

Enviroment

Education, sport and science

Health

Culture

Defence and interial affers

Judical, prisons and prosecution

Economic development

Other

Public debt

TREND OF PUBLIC DEBT

39,5%

32,0%

24,0%20,6%

23,7% 24,7% 26,0% 26,1% 25,5%

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100011001200130014001500160017001800190020002100220023002400250026002700280029003000310032003300

2005 2007 2009 2011projection

2013projection

in m

il eu

ro

0,0%5,0%

10,0%15,0%

20,0%25,0%

30,0%35,0%

40,0%45,0%

Total public debt State debt State debt/GDP

IMPROVING OF BUDGET PLANING

The Ministry of Finance, constantly works on improving the process, procedures of Budget planning, and program budgeting and introducing of performance indicators for measuring the program results.

In the previous period, considerable level of transparency was

provided in the presentation of the Budget.

The Budget, presents all the information for the main functions of the budget users, the results achieved in the previous fiscal year, as well as information on the capital subprograms of Budget institutions.

Improving the budgetary process in the coming medium term include:

1. Multiyear budgeting

2. Increasing and improving the quality of public finances

3. Greater diversification by sectors and regions

4. Developing indicators of efficiency of use of budgetary funds

5. Greater transparency by involving the professional public and NGO sector in the budget process