Pristina 2019 - mf.rks-gov.net · based on Government’s Priority Declaration. Budget Impact...

1

Republika e Kosovës

Republika Kosova-Republic of Kosovo Qeveria - Vlada – Government

Ministria e Financave Ministarstvo za Finansije – Ministry of Finance

Six Monthly Report (January-June) 2019 - Implementation of Public Finance Management Reform Strategy (PFMRS) of Kosovo 2016-2020.

Pristina 2019

2

CONTENT

ACRONYMS

ACRONYMS .............................................................................................................................. 3

INTRODUCTION .................................................................................................................... 4

EXECUTIVE SUMMARY ...................................................................................................... 5

1. GENERAL REPORT ACCORDING TO PILLARS ............................................ 12

1.1 PILLAR 1 FISCAL DISCIPLINE .......................................................................... 12

PRIORITY 1: ACCURACY OF MACROECONOMIC INDICATORS AND REVENUE FORECASTING: .......................................................................................... 12

PRIORITY 2: EFFECTIVE COMMITMENT CONTROLS .............................. 13

PRIORITY 3: SUSTAINABLE REVENUE COLLECTION ................................. 14

1.2 PILLAR 2: ALLOCATION EFFICIENCY ............................................................. 16

PRIORITY 4: DEVELOPMENT OF MEDIUM TERM EXPENDITURE FRAMEWORK (MTEF) .................................................................................................... 16

PRIORITY 5: CREDIBILITY AND EXECUTION CONTROL OF THE ANNUAL BUDGET ........................................................................................................... 17

PRIORITY 6: QUALITY OF CAPITAL BUDGET INFORMATION .............. 18

1.3 PILLAR 3: OPERATIONAL EFFICIENCY ........................................................... 19

PRIORITY 7: PUBLIC PROCUREMENT .................................................................. 19

PRIORITY 8: STRENGTHENING OF INTERNAL AUDIT .............................. 20

PRIORITY 9: STRENGTHENING OF EXTERNAL AUDIT .............................. 22

1.4 PILLAR 4: ISSUES RELATED TO PFM ........................................................... 23

PRIORITY 10: IMPROVEMENT OF IT SYSTEMS .............................................. 23

PRIORITY 11: BUDGET TRANSPARENCY ........................................................... 24

PRIORITY 12: SUSTAINABLE CAPACITY BUILDING IN PFM .................. 25

ANNEX 1. DETAILED EXPLANATION ON THE IMPLEMENTATION OF EACH ACTIVITY .................................................................................................................................. 26

3

ACRONYMS

IA –Internal Auditing TAK – Tax Administration of Kosovo WB – World Bank BDMS - (Budget Development and Management System) EU – European Union CBK – Central Bank of Kosovo DEIPC – Department of European Integration and Policy Coordination IMF - International Monetary Fund SPSG - Strategic Planning Steering Group IPSAS - International Public Sector Accounting Standards ISSAI - International Standards of Supreme Audit Institutions MTEF - Medium Term Expenditure Framework PIFC - Public Internal Financial Control PPRC - Public Procurement Review Commission LPFMA - Law on Public Financial Management and Accountability MF – Ministry of Finance PFM - Public Finance Management CG of PFM – Coordination Group of Public Finance Management CHU - Central Harmonization Unit BO – Budget Organization PIP - Public Investment Program SFQ – Government Financial Statistics SIGMA - Support for Improvement in Governance and Management KFMIS - Kosovo Financial Management Information System NDS - National Development Strategy PFMRS - PFM Reform Strategy IT – Information Technology VAT – Value Added Tax BIA – Budget Impact Assessment NAO - National Audit Office

4

INTRODUCTION

This report summarizes and presents achievement of priorities and progress in activities of Public Finance Management Reform Strategy (PFMRS) during first six months of 2019. This year, compared to previous reports, the report reviews the implementation of the revised Action Plan for 2019-2020 for the period January-June 2019. The drafting of the Six Monthly monitoring report aims the review of the progress achieved in implementing the strategy activities and identifying of challenges. Moreover, this report has information character in order to identify problems in the implementation of the strategy and addressing them in a timely manner. According to the mandate given with the Minister’s Decision No.33/2018, the Coordination Group on PFC is required to prepare regular annual and Six Monthly reports. After finalization of annual report 2018, this is the third Six Monthly Report presenting the progress achieved in implementation of planned activities during 2019. The approach adopted in preparation of Six Monthly report was a combination of meetings and consultations between DEIPC (MF) and main responsible entities for each priority. Initially was prepared a reporting table (according to instructions of OECD/SIGMA) and based on provided information by main responsible entities initially was drafted Six Monthly Table Report for 2019. At the end of 2018 was completed medium-term revision of Action Plan for period of time 2019-2020 and changes were reflected in the Public Finance Management Reform Strategy (PFMRS) 2016-2020. In order to maintain quality and continuity, based on extensive analysis and discussion with relevant stakeholders, the PFMRS Pillars and Priorities have remained the same. In some occasions, based on relevance, priority objectives, indicators for measuring objective achievement, and activities have been reviewed. It is worth noting that the 2019-2020 Action Plan is characterized by a smaller number of activities (50) but with a larger number of reference points (68 for 2019) that ensures better implementation and achievement of Priorities. PFMRS is constructed over 4 pillars and 12 priorities which includes all fields of Public Finance Management Reform. Furthermore, the report reveals the activities within each defined priority by PFMRS 2019-2020 Action Plan. Also, where it has been possible, the reporting was provided even in level of indicators. Full reporting on their achievement will be provided in the annual report.

5

EXECUTIVE SUMMARY

The third Six Monthly report on implementation of PFM Reform Strategy records the achieved progress in majority of foreseen activities. Based on the reports received by responsible structures, out of forty nine (49) planned activities, with sixty eight (68) Reference points, it is reported that:

- Progress is recorded in the implementation or that implementation has started without delays in forty six (46) activities

- No progress is reported or delays are recorded in starting the implementation in two (2) activities

- Whereas one (1) activity is planned to be implemented after 2019 (No reference point for 2019).

It is worth noting that, based on the completed analysis it results that there are three (3) completed activities already finished in the first period of 2019 (2.2, 9.3 and 11.3) as well six (6) challenging activities identified despite efforts undertaken up to now (2.8, 3.3, 5.2, 7.6, 11.2 and 12.1). GENERAL PROGRESS In the first pillar Fiscal Discipline, during 2019 are planned to be implemented in total nineteen (19) activities along with twenty three (23) reference points, divided into three key Priorities: 1. - Accuracy of Macroeconomic Indicators and Revenue Forecasting, 2. - Effective Commitment Controls, and 3. – Sustainable Revenue Collection. Based on reports of responsible structures, during six month period out of nineteen (19) planned activities, it is reported that in seventeen (17) of them there was a progress in the implementation or that implementation has started without delays, for one (1) activity no progress was reported, or delays were registered at the beginning of implementation, whereas one (1) activity is planned to be implemented after 2019 (No reference point for 2019). Under First Priority, Accuracy of Macroeconomic Indicators and Revenue Forecasting, through undertaken activities we can report that we have a progress under first indicator. The trend of careful and realistic forecasting of tax revenues has been maintained. The average deviation of revenue generated compared to the forecasting of tax revenues, according to the preliminary report, is -2.4%, which ensures the achievement of the Reference point for 2019 (-6% to 12%) and the target in 2020. The implementation of the activities foreseen with the revision of the PFMRS 2019-2020 Action Plan is going according to the Reference points and without delays. Also, under Second Priority, Effective Commitment Controls, progress was achieved in the implementation of activities. During reporting period a series of normative acts have

6

been drafted that strengthened BO’s monitoring and implementation of the Law on Public Internal Finance Control (PIFC). As per newness from the Law on PIFC, relevant officials were trained for the implementation of Law. Monitoring of Public Sector Entities (PSE) is undergoing pursuant to the plan. Description of the processes, unique standard on risk management, supported by USAID, started to be implemented through pilot projects in local level. In June 2019 has been drafted and approved by Government of Republic of Kosovo (GRK) Annual Consolidated Report on Functioning of PIFC System (MFK+AB) for 2018. With regards to Third Priority, Sustainable Revenue Collection, according to collected information it results that for two of reviewed indicators we have good results. There has been an increase in the number of taxpayers who declares the income voluntarily to 63,327 (67,702 Reference point for 2019). We also have a reduction of the tax debt extend as a percentage of annual total revenues (SBS Indicator) to 29.5% (29% Reference point for 2019). There was a progress even on increasing of timely fulfilment of declarations, as a result of using the module for management of non-declarants in VAT, as well as functionalization of the Unit for addressing of non-declarants and delayed declarants. There was a progress also on acceleration of VAT reimbursement from 30 days, as it was in period from January-June in 2018, to 23 days in period January-June 2019, resulting on seven (7) days faster reimbursement. Preparations for Barcode-RFID control system have been completed, and its functionalization is expected soon. Kosovo Customs (KC) capacities have been increased for Sustainable Revenue Collection by training 117 customs officials. As result of increased capacities for the implementation of new Law No.06/L-005 on Immovable Property Tax, Property Tax Revenues during January-June 2019 marked an increase by 1,264,691.00 Euro, or 9% more than in the same period of 2018. In the second pillar Allocation Efficiency, during 2019 in total are planned to be implemented eight (8) activities with twelve (12) Reference points, divided into three key priorities. Satisfactory implementation is reported in all three priorities of second pillar: 4. – Development of Medium-Term Expenditure Framework (MTEF) 5. - Credibility and Execution Control of the Annual Budget 6. - Quality of Capital Budget Information Based on the reports from responsible structures, during six month period, out of eight (8) planned activities, there was a progress in the implementation or the implementation started without delays in eight (8) activities. During the reporting period, the role of the Medium-Term Expenditure Framework (MTEF) was further enhanced, the reliability of the annual budget was strengthened, and more efficient and effective management of public investment planning and monitoring was achieved. With regards to Fourth Priority Development of Medium Term Expenditure Framework (MTEF), it was reported that based on the benchmark for 2019 which is 6.50%, no progress

7

has been made in reaching the benchmark of the indicator. However, taking into account previous years where the deviation has been higher (ie in 2017 was 22.03%) has a positive achievement in reducing the% of deviation between the threshold given by the MTEF - 2019 and the Approved Budget for 2019 by only 8.97%. This progress was achieved thanks to upgrading of BO capacities on Budget Impact Assessment (BIA) of new Government initiatives as well as through drafting of MTEF based on Government’s Priority Declaration. Budget Impact Assessment opinions requires in addition also a statement about correctness of presenting of data by BOs in the BIA templates. Fifth Priority, with regards of two indicators, under the second indicator Number of transfers during fiscal year is reported to have an evident progress. There are only 26 transfers during first semester of 2019 compared to 140 foreseen as Reference point for 2019. Under this this priority there are planned two (2) activities. In regard to Administrative Instruction (AI) on transfers/re-allocations, draft AI has been prepared and is expected to be approved soon, and with the assistance from GIZ there will be training of BO officials for the implementation of this AI. Whereas in the second part of the year, a working group will be established for drafting of Analytical Document on performance management. Sixth priority, it is reported to have a good performance as well in regard to two indicators. The number of re-allocations for BO of central level results to be only 10, that compared to Reference Point of 45 for 2019, it is great result. Also second indicator – Maintenance of planned capital expenditure level in relation to the total expenditure structure, it is satisfactory by 33.1% (33% Reference Point for 2019). AI on selection criteria and prioritizing of capital projects has been drafted, after the approval which is expected in the second part, will follow the capacity building of relevant officials. Trainings related to PIP were hold in central level. In the second part trainings will be held at local level and according to BO requirement. Administrative Instruction on defining of capital projects has been as well drafted by Working Group. After the approval, necessary trainings will follow up. In the third pillar of the Strategy - Operational Efficiency, it is reported that activities related to procurement, are being completed according to the plan. During 2019 are planned to be implemented in total fifteen (15) activities along with twenty one (21) reference Points, shared into three key priorities: 7. – Public Procurement, 8. – Strengthening Internal Audit, and 9. – Strengthening External Audit. Based on reports from responsible structures during six month period, out of fifteen (15) planned activities, it is reported that all activities marked a progress in the implementation or the implementation started without delays.

8

On seventh priority, necessary actions continued to be undertaken, with purpose to upgrade the efficient and transparent utilization of public funds. Regulation framework has been finalized including even the approval of AI for 2019 on centralized procurements for 2019 and amendment-supplement of Rules and Operational Manual for Public Procurement (ROMPP). Working Group worked on drafting of Concept Document (CD) for addressing of legislation in field of Public Procurement, which is expected to be approved in the second part of the year. Central Procurement Agency (CPA) hired three new officials, while the remaining three planned officials will be selected by the end of the year. Eighth Priority, also marked satisfactory progress in implementation during the first half of 2019. First Indicator - Percentage (%) of certified internal auditors reached 93% (80% Reference Point for 2019). Implementation of methodology for the monitoring of Internal Audit Units (IAU) started, harmonized with new requirements of the Law and by-laws on PIFC. Eight (8) IAUs have been monitored and one is in the monitoring process. Capacity building was done through the conference “Strengthening Public Internal Financial Control - Managerial Accountability”, the Internal Auditors Certification Program, training held in KIPA, as well as workshops on local level (with over 400 participants). Ninth priority, of third pillar deals with internal audit, and key result is the development of a supreme audit institution. During this period, a progress was reported on the implementation of all activities. Moreover, activity 9.3 was completed. It is worth mentioning that in frame of first indicator, Oversight Commission for Public Finances (COPF) held 8 meetings and reviewed 5 audit reports. NAO drafted concept document which summarized important topics on addressing the field of preserving institutional independence. Audit software on advancement of audit methodology is under tendering process. Were updated in accordance with ISSAI and under implementation Regularity Audit Manual as well as the Manual on quality management, whereas Manual on performance audit is under updating process. Until now were published 4 performance audits. The cooperation with the Assembly of Kosovo was concretized by two regional conferences. Six Monthly report of the Implementation Plan of CAO Recommendations for 2017 has been drafted, whereas Action Plan for the implementation of recommendations from Annual Audit report for 2017 was approved by the Government of Republic of Kosovo by Decision No. 08/69 on 16.10.2018. Based on Individual Audit Reports published for 2018, there is a progress on the implementation of recommendations resulted from audit report of 2017. After completion of data, the results will be presented in the Annual Audit Report for 2018, which will be published in August 2019.

9

In fourth pillar of strategy - PFM related matters, it is reported that seven (7) activities along with twelve (12) reference points foreseen by revision, are being completed according to the plan. Planned activities are shared into three key priorities: 10. - Improvement of IT systems, 11. – Budget Transparency, and 12. – Sustainable capacity building in PFM. On tenth priority, it is reported that the indicator already achieved reference point for 2020, Integration of systems in MF and its subordinate agencies has been completed and it’s functional. There is work ongoing on further improvement of IT systems. Development of DWH (Data warehouse) and reporting system (BI-Business Intelligence) is ongoing. Financial Data Center (Disaster Recovery System) is completed with equipment and in the second part of the year there will be synchronization with full capacities. Eleventh priority has also marked a progress in ensuring transparency of public funds spending by ensuring compliance of the Kosovo Budget information with the standard of GFSM 2014. During reporting period specific formulas were created for generating crystal reports in the KFMIS. In regard to the Chart of accounts/accounting plan, it is expected that in the second part of the year will be revised according to the new IPSAS requirements and then to start with the training the BOs Chief Financial Officers. The MF has continued with the drafting of the Information booklet for citizens 2019 into three languages which has been published on the MF website in April 2019 (https://mf.rks-gov.net/desk/inc/media/98CD6C02-BCA6-4A4B-9EDD-D7FBE8464956.pdf). Also Annual Financial Report for 2018 has been prepared, Quarter and Six Monthly Reports of Budget 2019 have been also prepared. Reporting is being provided in continuity in the Transparency Portal (https://ptmf.rks-gov.net/page.aspx?id=2,1 ). On Twelve priority, it is reported that funds are insured from Kosovo Budget for Feasibility Study on best option for PFM capacity building. During period January-June 2019 several initiatives were undertaken, which didn’t result with the implementation of feasibility study. In the second part of the year it is expected to ensure the expertise for completing the tender documentation and to tender the request for feasibility study. Assessment of PFM training needs is foreseen to be carried out as part of the feasibility study. PROBLEMS AND RISKS – CHALLENGES RISKS - The report concludes that most of activities (47) are being implemented according to the plan, whereas two (2) activities with stumble or delays in the implementation.

https://ptmf.rks-gov.net/page.aspx?id=2,1

10

It is worth mentioning that despite delays in the implementation of two mentioned activities (Activities 1.2 and 5.1) the report marks a progress in achieving of indicators of priority 1 and 5, as it was possible to ensure indicator values for their measurement. Under first pillar Fiscal Discipline, out of total nineteen (19) Activities along with twenty three (23) Reference Points, in one (1) Activity there was no report on progress or there were delays in starting of implementation. Activity 1.2. - Publication of the drafting methodology of economic forecast, due to complexity and linkage with budget processes has been identified as challenging. Drafting methodology of economic forecast is expected to be published after approval of the Budget for 2020. Under second pillar Allocation Efficiency, out of total eight (8) Activities, for one (1) Activity there was no report on progress or there were delays in starting of implementation. Activity.-5.1 Implementation of Administrative Instruction (AI) on transfers-re-allocation, didn’t start to be implemented due to the linkage with Law on Budget, it is expected to be approved by the Minister in order to enter into force in 2020. AI has been drafted by WG and by its approval necessary trainings will start to be held for BO officials during fourth quarter (Q4) 2019. Capacity building, as correction measure, will be undertaken before the mentioned AI enters into force. CHALLENGES - Out of total forty nine (49) Activities, as challenging are identified six (6) as follows: - 2.8 Drafting of legal infrastructure for regulating of three year commitments. - 3.3 Modernization of information technology system. - 5.2 Drafting of analytic document on performance management. - 7.6 Training of public procurement officials in basic and advanced levels. - 11.2 Review of Government accounting plan. - 12.1 Development of feasibility study on PFM Training Center, including the training needs assessment. The following presents future actions for identified activities as challenging for implementation, according to Reference Points, until the end of 2019. FUTURE ACTIONS In the last part of the Report1 it is presented in details progress and future actions in the implementation of Activities of PFMRS Action Plan for the first semester of 2019. In this part are presented the current status and the future steps for those Activities that are identified as challenging. Description of activities is followed by future foreseen measures with the aim of overcoming challenges. Out of total forty nine (49) Activities, six (6) are identified as challenging, as follows:

1 ANNEX 1. DETAILED EXPLANATION ON IMPLEMENTATION OF EACH ACTIVITY

11

Activity 2.8. – is assessed as challenging, even though the Treasury has tested the infrastructure in frame of KFMIS and commitments of funds for 3 period is supported, but requires advancement in Law on Budget by defining legal ground for three year commitments. For this purpose, engagement and decision-making is required aiming to amend/supplement the legal infrastructure, as reference Point for 2019. This would enable the implementation of Three Year Commitments as reference Point foreseen for 2020. Activity 3.3. - Project for Modernization of information technology system is complex everywhere and consequently challenging. TAK project is still under assessment stage (after finalization), so starting of implementation is expected to be done after signing of the contract. In order to take preventive measures, after assessing of the bids of Economic Operators as well as demonstrating some of the provided product/solution functions, the Assessment Committee and the Procurement Office, will come up with an assessment report at the latest by November 2019. Activity 5.2. - In the first part of the year there were no developments regarding the drafting of the Analytical Document on Performance Management. In order to implement this activity, it is expected that a working group will be formed as soon as possible to draft an Analytical Document for performance management. The delay in the establishment of Working Group may challenge its implementation. Activity 7.6. - The report finds that during the reporting period, there were no public procurement trainings. Although advanced and basic training are planned to take place in the second semester of 2019, providing of necessary funds and capacity might be a challenge. The advanced training program of 424 procurement officials who have a basic certificate in the field of public procurement will start in September 2019. As a result, the 424 procurement officials, who have a basic certificate in public procurement and which is valid until the end of 2019, it is required to be equipped with an advanced certificate. The PPRC, as requested by the procurement officials and other interested persons, will provide basic professional training in public procurement for 2019. The number of procurement officials and other interested persons, expected to be equipped with the basic certificate, is 30-40. Activity 11.2. - During 2019 it is planned that the chart of accounts or accounting plan be revised according to the new IPSAS requirements in the second part of the year. Accurate classification and compliance with the accounting plan is also an audit recommendation, so during 2019 it will be even in focus of budgeting. Capacity building will start after the review.

12

Timeframe will be challenging, harmonization of resources and activities in order that planning of budget 2020 reflects the requirement for classification and accurate implementation of the regulation on accounting plan. Activity 12.1. - Despite the positive developments such as providing of funds for the development of the Kosovo Budget Feasibility Study, and the commencement of development of relevant tender documentation, the start of project implementation will be challenging. Due to the lack of capacities, the tender documentation was not developed. The bidding process itself is also challenging in terms of the time necessary to finalize the selection of the winning company. As a correction/preventive measure, there is communication going on with LuxDev on the possibility of hiring an expert in drafting the tender dossier.

1. GENERAL REPORT ACCORDING TO PILLARS

1.1 PILLAR 1 FISCAL DISCIPLINE

PRIORITY 1: ACCURACY OF MACROECONOMIC INDICATORS AND REVENUE FORECASTING: The first priority of PFMRS even after the review, refers to enhancement of forecasting accuracy of macroeconomic indicators, including revenue forecasting, capacity building and advancement of Macro-Economic model. It also intends increasing of transparency by publishing the methodology of economic forecasting. Achievement of this priority will improve quality of necessary information for political decision makers and will create a sound basis for effective cooperation with international financial partners, especially with EU, addressing the recommendations of European Commission from the Meeting of Financial and Economic Dialogue between EU and Western Balkans, 2018. This will contribute to the maintenance of macroeconomic stability as one of the long term goals of public finance management. For the first semester of 2019, we can report that macro-Economic Unit capacities are being increased. By the assistance of EU supported project, Macro-Economic model is being advanced, which furthermore will improve the forecasting of key macro-economic indicators. The EC recommendation on possible options for establishing of an independent fiscal oversight body was also addressed, establishing a working group which will analyze and propose to the Government the best option. In frame of this priority were planned four (4) activities. However, what might be said is that during this semester (January-June 2019), out of four planned activities on achieving of this priority, three activities are being implemented according to the plan, whereas one activity (1.2) had no developments but expected to be implemented later on.

13

In the first indicator we can report that the trend of careful and realistic forecasting of tax revenues has been maintained. According to the preliminary report for the period January-June 2019, the average deviation of realized revenues compared to the forecast of tax revenues is - 2.4%, which ensures the positive trend towards the targeted value for 2019 (- 6% to 12%) as well as the target in 2020.

TARGET . - A regular and real forecast of tax revenues

1.- Indicator/s to measure achievement of the Priority

Basis Reference point 2019

Purpose 2020

Reporting January-June 2019

Average deviation of tax revenue forecast compared to realized revenues (Indicator form SBS).

(-1.1%)

-6% deri 12%

-5% deri 10%

-2.4%

PRIORITY 2: EFFECTIVE COMMITMENT CONTROLS The ability to repay on time (1-30 days) received payments is Priority 2 of reform under the first pillar. The purpose of this priority is effective commitment controls, which is aimed to be achieved by better management of payment delays through financial commitments controls. Main responsible institutions for achievement of this priority are Treasury and Central Harmonization Unit. During the first semester of 2019, progress was reported in the implementation of all activities (seven) that had Reference points in 2019 (2.1, 2.3, 2.4, 2.5, 2.6, and 2.7). Preparatory measures have been undertaken for activity 2.8 and during the second half of the year it is expected that the Budget Law will specify the legal basis for three-year commitments. Whereas Activity 2.2 has no Reference point for 2019 as it is a process that will last for a period of at least 5 years. So, it is an activity that has a Reference point only for 2020. Within this period, the Financial Regulation for Monitoring Budget Organizations has been drafted and will be finalized during 2019. Electronic archives has started to be implemented with a purpose of further advancement during 2019. Aiming to implement the Law on Public Internal Financial Control (PIFC), trainings have been held with purpose to inform relevant officials with the innovations and requirements arising from the Law on PIFC. Also, four (4) bylaws for the implementing the Law on PIFC have been drafted and approved. Two (2) Public Sector Entities (PSE) have been monitored and monitoring reports completed, whereas for two PSE monitoring has started. The process

14

description and unique risk management standard, supported by USAID, started to be implemented through pilot projects in the local level. Based on the analysis of the self-assessment questionnaires and reports received from the IAU, the Consolidated Annual Report on the functioning of the PIFC system (KFM+ IA) for 2018 has been drafted. The annual report has been approved by the Government of the Republic of Kosovo (GRK) in June 2019. Currently there is no opportunity to provide an indication of the indicator of this priority, as the reporting is only possible after the financial report at the end of 2019. With purpose to achieve the indicator, the Treasury of Kosovo in line with the competences and authorizations of the LPFMA has taken measures and organized joint meetings with CFO of BO/s in order to draw the attention and inform them that entering and creating liabilities without a budget is a legal violation.

Target. - Reducing payment delays by increasing compliance with applicable controls of commitments.

2.- Indicator/s for measurement of Priority achievement

Basis Reference point 2019

Purpose 2020


Outstanding payment arrears by the end of the fiscal year as % of total expenditures (Indicator from SBS).

4.3% 3% 2% Reporting at the end of the Year

PRIORITY 3: SUSTAINABLE REVENUE COLLECTION Current public financial management system in Kosovo continues to support general fiscal discipline. In order to maintain sustainability of fiscal discipline it is necessary to find domestic replacements for revenues collected at the border, which will have an impact on financing of public investments necessary for sustainable economic growth and for addressing multiple challenges. There are in total seven (7) activities planned for implementing Priority 3 Sustainable Revenue Collection, with shared responsibilities between TAK, Kosovo Customs and Property Tax Department (PTD). The report concludes that there was a progress in the

15

implementation of all planned activities2. Challenging is assessed to be the implementation of Activity 3.3. During first semester of 2019, continuous activities by TAK increased the fulfillment of timely declaration. This is a result of utilization of module on VAT non-declarants Management as well as functionalization of the Unit for addressing of non-declarants and delayed declarants. Through the automatic risk assessment of low risk taxpayers, progress has been made in accelerating of the VAT refund by seven (7) days. So, from 30 days in January-June 2018, it was decreased to 23 days in January-June 2019. Kosovo Customs (KC) with purpose to combat smuggling of goods and trade facilitation has finalized the technical specifications of the Barcode - RFID control system and is in the process of supplying equipment. Progress has been made in enhancing KC capacity for sustainable revenue collection through the training of 117 customs officials. Progress has also been made in capacity building of the Property Tax Department (PTD) in implementing the new Law No. 06/L-005 Immovable Property tax. As a result of capacity building and law enforcement, property tax revenues during the period January-June 2019 marked an increase by 1,264,691.00 Euro, or 9% more than in the same period of 2018. Despite the activities undertaken regarding the modernization of the information technology system (Activity 3.3), it should be noted that the process remains challenging. The project is in the assessment phase (close to the finalization), so implementation is expected to take place after the signing of contract in the second part of 2019. In regard to two indicators of Priority 3, the data show that the first indicator shows an increase in the number of taxpayers who voluntarily declare income to 63,327 (67,702 Reference Points for 2019). In order to increase the number of declarant taxpayers, the activity of clearing the taxpayer register is regularly implemented, removing those taxpayers who are not active and monitoring the non-declarers through the non-declarants management tool. In order to increase tax compliance by taxpayers, TAK entered in the period of implementation of the “Improving Tax Compliance” reform. At the beginning, the construction sector was identified as the sector with the highest risk of non-compliance. Regarding the implementation of this reform, it is expected that during July, August, September and October educational activities and tax control measures will be realized. TAK is currently implementing several reforms to improve institutional performance under the TAK plan ”Mid-term Reform Plan 2019 -2021” and these reforms may have an impact on the achievement of the Indicator.

2 Detailed explanations for the progress in each of activities have been provided in Annex 1

16

Also in the second indicator we’ve a decrease of tax debt level as percentage of annual total revenues (SBS indicator SBS) to 29.5% (29% Reference Point for 2019). TAK will continue with measures that will maintain this level. TAK, is also in the process of consolidation of debt collection function, making it as centralized function into some centres. Initially beginning in Pristina, afterwards even in other regions. Also, with new organizational structure it is foreseen to centralize even confiscation function. As one of the operational actions is even the increase of field activities for the implementation of procedures on tax payment, up to the implementation of measures for mandatory collection. Implementation of the centralization of debt collection function reform may have an impact on the implementation of the Indicator, as it is a reform that lasts for three years, requires dedicated resources and may have staff resistance against changes.

1.2 PILLAR 2: ALLOCATION EFFICIENCY

PRIORITY 4: DEVELOPMENT OF MEDIUM TERM EXPENDITURE FRAMEWORK (MTEF) In recent years, we’ve had a continuous improvement in the interconnection between national strategies and mid-term and annual budget planning. By the revision of the Action Plan for 2019-2020 are foreseen three (3) Activities with purpose to develop the MTEF. The sectorial approach, communication and professional consultancy from MF to BO/s, has influenced the strengthening of MTEF integrity, as a basic document for drafting of annual budget, and assessment for the next two years.

Target .- Expansion of revenue basis by combating tax evasion and smuggling of goods.


Basis Reference Point 2019

Purpose 2020

Reporting January- June 2019

Number of taxpayers who declares incomes in voluntary basis.

62,886 67,702 100,000 63,327

Decrease of tax debt level as percentage of annual total revenues (SBS Indicator).

35% 29% 25% 29.5%

17

Ministry of Finance continued with BO capacity building through trainings/consultancy mainly on Budget Impact Assessment (BIA), of new government initiatives. By the Instruction issued by MF on MTEF preparation, it has been ensured that MTEF will be drafted based on Government’s Priorities Statement, so to give precedence to the statement priorities. Moreover, in the budget impact assessments is required as additional information even the statement about the correctness of presentation of data by BO/s in the BIA template. There are a total of three (3) planned activities in the PFMRS action plan, with the aim of further advancing the role of the MTEF, as a liaison document between the National Development Strategy (NDS) and budget planning for the next three years. Compared to the 2019 Reference Points, progress has been made in implementing all three activities 4.1; 4.2; and 4.3. Currently, the deviation between the ceiling provided by MTEF-2019 and approved budget for

2019 is 8.97% (reference point for 2019 is 6.50%).

PRIORITY 5: CREDIBILITY AND EXECUTION CONTROL OF THE ANNUAL BUDGET Strengthening of annual budget credibility through the improvement of budget planning, including planning at the program level and compliance with macro-fiscal framework as well as strategic Priorities of the Government is one of the priorities of PFMRS. Two (2) activities have been planned under this Activity. In regard to Administrative Instruction (AI) for transfers/re-allocations, AI has been drafted and is expected to be approved soon, and with GIZ assistance a training to commence in order to provide training for BO officials for the implementation of this AI. While it is expected that in the second part of the year a working group will be established to draft the Analytical Document for performance management.

Target .- Further advancement of the role of the MTEF as a linking document between the National Strategy and budget planning for the next three years.



Purpose 2020


Percentage of average deviation between MTEF ceiling and Annual Budget Ceiling for BO/s

7.15 % 6.5 % 5% 8.97%

18

Regarding the percentage of average deviation of overall execution of central budget compared to the budget approved at the beginning of the year according to BO/s of central level, it cannot be calculated at this reporting period, as for the measuring of this Indicator it should be considered the budget approved at the beginning of the year and the budget realized at the end of the year. For the second indicator we’ve a very good situation as in the period January-June 2019 in total were completed 26 transfers (reference Point for 2019 is 140 transfers).

PRIORITY 6: QUALITY OF CAPITAL BUDGET INFORMATION Systematic linking of capital projects with the National Development Strategy and sector policies, and quality of technical analysis of projects is one of the Priorities of PFMRS. During reporting period planning management efficiency and effectiveness and monitoring of public investments by BOs in the PIP (Public Investment Program) system has continued to mark progress). Administrative Instruction (AI), for selection criteria and prioritizing of capital projects as well as AI on defining of capital projects were drafted by WG/s and their approval is expected to be completed. Following the approval, the training of BO officials on these AI will continue in Q4 2019. Therefore, for the overall progress will be reported in the annual report. Trainings were also organized for the PIP system, in order to train new officials and update the knowledge of existing officials.

Target.- Strengthening credibility of annual budget by improving the budgetary planning and its credibility, including planning at program level, in order to ensure that the budget is drafted in accordance with macro-fiscal framework and Government strategic objectives.



Purpose 2020


Percentage of average deviation of overall execution of central budget compared to the budget approved at the beginning of the year according to BO/s of central level

-14.9%

-7.5% deri +7.5%

5% Reporting at the end of the Year

No. of transfers During Fiscal Year 178 140 120 26

19

In order to achieve this priority in total are planned three (3) activities. Compared to reference points for 2019, a progress has been marked in three activities. In regard to first Indicator, in this reporting six month period January-June 2019 in total were conducted only 10 re-allocations (reference point for 2019 is 45 re-allocations). Whereas for the second Indicator, it is reported that in 2019 the participation percentage of capital expenditure in the budget structure is 33.1 % (Reference Point for 2019 is 33%).

1.3 PILLAR 3: OPERATIONAL EFFICIENCY

PRIORITY 7: PUBLIC PROCUREMENT In this Priority of the PFMRS reform, necessary actions have continued to be undertaken, with purpose to increase the efficient and transparent use of public funds. Centralized Procurement AI for 2019 was approved in June 2019. Three new officials were hired at the Central Procurement Agency (CPA), with the rest of the three planned officials, will be selected by the end of the year. Amendment-Supplement of the Rules and Operational Guidelines for Public Procurement (ROGPP) entered into force on

16.04.2019. E –Procurement system, in conducting of procurement activities, from 1

January 2019, it is mandatory for economic operators to submit bids electronically

while participating in large value procurement activities. From 1 January 2019, for all

procurement procedures, the submission of bids by the economic operators

participating in the procurement activities shall be conducted electronically only. There

is no physical bidding.

Target .- A more efficient and effective management of public investment planning and monitoring by the BOs in the PIP system that would have an impact on proper capital projects planning to be related to the National Development Strategy and Government priorities



Purpose 2020


Number of re-allocations for central level BO/s.

55 45 30 10

Maintenance of planned capital expenditure level in relation to the structure of total expenditure.

33% 33% 33.5 % 33.1%

20

Procurement activities are being monitored in continuity, settled and published in e-procurement platform. Working Group has been established for drafting of Concept Document (CD) for addressing of legislation on field of public procurement. A draft concept document has been drafted conducting even public consultation. CD will be translated into official languages and will be forwarded for inter-institutional and public consultations and expected to be finalized and approved in Q3 and Q4 2019. In regard to the training of basic and advanced public procurement officials, there were no activities, but they are planned to take place in the second semester of 2019. In the first semester of 2019, it is reported that for the six (6) planned activities, compared to the reference points for 2019, progress has been made in the implementation of five activities, while one (7.6) is expected to be implemented as planned by the end of the year. Reporting based on indicators will be possible by the end of the year.

PRIORITY 8: STRENGTHENING OF INTERNAL AUDIT Strengthening internal audit is important because it assists management in achieving of targets of the organization by providing independent advice on strengthening of public finance internal control systems, assessing interfaces of these systems to the achievement of targets, assessing the associated risks with systems in achieving government goals and assists on upgrading governance standards. Implementation of the IAU monitoring methodology started in line with the new requirements of the Law and PIFC by-laws. Until June 2019 were monitored eight (8) IAU/s and 1 is under monitoring process. For the purpose of capacity building a conference was organized on”Strengthening Public Internal Financial Control -

Target .- Ensure an efficient, transparent, and fair use of public funds and apply the core “value for money” principle in public procurement.



Purpose 2020


Percentage of using Negotiated Procedure without publication.

12,98% 9% 7% Reporting at the end of the Year

Annual percentage of contracted value of goods and services by CPA compared to annual contracted value of goods and services in PP (SBS Indicator).

Higher or equal to (≥) 14%



Reporting at the end of the Year

21

Managerial Accountability “with 174 participants. 32 candidates have successfully completed the Internal Audit Certification Program. 160 members of the audit committee have been trained in cooperation with KIPA, while with the support of USAID two workshops were held at the municipal level with 50 participants. In this context, in order to achieve the Priority for Strengthening the Internal Audit

function, a review of three (3) activities related to the strengthening of Internal Audit is

planned as a precondition for adding value to accountable management. Compared to

the reference points for 2019, progress has been made in implementing all three activities.

Reference points have already been reached in two activities.

Regarding the percentage (%) of certified internal auditors, it is reported that over 93% of

IAs are certified (80% reference point for 2019).

For 2018, 51.32% of internal audit recommendations by management have been

implemented, 30.36 are in process and 17.82 have not been implemented. Whereas,

regarding the percentage (%) of Implementation of Management Recommendations for

2019, it will be presented in the Consolidated Annual Report on the functioning of the

PIFC system in 2020.

Next Steps: PSE were required to prepare action plans for systematic implementation of

recommendations.

Target- Strengthening the internal audit function as an added value service to accountable management

8.- Indicator (-s) on measuring of Priority achievement

Basis The reference point 2019

Objective 2020


Percentage (%) of certified internal auditors.

50% 80% 90% 93%

Percentage (%) of implementing the recommendations from management

51% 55% 65% Reporting at the end of the year

22

PRIORITY 9: STRENGTHENING OF EXTERNAL AUDIT Priority nine (9) of the third pillar deals with external audit and the main outcome is the development of a well-functioning supreme audit institution that conducts audits in accordance with internationally accepted public sector auditing standards. During this six-month period, progress was reported in the implementation of all activities. For more, the activity 9.3 is completed. In order to maintain institutional independence, the NAO has established a working group that has identified issues of importance for addressing and has produced a concept document with the necessary clarifications. This document has been circulated to the NAO Management Group for comments and will be discussed in detail in the upcoming days. Preparations for advancing the audit methodology through system automation have been completed. The audit software is currently in the process of being tendered. The Updated Regularity Audit Manual as well as Quality Management Guide comply with ISSAI/s and is being implemented. The Performance Audit Worksheet package has been updated while the Performance Audit Manual is being updated. For the period January-June 2019, 4 performance audits were published. Cooperation with the Assembly of Kosovo is materialized with two regional conferences. As a result of the meeting at the request of Parliamentary Committees (Public Finance Oversight Committee - PFOC and Budget and Finance Committee - CBF) and GIZ support, up to June 2019, a total of 8 meetings were held where 5 audit reports were reviewed. The six-month report on the implementation plan of the NAO recommendations for 2017 has been drafted. The Government of the Republic of Kosovo by Decision no. 08/69, dated 16.10.2018, has approved the action plan for implementation of the recommendations of the 2017 Annual Audit Report (ARA 2017). The current state of implementation of the first indicator for the period January-June is that a total of 8 meetings were held where 5 audit reports were reviewed. The full result of this indicator will be reported for the next period, respectively at the end of the year. Regarding the second and third Indicator, the percentage of addressed and unaddressed recommendations issued by the NAO, according to the Individual Audit Reports published for 2018, shows progress in implementing the recommendations arising from the audit report for the year 2017. Following the data processing, the results will be presented in the 2018 Annual Audit Report, which will be published in August 2019.

23

Target.- Development of a well-functioning supreme audit institution that performs audits in accordance with internationally accepted public sector auditing standards.

9.- Indicator (s) on measuring of Priority achievement


Objective 2020


The percentage of audit reports reviewed by the Commission on the Oversight of Public Finances.

10% 20% 20% 8 meetings were held where 5 audit reports were reviewed

The percentage of recommendations addressed and issued by the National Audit Office.

32 % 34% 35% Will be published in August 2019

The percentage of un-addressed recommendations issued by National Audit Office.

37% 30% 30% Will be published in August 2019

1.4 PILLAR 4: ISSUES RELATED TO PFM

PRIORITY 10: IMPROVEMENT OF IT SYSTEMS Priority ten (10) aims to improve information technology systems in order to improve public finance management. In order to achieve this priority, there are two (2) planned activities. Compared to the Reference Points for 2019, progress has been made in the implementation of all activities. The integration of systems into the MoF and its subordinate agencies has been completed and is operational, while the development of the DWH (Data warehouse) and reporting system (BI-Business Intelligence) is ongoing. Hardware equipment for the creation of the Disaster Recovery System have been provided, where during the third quarter it is expected to simulate the centre in order to continue with full capacity synchronization. Regarding the Indicator for measuring Priority Achievement, currently seven (7) systems foreseen as 2019 Reference Points have been integrated.

24

Target .- Improvement of IT systems operating in the Ministry of Finance in order to improve the quality of financial information.



Objective 2020


Number of integrated systems. 0 7 7 7

PRIORITY 11: BUDGET TRANSPARENCY Priority eleven (11) is to ensure transparency of public funds spending, with priority being to ensure compliance of Kosovo Budget information with the IMF, respectively the 2014 GFS standard. There are a total of four (4) activities planned to meet this priority. The responsible body of these activities is the Treasury and Department of Budget, MF. During the reporting period January-June 2019, a satisfactory progress was reported in the implementation of 3 activities, while for activity 11.2 planning is to be carried out in the second half of the year. Specific formulas for generating crystal reports in KFMIS were created during the reporting period as per reporting requirements, which serve for reporting under IPSAS and GFSM 2014. Regarding the accounting plan, it is expected that in the second half of the year it will be revised according to the new requirements of IPSAS and then begin with training of Chief Financial Officers of BOs. The MoF has continued with the drafting of the Friendly (Narrative) Budget Document for 2019 in all three languages that has been published on the MoF website in April 2019; 1. (Note: https://mf.rks-gov.net/page.aspx?id=1,132) 2. (Eng: https://mf.rks-gov.net/page.aspx?id=2,132) 3. (Serbian: https://mf.rks-gov.net/page.aspx?id=3,132) During 2019, the Annual Financial Report for 2018, Quarterly and Semi-annual Budget Report for 2019 has been prepared. Reporting is ongoing on the Transparency Portal (https://ptmf.rks-gov.net/page.aspx?id= 1,1).

25

Target- Provision of information compliance for the budget of Kosovo with IMF/ GFSM 2014 standard.


Basis Reference points 2019

Objective 2020


Budgeting and reporting according to the accounting table which is in compliance with GFSM 2014

Does not exist

Budget planning

According to GFSM 2014

Standard GFSM 2014 in use

Reporting at the end of the year

PRIORITY 12: SUSTAINABLE CAPACITY BUILDING IN PFM The purpose of this priority is the sustainable capacity building of civil servants in the field of PFM. There is only one activity foreseen for achieving this Priority. During the period January-June 2019 several initiatives have been undertaken which have not resulted in the implementation of the Feasibility Study. It is worth noting that funds were provided from the Kosovo Budget. In the second part of the year, it is expected to complete the tender documentation and to tender for the feasibility study. Assessment of training needs in the PFM field is foreseen to be carried out as part of the feasibility study.

Target - Achievement of a systematic, sustainable and integrated way of capacity building of civil servants in Public Finance Management using local expertise , of public and external administration.



Objective 2020

Reporting January – June 2019

1. Development of a feasibility study on the PFM Training Centre, including training needs assessment.

NA Development of Feasibility Study, completed.

Training needs assessment in PFM field completed.

Addressing recommendations arising from the completion of the feasibility study

Reporting at the end of the year.

26

ANNEX 1. DETAILED EXPLANATION ON THE IMPLEMENTATION OF EACH ACTIVITY

PILLAR 1 FISCAL DISCIPLINE

Priority 1: The aaccuracy of forecasting macroeconomic and revenue indicators Comments on the status of activities 1.1- 1.4 In achieving the “Accuracy of Forecasting Macroeconomic Indicators and Revenue”, 4 activities are envisaged related to the strengthening of fiscal discipline as a precondition for maintaining fiscal sustainability. Activities include capacity building in the macroeconomic unit, the publication of economic forecasting methodology and advancing the Macroeconomic model, as well as addressing the European Commission's recommendation from the Economic and Financial Dialogue Meeting through the development of a concept document establishing an Independent Fiscal Oversight Body. During the reporting period January-June 2019, out of four (4) activities planned to achieve this priority, three (3) of them (1.1, 1.3 and 1.4) reported progress during this period, while activity related (1.2) related to the publication of the methodology for drafting economic forecasts did not mark any progress but is expected to be implemented in the second half of the year. (1.1) Ensuring of sufficient capacity of the macroeconomic unit. Training has been provided by the World Bank for the staff, in particular in macroeconomic modelling and revenue projection. From May 13-17, World Bank (WB) has organized a training on Macro Modelling. The training was attended by 5 officials from the Macroeconomics Unit. From May 20, 2019, training was held on the topic: Credit Risk Framework, organized by the World Bank, attended by 5 officials from Macro and 3 from Treasury (debt department). During the second half of the year, the experts from the project "Support to the Office of Strategic Planning" funded by the European Commission are expected to provide training. (1.2) Publication of economic forecasting methodology. No action was taken in order to implement this activity. It is an activity that will be developed later. The methodology for drafting economic forecasts is expected to be published after the adoption of the 2020 Budget. (1.3) Upgrading the Macroeconomic model in order to improve the forecast of key macroeconomic indicators including tax revenues. With the help of EC2 (key expert 2), from the project Support for the Office of Strategic Planning, work has begun on the development of a sub-model for analysing and measuring the socio-economic impact of

27

ERE policies, so far a database framework has been established. During the second half of 2019, sub-models will be finalized. (1.4) Addressing the recommendations of European Commission from the meeting of the Economic and Financial Dialogue between the EU and the Western Balkans, 2018, (Review of EFC Options). The Ministry of Finance has established a working group on 13.09.2018 in order to analyse the possible options for the creation of an independent body for fiscal oversight, consisting of state officials and civil society. The working group has held several meetings and is analysing models for this body. In the second half of 2019, an analytical document with options will be drafted for the establishment of an independent fiscal oversight body. Priority 2: Effective Commitment Controls Comments on the status of achievements in activities 2.1-2.8 To achieve this goal, the post-review strategy has grouped eight (8) activities. Given the time being reported, compared to 2019 Reference Points, we have only one activity (2.2) that has no Reference Points for 2019, so it is an activity for the next year. For the other seven (7) activities, a progress was marked in implementation or even at completion. (2.1) Legislation Amendments/supplementation and implementation of financial regulations.- The Financial Rule on Monitoring Budget Organizations has been drafted and will be finalized in 2019. Following the entry into force of the Regulation, monitoring and reporting will begin on a quarterly basis for monitoring, delays in payments, and compliance with the accounting plan by BO/s. (2.2) Introducing Modified Cash Accounting in Reporting.- Introducing Modified Cash Accounting in Reporting is a process that will last for a period of at least 5 years. It is an activity that has a Reference Point for the year 2020. This is because in order to keep up with the changes in the accounting principle, legislative changes are required, professional capacity building of staff and adjustment of the accounting plan in KFMIS. (2.3) Expansion of KFMIS functions. - The Treasury during 2018 has begun to implement the electronic archive where BO/s are obliged to attach scanned financial documentation when recording expenditures in KFMIS. During 2019, it will be advanced as a process under the supervision of the Treasury of Kosovo and will continue with the maintenance of financial documentation by BO/s. (2.4) Implementation of the Law on Public Internal Financial Control (PIFC) .- On 15,16,17 and 18 April 2019, 104 officials of Public Sector Entities (PSE/s) were trained in cooperation with KIPA on the topic ”Annual Report on the functioning of PIFC” with particular emphasis on the new requirements of the PIFC Law on the standard of

28

reporting and accountability. According to the training plan, since the APV is in line with the requirements of the PIFC Law, we are in the process of preparing training material for Q4. Concerning new sub-legal acts for implementing the PIFC Law: - Regulation MF - No. 01/2019 on Financial Management and Control was approved; - The self-assessment questionnaire under the PIFC Law and the new Regulation no. 01/2019 on FMC was approved; - Regulation (GOK) no. 01/2019 on the Establishment and Implementation of the Internal Audit Function in the Public Sector Entity was approved; -Administrative Instruction MF-Nr. 01/2019 on the Establishment and Functioning of the Audit Committee in the Public Sector Entity was approved by the Minister of Finances. Implementation of these regulations will continue in practice as well as trainings in Q4 2019 for about 90 officials, in line with the drafted training plan. (2.5) Internal Control Monitoring in BO.- Two (2) Public Sector Entities (PSE/s) have been monitored and monitoring reports have been completed, while two (2) PSE/s are in the process of being monitored for which reports in Q3 2019 will be completed. Completion of the two remaining monitoring will be done according to the plan in Q4. (2.6) Implementation of Process Descriptions and Unique Risk Management Standard - Implementation of Process Descriptions and Unique Risk Management Standard has begun to be implemented at the local level. This activity is supported by the USAID (Transparency) Project. Implementation has started in five (5) pilot municipalities - Prishtina, Peja, Gjakova, Ferizaj, and Prizren. After analysing the results deriving from the Pilot Projects, it will be continued with other municipalities. (2.7) Drafting and submitting for approval to the Government the consolidated annual report on the PIFC system. - Out of 110 Public Sector Entities (SSPs), 107 PSE/s have completed the questionnaire. This process was preceded by the functionalization of the self-assessment questionnaire software. This software has enabled the PSE to complete the on-line questionnaire. During the first six months, 69 reports were received and analysed by the IAU. During June, the 2018 Consolidated Annual Report on the functioning of the PIFC system (FMC + IA) for 2018 has been submitted and approved by the Minister of Finance. The annual report was subsequently submitted and approved by the Government of the

29

Republic of Kosovo (RCC). Training material will be prepared for Self-Assessment Questionnaires, updated under PIFC Law. (2.8) Drafting of the legal infrastructure for regulating three-year commitments.- The Treasury has tested the infrastructure within KFMIS and supports the commitment of funds for a 3-year period, but there is a need for advancement in the Budget Law by specifying the legal basis for three-year commitments. The activity is assessed as challenging. Priority 3: Sustainable revenue collection Comments for the status of achievements in activities 3.1-3.7 To achieve this goal, the strategy has grouped seven (7) activities. Regarding the realization of this priority, compared to the Reference Points for 2019, progress has been marked in implementation of all activities. (3.1) The increase of meeting statement criteria on time .- Currently, the Tax Administration of Kosovo (TAK) is using the module for the management of Non-declarants of VAT, and it is expected that this module will soon be expanded with other types of taxes. TAK has operationalized the Unit for the treatment of non-declarants and late declarants. This unit is established within the Taxpayer Registration and Service Department, with the aim of providing taxpayer services and raising taxpayer awareness of voluntary compliance. More specifically, the unit is handling cases such as clearing tax accounts and managing of non-declarants and late declarants, receiving and reviewing requests related to the EDI Electronic System, adjusting the taxpayer's situation where data are not processed in the system. , etc. The next step is the awareness campaign on improving the taxpayers' behaviour towards fulfilling their tax obligations. (3.2) Automatic risk assessment to enable immediate approval and payment of VAT

which are low risk. - During January-June / 2018, we had the following situation; - The number of approved applications was 162, out of this o short visits 136 o with control 26 - The average days for reimbursement was 30 days. Compared to the previous year, for the period January - June / 2019, the data show the following progress: - The number of on-line VAT claims through the new module is 282,

30

- The number of approved applications is: 172, or ten (10) more, out of which: o short visit 136, or the same number o with a control of 36, or ten (10) or more. - The average days for reimbursement is 23 days, or seven (7) days in advance. As a next step, TAK is in the process of reviewing the Criteria of the Risk Analysis tool in order to assess claims quickly and accurately and reduce the number of VAT refund requests handled by tax audits. These tools will be im8plemented through information technology. (3.3) Modernization of the information technology system.- The project is still in the evaluation phase (close to finalization), so implementation is expected to take place after the contract is signed. This is planned to happen during the second half of 2019. It is considered as a challenging activity. Following the Evaluation of the bids of Economic Operator as well as demonstrations of some of the products / solutions features that were offered, the Evaluation Commission and the Procurement Office would issue an evaluation report at the latest by November 2019. (3.4) Intensification of anti-smuggling activities.- During the first six month report of 2019 the number of controls and patrols has been increased. KC has developed: - 2814 Road stops (86.72% increase over the same period of the previous year) - 1499 patrols (217.58% increase over the same period of the previous year) - 219 Minor Offenses (11% increase compared to the same period of the previous year).The Customs will continue its activities to prevent and detect smuggled cases. (3.5) Combating smuggling of goods and facilitation of trade.- Technical specifications for Barcode control system - RFID has been completed. The tender for the supply of equipment and implementation has been announced by the procurement. Offers are currently pending. In the second half of 2019, the bidding procedures for Automation of transit registration and control through the integration of the RFID system (customs monitoring system) will be concluded. (3.6) Capacity building in KC for sustainable revenue collection.- During the reporting period, 117 customs officials were trained in various customs areas such as Tariff, Origin, SAA etc. In the second part of the year, the trainings will be conducted according to the training plan. (3.7) Capacity Building in the Property Tax Department of (PTD) in Implementing the New Law no. 06/L-005 Tax on Immovable Property.- During the reporting period formal workshops were held with officers of municipal property tax offices, in order to

31

introduce the innovations and reforms within the new Law no. 06/L-005 on Property Tax. Approximately 170 officials participated in these workshops, as managers of DPMTs, operators, municipal bill collector etc. In addition, in the first half of this year, special trainings were held on the Law on Property Tax with municipal surveyors (immovable property registrars). Approximately 135 officers (surveyors) participated in these trainings. These workshops and trainings were also intended to strengthen law enforcement. Property tax revenues during the period January-June 2019 increased by 1,264,691.00 Euros, or 9% more than in the same period of 2018. According to data generated by the Property Tax System (PTS) during 12,559,135.48 Euros were collected in January-June 2018 while 13,823,826.48 Euros were collected in the same period of 2019. The cash collection will continue as planned.

PILLAR 2: THE ALLOCATION EFFICIENCY

Priority 4: Development of Mid-Term Expenditure Framework (MTEF) Comments on the status of achievements in activities 4.1.-4.3 To achieve this priority, three (3) activities are planned and compared to the Reference Points for 2019, progress has been made in implementing all three activities 4.1; 4.2; and 4.3; The full progress of this priority will be reported in the annual report. (4.1) Strengthening of capacities for drafting of budgetary impact assessment for new

government initiatives.- Nearly 50 officials of BO have been advised / trained for this six months period. Officials have been advised on the new Budgetary Impact Assessment (BIA) In cooperation with KIPA, continuous trainings will be organized in for Civil Servants of the Budgetary Organizations on the Budgetary Impact Assessment (BIA) methodology. This is in order to continuously increase capacity in this area. (4.2) Advancement of Planning Documents (NDS-Sector Strategy - MTEF). Harmonization of MTEF sectors with National Development Strategy (NDS) has been ensured. BO/s are now obliged in their requests to prioritize the measures and activities set forth in the NDS.

32

The MTEF is drafted based on the Government Priority Statement, so BOs have been obliged to prioritize the Government Priority Statement in planning their budgets with the MTEF. These data are also required with the instruction issued by MoF for preparation of MTEF by BO. In the coming period we will ensure that BOs continues to strictly follow the instructions issued by the MoF for the preparation of the MTEF, and are in full compliance with the NDS and the Government Priority Statement. (4.3) Assessment of the Impact of Proposed Policies with Fiscal Impact on Revenue and

Budget Expenditure.- During the reporting period there were no new fiscal initiatives, so there was no opinion on the assessment of the impact on revenues. In order to increase control, the budgetary impact assessment opinions require additional statement on the correctness of the submission of data by the BO in the form of EIA. In case of data discrepancies, additional information will be requested from the BO regarding these discrepancies presented in the EIA form. Budgetary impact assessments of new fiscal policies will be carried out based on the need. Priority 5: Reliability and control of annual budget execution Comments on achievement status in activities 5.1-5.2 Two (2) activities have been planned to achieve this priority and we have no progress in this six-month reporting period. Activities are expected to intensify in the second half of the year, especially in the capacity-building sector. (5.1) Implementation of the Administrative Instruction (AI) on transfers - reallocations. - The Administrative Instruction on transfers and reallocations has been drafted by the WG. Due to its alignment with the Budget Law, it is expected to be approved by the Minister to enter into force in 2020. It is expected that the Minister will soon approve the Administrative Instruction (AI) on transfers - reallocations, and start implementing it in the framework of the 2020 Budget, planned to be held in in K4 2019. (5.2) Development of an analytical document for performance management. There are no developments regarding the drafting of the Performance Management Analytical Document, so it is considered challenging for the coming period. The next step will be the establishment of the working group for drafting the Analytical Document for performance management.

33

Priority 6: Quality of capital budget information Comment on achievement status in activities 6.1.-6.3 To achieve this Priority, three (3) activities are planned and compared to the Reference Points for 2019; progress has been made in all three activities. Activities 6.1 and 6.3 are ongoing and are expected to be finalized by the end of 2019. Therefore, their overall progress will be reported in the annual report. (6.1) Approval of Administrative Instruction (AI) on Selection Criteria and Prioritization of Capital Projects.- Administrative Instruction on Selection Criteria and Prioritization of Capital Projects has been drafted by the WG. Due to its alignment with the Budget Law, it is expected to be approved by the Minister in order to enter into force in 2020. With the approval of the Administrative Instruction on the selection criteria and prioritization of capital projects by the Minister, its implementation will commence within the Budget 2020. Upon the approval of AI, training for BO officers will start to be held. It is planned to be held in Q4 2019. (6.2) Organizing of training for the PIP system (training of new officers and updating the knowledge of existing officials) - During the reporting period, 24 officers were trained on the use of the PIP system at central level. Nd

PILLAR 3: OPERATIONAL EFFICIENCY

Priority 7: Public Procurement Comments on the status of achievements in activities 7.1-7.6 To achieve this priority, six (6) activities are planned and compared to the Reference Points for 2019 progress has been made in the implementation of five (5) activities, while Activity 7.6 is expected to be implemented as planned by the end of the year. (7.1) Development of centralized procedures. The Administrative Instruction (AI) on Centralized Procurement for 2019 was approved in June 2019. Significant progress has been made with the implementation of centralized contracts and in budget savings. It is worth noting that the MoF has spent only one year supplying toner (excluding the supply of copiers, printers and scanners and servicing them) over 100,000 euros. Whereas for the CPA contract on copy and scan services the annual costs are around 15,000 euros. We have similar savings cases with other Contracting Authorities (CA).

34

According to the centralized procurement of AI, the list of centralized procurement will be expanded. (7.2) Empowering the CPA with the necessary staff and capacity building. - CPA in the reporting period January June hired three new officials. There were no training activities. As a next step, the CPA will be staffed, as the rest of the three officials will be selected by the end of the year. (7.3) Advancement and strengthening of the e-procurement system in performing

procurement activities.- During this period, for better functioning of e-procurement platform, an amendment to the Procurement Rules and Operational Guidelines was made. Public (PROG). PROG with amendment/supplements carried out entered into force on 16.04.2019. A significant progress has been made with the implementation of e-procurement by all CAs and for all types of contracts (excluding those with minimum values). From 1 January 2019, it has become mandatory for economic operators to submit bids electronically while participating in procurement activities for large value contracts. Implementation of e-procurement by CA has increased efficiency, competitiveness and transparency in the development of CA procurement activities at the country level. (7.4) Comprehensive monitoring of the cycle of public procurement activities in order

to reduce the number of cancelled activities. - During this reporting period the PPRC has monitored the procurement activities set up and published on the e-procurement platform. A total of 224 notices of cancellation of procurement activities were monitored, including this in the work report of PPRC Monitoring Department for the first half of 2019, with more detailed information on this issue. In addition, other types of notifications were monitored during the implementation of CA procurement activities. Monitoring of procurement activities according to the requests of economic operators and other interested parties has also been carried out. In order to identify, prevent and eliminate eventual omissions related to compliance with the public procurement law by the Contracting Authorities (CA), increasing the level of work in order to use fair, transparent and efficient use of public funds, the PPRC will continue with a comprehensive monitoring of the CA procurement cycle implemented at the country level. (7.5) Legal Changes in the Public Procurement System.- Due to the needs presented, the PPRC has started initiating amendments to the PPL. This amendment will incorporate the provisions of the new EU Procurement Directives, to complete the basis for the proper functioning of the e-procurement platform, define SME opportunities for participation in procurement activities, and eliminate any difficulties encountered during the implementation of the Law in practice. By the decision of MoF dated 21.01.2019, a

35

working group for drafting the Concept Document (CD) was established to deal with public procurement legislation. Working group meetings as well as public meetings were held on a regular basis. In the second half of the year, the draft Concept Document (CD) will be translated into the official languages and will be submitted for inter-institutional and public consultation. The approval procedure for submission to the Government will continue. The drafting of the CD on the treatment of public procurement legislation is expected to be finalized and approved in the period Q3-Q4, 2019. (7.6) Training of public procurement officers at basic and advanced level.- During the reporting period, there were no trainings in the field of public procurement and is assessed as challenging. Advanced and basic level trainings are planned to take place in the second half of 2019. The advanced training program of 424 procurement officers who have a basic certificate in the field of public procurement will begin in September 2019. As a result, the 424 procurement officers who have a basic certificate in public procurement and which is valid until the end of 2019, will be equipped with advanced certificate. The PPRC, as required by the procurement officers and other interested persons, will hold basic professional training in public procurement for 2019. The number of procurement officers and other interested persons expected to be provided with the basic certificate is 30-40. Priority 8. Strengthening Internal Audit Comments on activity status 8.1 - 8.3 To achieve the priority of “Strengthening Internal Audit” with the revised plan, three (3) activities related to the strengthening of internal audit are planned as a precondition for adding value to accountable management. Compared to the 2019 benchmarks, progress has been made in implementing all three activities. Activities 8.1 has already reached the Reference Point. (8.1) Harmonization of IAU monitoring methodology with the new requirements of

the PIFC Law.- The methodology for monitoring the IAU has been harmonized with the new requirements of the PIFC Law and bylaws and it is being implemented already. (8.2) Monitoring of Internal Audit Units.- Eight (8) IAUs have been monitored and one (1) IAU is in the process of monitoring. Both IAUs will continue to be monitored in the coming period. (8.3) Drafting the training plan for internal auditors and organizing trainings as

planned.- Conference on ”Strengthening Public Internal Financial Control - Managerial Accountability” was organized. Panellists at the conference were: Minister of Finance, Director of General Budget from Brussels, the Auditor General, representatives from

36

SIGMA and the CHU Director attended the conference with 174 participants, including 12 CHU staff members. In cooperation with KIPA, a seminar was organized for 160 members of the audit committee on the topic”The role of audit committees”. A written and oral exam for internal auditors was also organized where 32 candidates have successfully completed the internal auditor’s certification program. Successful candidates have been provided with a national certificate of internal audit. In cooperation with USAID, two workshops were organized for the municipal level with 50 participants. These workshops addressed quality assurance, internal and external audit recommendations. Priority 9: Strengthening of External Audit Comment on achievement status in activities 9.1-9.6 Six (6) activities related to the "Strengthening of external audit “through the development of a well-functioning supreme audit institution, carrying out audits in accordance with public sector auditing standards, are planned to achieve the “External Audit Strengthening” priority, internationally. Compared to the Reference Points for 2019, progress has been made in the implementation of all activities. For more, the activity 9.3 is completed. (9.1) Maintaining institutional independence. NAO has drafted the first draft supplement/ amendment of the Law on Auditor General and National Audit Office 05 / L-055. The draft is in accordance with International Standards on Supreme Audit Institutions (ISSAIs). The Auditor General has addressed to the Public Finance Oversight Committee (COPF) the need to amend / supplement the Law on Auditor General and the National Audit Office 05 / L-055. To this end, a working group has been established that has identified issues of importance for addressing, and has produced a concept document with the necessary clarifications. This document has been circulated to the NAO Management Group for comments and will be discussed in detail in the coming days. As a next step, the Concept Document will be sent to the Public Finance Oversight Committee respectively the Assembly for further accountability. (9.2) Advancement of audit methodology, through automation. - Preparation of audit software has already begun. Preparatory phases such as feasibility study, MAP-ing and drafting of terms of reference have been completed so far. Currently, audit software is in the bidding process.

37

Regarding the training of the staff for software usage, it will be done after the completion of its implementation phase. (9.3) Updating the Manual on Regularity Audit. - The Regularity Audit Manual has been updated, incorporating the Public Enterprise Financial Audit Chapter, which has been implemented since September 2018. A draft Audit Manual on audit compliance has been drafted based on which three pilot compliance audits have been carried out and we expect their approval in September this year. The Quality Management Manual is in accordance with ISSAI/s and will be updated as necessary at the beginning of the audit season 2019/2020. The approval of the Manual on Compliance Audits is expected to be done in the next reporting period. (9.4) Further development of NAO performance audit practice. The Performance Audit Worksheet package has been updated while the Performance Audit Manual is being updated. As part of the development of the performance audit practice, a guide to follow up on the performance audit recommendations has been developed. Performance audits are being published as planned. For the period January - June 2019, 4 performance audits have been published: 1. Procurement with negotiated procedure without publication of a contract notice. 2. Capacity Development in the Process of Policy Making and Coordination; 3. The process of managing grants and subsidies in the agricultural sector; 4. Effects of tender allocations into lots. (9.5) Involvement of the Assembly in the Review of Audit Reports.- In order to strengthen cooperation between Parliaments and Supreme Audit Institutions to improve the performance of external audit, two Regional Conferences have been attended by representatives from the Oversight Committee of Public Finance (COPF), Committee on Budget and Finance (CBF) and representatives from the NAO. On 07th of May 2019, the Regional Conference “Parliamentary Oversight of Public Finances” was organized by the Committee for Oversight of Public Finances in cooperation with GIZ. The Regional Conference of Supreme Audit Institutions and the Network of Parliamentary Committees on Economy, Finance and European Integration of the Western Balkans was organized in Tirana on May 9-10, organized by the World Bank and OECD / SIGMA. Likewise, at the request of the Parliamentary Committees (COPF and KBF) and support from GIZ, a meeting was held between the members of the Committees and the NAO representatives

38

in order to discuss the summaries of the NAO audit reports to the Parliamentary Committees, more specifically the preparation of materials for handling Audit Reports. The COPF, during the period January-June, held eight (8) meetings where five (5) audit reports were reviewed. Whereas KBF, when reviewing BO financial reports, has invited NAO representatives in order to present audit reports. As a next step, communication with the relevant parliamentary committees will continue in order to better coordinate the handling of Audit Reports. Through continuous communication and support of parliamentary committees, the NAO aims to increase the number of auditing reports in the Assembly and increase the level of recommendations addressed, respectively reduce the level of un-addressed recommendations. (9.6) Monitoring / Follow up of the implementation of the NAO recommendations.- A six-month Report on the Recommendation Implementation Plan of NAO 2017 has been prepared and submitted to the Government. The Government of the Republic of Kosovo (GRK) by Decision no. 08/69, dated 16.10.2018, has approved the action plan for implementation of the recommendations of the 2017 Annual Audit Report (ARA 2017). This decision requires a bi-annual reporting process on the status of addressing/implementing recommendations arising from the 2017 RVA. The Ministry of Finance / Treasury of Kosovo, through an official letter, has requested the relevant BOs to report on the status of implementation of the recommendations. The Ministry of Finance/Treasury of Kosovo will require the Chief Administrative Officers of the respective BO/s that according to the responsibilities in reporting on their implementation status, in order for the Government to consider the second report in January 2020 according to the action plan approved by the Government of the Republic of Kosovo with decision no. 08/69, dated 16.10.2018.

PILLAR 4: PFM RELATED MATTERS

Priority 10: Improvement of IT systems Comment on the status of achievements in activities 10.1-10.2 Two (2) activities related to improving IT systems as an important factor in improving financial information for public financial management are planned to achieve the priority of ”Improving IT systems”. Compared to the Reference Points for 2019, progress has been made in the implementation of all activities. (10.1) Integration of IT systems into MoF and its subordinate agencies - Integration of systems into MF and its subordinate Agencies has been completed and is currently operational. As an example, we have the interface of the property tax system and the Treasury, where we have the automatic registration of property tax payments thanks to the interface of the Taxation Department (TD) system with the Treasury. Development of DWH (Data warehouse) and reporting system (BI-Business Intelligence) is ongoing. In

39

collaboration with relevant stakeholders, the requirements for the necessary data that should be part of the data warehouse are defined. Data Warehouse design has also been done. The development of existing systems such as: BDMS with the new module coming out of Law on Payments. The process is ongoing based on additional requests from the Departments. DWH database development, DWH application development and testing will be done in the upcoming period. (10.2) Establishment of a Disaster Recovery System.- Disaster Recovery hardware equipment was provided during the reporting period. They were installed, configured and are operational. We are currently testing data replication. During the third quarter, it is expected to simulate the recovery centre to proceed with full-scale synchronization. By the end of 2019, the full synchronization of financial data storage will be done on these servers as well. Priority 11: Budget Transparency Comment on achievement status in activities 11.1-11.4 Four (4) activities related to enhancing budget transparency as a precondition for adding value to accountable management are planned to achieve the priority regarding “Ensuring compliance of Kosovo Budget information with IMF/GFSM 2014 standard”. Compared to the 2019 Reference Points, satisfactory progress has been made in implementing all activities (11.4-11.4), while it is worth noting that activity 11.3 was finalized with the publication of the April 2019 Friendly Budget Document. (11.1) Modification of KFMIS to enable automated preparation of budget reports in accordance with GFSM 2014. - Reporting under GFSM 2014 was done during 2018 and at an advanced level of frequency of reporting from annual to quarterly otherwise known as "High frequency" reporting. Specific formulas have been created for generating crystal reports in KFMIS as required by the reporting area, which serve for reporting under International Public Sector Accounting Standards (IPSAS) and GFSM 2014.The publication and follow-up of reporting trends will continue with the improvement of the quality of GFSM 2014 codifications. (11.2) Revision of Government Accounting Plan - During 2019 it is planned that the chart of accounts and accounting plan be revised according to the new requirements of IPSAS in the second half of the year.

40

Accurate classification and compliance with the chart of accounts is also an audit recommendation, so during 2019 budgeting will also be the focus. Capacity building will begin after the review. It is considered as a challenging activity to be achieved by the end of the year. As a next step, budget planning for 2020 will reflect the requirement for accurate classification and implementation of accounting plan regulation. (11.3) Drafting the Friendly (Narrative) Budget Document.- Even this year, the MoF has drafted the Friendly (Narrative) Budget Document for 2019 in all three languages. This document has been published on the MoF web site in April 2019. The 2020 Friendly Budget is expected to be drafted and published following the entry into force of the 2020 Budget Law. (11.4) Regular financial reporting on the execution of the Budget of the Republic of

Kosovo. During 2019, the Annual Financial Report for 2018, Quarterly and Semi-annual Budget Report for 2019 was prepared. Reporting is ongoing on the Transparency Portal. Priority 12. Sustainable capacity building in PFM Comment on the status of achievements in activity 12.1 Several initiatives have been taken in order to achieve the Priority for sustainable capacity building in PFM, which have not resulted in the implementation of the Feasibility Study, which would provide the best solution to this Priority. It is worth noting that the funds have been provided, but the tender documentation and tender the feasibility study are expected to be completed. Assessment of training needs in the PFM field is foreseen to be carried out as part of the feasibility study. 12.1 Development of Feasibility Study on the PFM Training Centre, including training needs assessment. - The funds for the development of a Feasibility Study have been allocated from the Kosovo Budget. The development of relevant tender documentation has begun. Due to lack of capacity and time, after some meetings with the Procurement Officer, it was not possible to develop the tender documentation, so it is considered as challenging. The possibility of hiring an expert in drafting the tender dossier through LuxDev is being analysed. As a next step, the request will be addressed to LuxDev with the purpose of approving the support of a procurement expert who will develop the necessary documentation to tender the request for the Feasibility Study.

Date post:	22-Mar-2020
Category:	Documents
Upload:	others
View:	5 times
Download:	0 times