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Budget review Croatia
Second meeting of Senior Budget Officials
from Central, Eastern, and South-Eastern
European Countries
Ljubljana 16-17 February 2006
Daniel Bergvall
Budgeting and Public Expenditures Division
OECD
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Introduction
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Small unitary country (4.5 million inhabitants)
Two layers of sub-national government
Focus on modernisation of public
administration and budget process aiming at
EU-membership
2
Compared to EU-15, relatively
good growth in recent years
EU 15
Croatia
1999
3.0
-0.9
2000
3.8
2.9
2001
1.9
4.4
2002
1.1
5.2
2003
1.1
4.3
2004
2.3
3.8
2005
1.4
3.9
2006
2.0
4.0
2007
2.2
4.4
2008
4.3
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Large government sector, and
high, but decreasing deficits
56
54
Revenues
Expenditures
52
50
48
46
44
42
40
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
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Government sector largely
central government
Plan 2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
0%
20%
40%
Central Government Budget
60%
Extrabudgatary funds
80%
100%
Budgets of LGU
5
Recent major structural reforms
Overall aim…
…both for institutional reform and fiscal policy
are reforms aimed at EU-accession
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Recent major structural reforms
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Budget act of 2003
Improving tax collection through
establishment of the Financial Police
Law on Civil Servants and Public Employees
Introduction of Single Treasury Account
7
Major features of recent budgets
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Fiscal consolidation – reducing deficits and
clearing arrears
Bringing extrabudgetary funds on budget
Control of contingent liabilities
Privatization
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Budget formulation - Timetable
Due Dates
Activities
End April
Medium term economic and fiscal outlook prepared by Ministry of Finance and presented to
government.
15 May
Government enacts budget guidelines
End May
On the basis of the guidelines, the Ministry of Finance issues instructions to budget users and
extra-budgetary users of the state budget, and to local and regional self-government
units, for the development of budget proposals.
End June
Budget users deliver their financial plan proposals to the responsible ministry.
July - October
The Ministry of Finance reviews the proposals, and reconciles them with the estimated
revenues and receipts. Detailed negotiations between Ministry of Finance and the line
ministries.
15 October
The Ministry of Finance prepares the draft State budget and draft consolidated budget and
delivers it to the government.
End October
Government deliberation and decision over final budget proposal, on the basis of proposals
from the Ministry of Finance and line ministries.
15 November
The government or the local executive authority delivers the budget proposal and the
consolidated budget to the Sabor (parliament) or the local representative council for
adoption.
End December
The Sabor or the representative council passes the budget. The approved budget is published in
the Narodne Novine (National Official Gazette).
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Budget formulation
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Fiscal year is the calendar year
Budget on cash basis
Yearly ‘Law on budget execution’
Detailed budget (approximately 7000 line items)
Flexibility in spending – reallocation between
expenditure items
Large but decreasing number of extra budgetary
funds
Expenditure and revenue strategy – Keep deficit
within acceptable boundaries (below 3 % of GDP)
10
Medium term fiscal framework
No explicit fiscal rule
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Instead an expenditure and revenue strategy that
aims at keeping the deficit within acceptable
boundaries
Reduce deficit in medium term (by 0.5 % of GDP per
year) to below 3 % of GDP
Year to year budget
Multi year line item estimates from 2005
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Parliaments role in the budget
process
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According to the Budget act, amendments and
supplements to the proposed budget may NOT alter
the deficit in the budget proposed by the government
Many proposals for amendments – few are ultimately
included
Late tabling of budget - little time for Parliament to
discuss and act on the budget proposal
Members of the Finance and budget committee
include non-parliamentarians
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Budget execution
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Basic principles for budget execution in the Budget
Act and the annual Law on budget execution
Single treasury account introduced in 2001
Preventive cash control main tool for keeping
expenditures in line with the budget
Service delivery centralized
FINA
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FINA – The Financial Agency
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Heritage from former Yugoslavia
Formally a government agency
Handles all transactions (expenditures and revenues)
for the government
Also used by the private sector (clearing house for
banks, postal transfer system and general bank
services)
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Accounting and Auditing
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Supreme audit institution is the State Audit Office
Annual audit plan has to be adopted by Parliament
The definition of audit in the State Audit Act covers
financial as well as performance audits
Audit of government privatisation has taken a
substantial part of SAO capacity in recent years
About 600 audits per year are done
The Finance and Budget committee of the Parliament
spends little time on audit reports
Internal audit has been introduced very recently and
is not yet operational
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