## 1mneea2022003 ## Source details **Canonical URL:** [1mneea2022003](https://www.imf.org/-/media/files/publications/cr/2022/english/1mneea2022003.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1mneea2022003.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1mneea2022003.pdf.json) --- ### Preface and mission - Mission type: remote Public Investment Management Assessment (PIMA). - Dates: June 16 - July 12, 2021. - Convening entity: IMF Fiscal Affairs Department (FAD). - Mission team: Arturo Navarro (Head, FAD), Bojan Pogacar (Regional Advisor, FAD), Eduardo Aldunate (Expert, FAD), Mary Betley (Expert, FAD), Willie Du Preez (Expert, FAD), and Milan Lakicevic (Economist, World Bank). - Tasks: assess Montenegro’s public investment management framework; assist authorities to prepare a reform strategy and prioritized action plan; recommend follow-up technical assistance. - Principal meetings: Ministry of Finance and Social Welfare (named officials and Directorates listed in source). - Stakeholders consulted: Public Works Administration; Ministries of Ecology, Spatial Planning and Urbanism, Education and Health; Ministry of Capital Investments and Transport Administration; Property and Cadastre Administration; National IPA Coordinators Office; State Audit Institution; Elektroprivreda Corporation; international partners and NGOs (listed in source). ### Executive summary — key findings and metrics - Role and context - Public investment will play a significant role in the post-pandemic economic recovery; tourism sector importance caused a deep economic impact from the pandemic. - Government debt already exceeds one hundred percent of GDP. - Completion of the first phase of the Bar-Boljare Highway (BBH) by end-2021 should free up public resources within the budget constraint. - Recent trends and levels - Average annual public investment rate: 6.8 percent of GDP between 2012 and 2019. - Public capital stock increase: 4.4 percent of GDP between 2012 and 2019 (IMF estimates based on country data). - Between 2007 and 2011: annual public investment averaged 7 percent of GDP; public capital stock peaked at 56 percent of GDP. - Public investment has returned to pre-crisis levels (~7 percent of GDP per year) since 2015, driven largely by BBH. - BBH project (summary) - Initial cost: almost 20 percent of GDP (first-phase estimated at 23 percent of GDP at time of contract signing in detailed section). - Average cost per kilometer: EUR 19.7 million. - BBH generated substantial fiscal pressure, added to debt growth, and crowded out other investments. - Efficiency and institutional assessment - IMF estimate of public investment efficiency gap: 35 percent (see Chapter II). - Separate PIMA box: Average Efficiency Gap of 22 percent (see Box summary in source). - Institutional design scores similar to emerging markets and developing countries; overall effectiveness scores similar to low-income countries — indicating weak adherence to good practices. - Repeated breaching of fiscal targets and rules suggests fiscal rules are not sufficiently constraining major investment projects. - Implementation and execution - Capital budget average under-execution (2016–18): under-execution of 13 percent (lower than average in other European countries). - BBH accounted for close to 70 percent of the capital budget between 2015 and 2019 (except 2016). - Comparative peers used: Albania, Bosnia and Herzegovina, Bulgaria, Estonia, Lithuania, Moldova, North Macedonia, Romania, Serbia. ### Priority policy directions and 16 recommendations (high-level) - A. Planning (priority actions) - Improve coordination within strategic planning documents; identify key projects early and align to fiscal envelope. - Strengthen project appraisal and review; develop appraisal methodologies and central guidance; create central appraisal team; require independent external review for projects meeting criteria. - Improve management of contingent liabilities from SNGs, SOEs, and PPPs. - B. Allocation (priority actions) - Improve project selection processes and budgeting practices, strengthen credibility of medium-term plans, develop a single project pipeline independent of funding sources. - Incorporate life-cycle costs and maintenance planning in medium-term budget plans. - C. Implementation (priority actions) - Strengthen project and portfolio management, monitoring and reporting; require ex-post evaluations and auditing; consolidate portfolio oversight. - Reduce cost overruns and delays through improved monitoring and reporting. - D. Cross-cutting - Increase capacity by optimizing use of staff and providing training; improve IT interoperability and develop new systems. - Summary: 16 prioritized recommendations across planning, allocation, and implementation (numbered and timed in source; summary below). ### Summary of numbered policy recommendations (as in source) - 1. Streamline the strategic framework to ensure coordination and alignment between documents to guide allocation of capital investment resources. - 2. Improve management of contingent liabilities from capital projects (i) sponsored by SNGs and SOEs and (ii) procured through PPPs. - 3. Develop appraisal methodologies for project preparation and provide centralized guidance on implementation to increase quality of project proposals. - 4. Strengthen central support to implementing ministries/agencies by creating a central team focused on project appraisal and review. - 5. Adjust regulation to require projects meeting certain criteria be subject to independent review by external experts. - 6. Develop guidelines and gateway procedures for central review and assessment of PPP projects and SOE capital investment plans. - 7. Improve credibility of medium-term capital budget ceilings and incorporate life-cycle costs in medium-term budget plans. - 8. Improve transparency of total public investment by including information on all sources of financing in budget documents. - 9. Ensure responsibility for setting capital budget ceilings and appropriations rests with relevant sector ministries (not implementing Administrations). - 10. Introduce a systematized approach to maintenance planning for both capital and current budgets. - 11. Develop a single project pipeline independent of funding sources, incorporating additional selection criteria. - 12. Improve project selection criteria to include economic indicators, risk assessment and project maturity. - 13. Consolidate and review the portfolio of major projects to enable government overview and quarterly reporting. - 14. Develop procedures to ensure ex-post evaluations and auditing of major capital projects and share results. - 15. Develop a framework for reporting on major capital projects to ensure appropriate monitoring by Implementing Agencies, MoF, and Line Ministries. - 16. Increase capacity, optimize staff use, provide training, and improve IT interoperability and systems. ### Public investment — capital stock, composition, and fiscal impacts - Capital stock and investment intensity - Early 2000’s capital stock driven particularly by road infrastructure projects. - 2009 GFC led to a sharp decline in public investment and capital stock; since 2015 investment recovered. - Between 2012 and 2019: annual public investment averaged 6.8 percent of GDP; capital stock increased by 4.4 percent of GDP. - Between 2007 and 2011: annual public investment averaged 7 percent of GDP; capital stock peaked at 56 percent of GDP (up by 37 percent from 2007). - Fiscal sustainability and debt - Central government cash deficit remained above the 3 percent target in LBFR since 2014. - High public investment was a key factor pushing deficits beyond target between 2011 and 2019; BBH was a key driver. - 2019 General Government Debt report: EUR 186 million disbursed exclusively for implementation of projects; EUR 143 million directed to BBH. - In 2020 project-related disbursements represented almost 2 percent of GDP; BBH approximately 0.5 percent of GDP. - Debt: Most Recent Outturn (2020 final accounts) — Public Debt: 105% (Article 20) per fiscal rules table. - Offsetting adjustments and budget composition - Capital expenditures increased by 4 percent of GDP between 2014 and 2019. - Current expenditures fell by 3.2 percent of GDP in 2019 (lowest level through 2019); in 2020 current expenditures increased to 40.6 percent of GDP due to COVID-19. - Financing composition - Approximately 35 percent of outstanding debt is related to implementation of public investments (estimate based on General Government debt reports). - Approximately 62 percent of project-related debt contracted through bilateral agreements (notably Ex-Im Bank of China for BBH). - PPP capital stock at 2.5 percent of GDP (below emerging economies average of 5.4 percent of GDP). - Subnational public investment: averaged 1.0 percent of GDP between 2017 and 2019, increasing to 1.7 percent in 2020; seven municipalities account for 80 percent of SNG capital investment and 77 percent of outstanding SNG debt. - Loan guarantees to SOEs: contracted amount EUR 307 million as of 2020, with about a third still outstanding (source text). ### Bar–Boljare Highway (BBH) — detailed findings, risks, and learnings - Project design and scale - BBH split into five sections in complex terrain (approximately 170 km); advanced engineering capacities required. - First phase estimated to cost 23 percent of GDP at contract signing (detailed section); loan financing equivalent to 20 percent of GDP in 2014 when debt stood at 63 percent of GDP. - Average cost per kilometer: EUR 19.7 million. - Contract, costs, and fiscal impact - Law on the Highway Bar–Boljare (2014) provided tax exemptions for civil works, labor, and highway-related imports. - Additional works and contract provisions allowed up to 10 percent increase in cost due to additional works; overall project experienced cost increases and currency depreciation impacts. - Country assumed substantial exchange rate risk from US dollar financing; risk materialized. - Completion delayed from 2019 to 2021 — approximately 40 percent more time than planned. - Implementation and appraisal deficiencies - Two earlier appraisals (2009 and 2012) concluded project was not viable; a third feasibility study prepared by implementing company was not published. - Mitigation measures for exchange rate risk were not adopted. - Existing project selection criteria were not followed (positive appraisal or independent review not obtained); procurement law allowed alternate process. - Recommendation: Major projects should have full feasibility studies completed and ideally published before selection; multi-year budget commitments should be published with budget documents. - Macro-fiscal implications of completion - 93 percent of the loan had been disbursed as of end-2020. - Completion by end-2021 expected to free resources in the capital investment budget and abate pressure on debt. - Project’s completion should reduce capital and current expenditures by approximately 2.8 and 0.2 percent of GDP, respectively. - Freed resources could support investments in other sectors or be saved to improve fiscal position. - Infrastructure quantity and quality impacts - Physical output indicators (education, energy, health, water) show Montenegro lower than peer European countries for education and health, and at least the same as average emerging economies. - Indicators for electricity and health have deteriorated slightly in recent years, suggesting crowding out from BBH. - Perception of infrastructure quality (World Economic Forum) lower than peers; quality deteriorated between 2012 and 2017 (latest available). ### PIMA framework findings and regulatory changes - PIMA structure and scoring - Framework assesses 15 institutions across planning, allocation, and delivery; for each institution scores on institutional design, effectiveness, and reform priority. - In Montenegro, institutional design scores generally stronger than effectiveness; recent laws and bylaws improved design but impacts not yet reflected in effectiveness. - Regulatory improvements adopted - Fiscal responsibility law with fiscal rules (2014); Decision on capital budget preparation and evaluation criteria (2018, updated 2021); new PPP law (2019) with bylaws in 2020; new public procurement law (2019) with e-procurement introduced. - Key weaknesses identified (examples) - Strategic planning: fragmented (estimated 89 sector strategies), weak costing information, weak linkage to budget envelope. - Project appraisal: Design—Low; Effectiveness—Low — absence of centralized methodology and limited feasibility studies; project forms do not require economic indicators or risk analysis. - Coordination and contingent liabilities: contingent liabilities from SNGs, SOEs, and PPPs not fully reported to MoF or in budget documents. - Multi-year budgeting: Three-year ceilings exist but only first year is binding; indicative outer years often repeated without explanation; outturn fluctuated between 26 and 183 percent of ceiling forecast (data points available). - Budget comprehensiveness: Design—High; Effectiveness—Medium — capital budget covers GoM resources, external loans and grants, with no capital spending by extra-budgetary entities, but SOE projects and financing not shown in budget documentation. - Procurement: Design—High; Effectiveness—High — new law aligned with EU acquis; e-procurement system operational January 2021; in 2020 public procurement accounted for 13 percent of GDP; 73 percent of procedures completed through open competitive process. - Availability of funding: Design—High; Effectiveness—High — monthly cash planning, no significant arrears, TSA in place though donor accounts may be in commercial banks before transfer to TSA. - Portfolio management and asset monitoring: Effectiveness generally low — portfolio oversight not centralized; no consolidated asset valuation and depreciation; Asset Registry System (ARS) under development (expected completion end-2021 in source). - PIMA institutional score examples (summary table excerpts) - Planning: Fiscal principles or rules — Strength: High; Effectiveness: Low; Reform priority: Medium. - Project appraisal — Strength: Low; Effectiveness: Low; Reform priority: High. - Maintenance funding — Strength: Low; Effectiveness: Medium; Reform priority: High. - Portfolio management and oversight — Strength: Medium; Effectiveness: Low; Reform priority: High. - Procurement — Strength: High; Effectiveness: Medium/High depending on subsection. ### Implementation, IT, capacity, and action plan highlights (2022–2024) - IT systems and fragmentation - Multiple IT initiatives: e-procurement system (CeJN), Asset Registry System (ARS), PIMIS under development with IPA funding, Agency for Transport registry, DT CapEx® software, SAI IDEA®. - At least nine databases on investment projects would result if not consolidated — described as inefficient in source. - ARS expected to be linked to FMIS; further upgrades needed to register SOE assets. - Capacity weaknesses and proposed central team - NIC indicated no institutional capacity for preparing feasibility studies; NIPAC outsources project analysis. - Proposed small central team (MoF or NIPAC unit) tasks: - Develop guidelines and methodologies for project preparation and appraisal. - Determine national appraisal parameters (economic cost of capital, shadow price of labor, economic value of foreign currency, value of time). - Support preparation and appraisal of project proposals; oversee consultants; conduct ex-post evaluations. - Selected action-plan highlights (2022–2024) and responsible entities (as in source) - Streamline and consolidate strategic framework; determine overall public investment fiscal envelope; issue alignment guidelines. Responsible: Secretariat-General’s Office, MoF and sector ministries. - Complete stock-take of contingent liabilities; include summary in budget documentation. Responsible: MoF. - Develop national appraisal methodology and parameters; train officers. Responsible: MoF and NIC. - Create central appraisal team; require independent external review for qualifying projects. Responsible: MoF and NIC. - Develop PPP/SOE gateway procedures; report PPP commitments and contingent liabilities to MoF; require SOE investment plans submission and publication. Responsible: MoF, PPP Unit; Directorate for Local Self-Government and SOEs. - Include life-cycle costs in medium-term budget plans; transfer capital ceiling responsibility to sector ministries; improve transparency of total public investment. Responsible: MoF, sector ministries. - Introduce systematized maintenance planning supported by asset valuation and methodologies. Responsible: MoF, Ministry of Capital Investment, Ministry of Ecology, Spatial Planning and Urbanism. - Merge project pipelines into a single pipeline and improve selection criteria (economic, risk, maturity). Responsible: MoF. - Consolidate portfolio reporting, require quarterly performance reports, mandate ex-post evaluations and audits, and develop reporting templates. Responsible: MoF, Line Ministries, Implementing Agencies, Public Procurement. ### Key statistics and fiscal rule outturns (from source tables) - Public investment: average annual 6.8 percent of GDP (2012–2019); ~7 percent of GDP (pre-2012 period). - Public capital stock peak: 56 percent of GDP (between 2007 and 2011). - BBH first phase cost: described as almost 20 percent of GDP (Executive Summary); detailed section cites first phase estimated at 23 percent of GDP at contract signing. - Average cost per km (BBH): EUR 19.7 million. - Loan disbursements for projects (2019 GG Debt report): EUR 186 million disbursed exclusively for implementation of projects; EUR 143 million to BBH. - Project-related disbursements in 2020: almost 2 percent of GDP; BBH approximately 0.5 percent of GDP. - Outturn vs ceiling example: outturn fluctuated between 26 and 183 percent of the ceiling forecast (data points available). - Fiscal rules table (2020 final accounts): - Primary Fiscal Balance: Most Recent Outturn: -6.65% (Article 19). - Budget deficit: Most Recent Outturn: -8.9% (Article 20). - Public Debt: Most Recent Outturn: 105% (Article 20). - Total guarantees: Most Recent Outturn: 5.1%** (Article 53) — outstanding government guarantees as reported for 2020. - Expenditure shares: - Projects absorbed by DT and PWA: 91 percent of capital investments in 2019. - BBH program (DT) absorbed 55 percent of investment resources in 2019; BBH ~4.6 times larger than the second-largest project (road sector). *Source: PREFACE and EXECUTIVE SUMMARY of the PIMA report conducted for Montenegro (remote mission, June 16 - July 12, 2021).* ### PREFACE ___________________________________________________________________________________________________ 6 ### 1mneea2022003 - PREFACE ### Preface: mission scope and participants - Mission type: remote Public Investment Management Assessment (PIMA). - Dates: June 16 - July 12, 2021. - Convening entity: IMF Fiscal Affairs Department (FAD). - Mission team: Arturo Navarro (Head, FAD), Bojan Pogacar (Regional Advisor, FAD), Eduardo Aldunate (Expert, FAD), Mary Betley (Expert, FAD), Willie Du Preez (Expert, FAD), and Milan Lakicevic (Economist, World Bank). - Tasks of the mission: - Assess Montenegro’s public investment management framework. - Assist authorities to prepare a reform strategy and prioritized action plan for strengthening management of public investment. - Recommend follow-up areas of technical assistance that could be provided by FAD or other development partners. - Principal meetings at the Ministry of Finance and Social Welfare: - Ms. M. Kasalica, State Minister - Mr. B Paunovic, Director General - Ms. S. Buric, Head of Public Investment Unit - Representatives from: Directorate for Budget and Accounting; Public Debt Management Office; Directorate for Local Self-Government and State-Owned Enterprises; Directorate for Economic Policy Development. - Additional stakeholder meetings: - Public Works Administration; Ministries of Ecology, Spatial Planning and Urbanism, Education and Health; Ministry of Capital Investments and Transport Administration; Property and Cadastre Administration; National IPA Coordinators Office; State Audit Institution; Elektroprivreda (Energy) Corporation. - Mr. M Sosic (Institut Alternativa), Mr. D. Hristov (European Commission), Mr. J Sprey (European Bank for Reconstruction and Development), Mr. A Pamnani (European Investment Bank). - Acknowledgements: appreciation expressed to Ms. Slobodanka Buric and Ms. Virgjina Zadrima (MoF) for outstanding support; Ms. T. Jurlina, Ms. M. Biljuric, and Ms. N. Stojovic for translation assistance. ### Executive summary: key findings, metrics, and priority recommendations Findings and context - Public investment will play a significant role in the post-pandemic economic recovery in Montenegro. - The tourism sector’s importance caused a deep economic impact from the pandemic. - Government debt already exceeds one hundred percent of GDP. - Completion of the first phase of the Bar-Boljare Highway (BBH) by the end of 2021 should free up public resources within the budget constraint. - Recent trends: - Average annual public investment rate: 6.8 percent of GDP between 2012 and 2019. - Public capital stock increase: 4.4 percent of GDP between 2012 and 2019. (IMF estimates based on country data.) - The Bar-Boljare Highway (BBH): - Considered the most complex project in Montenegro’s history. - Initial cost: almost 20 percent of GDP. - Impacts: substantial effect on public finances, added pressure on debt growth, and crowding-out investments in other key areas. - Concerns raised about the ability of Montenegro’s PIM framework to ensure efficient allocation of capital investment resources across projects. - Reforms introduced: - New laws on budget and fiscal responsibility (and subsequent amendments), public procurement, and public-private partnerships (PPP). - Adoption of guidelines and bylaws, e.g., Decision on Capital Budget Preparation, to standardize project funding requests. - Efforts toward creating a single project pipeline of appraised projects, currently limited to a list of priority projects. - Comparative assessment: - Montenegro’s PIM framework incorporates good practices across planning, allocation, and implementation. - Montenegro outperforms comparators in: - Allocation of public investments in multi-year budgeting. - Implementation of projects with strong cash management and implementation-management practices. - Framework weaknesses remain in capturing risks and future operating costs (budgeting for maintenance and appraisal). - IMF estimate of public investment efficiency gap: 35 percent (see Chapter II). - Efficiency gap: slightly larger than for peer countries and lower than the average for emerging market economies (EMEs). - Institutional design scores similar to emerging markets and developing countries; overall effectiveness scores similar to low-income countries — indicating weak adherence to good practices. - Repeated breaching of fiscal targets and rules suggests fiscal rules are not sufficiently constraining major investment projects to ensure fiscal sustainability. Priority policy directions and recommended reforms - Planning (priority actions): - Improve coordination within strategic planning documents. - Strengthen project appraisal and review processes to ensure investments do not increase fiscal risks or undermine fiscal sustainability. - Identify key projects early across multiple planning documents. - Adjust procedures and templates for project preparation to properly address project-related risks. - Allocation (priority actions): - Improve project selection processes and budgeting practices for greater transparency and budget coverage. - Strengthen credibility of medium-term plans. - Prioritize development of a single project pipeline. - Implementation (priority actions): - Strengthen project and portfolio management to ensure timely corrective actions by implementing and policymaking entities. - Reduce cost overruns and delays through improved monitoring and reporting. - Overall: 16 prioritized recommendations at key stages of the project cycle (summary in Table 1.2; proposed action plan in Appendix I). Selected elements from the summary assessment (Table 1.1) - A. Planning - Fiscal principles or rules: Strength — High; Effectiveness — Low. Note: Multiple fiscal rules adopted in 2014; current and capital spending presented in MTFF. Debt rule not met since 2015 and budget process does not closely follow MTFF. Reform priority: Medium. - National and sectoral plans: Strength — Medium; Effectiveness — Low. Note: Strategic framework follows a logical hierarchy but lacks investment-specific information or reliable costs. Fragmented strategic planning with 89 sectorial strategies and limited link to the budget envelope. Reform priority: High (Rec. #1). - Project appraisal: Strength — Low; Effectiveness — Low. Note: No methodology or central support guiding project appraisal; few feasibility studies, mostly completed at lenders' request. Reform priority: High (Rec. #3, 4, 5). - Alternative infrastructure financing: Strength — Low; Effectiveness — Medium. Note: PPP Law adopted but policy and methodology not in place; PPPs not fully integrated in the PIM process. Reform priority: Medium (Rec. #6). - B. Allocation - Multi-year budgeting: Strength — Medium; Effectiveness — Low. Note: Three-year ceilings in place, only the first is binding; multi-year projections exist by programs, sub-programs, and projects. Reform priority: Medium (Rec. #7). - Budget comprehensiveness and unity: Strength — High; Effectiveness — Medium. Note: No capital projects financed by extra-budgetary units; MoF prepares current and capital budgets in one document. However, presentation is convoluted and SOE projects are not shown. Reform priority: Medium (Rec. #8, 9). - Maintenance funding: Strength — Low; Effectiveness — Medium. Note: Some methodologies exist for estimating maintenance needs but not used for budgeting; budget outturns have been stable and exceeded allocations in last four years. Reform priority: High (Rec. #10). - Project selection: Strength — Medium; Effectiveness — Medium. Note: Published selection criteria but key parameters missing; two project pipelines (IPAC and Capital Budget); some projects selected without following criteria. Reform priority: High (Rec. #11, 12). - C. Implementation - Procurement: Strength — High; Effectiveness — Medium. Note: Transparent and competitive procurement framework aligned with EU acquis; e-procurement system in place but in early stages. Reform priority: Medium. - Availability of funding: Strength — High; Effectiveness — High. Note: Monthly cash planning and timely cash release; donor accounts integrated in the TSA; cash forecasts done monthly. - Portfolio management and oversight: Strength — Medium; Effectiveness — Low. Note: Progress and cost monitoring of major projects done, but no central oversight or ex-post project reviews; fragmented monitoring and weak reporting undermine decision-making. Reform priority: High (Rec. #13, 14, 15). - Project implementation: Strength — Medium; Effectiveness — Medium. Note: Projects are monitored but reporting is inadequate; cost adjustments allowed by law; no comprehensive implementation plans. Reform priority: Medium. - Management of public assets: Strength — Medium; Effectiveness — Low. Note: Legal requirements to survey and report assets exist but centralized register does not exist; value of fixed assets not set and depreciation not estimated. Comparators used for analysis - Albania, Bosnia and Herzegovina, Bulgaria, Estonia, Lithuania, Moldova, North Macedonia, Romania, and Serbia. *Source: PREFACE and EXECUTIVE SUMMARY of the PIMA report conducted for Montenegro (remote mission, June 16 - July 12, 2021).* ### 1. Streamline the strategic framework to ensure coordination and alignment between documents for ### 1. Streamline the strategic framework to ensure coordination and alignment between documents for these to guide the allocation of capital investment resources. ### Summary of Policy Recommendations (numbered as in source) - 1. Streamline the strategic framework to ensure coordination and alignment between documents for these to guide the allocation of capital investment resources. - 2. Improve management of contingent liabilities from capital projects (i) sponsored by subnational governments and state-owned enterprises and (ii) procured through public-private partnerships. - 3. Develop appraisal methodologies for project preparation and provide centralized guidance on their implementation to increase quality of project proposals. - 4. Strengthen central support provided to implementing ministries and agencies by creating a central team of professionals focused on project appraisal and review. - 5. Adjust regulation to require that projects meeting certain criteria be subject to an independent review by external experts. - 6. Develop guidelines and gateway procedures for the central review and assessment of PPP projects and capital investment plans of SOEs. - B. Allocating Investments - 7. Improve the credibility of medium-term capital budget ceilings and forward projections and incorporate the calculation of life-cycle costs in medium-term budget plans. - 8. Improve the transparency of total public investment by including information on all sources of financing for public sector investments in the budget documents. - 9. Ensure responsibility for setting capital budget ceilings and determining budget appropriations, and thereby accountability to Parliament for these resources, is provided to the relevant sector ministries, instead of to the implementing Administrations, as currently. - 10. Introduce a more systematized approach to maintenance planning for both the capital and current budgets. - 11. Develop a single project pipeline independent of funding sources, which should incorporate additional criteria to inform project selection. - 12. Improve existing criteria for project selection incorporating those aspect that are not been considered but are of key importance, including at least economic indicators, risk assessment and project maturity. - C. Implementing Investments - 13. Consolidate and review the portfolio of major projects to enable government to have an overview on the performance of all major projects. - 14. Develop procedures for ensuring ex-post evaluations and auditing of major capital projects that is completed and results shared with relevant stakeholders. - 15. Develop a framework for reporting on major capital projects to ensure appropriate monitoring by implementing Agencies, MoF, and Line Ministries. - D. Cross-Cutting Issues - 16. Increase capacity by optimizing use of current staff and providing training. Improve IT support by greater interoperability and development of new systems. ### Key implementation notes (from recommendations) - Centralize appraisal and review functions (recommendations 3, 4). - Require independent external review for projects meeting specified criteria (recommendation 5). - Create guidelines and gateway procedures for PPPs and SOE capital plans (recommendation 6). - Reassign responsibility for capital budget ceilings and appropriations to sector ministries for parliamentary accountability (recommendation 9). - Build a single project pipeline independent of funding sources and expand project selection criteria to include economic indicators, risk assessment, and project maturity (recommendations 11–12). - Strengthen ex-post evaluation, auditing, and reporting frameworks for major projects (recommendations 13–15). - Enhance staff capacity and IT interoperability for cross-cutting improvements (recommendation 16). --- ### I. PUBLIC INVESTMENT IN MONTENEGRO — A. Public Investment and Stock of Capital: Findings - Public capital stock in Montenegro has increased in recent years and has reached its highest level in over a decade. - Early 2000’s capital stock driven particularly by road infrastructure projects. - The 2007 Global Financial Crisis (GFC) had impacts in 2009 that led to a sharp decline in public investment and a decline in the stock of capital. - Since 2015, Montenegro’s public investment has returned to the pre-crisis levels, at about 7 percent of GDP per year, driven in great measure by the first phase of the BBH-project, estimated to cost close to 20 percent of GDP and should improve connection between Montenegro’s Adriatic coast and Serbia. - The increase in public investment has allowed for the country’s capital stock to remain one of the highest among comparator countries. - Between 2007 and 2011: - Annual public investment averaged 7 percent of GDP. - Public capital stock peaked at 56 percent of GDP, up by 37 percent from the 2007 level. - Between 2012 and 2019: - Annual public investment averaged 6.8 percent of GDP. - Public capital stock increased by only 4.4 percent. - Explanatory note: Slower increase in capital stock could be due to concentration of investment in one sector and one project that is yet to be completed, likely crowding out other investments. - Fiscal sustainability impacts: - Central government’s cash deficit has remained above the 3 percent target defined in the Law on Budget and Fiscal Responsibility (LBFR) since its adoption in 2014. - High public investment played a key role in pushing the deficit beyond the target in most years between 2011 and 2019; BBH project was a key driver. - Without BBH investment, cash deficit would have been closer to the target, assuming some but not all of the resources would have been used to fund other initiatives. - The COVID-19 pandemic in 2020 put the weak fiscal scenario under further stress. - Public investment and debt: - The 2019 General Government Debt report shows EUR 186 million were disbursed exclusively for implementation of projects; of these EUR 143 million were directed to BBH. - In 2020 project-related disbursements represented almost 2 percent of GDP, BBH being approximately 0.5 percent of GDP. - Offset by current expenditure adjustments: - Capital expenditures increased by 4 percent of GDP between 2014 and 2019. - Current expenditures fell by 3.2 percent of GDP in 2019, reaching their lowest level (comparison through 2019). - In 2020, current expenditures increased to 40.6 percent of GDP due to the impact of the COVID-19 pandemic. - Capital budget execution: - Average deviation between budget forecast and final outturn for 2016–18 was an under-execution of 13 percent, lower than average in other European countries. - Higher execution rate explained by large share of BBH in overall capital budget between 2015 and 2019—close to 70 percent except in 2016. --- ### I. PUBLIC INVESTMENT IN MONTENEGRO — B. Composition and Financing of Public Investments: Findings - External financing is an important source of funds and shapes public investment management. - Approximately 35 percent of outstanding debt is related to implementation of public investments (estimate based on General Government debt reports). - Approximately 62 percent of this amount was contracted through bilateral agreements with other governments, particularly for BBH (financed by the Ex-Im Bank of China). - Multiple financial partners provide resources primarily in water, energy, and roads, often with concessional rates. - BBH was responsible for most project-related disbursements between 2015 and 2020. - Existence of a project pipeline to identify projects eligible for IPA and other funding to ensure project preparation met EC requirements. - Subnational governments (SNG): - Public investment in SNGs averaged 1.0 percent of GDP between 2017 and 2019, increasing to 1.7 percent in 2020, led by Podgorica. - Out of 24 SNGs, seven are responsible for 80 percent of SNGs’ capital investment; the capital undertakes 44 percent of SNG investment. - These seven municipalities account for 77 percent of outstanding SNGs’ total debt. - Loan guarantees to SOEs: - As of 2020, loan guarantees to SOEs for a contracted amount of EUR 307 million had been extended to support financing of investment projects, with about a third of that still outstanding. - PPPs: - PPP capital stock in Montenegro at 2.5 percent of GDP, similar to neighboring countries but below the emerging economies average of 5.4 percent of GDP. - Experience with PPPs limited due to small domestic market and inadequate framework; new PPP law recently approved with authorities expecting to procure more projects through PPPs. - Functional allocation: - Major infrastructure projects have skewed allocation towards the economic sector, with BBH absorbing more than half of the annual investment budget since 2015. - Allocation to the economic sector on average more than 20 times the second largest sector during the period. - Sectors other than economic affairs maintained relative shares; biggest gains between 2014 and 2020 were in environment and education. - Implementing entities: - Directorate for Transport (DT) and Public Works Administration (PWA) were responsible for 91 percent of capital investments in 2019. - The BBH program (DT) absorbed 55 percent of investment resources in 2019 and was 4.6 times larger than the second-largest project (also in the road sector). --- ### I. PUBLIC INVESTMENT IN MONTENEGRO — C. Bar-Boljare Highway (BBH): Findings and Concerns - Project complexity: - BBH designed through approximately 170 km of complex terrain, requiring advanced engineering capacities not available in Montenegro. - Project split into five sections planned to be completed in four phases. - Completion expected to significantly impact the economy by connecting the port of Bar to the Serbian network and the Trans-European Transport Network and improving northern region connectivity. - Cost and fiscal impact: - First phase estimated to cost 23 percent of the country’s GDP at the time of contract signing. - Average cost per kilometer was EUR 19.7 million. - Loan financing equivalent to 20 percent of GDP in 2014, when debt stood at 63 percent of GDP (above the 60 percent limit approved in the LBFR that year). - Additional challenges: - Law on the Highway Bar–Boljare (2014) provided tax exemptions for civil works, labor, and highway-related imports for construction costs. - Additional works approved early in contract execution (e.g., electricity supply) were allowed up to 10 percent increase in cost due to additional works under contract guidelines. - Country assumed substantial exchange rate risk by securing financing in US dollars; this risk materialized. - Major environmental impact in a UNESCO-protected area. - Completion delayed from 2019 to 2021, approximately 40 percent more time than planned. *Italicized source attribution: 1mneea2022003 - 1. Streamline the strategic framework to ensure coordination and alignment between documents for (PDF).* ### 16. The BBH project is a good example to illustrate how the existing PIM framework ### 16. The BBH project is a good example to illustrate how the existing PIM framework should be used to manage a major project ### BBH project: key issues and learnings - Fiscal space and fiscal rules - Debt above 60 percent of GDP and an average primary deficit of 3.8 percent of GDP between 2011 and 2014 meant fiscal space was limited to undertake a major project generating substantial fiscal risks. - A similar project today should only be approved if convergence towards the limits in the rules is feasible. - National and sector plans - The project was in country plans for several decades but strategic plans did not include a cost estimate despite such estimates existing. - Regular updates of plans should identify major initiatives and provide a high-level cost estimate. - Project appraisal and transparency - Two appraisal exercises (2009 and 2012) concluded the project was not viable. - The third feasibility study supporting the project was prepared by the implementing company and was not published. - Mitigation measures for exchange rate risk from a loan in US dollars were not adopted. - Recommendation: Major projects should have full feasibility studies completed and ideally published before selection. - Multi-year budgeting and fiscal documentation - Information on multi-year budget commitments resulting from the contract has not been published alongside budget documents to better estimate available fiscal space and inform society. - Maintenance funding - Maintenance costs of the highway have not yet been estimated or incorporated into the medium-term fiscal outlook, though expected to be substantial given the number of bridges and tunnels. - Project selection and procurement - Existing criteria for project selection were not followed (a positive project appraisal or an independent review). - Law on Public Procurement allowed the project to follow an alternate process. - Portfolio management and implementation transparency - Close monitoring is done primarily by the Ministry of Capital Investments, though information is rarely published. ### Fiscal and macro-fiscal implications of BBH completion - Project status and fiscal impact - 93 percent of the loan had been disbursed as of end 2020. - Completion by end of 2021 is expected to free resources in the capital investment budget and abate pressure on debt. - Project’s completion should reduce capital and current expenditures by approximately 2.8 and 0.2 percent of GDP, respectively. - Freed resources could support investments in other sectors or be saved to improve the country’s fiscal position. - Recommendation - A strong PIM framework in Montenegro is of key importance to ensure capital investments provide the highest return. ### Impact on infrastructure quantity and quality - Infrastructure quantity and recent trends - Physical output of infrastructure measured by four indicators (education, energy, health, water) shows Montenegro lower than peer European countries for education and health, and at least the same as the average of emerging economies. - Indicators for electricity and health have deteriorated slightly in recent years, suggesting investments in these sectors are being crowded out by the Bar-Boljare project. - Infrastructure quality - Quality of infrastructure has deteriorated between 2012 and 2017 (2017 was the latest information available to the mission). - Perception of infrastructure quality (World Economic Forum survey) is lower in Montenegro than in peer countries. - Public investment concentration and crowding out - The BBH project absorbed substantial resources—3 percent of GDP per year, on average—directed to a single sector and specific region, limiting impact on overall infrastructure quality perception. - The concentration and delays likely caused a “crowding out” effect, limiting improvements in other sectors and delaying user benefits. ### Public Investment Efficiency Frontier (box summary) - Definition - The public investment efficiency frontier tracks countries delivering the highest level of infrastructure outputs for the lowest amount of infrastructure investment over time, using public capital stock per capita and quality/quantity indicators. - Vertical distance below the frontier represents the efficiency gap. - Montenegro metrics shown - Average Efficiency Gap of 22%. ### The PIMA Framework and overall PIM assessment - PIMA framework overview - The IMF’s Public Investment Management Assessment (PIMA) framework assesses quality of public investment management, identifying strengths and weaknesses and providing practical recommendations. - Evaluates 15 "institutions" across three PIM stages: planning, allocation, and delivery. - For each institution, three indicators are analyzed and scored: institutional design, effectiveness, and reform priority. - Institutional design: presence of appropriate organizations, policies, rules, procedures. - Effectiveness: degree to which intended purpose is achieved or has clear impact. - Reform priority: importance of improvements in Montenegro’s specific conditions. - Overall assessment findings - Institutional design scores stronger than effectiveness — recent regulatory changes may explain higher design scores relative to peers. - Impact of regulatory changes not yet reflected in effectiveness: - Bylaws for PPP law adopted in 2020, but no PPP project contracted since then. - A PPP policy document with priority projects is expected to be completed by mid-2022. - Project preparation capacity and capability need enhancement to ensure evaluation committees play a genuine challenge function rather than merely collecting information. - Weak practices in strategic planning and insufficient budget coordination reduce project implementation efficiency. ### Regulatory improvements in PIM (recent) - Adopted measures include: - i. a fiscal responsibility law, which introduced fiscal rules, in 2014. - ii. regulation on project appraisal and selection to lead to more mature projects and increased transparency. - iii. a new PPP law intended to help develop a market for private investment in public assets. - iv. a new procurement law to ensure transparency and competitiveness in public contracting. ### Investment planning: fiscal rules and national/sectoral plans - Fiscal rules summary (Table 3.1 outturns, 2020 final accounts) - Primary Fiscal Balance: Positive; Most Recent Outturn: -6.65% (Article 19) - Current Expenditures and transfers: Lower than revenues and grants; Most Recent Outturn: EUR -236.6m (Article 19) - Budget deficit: Less than 3% of GDP; Most Recent Outturn: -8.9% (Article 20) - Public Debt: Less than 60% of GDP; Most Recent Outturn: 105% (Article 20) - Growth rate of current budget ceilings and state funds: Less than real GDP growth forecast; Most Recent Outturn: NA (Article 22) - Growth of capital budget and reserve: Less than nominal GDP growth forecast; Most Recent Outturn: NA (Article 22) - Total guarantees: Less than 15% of GDP; Most Recent Outturn: 5.1%** (Article 53) - Local government deficit: Less than 10% of local revenues; Most Recent Outturn: NA (Article 27) - Notes: All numbers refer to 2020 final accounts unless stated otherwise. **Outstanding government guarantees as reported on the General Government Debt for the year 2020. - Fiscal rules effectiveness and compliance - Although legal framework exists and the Fiscal Policy Guidelines (FPG) is regularly prepared, effectiveness is questionable and compliance seems limited. - Debt has exceeded the 60 percent of GDP target since 2014 and increased from 64 to 105 percent of GDP over the last three years. - LBFR lacks escape clauses for predefined events. - FPG does not provide information on previous years’ compliance; compliance is only monitored ex-post by the State Audit Institution (SAI). - Average deviation between the FPG and approved budget deficit is about 1.6 percent of GDP since 2018. - Average budget balance outturn deviates from the fiscal rule (3 percent) by about 1.9 percent of GDP. - Policy options under review - Government is analyzing amendments to the LBFR to strengthen ex-ante monitoring and enforcement. - Among options is creation of a fiscal council to assess consistency of fiscal plans with existing rules and to help assess whether major projects are consistent with fiscal sustainability. - National and sectoral planning (Design—Medium; Effectiveness—Low) - Strategic planning hierarchy - National vision: “Development Directions” document (e.g., “Development Directions, 2018-2021”). - Government’s Medium-Term Work Program and Fiscal Strategy set four-year policy objectives. - EU accession strategies, including the Economic Reform Program (ERP), contribute to high-level priorities. - Sector strategies are accompanied by two-year action plans with investment-related activities, expected costs, and performance indicators (mainly outputs, limited outcomes). - Major weaknesses - Strategic framework is highly fragmented and does not effectively guide resource allocations to public investments. - Limited coordination among initiatives and absence of a strong link between planning and the budget resource envelope. - Numerous strategies (estimated 89 currently, down from 120 in 2017) with overlaps and gaps; sector strategies’ costing information covers only two years and is not produced within a resource constraint. - Recent improvements and remaining gaps - 2018 Decree on the Methodology and Procedure for Drafting, Aligning and Monitoring Strategy Documents sets minimum quality criteria. - Action Plan to the Development Directions includes details of some capital projects, but spending units do not appear to use it when planning investment allocations. - New program-budget format provides an opportunity to link capital expenditures explicitly to strategic objectives. - Decision on the capital Budget and evaluation criteria require projects to be included in a government-adopted strategic document for budget inclusion. *Source: IMF staff (content unit 1mneea2022003)* ### 3. Coordination Between Entities (Design—Medium; Effectiveness—Medium) ### 3. Coordination Between Entities (Design—Medium; Effectiveness—Medium) ### Coordination framework and practice - No legal requirement for coordination of capital spending between SNGs and the central government; coordination occurs indirectly through multiple channels. - Information on SNGs’ capital investments is shared with the MoF as part of the approval process for local budgets, but the MoF does not approve which initiatives are included in SNG budgets; information sharing does not ensure alignment of capital investment priorities or identification of complementarities. - Coordination improves for more complex projects that require central support (direct funding or debt guarantees); major SNG capital investments financed by the central government are published as part of the state budget, allowing MoF oversight of alignment and complementarity. - Projects financed directly from local budgets are not consolidated with central government investments, limiting MoF capacity to develop a database of local capital projects. - There are no capital transfers to SNGs; financial support for SNG capital projects is provided directly from the state budget. - By March 15 SNGs must submit to the MoF the list of projects requiring central government support; final decision taken by government in July of the same year. Final amounts available are confirmed once the budget for the upcoming fiscal year is approved (which can be a few weeks before the start of the fiscal year, or even later as with the budget for fiscal year 2021). Box 3.2 — Mechanisms that Support Coordination with SNG (ad-hoc mechanisms) - Administrative procedures: - MoF issues technical instructions for the preparation of Capital Budget to the municipalities. - Municipalities may take on long-term borrowings and issue guarantees with the prior consent of the Government, which is issued at the proposal of the MoF. - MoF must give a positive opinion on the draft municipalities’ budgets before municipal budgets can be adopted by each municipality’s assembly. - Requirement to obtain spatial planning and environmental permits from the Ministry of Ecology, Spatial Planning and Urbanism. - Preparation of strategic sectoral plans. - Financial support: - Projects requiring financial support from the central government are included in the state budget. - On-lending and guarantees support is provided by the central administration to SNG investment projects. - Fiscal rules: - The 10 percent ceiling (see Institution 1) can be exceeded only for capital expenditure financing. - Given limited technical and financial resources at the local level, these mechanisms increase the likelihood of information-sharing for major capital projects, enabling better coordination. ### Information, reporting, and contingent liabilities - Information on contingent liabilities arising from projects of SNGs, SOEs, and PPPs is not fully reported to the central government and is not presented in the budget documents. - The Directorate for Local Self-Government and State-Owned Companies maintains a register of SOEs and undertakes some basic financial analyses of SOEs, but a consolidated report on SOEs is not prepared. - Contingent liabilities arising from PPPs and from capital projects financed by municipalities are not reported to the government at the central level or at the level of individual budgetary units. - The debt department of the MoF maintains an updated database on guarantees provided to SNGs, published in quarterly and annual debt reports; most guarantees finance capital investments. ### Project appraisal (Design—Low; Effectiveness—Low) - Major capital projects are not subject to rigorous technical, economic, and financial analysis; few projects within the Single Project Pipeline (SPP) are backed by robust feasibility studies. - Feasibility studies are normally prepared by external consultants, following project appraisal methodologies and procedures of the financier, and are not available to the public. - Institutional capacity for preparing feasibility studies or project proposals for major projects is limited. No central support or regular training for project appraisal is provided to line ministries or SNGs. - The MoF lacks capacity to assist institutions preparing pre- or feasibility studies. Basic parameters for project appraisal (e.g., economic cost of capital, shadow price of labor) are not estimated or published by a central agency. - Few projects include risk analysis in appraisal studies. The SAI highlighted poor planning, costing, and preparation in education and health sectors. - The 2018 “Decision on drafting the capital budget and determining and evaluating criteria for selection of capital projects” requires investment proposals above EUR 5 million to at least have feasibility studies and cost-benefit analysis (Article 4). Preparation of project profiles or pre-feasibility studies are not required. - The project proposal form standardizes presentation of project information but does not guide institutions in preparing appraisals at concept, pre-feasibility, or feasibility stages. Key appraisal aspects (calculating financial and economic indicators) are not required in the Form for Application for Capital Project Funding. - Risk analysis is available for major projects within feasibility studies prepared following EU or IFI guidelines, but not for domestically financed projects. ### Alternative infrastructure financing, SOEs, and PPPs (Design—Low; Effectiveness—Medium) - SOEs are involved in multiple sectors; progress has been made opening markets to the private sector. - A 2020 EBRD report estimates SOEs represent 5.5 percent of GDP. - Monopolies in energy (EPCG), water supply and rail (ZPCG) dominate infrastructure provision in those sectors, though recent private investments exist in hydro and wind power; private electricity generation by citizens is ongoing. - SOE oversight framework is weak: the Directorate receives information on investment plans but does not consolidate or publish it. Information is mostly available for projects that receive government support via on-lending or guarantees. SOEs’ business plans are not approved by supervisory bodies. A timeline of MoF plans to improve oversight is not available. - Independence of economic infrastructure regulators is prescribed by Law but not guaranteed in practice. The Energy Regulatory Agency (ERA) regulates, approves, and publishes tariffs for electricity or gas supply based on a defined formula, but the Government can adjust a portion of the tariff. ERA is also regulator in the water sector (early stages of operation). ZPCG (rail) is majority owned by the government and sets pricing structure; there is possibility of subsidy from Government or cross-subsidization between passenger and freight services. - A new PPP law introduced on December 2019 has wide institutional and sectoral coverage, established the Montenegrin Investment Agency (MIA), and consolidated roles related to PPP promotion. The MoF is compiling a PPP policy expected to be completed by end-2021. - Effectiveness of the new PPP arrangement has not been assessed as there are no PPP projects under the new PPP Law and guidance of MIA. There is no consolidated record of PPPs in Montenegro; limited PPP data available through official reports of implementing bodies (e.g., Concession Commission). - PPPs are not fully integrated with the overall public investment management process; the PPP law sets different procedures for project development, selection and appraisal compared with traditionally-procured projects. - No explicit requirement for assessments of budget affordability beyond the medium-term fiscal framework, nor guidelines to do so. - Recommendation: Irrespective of funding source and procurement method, all projects should follow a unified gateway process to ensure projects proceed on their merits. Fiscal risk assessment methodologies should be developed. ### Recommendations (Issues and Actions) — summary with timelines and responsible entities - Issue 1: Lack of a clear and cohesive strategic planning framework undermines medium-term allocation of public investment. - Recommendation 1 (December 2021; Secretariat-General’s Office, MoF and sector ministries): - Streamline and consolidate the strategic framework into a hierarchy headed by high-level policy goals and a rationalized set of sector strategies aligned to those goals. - Set out a formal strategic planning structure and hierarchy based on a single national strategic anchor and a limited number of sector strategies (covering inter alia capital investment). - Undertake a stock-take of current strategies by sector and reduce the number of sector-specific strategic documents to only 1 per priority sector. - Determine an overall public investment fiscal envelope for the duration of the strategic documents. - Issue guidelines to spending units on aligning medium-term capital budget allocations with sector planning goals. - Issue 2: Contingent liabilities from SNGs, SOEs and PPPs are not regularly reported to MoF and the legislature nor presented in budget documentation. - Recommendation 2 (December 2022; MoF): - Complete a stock take exercise to identify contingent liabilities from major projects. - Include in the budget documentation a summary of contingent liabilities related to major projects (e.g., part of the fiscal risk statement/chapter in the Fiscal Policy Guidelines). - Issue 3: Lack of a standard methodology for appraising capital investment projects undermines quality of project preparation. - Recommendation 3 (December 2022; MoF and NIC): - Develop appraisal methodologies for project preparation and provide centralized guidance on implementation. - Develop guidelines and manuals that guide project preparation. - Estimate national parameters for economic appraisal. - Train officers from line ministries and other agencies responsible on project preparation. - Issue 4: No central support is provided to line ministries on project preparation and review; capacity gaps exist. - Recommendation 4 (July 2022; MoF and NIC): - Create a central team of professionals focused on project appraisal and review able to: i. prepare ToR’s for contracting pre-feasibility or feasibility studies, ii. act as counterparts for review of such studies, iii. review project appraisal documents of large projects to ensure initiatives provide public value before selection, iv. prepare ex post evaluations of selected projects. - Team to define guidelines for project appraisal and national parameters to be used across all capital projects regardless of funding source. - Issue 5: Independent external expert review of complex infrastructure projects is not required. - Recommendation 5 (July 2022; MoF): - Adjust regulation to require projects meeting certain criteria be subject to independent review by external experts. - Establish criteria and indicators to identify which projects should be subject to external evaluation. - Issue 6: Central oversight of PPP projects and SOE capital investment plans is not comprehensive; guidelines and procedures lacking. - Recommendation 6 (June 2022; MoF, Directorate for Local Self-Government and State-Owned Companies, PPP Unit): - Develop guidelines and gateway procedures for central review and assessment of PPP projects and SOE capital investment plans. - Develop methodologies and guidance for assessing value for money of different procurement options, budget affordability, and fiscal risk assessments. - Establish gateway procedures for central review of projects. - Report PPP commitments and contingent liabilities to MoF and in the Budget Message. - Require SOEs’ investment plans to be submitted to MoF during the budget preparation process. - Publish SOEs’ capital investment plans alongside the state budget documentation. ### Multi-year budgeting and capital budget credibility (Design—Medium; Effectiveness—Low) - Capital budget preparation includes some elements of a baseline approach to medium-term projections (Article 30 of the LBFR). Rolling three-year ceilings for capital expenditures are provided annually in the Guidelines for Fiscal and Macroeconomic Projections (MTEF document). - These ceilings are provided in aggregate form for two agencies, the DT and the PWA, which centralize project implementation; within the current budget medium-term ceilings are provided for each accountable institution (primarily, ministries). - The 2021 Annual Budget law introduced a new program budget format presented only for the budget year, with no publication of total constructions cost of major projects. Estimated total construction cost for each capital project is provided in the narrative as a lump sum under the relevant program and sub-program; projections of total construction costs of major capital projects are not disaggregated by year over a medium-term period. - In practice, the budget process does not provide consistent and credible multi-year projections for capital expenditures. Only first-year ceilings are binding, with indicative ones for outer years. - Credibility evidence: For datapoints available, the outturn fluctuated between 26 and 183 percent of the ceiling forecast. The budget often repeats the same projected amounts for both second and third years, suggesting implementation plan issues or lack of reliable project information (Institution 14). Changes in total project costs from one budget to the next are not explained in a published document. _Italic: Source: 1mneea2022003 - 3. Coordination Between Entities (Design—Medium; Effectiveness—Medium), IMF PDF chapter_ ### 7. Budget Comprehensiveness and Un ity (De sig n—High; Effectiveness—Medium) ### 7. Budget Comprehensiveness and Unity (Design—High; Effectiveness—Medium) ### Coverage and financing of capital projects - Public investment projects are prepared, budgeted and undertaken through the capital budget. - The capital budget focuses on the creation of new, or the reconstruction of existing, non-financial assets, while acquisitions of non-financial assets with a life-span of fewer than five years are included in the current budget. - Coverage of capital projects is comprehensive of GoM resources, external loans and grants, with no capital project spending undertaken by extra-budgetary entities (indirect budget users) from their own resources. - Both budgets use the program, functional and economic classifications, and source of funding. - The budget documents do not include systematic breakdowns of financing information for all projects, or projects undertaken by SOEs; quarterly reporting examples showed incomplete information and more comprehensive disaggregated actual expenditures for the capital budget were not available. - Information on wider public sector investment, specifically that being undertaken by SOEs, is not provided in the budget. - The government has extended loan guarantees to SOEs for almost EUR 400 million (15 percent of GDP), of which EUR 140 million are still outstanding. - Recommendation emphasized: ensuring Parliament considers the budget in the context of total public investment from all sources to improve legislative scrutiny and highlight fiscal risk. ### Institutional responsibilities and budget unity - Budget unity is undermined by institutional fragmentation of capital budget preparation and implementation, and lack of integration with current budget processes. - Spending institutions do not have full control of their sectoral spending as capital budgets are appropriated and implemented through the DT and the PWA. - Both capital and current budget preparation is managed by the MoF, but the two budgets are presented in different sections in the Law on the Annual Budget and in the full budget documentation; capital and current program expenditures are not shown together under each relevant spending unit. - Some countries use service agreements between policy ministries and implementing agencies to allocate capital budgets to policy ministries with execution by implementing agencies. - Table 3.2 (Main Institutional Responsibilities for Capital Budget Projects) assigns roles across project cycle stages to Spending Unit, TD / PWA, MoF, Government / Parliament (as in source table). ### Budgeting for investment and protection of ongoing projects - Within the medium-term capital budget framework, project expenditures are appropriated on an annual basis, with indicative projections for two outer years. - Information on total project costs is included in the budget documentation (narrative section) for each project; first done for the 2021 budget, so no baseline exists to compare current forecasts or explain changes in projects’ costs. - There are no multi-year appropriations or information on multi-year commitments. - Transfers from capital to current budgets are prohibited by Article 47 of the LBFR; the SAI confirms that virements do not take place in practice. - The Annual Budget Laws for the last three budgets (2019-2021) include a statement that the overwhelming majority of the capital budget is for the continuation and completion of ongoing projects. - Budget submission forms require separate submission requests for ongoing and new projects; no appropriation-based mechanisms (e.g., commitment appropriations) exist to protect funding of ongoing projects. - A project being under implementation is an explicit criterion in the budget selection process undertaken by the selection commission. - The dominance in the capital budget of a single project (Bar-Boljare) affects project protection and crowding-in of other projects; since 2015 this project represents approximately 67% of total capital budget and the 2019 Annual Budget Law stated that 95% of the capital budget was for project continuation and completion. ### Maintenance funding and planning - Budget allocations for maintenance are not underpinned by minimum required standards covering each type of asset for current or capital maintenance. - Few methodologies exist to determine minimum maintenance requirements, associated cost calculations, and budget requirements; examples: routine maintenance of roads methodology exists but gaps remain for high-cost infrastructure (e.g., bridges). - Investment maintenance is based on medium-term plans adopted by the government, but unclear if methodologies back these estimates and compliance is weak. - A 2019 SAI performance audit found that the DT did not prepare and submit to the government a medium-term program for development and maintenance of state roads, as required. - Current (routine) and capital (investment) maintenance spending are planned over a medium-term period and published in the Annual Budget Law and associated documentation; actual expenditures are included in in-year and end-year reports by spending unit and program but not by individual project. - Expenditures on infrastructure maintenance (capital and current) averaged approximately 10 percent of total expenditures on infrastructure annually over the last four years. - With planned expansion in financing sources for capital investment (e.g., PPPs), efforts are underway to develop methodologies for sector- and asset-specific maintenance requirements and to prepare asset registers and periodic update processes. ### Project selection, appraisal and pipelines - The Budget Law and the “Decision on Drafting the Capital Budget and Determining and Evaluating Criteria for Selection of Capital Projects” and the “Methodology for Selection and Prioritization of Infrastructure Projects” establish processes, criteria and templates for project selection and classification by preparedness. - Central entities screen investment projects before selection for funding; templates (“Form” submitted to the MoF) standardize project information. - Significant shortcomings in project information undermine selection: feasibility or environmental studies are not required to be sent to screening entities; appraisals are weak; cost information can be preliminary; implementation plans may be missing. - Major projects should be assessed by an independent expert, but such documents are not published. - The Commission’s screening has focused on whether basic information was prepared rather than appraisal quality. - Projects can be selected even if they do not comply with all appraisal requirements or achieve a low screening score; review of the “Proposal of the List of Priority Capital Projects (LPCP) financed from the capital budget of the state in 2021” showed that out of 112 projects submitted, only 21 were included in the list submitted to Government. - Two separate pipelines exist: the Unified List of Priority Infrastructure Projects (SPP) for EU funds candidates (primarily Western Balkan Investment Framework) and the LCPC for initiatives financed from the state budget; these are not a single pipeline and most projects lack good pre-investment studies. - Selection criteria do not include key risk parameters; project maturity is a criterion for SPP but not for government-financed projects; information used to score projects is preliminary and incomplete. ### Recommendations (Issues 7–11 and 12) - Issue 7: The lack of an effective medium-term budgeting process hampers the government’s ability to plan appropriate resource flows to multi-year capital projects and asset lifetimes. - Recommendation 7: Improve the credibility of medium-term capital budget ceilings and forward projections and incorporate the calculation of life-cycle costs in medium-term budget plans. (December 2021; MoF and sector ministries) - Include in the capital budget guidelines the requirement for spending units to include estimates of life-cycle costs for new and on-going capital budget projects as part of their budget submissions and to include medium-term operational and maintenance projections in the current budget under the relevant program for projects nearing completion - Use a baseline approach to improve the credibility of medium-term capital budget ceilings - Issue 8: The lack of complete information on public capital investments hampers full legislative scrutiny and early warnings of areas of potential fiscal risk. - Recommendation 8: Improve the transparency of total public investments by including information on all sources of funds for public sector investments in the budget documents. (December 2021; MoF) - Compile information on existing capital projects being implemented by SOEs and on future PPP projects. - Include in the budget documents an annex containing information for SOE-managed capital project investments and their relationship to national strategic priorities. - Issue 9: The separation of current and capital budget planning hinders spending units from using resources efficiently to achieve government’s key public investment policy objectives. - Recommendation 9: Ensure responsibility for setting capital budget ceilings and determining budget appropriations, and thereby accountability to Parliament for these resources, is provided to the relevant sector ministries, instead of to the implementing Administrations, as currently. (December 2021; MoF) - Revise the budget guidelines (overall and capital budget) to reflect these changes. - Establish a mechanism (e.g., service agreement) for enabling the Administrations to have a role in implementing spending ministries’ projects. - Issue 10: The absence of a systematic approach to planning maintenance requirements risks higher public investment costs through the under-provision of necessary maintenance. - Recommendation 10: Introduce a systematized approach to maintenance planning for the budget supported by more comprehensive information on asset values, and quality, sector- and asset-specific methodologies. (June 2022; MoF, Ministry of Capital Investment and Ministry of Ecology, Spatial Planning and Urbanism) - Prepare a prioritized list of key infrastructure assets - Compile information on values and current conditions of priority infrastructure assets - Prepare and document methodologies for maintenance planning and budgeting for the major infrastructure asset types, covering both routine (current) maintenance and major rehabilitation or reconstruction (capital or investment maintenance) - Issue 11: There are two pipelines of projects, most lacking good pre-investment studies, as candidates for budget resources or IPA funds. Selection criteria are not based on economic indicators and do not adequately consider important aspects like risks and project maturity. - Recommendation 11: Develop a single project pipeline independent of funding sources, which should incorporate additional criteria to inform project selection. (December 2022; MoF) - Prepare list of all projects in current pipelines. - Classify list of all projects in current pipelines according to their financing sources. - Recommendation 12: Improve existing criteria for project selection incorporating those aspects that are not currently being considered but are of key importance, including at least economic indicators, risk assessment and project maturity. (December 2022; MoF) - Identify relevant additional criteria (economic, risk and project maturity) - Incorporate these criteria into the regulations for project selection procedures *Source: IMF staff* ### 11. Procurement (Design— High; Effectiveness—H ig h) ### 11. Procurement (Design— High; Effectiveness— High) ### Procurement framework and performance - The Public Procurement Law, adopted in December 2019 and entered into force in July 2020, is broadly aligned with the EU acquis and introduces competitive dialogue, partnership for innovation, and competitive negotiation procedures. - The law strengthened transparency and efficiency through the introduction of an e-procurement system and simplified procedures, while enhancing monitoring and remedy systems. - In 2020, Montenegro’s public procurement of goods, works, and services accounted for 13 percent of GDP. - Over 73 percent of all procurement procedures in 2020 were completed through an open and competitive process. - The number of contracting authorities remained relatively high at 660. - The average number of bids submitted per tender offer increased to 2.3 from 2 in 2019. ### Transparency, e-procurement, and monitoring - An e-procurement system became fully operational in January 2021; the entire public procurement process is now automated, with all information published in the system. - No major project has been fully tendered electronically because the e-procurement system is in an early stage of implementation and delays in adopting the 2021 budget meant no major project was fully tendered electronically. - Procurement procedures that started in 2020 are still carried out in a paper-based manner, but information on all stages is available on the procurement portal. - Although the law stipulates that public procurement plans must be submitted to the Ministry of Finance by January 31, the PWA had not submitted one as of the beginning of July 2021; without the procurement plan, no procurement procedure can start. - Monitoring actors: contracting authorities, the Ministry of Finance, the Commission for the Control of Public Procurement (State Commission), the SAI, and the Public Procurement Inspectorate. - The Public Procurement Inspectorate executed 152 controls in 141 entities in the period July-December 2020, finding 44 irregularities (34 resolved; 10 unresolved, of which 6 related to small value procurements artificially split and resulted in monetary penalties). - The Ministry of Finance publishes annual reports on public procurement; contracting authorities are prescribed to produce and submit semi-annual implementation reports to the Ministry of Finance, but these were yet to be submitted and published for the first semi-annual period since the law’s entry into force. - The e-procurement system does not yet produce standard statistical and analytical reports. ### Complaints, appeals, and decision timeliness - The State Commission for the Control of Public Procurement is an independent body responsible for reviewing procurement appeals and reports to Parliament. - The new law introduced mandatory submission of public procurement appeals via the e-procurement system and increased the number of days for solving complaints to 30 calendar days (from 15 in the former law), extendable by an additional 10 calendar days. - In 2020, a total of 269 complaints were handled; the Commission made timely decisions on each, reducing the average response time for deciding on a complaint to 18 days in 2020 (from 30 and 21 days in 2018 and 2019, respectively). - All Commission decisions are published on the Commission’s website and the e-procurement platform. - Appeals against the State Commission can be made to the Administrative Court; the number of cases was reduced to 38 in 2020 from 52 in 2019. ### 12. Availability of Funding (Design— High; Effectiveness— High) - Updated cash-flow forecasts are prepared monthly; budget organizations are provided with commitment ceilings for the full fiscal year. - Cash flow reports and monthly user expenditure reports are submitted to the Treasury, which uses them to determine where funds can be re-allocated. - The Treasury prepares cash forecasts based on revenue and expenditure forecasts provided by the tax and customs administration and budgetary forecasts; there is day-to-day communication with the Budget Department and Contracting Agencies. - Reports are prepared on a daily and monthly basis for internal use and cash monitoring. - Cash for project outlays is provided in a timely manner based on approved appropriations; there are no instances of cash rationing. - According to the Treasury’s information, there are no significant arrears on investments and the average cash balance ensures timely payment of investment spending. - A couple of projects under implementation were put on a reduced execution rate for two months in 2021 awaiting budget approval, causing only minor delays. - External financing is partially integrated in the main government bank account structure: there is a treasury single account (TSA) for all central government payments, but donor funding can be deposited in private commercial bank accounts per donor agreements; such funds are transferred to the TSA before distribution for expenditure by contracting agencies. ### 13. Portfolio Management and Oversight (Design – Medium; Effectiveness - Low) - Portfolio oversight exists at Ministry and Agency level, but not centrally. - The Directorate of Economic Policy and Development gathers timely data centrally, but the detail is not adequate for decision-making and there is no centralized oversight. - Completed projects were only recently incorporated in reports; data are documented in a quarterly report; annual progress reports are monitored, with the latest progress report issued in 2019. - The Ministry of Education and the Ministry of Ecology, Spatial Planning and Urbanism have portfolio management principles in place. - Funds can be re-allocated between domestically budget-funded projects but not between projects with international funding; the LBFR allows re-allocation during implementation of up to 10 percent of the total amount between projects and programs funded from the capital budget (LBFR Article 45), with MoF approval. All re-allocations are monitored and approved by MoF. - Ex-post reviews are not conducted regularly for all major projects. Externally-financed projects are likely reviewed ex-post at the lender’s request but reports are not necessarily published. Domestically funded projects undergo regular inspections to close contracts but these do not cover all issues of an ex-post review. - The SAI has recommended that ex-post reviews be conducted to adjust project implementation policies. ### 14. Management of Project Implementation (Design – Medium; Effectiveness – Medium) - Multiple layers of project monitoring exist by senior officials for physical progress and financial costs, but implementation plans are not prepared in detail. - Responsibility for monitoring physical and financial progress rests with Implementing Agencies; the PWA commences contracting, implementing, and commissioning once the capital budget is approved but is not closely involved in planning. - Project managers from PWA and project managers from line ministries manage implementation; officials acknowledged low quality or non-existence of implementation plans when initiating contracting. - Typical elements of a project implementation plan are illustrated in Appendix 9 (referenced in source). - The Agency for Transport (Roads section) monitors implementation in detail using an Excel spreadsheet tracking physical progress, description of activities, financial progress, remarks for management decisions, and risks—presented as an example to be replicated. - Rules for project cost adjustments are defined in the Law on Procurement, Article 151: project costs for infrastructure projects may be adjusted by a maximum of 20 percent of the original contract value without changing scope; once adjustment exceeds 20 percent, the balance must be advertised in an open tender; MoF approval is required before cost adjustment is made. - These rules are not systematically applied because projects are relatively small and not adjusted regularly; implementation of cost adjustment procedure for a mega-project such as the Bar-Boljare Highway could not be verified—overall project cost has increased due to additional works and currency depreciation without a published review. - The SAI conducts ex post performance audits for nationally-funded projects on a yearly basis and publishes audit reports; audited entities must submit an action plan within 30 days for implementation of recommendations. Performance audits do not currently include auditing the planning and appraisal process. ### 15. Monitoring of Public Assets (Design—Medium; Effectiveness—Low) - Regulation: Government’s Regulation on the Manner of Keeping Register of Movable and Immovable Property and the Stock-taking of State-Owned Assets requires state institutions to maintain registers of movable and immovable assets and shares, updated through annual stock-taking and submitted to the Cadastre and State Property Administration (CDPA) by end of February each year; depreciation is foreseen. - Despite regulations, monitoring of public assets is weak: surveys are regularly conducted but condition assessments are not done. - The government does not produce consolidated financial accounts including the value of non-financial assets and depreciation. - The CDPA holds information on more than 500,000 assets but does not consolidate it to allow reporting or analysis; there is neither an assessment of values nor conditions of reported assets, needed for accurate depreciation figures and asset write-off dates. - Reforms: with government reorganization at the beginning of 2021 two administrations responsible for asset registers were merged into the CDPA, reducing fragmentation. - The CDPA is developing the Asset Registry System (ARS), a centralized register of movable and immovable property started in 2014 and expected to be completed by the end of 2021. - ARS should give access to direct (approximately 100) and indirect (approximately 350) users, including municipalities. - ARS is planned to be linked to the FMIS system managed by the Treasury to support timeliness of information and enable reporting and analyses. - Further upgrades will be needed for the system to register assets from SOEs. ### Recommendations (selected from text) - Recommendation 13 (December 2021; MoF, Line Ministries, Implementing Agencies) - Consolidate and review the portfolio of major projects to enable government overview of performance of all major projects. - Detailed reports should be issued at least quarterly with all performance indicators required for informed management decisions regarding adjustments to project implementation. - Progress reports should be submitted to MoF, Line Ministries and Agencies for review and action where required. - Recommendation 14 (December 2021; Line Ministries, Implementing Agencies, MoF, Public Procurement) - Develop procedures to ensure ex-post evaluations of major capital projects are completed and results shared with relevant stakeholders. - Establish regulatory requirement for ex-post reviews that includes basic quantitative and qualitative performance assessment. - Recommendation 15 (October 2021; Implementing Agencies, MoF, Line Ministries) - Develop a framework for reporting on major capital projects to ensure appropriate monitoring. - Determine the periodicity of progress reports to be prepared by Implementing Agencies. - Identify the physical and financial progress information required to support decision making to be covered by reports. - Develop templates for progress reports to ensure uniformity and allow comparisons across initiatives. ### IV. Cross-cutting issues - Legal framework - The LBFR, published initially in 2014 and updated in 2017 and 2018, is the main law regulating PIM in Montenegro covering multiple PIMA institutions. - The Decision (published in 2014 and updated in June 2021) regulates project appraisal and selection, established centralized project screening, and quarterly reports on capital projects’ implementation. - A Law on PPP was approved in 2019 with subsequent bylaws approved in 2020, covering user- and government-funded projects. - The new Public Procurement Law was published in 2019 and is complemented by Rulebooks and Ordinances. - Gaps: the LBFR does not address project appraisal, project portfolio management, and registration of public assets; future amendments to LBFR should address these issues. - An IMF desk review identified PPP Law gaps including misalignment with the public investment process and lack of MoF empowerment to assess fiscal affordability or veto a project. - IT systems and data management - Existing IT systems are fragmented and do not provide integral support for PIM functions. - At MoF, the FMIS supports Budget Directorate and Treasury but needs improvements regarding project information; the SAI relies on data downloaded from FMIS to Excel for audits. - There is no centralized register of projects; existing databases are not designed to support senior management decision-making nor production of statistical reports. - The DT uses different IT systems for budget execution, managing contracts, and maintenance. *Source: 1mneea2022003 - 11. Procurement (Design— High; Effectiveness— High)* ### 83. Recent software developments and the use of out-of-the-box solutions have ### 1mneea2022003 - 83. Recent software developments and the use of out-of-the-box solutions have ### Software developments and current use - Directorate for Public Procurement Policies implemented an e-procurement system following EU standards. - Property Directorate is populating the Asset Registry System. - Montenegrin Investment Agency maintains a publicly available register of PPP projects; none have been registered to date. - DT uses CapEx® software for managing capital expenditures. - SAI employs IDEA® Data Analysis Software for selecting projects to be audited. - Footnote: It was mentioned to the mission that lack of funding has delayed full implementation of the system. ### Planned or ongoing IT investments and fragmentation - MoF’s Public Investment Unit is developing a PIMIS with IPA funding. - Agency for Transport is developing a registry of projects that will include complete info about individual projects. - These initiatives would result in at least nine databases on investment projects, described as clearly inefficient and in need of resolution (Appendix 11). - New systems could enhance transparency if public access is allowed. ### Capacity weaknesses in project preparation, appraisal, and selection - NIC indicated no institutional capacity for preparing feasibility studies. - NIPAC Office outsources analysis of projects for the same reason. - PWA lacks sufficient staff to support cost estimation and preparation of implementation plans at an early stage of project design. ### Multi-pronged capacity building approach (recommendations) - Improving PIM processes: - Training to improve quality of project proposals and early project screening capacity, following detailed centrally-provided guidelines. - Early-stage discarding of weak projects to allow staff more time to analyze best or more complex projects. - Better technical skills: - Implement a regular and wide-ranging training program. - Create well-staffed units in charge of different aspects of PIM. - Centralized support: - Create specialized units with highly skilled staff to support line ministries with project preparation or to discard projects early on. - Note: As has been done with project implementation by centralizing it in the PWA for many sectors. - Private sector support: - Use specialized consulting services (local or international) to support preparation of feasibility studies for large infrastructure projects. - Staff should focus on preparing good terms of reference for studies, develop effective selection processes, and be a demanding counterpart during the study. ### Small central team proposed tasks (unit ascribed to MoF or part of NIPAC) - Develop guidelines and methodologies for project preparation and appraisal at the level of proposal (project concept), pre-feasibility or feasibility. - Working together in ad-hoc commissions with sector technical experts and engineers from the PWA or the DT. - Determine key parameters for project appraisals, including at least: - the economic cost of capital, - shadow price of labor, - economic value of foreign currency, - the value of time. - Support preparation and appraisal of projects at the project proposal level by providing basic training to staff from ministries, local self-governments, and other agencies. - Oversee experts/consultants contracted to provide technical support for prefeasibility or feasibility project design and appraisal studies. - Effectively prepare and prioritize projects within overall fiscal and budgetary constraints. - Conduct an ex post evaluation of project outputs and outcomes. ### Appendix I — Selected action plan highlights (2022–2024) - Improve and strengthen compliance with strategic and fiscal framework for more sustainable investment resource allocations: - Streamline and consolidate current strategic framework; set out formal strategic planning structure based on single national strategic anchor and limited set of aligned sector strategies. Responsible: Secretariat-General’s Office, MoF and sector ministries. - Complete stock-take of current strategies by sector; reduce number of sector-specific strategic documents to 1 per priority sector. - Determine overall fiscal envelope on public investment for duration of strategic documents. - Issue guidelines to spending units on aligning medium-term capital budget allocations with sector planning goals. Responsible: MoF. - Contingent liabilities: - Establish process for identifying and collecting information on contingent liabilities of major projects. - Complete stock take exercise to identify contingent liabilities; include in budget documentation summary of contingent liabilities (e.g., part of fiscal risk statement/in the Fiscal Policy Guidelines). Responsible: MoF. - National methodology and parameters: - Develop general methodology for appraising capital investment projects and determine national parameters for economic appraisal. - Develop guidelines and manuals for guiding project preparation; train officers from line ministries and other agencies responsible on project preparation; estimate national parameters for economic appraisal. Responsible: MoF and NIC. - Central support and external review: - Create a central team of professionals focused on project appraisal and review; define guidelines for project appraisal and national parameters for use with all capital projects regardless of sources of funding. Responsible: MoF and NIC, unit housing team of experts. - Introduce regulation requiring projects meeting certain criteria to be subject to review by independent experts; establish criteria and indicators for external evaluation. Responsible: MoF. - PPPs, SOEs and reporting: - Develop guidelines and gateway procedures for central review and assessment of PPP projects and capital investment plans of SOEs. - Develop methodologies for assessing value for money of procurement options, budget affordability, and fiscal risk assessments. Responsible: MoF, PPP Unit. - Report PPP commitments and contingent liabilities to MoF and in Budget Message; require SOEs’ investment plans to be submitted to MoF once a year during the budget preparation process; publish SOEs’ investment plans alongside the state budget documentation. Responsible: Directorate for Local Self-Government and SOEs. - Require financial statements of SOEs to be submitted to MoF quarterly (for non-audited entities) and annually (for audited entities). - Strengthen capital budget processes and transparency: - Include life-cycle costs in medium-term budget plans; require spending units to include (i) estimates of life-cycle costs for new and on-going capital budget projects in budget submissions; (ii) medium-term operational and maintenance projections in current budget under relevant program for projects nearing completion. Responsible: MoF, sector ministries. - Improve transparency of total public investment by including information on all sources of funds in budget documents; compile information on existing capital projects implemented by SOEs; include a budget annex with project and expenditure information for SOE-managed capital project investments. Responsible: MoF. - Transfer responsibility for capital budget ceilings and appropriations to sector ministries; revise budget guidelines and establish mechanism enabling Implementing Administrations to implement spending ministries’ projects. Responsible: MoF. - Maintenance and asset information: - Introduce systematized approach to maintenance budget planning supported by information on asset values, quality, sector- and asset-specific methodologies. - Prepare a prioritized list of key infrastructure assets; prepare and document methodologies for maintenance budget planning for major infrastructure assets, covering routine maintenance and major rehabilitation or reconstruction; compile information on values and current conditions of infrastructure assets. Responsible: MoF, Ministry of Capital Investment and Ministry of Ecology, Spatial Planning and Urbanism. - Consolidate project pipelines: - Merge existing project pipelines in single pipeline covering all sectors and all funding sources, indicating if each project can be candidate for IPA funds or Capital Budget. - Prepare list of all projects in current pipelines; classify list according to their financing sources. Responsible: MoF. - Improve project selection criteria: - Identify relevant additional criteria (economic indicators, risk assessment and project maturity); include criteria in project selection regulation. Responsible: MoF. - Improve monitoring, management, and oversight of public investments: - Review portfolio of major projects to provide overview of performance of all major projects; require reports at least quarterly with all performance indicators required for informed management decisions. Responsible: MoF, Line Ministries, Implementing Agencies. - Require report submission to MoF, Line Ministries and Agencies for review and actions; develop procedures to ensure ex-post evaluations and auditing of major capital projects and share results with relevant stakeholders. - Establish regulatory requirement for ex-post reviews of investment projects to include basic quantitative and qualitative performance assessment. Responsible: Line Ministries, Implementing Agencies, MoF, Public Procurement. - Develop framework and templates for reporting on major capital projects; determine periodicity of progress reports and identify physical and financial progress information required to support decision making. Responsible: Implementing Agencies, MoF, Line Ministries. *Source: 1mneea2022003 - 83. Recent software developments and the use of out-of-the-box solutions have (Montenegro PIMA chapter).* ### 6. a. Is capital spending by ### 6. a. Is capital spending by ### Forecasting and Multiyear Ceilings - 6.a. Is capital spending by ministry or sector forecasted over a multiyear horizon? - No projections of capital spending are published beyond the budget year. - Projections of total capital spending are published over a three to five-year horizon. - Projections of capital spending disaggregated by ministry or sector are published over a three to five-year horizon. - 6.b. Are there multiyear ceilings on capital expenditure by ministry, sector, or program? - There are no multiyear ceilings on capital expenditure by ministry, sector, or program. - There are indicative multiyear ceilings on capital expenditure by ministry, sector, or program. - There are binding multiyear ceilings on capital expenditure by ministry, sector, or program. - 6.c. Are projections of the total construction cost of major capital projects published? - Projections of the total construction cost of major capital projects are not published. - Projections of the total construction cost of major capital projects are published. - Projections of the total construction cost of major capital projects are published, together with the annual breakdown of these cost over a three-five-year horizon. ### Budget Comprehensiveness and Unity (Capital spending through the budget process) - 7.a. Is capital spending mostly undertaken through the budget? - Significant capital spending is undertaken by extra-budgetary entities with no legislative authorization or disclosure in the budget documentation. - Significant capital spending is undertaken by extra-budgetary entities, but with legislative authorization and disclosure in the budget documentation. - Little or no capital spending is undertaken by extra-budgetary entities. - 7.b. Are all capital projects, regardless of financing source, shown in the budget documentation? - Capital projects are not comprehensively presented in the budget documentation, including PPPs, externally financed, and PCs’ projects. - Most capital projects are included in the budget documentation, but either PPPs, externally financed, or PCs’ projects are not shown. - All capital projects, regardless of financing sources, are included in the budget documentation. - 7.c. Are capital and recurrent budgets prepared and presented together in the budget? - Capital and recurrent budgets are prepared by separate ministries, and/or presented in separate budget documents. - Capital and recurrent budgets are prepared by a single ministry and presented together in the budget documents, but without using a program or functional classification. - Capital and recurrent budgets are prepared by a single ministry and presented together in the budget documents, using a program or functional classification. ### Budgeting for Investment (Protection during implementation) - 8.a. Are total project outlays appropriated by the legislature at the time of a project’s commencement? - Outlays are appropriated on an annual basis, but information on total project costs is not included in the budget documentation. - Outlays are appropriated on an annual basis, and information on total project costs is included in the budget documentation. - Outlays are appropriated on an annual basis and information on total project costs, and multiyear commitments is included in the budget documentation. - 8.b. Are in-year transfers of appropriations (virement) from capital to current spending prevented? - There are no limitations on virement from capital to current spending. - The finance ministry may approve virement from capital to current spending. - Virement from capital to current spending requires the approval of the legislature. - 8.c. Is the completion of ongoing projects given priority over starting new projects? - There is no mechanism in place to protect funding of ongoing projects. - There is a mechanism to protect funding for ongoing projects in the annual budget. - There is a mechanism to protect funding for ongoing projects in the annual budget and over the medium term. ### Maintenance Funding - 9.a. Is there a standard methodology for estimating routine maintenance needs and budget funding? - There is no standard methodology for determining the needs for routine maintenance. - There is a standard methodology for determining the needs for routine maintenance and its cost. - There is a standard methodology for determining the needs for routine maintenance and its cost, and the appropriate amounts are generally allocated in the budget. - 9.b. Is there a standard methodology for determining capital maintenance projects, and are they included in national and sectoral investment plans? - There is no standard methodology for determining major improvements, and they are not included in national or sectoral plans. - There is a standard methodology for determining major improvements, but they are not included in national or sectoral plans. - There is a standard methodology for determining major improvements, and they are included in national or sectoral plans. - 9.c. Can expenditures relating to maintenance be identified in the budget? - Routine maintenance and major improvements are not systematically identified in the budget. - Routine maintenance and major improvements are systematically identified in the budget. - Routine maintenance and major improvements are systematically identified in the budget, and are reported. ### Project Selection Institutions and Procedures - 10.a. Does the government undertake a central review of major project appraisals before decisions are taken to include projects in the budget? - Major projects (including donor- or PPP-funded) are not reviewed by a central ministry prior to inclusion in the budget. - Major projects (including donor- or PPP-funded) are reviewed by a central ministry prior to inclusion in the budget. - All major projects (including donor- or PPP-funded) are scrutinized by a central ministry, with input from an independent agency or experts prior to inclusion in the budget. - 10.b. Does the government publish and adhere to standard criteria, and stipulate a required process for project selection? - There are no published criteria or a required process for project selection. - There are published criteria for project selection, but projects can be selected without going through the required process. - There are published criteria for project selection, and generally projects are selected through the required process. - 10.c. Does the government maintain a pipeline of appraised investment projects for inclusion in the annual budget? - The government does not maintain a pipeline of appraised investment projects. - The government maintains a pipeline of appraised investment projects but other projects may be selected for financing through the annual budget. - The government maintains a comprehensive pipeline of appraised investment projects, which is used for selecting projects for inclusion in the annual budget, and over the medium term. ### Procurement (Delivering Productive and Durable Public Assets) - 11.a. Is the procurement process for major capital projects open and transparent? - Few major projects are tendered in a competitive process, and the public has limited access to procurement information. - Many major projects are tendered in a competitive process, but the public has only limited access to procurement information. - Most major projects are tendered in a competitive process, and the public has access to complete, reliable, and timely procurement information. - 11.b. Is there a system in place to ensure that procurement is monitored adequately? - There is no procurement database, or the information is incomplete or not timely for most phases of the procurement process. - There is a procurement database with reasonably complete information, but no standard analytical reports are produced from the database. - There is a procurement database with reasonably complete information, and standard analytical reports are produced to support a formal monitoring system. - 11.c. Are procurement complaints review processes conducted in a fair and timely manner? - Procurement complaints are not reviewed by an independent body. - Procurement complaints are reviewed by an independent body, but the recommendations of this body are not produced on a timely basis, nor published, nor rigorously enforced. - Procurement complaints are reviewed by an independent body whose recommendations are timely, published, and rigorously enforced. ### Availability of Funding - 12.a. Are ministries/agencies able to plan and commit expenditure on capital projects in advance on the basis of reliable cash-flow forecasts? - Cash-flow forecasts are not prepared or updated regularly, and ministries/agencies are not provided with commitment ceilings in a timely manner. - Cash-flow forecasts are prepared or updated quarterly, and ministries/agencies are provided with commitment ceilings at least a quarter in advance. - Cash-flow forecasts are prepared or updated monthly, and ministries/agencies are provided with commitment ceilings for the full fiscal year. - 12.b. Is cash for project outlays released in a timely manner? - The financing of project outlays is frequently subject to cash rationing. - Cash for project outlays is sometimes released with delays. - Cash for project outlays is normally released in a timely manner, based on the appropriation. - 12.c. Is external (donor) funding of capital projects fully integrated into the main government bank account structure? - External financing is largely held in commercial bank accounts outside the central bank. - External financing is held at the central bank, but is not part of the main government bank account structure. - External financing is fully integrated into the main government bank account structure. ### Portfolio Management and Oversight - 13.a. Are major capital projects subject to monitoring during project implementation? - Most major capital projects are not monitored during project implementation. - For most major projects, annual project costs, as well as physical progress, are monitored during project implementation. - For all major projects, total project costs, as well as physical progress, are centrally monitored during project implementation. - 13.b. Can funds be re-allocated between investment projects during implementation? - Funds cannot be re-allocated between projects during implementation. - Funds can be reallocated between projects during implementation, but not using systematic monitoring and transparent procedures. - Funds can be re-allocated between projects during implementation, using systematic monitoring and transparent procedures. - 13.c. Does the government adjust project implementation policies and procedures by systematically conducting ex-post reviews of projects that have completed their construction phase? - Ex post reviews of major projects are neither systematically required, nor frequently conducted. - Ex post reviews of major projects, focusing on project costs, deliverables, and outputs, are sometimes conducted. - Ex post reviews of major projects focusing on project costs, deliverables, and outputs are conducted regularly by an independent entity or experts and are used to adjust project implementation policies and procedures. ### Management of Project Implementation - 14.a. Do ministries/agencies have effective project management arrangements in place? - Ministries/agencies do not systematically identify senior responsible officers for major investment projects, and implementation plans are not prepared prior to budget approval. - Ministries/agencies systematically identify senior responsible officers for major investment projects, but implementation plans are not prepared prior to budget approval. - Ministries/agencies systematically identify senior responsible officers for major investment projects, and implementation plans are prepared prior to budget approval. - 14.b. Has the government issued rules, procedures and guidelines for project adjustments that are applied systematically across all major projects? - There are no standardized rules and procedures for project adjustments. - For major projects, there are standardized rules and procedures for project adjustments, but do not include, if required, a fundamental review and reappraisal of a project’s rationale, costs, and expected outputs. - For all projects, there are standardized rules and procedures for project adjustments and, if required, include a fundamental review of the project’s rationale, costs, and expected outputs. - 14.c. Are ex post audits of capital projects routinely undertaken? - Major capital projects are usually not subject to ex post external audits. - Some major capital projects are subject to ex post external audit, information on which is published by the external auditor. - Most major capital projects are subject to ex post external audit information on which is regularly published and scrutinized by the legislature. ### Monitoring of Public Assets - 15.a. Are asset registers updated by surveys of the stocks, values, and conditions of public assets regularly? - Asset registers are neither comprehensive nor updated regularly. - Asset registers are either comprehensive or updated regularly at reasonable intervals. - Asset registers are comprehensive and updated regularly at reasonable intervals. - 15.b. Are nonfinancial asset values recorded in the government financial accounts? - Government financial accounts do not include the value of non-financial assets. - Government financial accounts include the value of some non-financial assets, which are revalued irregularly. - Government financial accounts include the value of most nonfinancial assets, which are revalued regularly. - 15.c. Is the depreciation of fixed assets captured in the government’s operating statements? - The depreciation of fixed assets is not recorded in operating statements. - The depreciation of fixed assets is recorded in operating statements, based on statistical estimates. - The depreciation of fixed assets is recorded in operating expenditures, based on asset-specific assumptions. ### Cross-cutting Issues - A. IT support: Is there a comprehensive computerized information system for public investment projects to support decision making and monitoring? - B. Legal Framework: Is there a legal and regulatory framework that supports institutional arrangements, mandates, coverage, procedures, standards, and accountability for effective PIM? - C. Staff capacity: Does staff capacity (number of staff and/or their knowledge, skills, and experience) and clarity of roles and responsibilities support effective PIM institutions? ### Appendix III — Stepwise Project Appraisal in Chile (procedural summary) - Execution prerequisites vary by project complexity and cost: - Low-cost project with standard pre-approved design or design developed: - Study required to move to a more advanced stage: Profile - Stage to which the project can apply: Execution - Low-cost project that must develop the design separately before execution: - Study required: Profile - Stage: Design - Study required: Design - Stage: Execution - High-cost or high-complexity project that should develop the full life cycle: - Profile → Pre-feasibility → Feasibility → Design → Execution - Project with referential design (pre-design), which applies to the implementation stage, including cost of design: - Profile, Pre-feasibility, or Feasibility (depending on cost and complexity) → Design and Execution - Source materials cited in the appendix: Rules, Instructions and Procedures for the Process of Public Investment (NIP), Ministry of Social Development - Ministry of Finance, May 2020, and Mission. ### Appendix IV — Illustration of a Gateway Process for PPPs and Public Investments (process summary) - Gateway 1: Assess alignment with government priorities and short- to medium-term fundability; stop projects lacking alignment early. - Gateway 2: Assess feasibility study quality, economic and financial analysis, technical analysis, consistency with medium-term expenditure ceilings and fiscal sustainability, risk assessment, and procurement approach; approved studies lead to procurement documentation preparation. - Gateway 3: Ensure procurement documentation reflects prior analysis and supports project objectives; decide on inclusion in the medium-term budget framework; MoF reviews fiscal risks in tender documents. - Gateway 4: Ensure contract terms align with the feasibility study; MoF assesses final risk allocation and fiscal costs as basis for ongoing risk monitoring. *Source: PIMA Framework (excerpts) and Appendices from the supplied IMF document.* ### Appendix V. Service Agreements for Project ### Appendix V. Service Agreements for Project Implementation ### Role allocation and accountability - In Montenegro, the DT and the PWA are responsible for implementation of public investment projects. - Pooling implementation in one or two ministries is noted as common where sector ministries have limited capacity. - Appropriate governance principle: maintain the sponsoring ministry’s overall accountability (to the government, to the legislature and to the public) for the investment resources. - Sponsoring (accountable) ministry should retain responsibility for decisions on overall project planning and budget allocations, in line with government policies and priority objectives for the sector. - Partnering ministry should act as an out-sourced contractor for specified services. ### Problem identified in Montenegro - Partnering Administrations in Montenegro are accountable for line ministries’ capital budget resources, which: - undermines appropriate resource accountability, and - can lead to poor communication and consultations with the sponsoring ministries about the projects in their sector. ### Recommended solution: Service agreements - Implement service agreements between sponsoring ministry and partnering ministry. - Agreement should stipulate the services the implementing partner will provide to the sponsoring ministry (e.g., the construction of a non-financial asset). - Benefits: - Line ministry retains accountability and overall responsibility (ceilings and appropriations) for capital projects in its sector. - Line ministry benefits from construction expertise of the partnering agency or administration. - Example: Chile - Ministry of Public Works authorized to provide certain activities (e.g., undertaking some aspects of project implementation or providing technical assistance for project preparation) to spending ministries or sub-national governments. - Delegated service provision materialized through an Administrative Act (“Resolución”), regulated by law (Law 19880). - Responsibility for budgetary resources stays with the sponsoring ministry. - Specific financial arrangements to the partnering agency are set out in the agreement (“convenio”). --- ### Appendix VI. Maintenance Planning and Budgeting Implications of Large and/or Complex Projects ### Key points on maintenance planning - Large/complex projects involve multiple infrastructure asset types with different maintenance requirements (example: road surfaces, bridges, tunnels). - Regular maintenance planning throughout asset life-cycle preserves expected useful life and prevents costly failures (examples: dams, electricity supply sub-stations). - Maintenance planning starts at the design stage of the project concept; feasibility studies should integrate expected maintenance requirements and estimated costs of each design option. - After construction of each section/part, contractor and design engineers should provide information on maintenance requirements (e.g., operations manual) to inform maintenance planning. ### Ongoing maintenance planning and costing - Prepare annual and medium-term infrastructure maintenance plans for each asset type depending on specific maintenance requirements. - Expected associated costs should consider: - size and type of asset, - likely demand (e.g., traffic and vehicle loads), - relative ease of access for maintenance, - type of maintenance equipment and materials required, - external factors (e.g., environmental). - Maintenance costs for each asset (works, materials, labor) are related to the value of the asset itself. ### Budgeting recommendations - Sponsoring ministries should incorporate costs of maintenance plans into their annual and medium-term budget plans. - Systematized approach to maintenance planning and budgeting for the infrastructure portfolio (prioritizing critical infrastructure initially) would help preserve Montenegro’s infrastructure stock and minimize costly major reconstruction works. - Such an approach would involve: - detailed needs and cost analyses for maintenance for each infrastructure type (assess current infrastructure quality and estimate values of each asset), - incorporating costs of annual and medium-term maintenance requirements into medium-term budget planning (baselines, ceilings, and budget projections). --- ### Appendix VII. Two Lists of Projects, Different Selection Process and Criteria ### List of Priority Capital Projects (LPCP) Financed from the Capital Budget of the State - In June 2018, Government adopted Decision creating the “Commission for Evaluation of Projects Financed from the Capital Budget of the State” (Article 16), made up of seven members appointed by Government (June 2021 Government Decision increased members to 9). - The Commission prepares a list of projects eligible for budget funding, following criteria in the Decision (Articles 9-11); professional and administrative tasks performed by the MoF. - State administration authorities in charge of sustainable development, tourism affairs, and transport and maritime affairs are responsible for control and validation of technical documentation, depending on project type. Each authority has 2 representatives in the Commission. - Funding proposal must submit a template (“Form”) to the MoF that summarizes standardized key project information; projects submitted to Commission for evaluation. - Projects are assessed using multi-criteria analysis composed of 10 basic and 2 supplementary criteria. - The two most relevant criteria: - whether “extra-budgetary resources were provided to finance the project” — 20 out of 100 possible points; - if the initiative will “contribute to more even regional and economic development, increase in the quality of public service delivery and improvement of citizens' quality of life” — 20 out of 100 possible points. - Four additional criteria assigned 10 points each. - Four more criteria assigned 5 points each. - For every project, criteria are assessed as fulfilled or not (rating of 1 or 0). The criterion “resolved property-legal relations” is multiplied by -1 if not met, or 0 otherwise. - Two supplementary evaluation criteria (Article 8) can add 5 points each to the total score. - Commission should assess all projects submitted to the MoF and prepare a Proposal of the List of Priority Projects for Financing from the State Capital Budget. - Proposal should include best ranked projects according to Decision criteria and be submitted in July through the MoF to the Government for final consideration and inclusion in the annual budget. - Projects not submitted in time to the MoF or that received a low score should not be included in the final Proposal. ### Unified List of Priority Infrastructure Projects / Single Project Pipeline (SPP) - National Investment Commission (NIC), a high-level commission chaired by the Prime Minister, created in 2015 following EU recommendations; defines the Unified List of Priority Infrastructure projects (SPP) — candidate projects for IPAC funding. - SPP includes strategically significant projects contributing to national policy objectives for EU accession and socio-economic development; SPP only includes some projects within selected sectors. - Four Sector Working Groups (SWG) created for transport, energy, environment, and social activities (education, health, justice). - SWGs identify relevant infrastructure projects, complete Project Identification Forms, undertake Strategic Relevance Assessment (SRA), and create Sector Single Project Pipelines (SSPPs). - SSPPs sent to NIPAC office for consolidation and presented to NIC for SPP inclusion and funding consideration. - “Methodology for Selection and Prioritization of Infrastructure Projects” standardizes SPP creation and update. - NIPAC office with SWGs assesses completeness and divides projects into groups/subgroups by maturity: - Group 1 – Ready for tendering and investment realization - Group 1a – technical documentation prepared, ready for tender preparation or tendering. - Group 1b – preparation of technical documentation ongoing, ready for tendering when finished, or some final approvals/permits missing. - Group 2 – Ready for preparation of technical documentation - Group 2a – spatial planning documentation complete and no property-related issues. - Group 2b – spatial planning documentation completed and resolving of property-related issues ongoing or unresolved. - Group 2c – gaps in spatial planning documentation and resolving of property-related issues ongoing or unresolved. - SPP shared with the mission was endorsed by the NIC in July 2020 and includes 131 projects. - Some SPP entries are investment programs where individual project costs have not been estimated and strategic relevance assigned to the program, not individual projects. - Project appraisal studies are not required; most projects in the SPP do not have economic appraisals, which limits effectiveness of the selection process. - All projects in the SPP are classified in the two groups: currently 50 projects in Group 1 and 78 projects in Group 2. --- ### Appendix VIII. Common Elements of a Project Implementation Plan - The Project Implementation Plan is a document that sets key arrangements for implementation of an investment project, to be managed and monitored during implementation. - Non-comprehensive list of elements that should be contained in an implementation plan: - Description of Project Management Approach - Project category (Civil engineering, mining, energy, etc.) - Project status (Planning, development, appraisal, selection, or implementation) - Priority (Strategic priority) - Date project to be initiated. (Earliest date) - Date project to be completed. (Contractual completion date as well as expected completion date) - Operating and maintenance cost (Operating and maintenance cost for first 5-10 years after completion) - Scope statement (Description of the scope of the project) - Work breakdown structure (WBS) (Deliverable-oriented breakdown of a project into smaller components) - Cost-estimates scheduled start dates and responsibility assignment. - Performance measure baselines for schedules and cost - Major milestones and target dates for each milestone - Key staff requirement - Key risks and possible mitigations - Procurement plan --- ### Appendix IX. Overview of Legal Framework Related to PIMA Institutions - Table summarizes institutions, applicable Law/Guidelines, and comments. Key highlights: - MTFF: Law on Budget and Fiscal Responsibility (2014, last update in 2018), Section III Fiscal Policy and Responsibility. Art. 20 and 21 regulate public debt. Art. 24 on spending ceilings. Art. 29 requires that a 3-year fiscal ceiling be determined. - Planning: No legal framework. Decree on manner/procedure of drafting, harmonizing, and monitoring implementation of strategic documents. - Coordination between entities: Law on Budget and Fiscal Responsibility (2014, last update in 2018). Art. 27 sets fiscal rules for local administration bodies. Art. 35 requires municipal body obtain opinion of the MoF prior to adoption of municipal budget proposal. Art. 49 gives authority to Minister of Finance on municipal budgets. Art. 57 requires prior GoM consent, based on MoF proposal, for borrowing and guarantees by municipalities. Art. 64 requires spending units, municipalities, other public sector entities to submit financial report upon MoF order. Law on local self-government financing (2017) Articles 3, 4, 29, 36, 37, 38 and 62 related to capital investments and transfers from the state budget. - Project appraisal: Decision on drafting the capital budget and determining and evaluating criteria for selection of capital projects (2018 & 2021). Art. 12 regulates content of project proposal submissions. - Alternative infrastructure financing: Law about Companies (2020, update in 2021). Law on Public-Private Partnership (2019). Law on Public - Private Partnership and PPP bylaws. - Multiyear Budgeting: Law on Budget and Fiscal Responsibility (2014, last update in 2018). Article 30 requires budget users to submit to MoF expenditures for 3 years (budget+2). Article 34 reinforces the 1+2 framework and 36 requires that a 3-year overview of planned receipts and expenditures be submitted to parliament. Article 40 requires preapproval of MoF for assuming multiyear commitments. - Budget comprehensiveness and unity: LBFR (2014, last update in 2018) Articles 4 and 6 define budget contents and expenditures. - Budgeting for investment: LBFR Art. 45 regulates virements. Art. 47 prohibits reallocation of funds from the Capital Budget to the Current Budget and to the budgets of Funds. Decision on drafting the capital budget (2018 and 2021) Art. 20 prioritizes funding to projects being implemented; no need for revaluating. - Maintenance funding: No general legal framework. Mentioned as expenditure category to be included in the Budget (LBFR Art. 6). Roads Act (2004, last update in 2017) mentions maintenance in multiple articles. - Project selection: Decision on drafting the capital budget and determining and evaluating criteria for selection of capital projects (2018 and 2021) Articles 7 to 11 and 15 to 18; Methodology for Selection and Prioritization of Infrastructure Projects. - Procurement: Law on Public Procurement (2019) complemented by Rulebooks and Ordinances. - Availability of funding: LBFR (2014) Art. 71 (State treasury) ensures sufficient monetary funds remain in the Treasury Consolidated Account to pay planned liabilities in a timely manner. - Portfolio management and oversight: No legal framework. - Management of project implementation: Decision on drafting the capital budget and determining and evaluating criteria for selection of capital projects (2018 and 2021). Art. 19 requires quarterly reports on implementation of capital projects to be submitted to the MoF. - Monitoring of Public Assets: Law on Public Sector Accounting Art. 14 requires existence of a supporting book of non-financial assets. Art. 22 classifies assets including contingent. Art. 25 regulates depreciation of assets. --- ### Appendix X. Overview of PIM-Related IT Systems - Summary of institutions, systems, and comments. Key points: - MTFF: Budget Planning Management Information System (BMS), Debt management module — poor data about projects. - Planning: None. - Coordination between entities: Database about projects of municipalities; Database on budgets of SOEs; Operated by the Directorate for Self-governments and SOE — Does not include data about projects. - Project appraisal: None. - Alternative infrastructure financing: Register of PPP projects (https://mia.gov.me/public-private-partnership/#) — No projects registered; operated by the Montenegrin Investment Agency. - Multiyear Budgeting: Budget Planning Management Information System (BMS). - Budget comprehensiveness and unity: Budget Planning Management Information System (BMS); Budget split in current and capital. - Budgeting for investment: Budget Planning Management Information System (BMS). - Maintenance funding: Agency for transport system for management of maintenance. - Project selection: NIPAC database for the SPP; PIMIS being developed with IPA funding by the Public Investment Unit of MoF. - Procurement: CeJN (Crnogorske Elektronske Javne Nabavke) — e-procurement system implemented since 2018 with European Commission support, financed from IPA funds. - Availability of funding: Treasury uses SAP FMIS system. - Portfolio management and oversight: MoF FMIS — used for budget management by the SAI. - Management of project implementation: Public works IT system for project management — system needs improvements. Agency for Transport preparing a registry of projects to be completed by year end. - Monitoring of Public Assets: Asset Registry System (ARS) — operated by the Register of property; being populated. *Source: Appendix V–X, “Appendix V. Service Agreements for Project Implementation” (extracted content).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1mneea2022003.pdf_