## 1kosea2023003 - Preface ## Source details **Canonical URL:** [1kosea2023003 - Preface](https://www.imf.org/-/media/files/publications/cr/2023/english/1kosea2023003.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1kosea2023003.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1kosea2023003.pdf.json) --- ### Mission and scope - At the request of the Ministry of Finance, Labor and Transfers of Kosovo, a combined Public Investment Management Assessment Update and Climate PIMA was undertaken from May 17 to 30, 2023. - Mission leadership and team composition: - Team led by Ms. Michelle Stone. - Team members: Ms. Sagé De Clerck (FAD), Ms. Yasemin Hurcan (FAD Public Financial Management Regional Advisor for South East Europe), Mr. Taziona Chaponda, Mr. Willie Renier Du Preez and Thomas Ekeli (FAD short-term experts). - Contributors joining relevant meetings: Mr. Besart Myderrizi (Kosovo World Bank Office) and Mr. Carlos Lago Bouza (Procurement Specialist, World Bank). - Key government interlocutors included: Minister of Finance Mr. Hekuran Murati; Acting General Secretary at MoFLT Mr. Enis Spahiu; Budget Director Mr. Salvador Elmazi; acting Treasury Director Mr. Nysret Koca; senior staff from Budget Department, Economic Policy Department, and Treasury Department. - Other interlocutors: Ministry of Economy; Ministry of Environment, Spatial Planning and Infrastructure; Ministry of Industry, Entrepreneurship and Trade; Ministry of Education, Science, Technology and Innovation; Public Procurement Regulatory Commission; Procurement Review Body; Emergency Management Agency; National Audit Office (Mr. Bezad Halilaj, Deputy Auditor General); Municipality of Prishtina (Mr. Perparim Rama, Mayor); Chairs/CEOs/CFOs of Kosovo Energy Cooperation, Infrakos and Trainkos; Kosovo Chamber of Commerce. - Development partners consulted: European Union Office in Kosovo, Swiss State Secretariat for Economic Affairs, German Agency for International Cooperation, US Agency for International Development, European Bank for Reconstruction and Development and the World Bank. - Coordination acknowledged: Mr. Shqiptar Ibra (MoFLT); IMF Resident Representative for Kosovo Ms. Stephanie Eble and staff Mr. Selim Thaçi and Ms. Merita Kernja; interpreters Mr. Hyjnor Jasiqi, Mr. Ukshin Ahmetaj, and Mr. Arben Thaci. ### Executive summary — key findings - Infrastructure and capital stock: - Since independence in 2009, infrastructure investment levels have not been sufficient to maintain estimated capital stock relative to the size of the economy; capital stock remains low by regional standards. - Policy intent: - Government committed to boosting delivery of efficient infrastructure and transitioning to a lower carbon intensity economy, requiring significant infrastructure investment and climate resilience against floods, droughts and forest fires. - Efficiency and reform linkage: - Internationally comparable estimates suggest Kosovo has room to improve the efficiency of public investment. - Boosting efficiency is a goal under the Stand-by Arrangement and Resilience and Sustainability Facility agreed in May 2023. ### Overall PIMA assessment and trends - Institutional design versus effectiveness: - Since the initial 2015 assessment, overall institutional design has strengthened more than effectiveness in practice. - Updated PIMA highlights: - Stability in planning phase scores. - Modest increases in allocation and implementation stage scores. - Visible improvements: enhanced budget reporting on projects, costs and reasons for movements; aspects of asset management; expanded scope of ex-post audit to include capital projects. - Kosovo’s scores compare favourably with the average for European PIMAs to date. - EU accession path and development partner support have positively contributed to reforms; many 2015 PIMA recommendations have been implemented. - Gaps between design and effectiveness arise from recent reforms not fully in place or failure to follow required procedures. ### Major weaknesses and implementation challenges - Project appraisal and gatekeeping: - Key weakness: failure to undertake robust and consistent feasibility studies prior to project initiation. - Some feasibility studies exist to meet development partner requirements, but no consistent process requiring nationwide application, national expert review, and ownership of detailed design. - Consequence: technical aspects inadequately understood and verified prior to implementation; immature projects enter budget and cause delays and inefficiencies. - Need: robust gatekeeping to enforce project selection criteria introduced in 2019. - Climate integration: - Planning system (including National Development Plan and Strategy 2030) guides sector strategies and municipal inclusion, but mainstreaming of climate goals into infrastructure planning and delivery is incomplete. - Lack of Kosovo-specific data hampers quantified national climate goals, hazards assessment, and vulnerability mapping needed for planning and zoning guidance. - Positive developments: climate coverage in recently finalised PPP assessment manual; performance audits on flood preparedness and environmental efficiency programs; near-completion of a new national disaster risk management strategy. - Allocation and budgeting: - Strengths: comprehensive budget presentation and multi-year budgeting practices. - Weakness: absence of policies for routine and capital maintenance calculations, complicating support for long-term productive life of assets. - Project selection criteria exist administratively but can be bypassed; no single prioritized pipeline of appraised projects across funding sources. - Implementation and procurement: - Design stronger than performance; procurement process widely cited as a key implementation challenge — lengthy compliance times and difficulty using metrics other than price for contract award. - Project implementation arrangements exist but are constrained by availability of qualified staff. - Portfolio management practices to identify systemic issues across investment projects are not yet developed. ### PIMA institutional summaries (selected) - Planning (A) - Fiscal targets and rules: Design = HIGH. Effectiveness = HIGH. Reform priority = Low. - National and sectoral planning: Design = HIGH. Effectiveness = MEDIUM. Reform priority = Medium. - Coordination between entities: Design = HIGH. Effectiveness = MEDIUM. Reform priority = Low. - Project appraisal: Design = LOW. Effectiveness = LOW. Reform priority = High. - Alternative infrastructure financing: Design = MEDIUM. Effectiveness = LOW. Reform priority = High. - Allocation (B) - Multi-year budgeting: Design = HIGH. Effectiveness = MEDIUM. Reform priority = Low. - Budget comprehensiveness and unity: Design = HIGH. Effectiveness = HIGH. Reform priority = Low. - Budgeting for investment: Design = HIGH. Effectiveness = HIGH. Reform priority = Medium. - Maintenance funding: Design = LOW. Effectiveness = MEDIUM. Reform priority = Low. - Project selection: Design = MEDIUM. Effectiveness = LOW. Reform priority = High. - Implementation (C) - Procurement: Design = MEDIUM. Effectiveness = MEDIUM. Reform priority = High. - Availability of funding: Design = HIGH. Effectiveness = MEDIUM. Reform priority = Medium. - Portfolio management and oversight: Design = MEDIUM. Effectiveness = LOW. Reform priority = High. - Management of project implementation: Design = HIGH. Effectiveness = MEDIUM. Reform priority = Medium. - Monitoring of public assets: Design = MEDIUM. Effectiveness = MEDIUM. Reform priority = Low. ### Climate-PIMA institutional summaries (selected) - C1 Climate-aware planning: Institutional Strength = MEDIUM. Reform priority = High. - C2 Coordination between entities (climate perspective): Institutional Strength = LOW. Reform priority = Medium. - C3 Project appraisal and selection (climate aspects): Institutional Strength = LOW. Reform priority = High. - C4 Budgeting and portfolio management (climate): Institutional Strength = LOW. Reform priority = High. - C5 Risk management (climate-related fiscal risks): Institutional Strength = MEDIUM. Reform priority = Medium. ### High priority recommendations (selected, with responsible body and year) - Investment Planning - Strengthen project appraisal guidelines, methodologies and reflect these in updated PFM Law. Establish a central support function in the MoFLT to support conduct of high-quality appraisals. Responsible: MoFLT, 2024. - Establish a central project review function in MoFLT to provide expert review of project appraisals regardless of funding source. Responsible: MoFLT, 2024. - Investment Allocation - Improve the quality of project information in the PIP system. Responsible: MoFLT 2024. - Strengthen the review of the estimates for capital expenditure provided by budget organizations in the annual budget process to improve the accuracy and reliability of budget estimates for capital expenditure. Responsible: MoFLT 2024. - Investment Implementation - Finalize and adopt the new draft law on procurement. Responsible: MoFLT 2023. - Establish central monitoring of major projects covering all funding sources. Responsible: MoFLT 2024. - Climate sensitive public investment - Embed a climate perspective in the appraisal and selection of capital projects, including through amendments to the Administrative Instruction on project selection. Responsible: MoFLT with Office of Prime Minister + MoESPI – 2025. - Strengthen the linkages between the Climate Change Strategy and sectoral and spatial plans to inform public infrastructure investment. Responsible: MoESPI and MoFLT, 2024. ### Recommended institutional priorities and actions - Central MoFLT role: renewed focus on setting rules for project appraisal, establishing central capacity to review project appraisal, and reinforcing project selection process. - Central project management: establish/expand a team in MoFLT to manage donor-funded projects more actively and improve management and impact of all major projects while complementing implementing agencies’ accountability. - Climate mainstreaming: dedicated strategy and capacity building across MoFLT, MoESPI and implementing agencies to incorporate climate change in public investment decisions, appraisal and asset management. - Action planning: an action plan to support implementation of all recommendations is included at Annex 1. *Preface and Executive Summary from 1kosea2023003 - Preface (IMF Technical Report, mission May 17–30, 2023).* --- ### Fiscal context and recent fiscal performance - General government deficit and debt: - Since 2014 the general government deficit remained below 3 percent of GDP with the exception of 2020. - 2020 deficit peaked at 7.8 percent of GDP. - Government debt increased from 17.7 percent of GDP in 2019 to 22.5 percent in 2020, receding to an estimated 19.9 percent in 2022. - Reduction in debt after 2020 attributed to better-than-expected budget revenue performance and, in part, under execution of capital expenditure. - Fiscal levels characterized as within government fiscal targets and relatively low compared to other countries in the region. ### Trends in public investment and capital stock (key statistics) - Public investment as share of GDP: - Around 7 percent over 2014–2019. - Marked decline to an average of 4 percent of GDP for the remaining period under review. - Budget execution and capital spending: - Capital spending fluctuated around an average of 65 per cent of budgeted amounts over the past five years. - Capital spending below projections in Kosovo’s Medium-Term Expenditure Framework (MTEF) and budget, partly due to delays in procurement and challenges in contract execution. - Estimated public capital stock: - Downward trend in estimated public capital stock over the period under review. - Kosovo’s real public capital stock growth was negative on average during the 2014–2019 period. - Funding composition (four-year average and annual breakdown): - The total gross-fixed capital formation of the general government averaged 5 percent of GDP over the past four years. - Project grants and external borrowing approximately account for 18 percent of the capital formation on average. - Table: Kosovo: Funding of Public Investment (Percent of GDP) - 2019: Gross fixed capital formation 7.1; Funded by Project grants 0.1; External funding for projects 0.6; Domestic sources 6.4. - 2020: Gross fixed capital formation 4.9; Funded by Project grants 0.1; External funding for projects 0.9; Domestic sources 3.9. - 2021: Gross fixed capital formation 4.1; Funded by Project grants 0.2; External funding for projects 0.6; Domestic sources 3.3. - 2022: Gross fixed capital formation 3.4; Funded by Project grants 0.1; External funding for projects 1.1; Domestic sources 2.2. - Average over 4-years: Gross fixed capital formation 4.9; Funded by Project grants 0.1; External funding for projects 0.8; Domestic sources 4.0. - Municipal contribution: - Municipal capital expenditure estimated at 30 percent of total gross capital formation by the general government for 2022. - Municipal capital expenditure in 2022 equated to 1.1 percent of GDP, compared with an average of 1.3 percent of GDP in comparator countries. - POEs and PPPs: - Kosovo has not yet made extensive use of PPPs; only small PPPs completed to date. - POE sector small; MTEF 2024-2026 reports POEs made a negative contribution to investment with asset values declining by 4.5 percentage points from 20.0 percent of GDP in 2021 to 15.5 percent of GDP in 2022. ### Sector composition and access/quality - Sector shares: - Economic infrastructure accounts for nearly half of capital expenditure. - Social infrastructure accounts for around a quarter of all investment over 2018–2022. - The percentage of "other" investment spending in Kosovo is higher than in comparators. - Access and quality indicators: - 92 percent of the population has access to basic drinking water services. - Access to health infrastructure measured by hospital beds per 1,000 people: 5.0 beds in 2020 in Kosovo versus an average of 3.0 beds in EMEs. - Perceived quality of infrastructure has decreased in recent years. - Business Environment and Enterprise Performance Survey (2018-2020) identified electricity and transportation as big constraints to doing business in Kosovo. - Efficiency of public investment: - IMF physical indicator: physical efficiency gap estimated at 45 percent in the 2015 PIMA. - 2015 comparator regional gap estimated at 30 percent for Albania, Montenegro and North Macedonia. --- ### Planning institutions — project appraisal (Design: Low; Effectiveness: Low; Reform Priority: High) - Legal and procedural gaps: - No legal mandate requires appraisal of major projects. - PIP manual (2009) recommends cost-benefit analysis and feasibility studies if available, but does not set an appraisal threshold by project value nor make appraisals mandatory. - Administrative Instruction on Selection Criteria and Prioritization of Capital Projects (introduced 2018) requires risk analysis and encourages technical/economic studies, but is not binding. - No requirement for independent external review or publication of appraisals. - Central support for BOs to undertake project appraisal has not been established. - Practice: - Appraisals done for some IFI-funded projects, often without independent review; feasibility studies for domestically funded projects frequently missing from PIP. - Auditor General has highlighted shortcomings in the appraisal process. - Risk analysis is not regularly conducted. - Reform rationale and priority: - High priority to establish mandatory, consistent, and transparent appraisal requirements, thresholds, independent review, publication of appraisals, and central support mechanisms. ### Project selection (Design: Medium; Effectiveness: Low; Reform Priority: High) - Existing instruments and weaknesses: - Administrative Instruction 06/2019 sets selection criteria and a scoring template; projects should be input to PIP and receive independent opinion of Budget Department before progressing. - In practice, central review is inconsistent; projects without appraisal still enter the budget in the last quarter. - No single unified pipeline; pipelines fragmented by sector (transport, energy, environmental) and funding source. - Priority reforms (selected, with timing): - Establish a unified pipeline of major projects, regardless of funding source (MoFLT - 2024 – High). - Create a project flow chart describing gatekeeping levels where donors, MoFLT, the PPP Unit can have an input (MoFLT - 2025). - Make aspects of the Administrative Instruction mandatory (design completion, expropriation info, total costing, risk identification) and progressively strengthen PIP use (MoFLT, 2024–2025 – High). - MoFLT to robustly review BO estimates for capital expenditure in the annual budget process (MoFLT BD – High). --- ### Allocation institutions — Multi-year budgeting and budget comprehensiveness - Multi-year budgeting (Design: High; Effectiveness: Medium; Reform Priority: Low) - MTEF published in April with three-year projections; informs annual budget passed and published before 1 January. - Increasing alignment between aggregate spending ceilings and subsequent budget allocations: aggregate capital spending in annual budgets passed by the Assembly in 2021-2023 were on average within 4 percent of the projection for those individual years in the most recent MTEFs, and within 12 percent of the average projection for those individual years in the preceding MTEFs. - Persistent and significant gap between capital spending appropriated and actual spending realized; MTEF 2024-2026 identifies under-execution (especially borrowing projects) as a fiscal risk and cites causes (land ownership disputes, court appeals, procurement inefficiencies, lack of controls over multi-year commitments, delays in external loans, lack of preparation/documentation/market analysis, contract cancellations due to price increases since 2021). - Budget comprehensiveness and unity (Design: High; Effectiveness: High; Reform priority: Low) - LPFMA Article 2 requires all public money be subject to budgetary scrutiny; capital expenditure presented in the annual budget law is comprehensive and includes own resources, project grants, and external borrowing (through investment clause). - Missing financing channel in budget documentation: limited POE investment financed from own revenue resources (disclosure recommended). ### Budgeting for investment and protection of capital expenditure - Legal requirements (LPFMA): - Article 19 (e): MTEF includes analysis of capital investment trends. - Article 21 (d, iv): budget must include estimates for upcoming fiscal year and at least two following fiscal years, with expenditure to date and total project cost. - Article 23: for capital projects approved by the Assembly, minister should ensure funding and appropriations adequate to timely finance these capital projects. - Article 30: transfer and reallocation of budget appropriations rules (Table 3.2): - Cumulative amount < 5 % — BOs decide (no approval by the Finance Minister, excepted for wages and salaries) - Cumulative amount < 15 % — Approval of the Minister of Finance required - Cumulative amount from 15 % to 25 % — Authorization of the Minister of Finance required after written approval by Government - Cumulative amount > 25 % — Authorization of the Minister of Finance required after written approval by Assembly - Identified weaknesses and recommendations: - Capital outlays vulnerable to reallocation to current spending; misclassification of current expenditure as capital occurred (EUR 10.2 million or 78 percent of total misclassifications recorded in 2021; misclassifications represent 0.4 percent of total payments). - Recommendations: strengthen virement rules, protect funding for ongoing capital projects while maintaining flexibility to move funds between capital projects, and ensure correct classification per international accounting standards. ### Maintenance funding (Design: Low; Effectiveness: Medium; Reform Priority: Low) - Findings: - No standard methodology for estimating routine maintenance or major improvements; routine maintenance not required to be identified in the Budget Law. - Regulation 02/2013 and AI 04/2019 provide distinctions between capital improvements and maintenance. - In practice: roads have a standard methodology; routine maintenance amounts included within goods and services in KFMIS and Annual Financial Report reports routine maintenance and major improvements separately. - Recommendations: - Develop standard methodologies to calculate routine maintenance and capital improvement needs and separately report maintenance resources in the Budget. --- ### Implementation institutions — Procurement and Availability of Funding - Procurement (Design: Medium; Effectiveness: Medium; Reform Priority: High) - Legal framework: Law on Public Procurement (Law No 04/L-042); e-procurement mandatory since 2019. - Complaint handling: Procurement Review Body timelines — four days for clarification; expert 10 days to review; Body 34 days to conclude; complex cases +20 days; subsequent complaints can reset the clock. - Practice and weaknesses: - Data 2018-2022: most contracts followed procedures; less than 5 percent of contracts lacked published contract notice. - Compliance with e-procurement increasing by around 10 percentage points a year; estimated compliance currently around 60 percent. - Very high rate of contract award to the lowest price bidder: 99.0 percent of all public contracts. - Lack of reference pricing, backlog and delays in Procurement Review Body, and design flaws in complaint process. - Recommended measures (selected): - Delineate various types of standard contracts; streamline complaint processes; establish reference price register; evaluate realism of bids before award; refrain from allocating bids as principle to the lowest bidder; continue training procurement officers; implement FIDIC/NEC contracts for major civil works; revise complaint procedures to ensure timely resolution. - Availability of funding (Design: High; Effectiveness: Medium; Reform Priority: High) - Cash management and TSA: - Regulation No. 06/2014 requires cash flow forecasts but no specified framework; Regulation No. 01/2022 includes provisions for timely release of funds. - LPFMA Article 38.3: in event of cash shortages, lowest priority to payments for capital expenditures. - TSA held at Central Bank of Kosovo covers development partners’ bank accounts related to externally funded projects and grants. - Practice and indicators: - High TSA balance (around 3.5 percent of GDP) means no delay at payment stage. - Treasury plans to reintroduce cash-flow forecasting. - Unpaid obligations (accounts payable > 30 days) for general government: - 2022: EUR 36 million - 2021: EUR 89 million - 2020: EUR 196 million - Recommendations: - Reintroduce cash flow forecasting (quarterly focus), review fund allocation mechanism changes, and address earlier-stage process challenges through further automation. --- ### Portfolio management, implementation, and asset monitoring - Portfolio management and oversight (Design: Medium; Effectiveness: Low; Reform Priority: High) - Legal/reporting: - Budget Law Article 17.4: BOs must use PIP to report within three weeks from end of each quarter on physical and financial progress of capital projects with total value over EUR 1 million. - Practice shortcomings: - Quarterly reports lack detail and forward-looking analysis; example environmental sector report 90 percent financial with limited physical progress data. - Limited evidence that reported information is analyzed for strategic decision-making; re-allocation used to accelerate specific projects. - Priority reforms: - Develop a portfolio monitoring function; produce detailed summary table of all major projects; conduct ex-post reviews; establish central monitoring and quarterly monitoring supported by a database (MoFLT - High). - Management of project implementation (Design: High; Effectiveness: Medium; Reform priority: Medium) - Legal framework: - Law on Procurement Article 81 describes required Contract Management Activities and project management teams. - Rules limit contract adjustments to a 10 percent increase of original contract price unless exceptional authorization. - Ex-post audits required by Auditor General; audited institution must submit action plan within 30 days. - Practice and shortcomings: - Most major projects have monitoring officials but shortage of skilled personnel; multiple projects often allocated to one project manager. - Variation order process extremely cumbersome (example process can take 2-3 months vs 7-10 days under international contracts). - National Audit Office produced 128 performance audit reports since 2011; typically six to eight performance audits per year; about half of its audit recommendations are implemented. - Recommendations: - Ongoing training for project managers; strengthen upstream processes to reduce implementation delays. - Monitoring of public assets (Design: Medium; Effectiveness: Medium; Reform priority: Low) - Practices: - Asset registers and Annexes to Annual Financial Report report asset values and depreciation (cash-basis financial statements; depreciation disclosed in Annexes). - Depreciation method: linear; useful life ranges from 40 years (residential/non-residential properties and other structures) to 3 years (IT equipment); land not depreciated. - Some under- and over-reporting identified in Audit report on Annual Financial Report 2021. - Table 3.4 — Kosovo: Reporting on Capital and Non-Capital Non-financial assets 2021 (selected figures) - Capital Assets over EUR 1 000 - Central level: Value in Annual Financial Statements 2,968.6; Value according to audits 2,894.5; Overstatement / Understatement 74.1; Percentage of Total Assets in Annual Financial Statements 2.5 - Local level: Value in Annual Financial Statements 6,161.5; Value according to audits 6,149.9; Overstatement / Understatement 11.5; Percentage of Total Assets in Annual Financial Statements 0.2 - Capital Assets under EUR 1000 - Central level: Value in Annual Financial Statements 33.1; Value according to audits 34.0; Overstatement / Understatement -0.9; Percentage of Total Assets in Annual Financial Statements 2.7 - Local level: Value in Annual Financial Statements 21.7; Value according to audits 22.9; Overstatement / Understatement -1.2; Percentage of Total Assets in Annual Financial Statements 5.5 - Total Assets: Value in Annual Financial Statements 9,184.9; Value according to audits 9,101.4; Overstatement / Understatement 83.5; Percentage of Total Assets in Annual Financial Statements 0.9 - Recommendations: - Develop general and sector-specific guidance on asset management and reporting (MoFLT Treasury – Low); develop manual for integrated reporting and valuation; consider minimum threshold for non-capital assets; strengthen link between spending and asset valuation. --- ### Climate-PIMA — findings, risks, and recommendations - Climate exposure and projections: - Western Balkans temperatures have risen in last fifty years; warming projected higher than world average. - Annual flow reductions in region’s rivers projected up to 15 percent for 2°C warming and up to 45 percent in a 4°C world. - Kosovo’s main natural hazards: earthquakes, floods and forest fires; additional risks: landslides, drought, heavy snowfall and water reservoir dam bursts. - Heavy rainfall in 2013, 2014, 2016, 2021 and 2023 caused floods and damage; flood costs 2013-2016 estimated at over EUR 4 million and 2021 estimated to exceed EUR 1 million. - Kosovo climate objectives and data: - GHG inventory: annual emissions amounted to 9.613 million tons CO2-equivalents in 2019. - Main source: energy sector with a share of 86 percent. - Kosovo’s voluntary NDC target: reduce greenhouse gas emissions by 8.95 Mt CO2e by 2030 — a reduction of approximately 16.3% compared to 2016 levels. - Climate Change Strategy 2019-2028 set qualitative objectives but no numerical national sectoral emission targets. - Strategy and institutional framework progress: - Energy Strategy 2022-2031: - Target to reduce GHG emissions from the energy sector by 32 percent by 2031 (from 6 316 million tons CO2-equivalents in 2019). - Target for share of renewable energy to increase to at least 35 percent in 2031 (from 6.3 percent in 2019). - Commitment to have preparations in place by 2025 for introducing a carbon pricing system and phasing out subsidies for fossil fuels. - NCCC established 2022; Climate Change Secretariat supports Council; draft Law on Climate Change designates MoESPI as lead agency. - Climate-PIMA detailed assessments (selected) - C1 Climate-aware planning (Design: Medium; Reform Priority: High) - Public investment strategies increasingly consider mitigation/adaptation but Climate Change Strategy lacks quantitative targets; data gaps hinder planning and costing. - Recommendations: mainstream national climate goals into national, sectoral and spatial plans; develop guidance, training, and a handbook on climate resilience for project preparation (MoFLT/MoESPI/OPM timing noted). - C2 Coordination (Design: Low; Reform Priority: Medium) - Coordination exists but lacks focus on infrastructure and cross-level integration; MoFLT budget guidelines do not refer to climate change; no climate tagging/tracking in budget process. - Recommendation: strengthen coordination across central and subnational levels; consider climate tagging in parallel to gender tagging. - C3 Project appraisal and selection (Design: Low; Reform Priority: High) - Project appraisal procedures do not require climate-related analysis; Environmental Impact Assessment required but not climate-specific analysis. - Recommendations: update Administrative Instruction and PIP Manual to include climate considerations and give weight to climate resilience; prepare/publish handbook and provide training; MoFLT/OPM/MoESPI targeted by 2025 (High). - C4 Budgeting and portfolio management (Design: Low; Reform Priority: High) - Current budget documents do not explicitly identify planned climate-related public investment; no ex-post reviews or audits focused on climate outcomes. - Recommendations: present spending on climate investment in budget documents (e.g., chapter in budget statements); incorporate climate tagging into Budget Department systems; fill data gaps (KSA/OPM/MoESPI/MoFLT – 2024, Medium). - C5 Risk management (Design: Medium; Reform Priority: Medium) - Kosovo developing a new national disaster risk management strategy; contingency appropriation exists but no ex-ante financing mechanism or fiscal risk analysis that incorporates climate-related risks. - Recommendations: complete national disaster risk management strategy; undertake macro-fiscal climate risk assessment and publish climate-related fiscal risk analysis in fiscal risks statement (MoFLT – 2025, Medium); consider strengthening contingency appropriation or additional financing mechanisms. ### Cross-cutting climate recommendations - Strengthen linkages between Climate Change Strategy and sectoral/spatial plans to inform public infrastructure investment. - Strengthen legal framework for public and private investments in renewable energy generation. - Complete national disaster risk management strategy for implementation roadmap and resource mobilization (EMA). - Develop training plan to strengthen capacity and awareness on climate aspects of public investment management (Ministry of Environment, MoFLT, Ministry of Economy). - Develop and publish guidance, templates, and standardized methodologies for climate-related project appraisal, selection, budgeting, portfolio management, asset management, and fiscal risk analysis. --- ### Legal framework, IT systems, data quality and capacity constraints - Legal and regulatory mapping (selected) - Key laws include: Law No. 03/L-048 on Public Financial Management and Accountability (LPFMA); Law No. 04/L-042 on Public Procurement; Law No. 03/L-087 on Publicly Owned Enterprises; PPP law L03/L-090; Law No. 04/L-027 for Protection against Natural and other Disasters; Law No. 04/L-174 on Spatial Planning; Law No. 05/L-101 on Energy Performance of Buildings; Law No. 08/L-181 on Environmental Impact Assessment. - Observed legal gaps: no law/regulation governing appraisal process; selection processes governed only by Administrative Instruction; planned reforms include new Law on Procurement, new PPP Law and energy sector regulatory framework. - Major IT systems (functions and issues) - KFMIS (FreeBalance): general ledger, asset management module recording assets above EUR 1,000; needs multi-year commitments functionality. - PIP system: IT system and SQL database covering full project cycle; functionality underutilized — incomplete information, hardly any cost-benefit analyses or feasibility documents uploaded. - BDMS: used for budget planning, updated for MTEF; reform work to link BDMS, PIP and KFMIS. - TSA: central bank accounts including externally funded project accounts. - E-procurement: mandatory e-procurement managed by Public Procurement Regulatory Commission; work to integrate e-procurement with KFMIS. - Data quality and performance assessment - PEFA 2022 ratings: Budget classification A; Quality of financial reports A; Performance Information for Service Delivery D+; Budget Documentation D. - Recommendations: MoFLT should implement quality control checks of PIP data; enforce minimum information and analysis requirements in PIP and exclude non-compliant BOs/projects from MTEF pipeline. - Capacity constraints and human resources - High staff turnover, delays in filling positions, limited technical capacity in BOs affect investment efficiency. - Two laws adopted December 2022: Law on Public Officials and Law on Public Wages — effects yet to be seen. - Proposed central Project Implementation Unit (PIU) for externally funded projects could risk fragmenting support if not designed to build capacity for domestically financed projects. - Training needs are substantial and largely dependent on external funding; “young cell scheme” scholarship program effective but retention challenge due to public-private pay gap. - Key recommended cross-cutting actions - Enact planned new laws and consider legislating appraisal and selection processes. - Complete interoperability and integration of PIP, BDMS, KFMIS and e-procurement; add KFMIS functionality for multi-year commitments; automate invoice capture. - MoFLT to implement quality control checks on PIP data and undertake robust review of BO capital expenditure estimates. - Expand in-house training capacity; develop training road map; design PIU to balance IFI and domestic project support and build capacity across BOs. - Staff and empower NCCC and Secretariat; operationalize National Greenhouse Gas Inventory System via KEPA and train contributing BOs. *IMF Technical Report (excerpts provided in content unit 1kosea2023003).* _Italic source attribution: Preface and Executive Summary from 1kosea2023003 - Preface (IMF Technical Report, mission May 17–30, 2023)_. ### Preface _____________________________________________________________________________ 5 ### 1kosea2023003 - Preface ### Mission and scope - At the request of the Ministry of Finance, Labor and Transfers of Kosovo, a combined Public Investment Management Assessment Update and Climate PIMA was undertaken from May 17 to 30, 2023. - The mission team was led by Ms. Michelle Stone and comprised Ms. Sagé De Clerck (FAD), Ms. Yasemin Hurcan (FAD Public Financial Management Regional Advisor for South East Europe), Mr. Taziona Chaponda, Mr. Willie Renier Du Preez and. Thomas Ekeli (FAD short-term experts). Mr. Besart Myderrizi from the Kosovo World Bank Office and Mr. Carlos Lago Bouza, Procurement Specialist, World Bank, joined some relevant meetings. - Key government meetings included: Mr. Hekuran Murati, Minister of Finance; Mr. Enis Spahiu, Acting General Secretary at MoFLT; Mr. Salvador Elmazi, Budget Director; Mr. Nysret Koca, acting Treasury Director; and senior staff from Budget Department, Economic Policy Department, and Treasury Department. - Other interlocutors: Ministry of Economy; Ministry of Environment, Spatial Planning and Infrastructure; Ministry of Industry, Entrepreneurship and Trade; Ministry of Education, Science, Technology and Innovation; Public Procurement Regulatory Commission; Procurement Review Body; Emergency Management Agency; National Audit Office (Mr. Bezad Halilaj, Deputy Auditor General); Municipality of Prishtina (Mr. Perparim Rama, Mayor); Chairs of Boards/Chief Executive Officers/Chief Financial Officers from Kosovo Energy Cooperation, Infrakos and Trainkos; Kosovo Chamber of Commerce. - Development partners consulted included: European Union Office in Kosovo, Swiss State Secretariat for Economic Affairs, German Agency for International Cooperation, US Agency for International Development, European Bank for Reconstruction and Development and the World Bank. - The FAD team thanked the Government of Kosovo for cooperation and noted coordination by Mr. Shqiptar Ibra (MoFLT). The team also acknowledged IMF Resident Representative for Kosovo, Ms. Stephanie Eble, and staff Mr. Selim Thaçi and Ms. Merita Kernja, and interpreters Mr. Hyjnor Jasiqi, Mr. Ukshin Ahmetaj, and Mr. Arben Thaci. ### Executive summary — key findings - Infrastructure has been central to Kosovo’s emergence; post-war needs required rapid rebuilding. Since independence in 2009, infrastructure investment levels have not been sufficient to maintain estimated capital stock relative to the size of the economy; capital stock remains low by regional standards. - Government is committed to boosting delivery of efficient infrastructure and transitioning to a lower carbon intensity economy, requiring significant infrastructure investment and climate resilience against floods, droughts and forest fires. - Internationally comparable estimates suggest Kosovo has room to improve the efficiency of public investment. Boosting efficiency is a goal under the Stand-by Arrangement and Resilience and Sustainability Facility agreed in May 2023. ### Overall PIMA assessment and trends - Since the initial 2015 assessment, the overall strength of Kosovo’s public investment management institutions has increased; institutional design is stronger than effectiveness in practice. - Updated PIMA shows: - Stability in planning phase scores. - Modest increases in allocation and implementation stage scores. - Visible improvements: enhanced budget reporting on projects, costs and reasons for movements; aspects of asset management; expanded scope of ex-post audit to include capital projects. - Kosovo’s scores compare favourably with the average for European PIMAs to date. - EU accession path and development partner support have positively contributed to reforms; many 2015 PIMA recommendations have been implemented. - Gaps between design and effectiveness arise from recent reforms not fully in place or failure to follow required procedures. ### Major weaknesses and implementation challenges - Project appraisal and gatekeeping: - Key weakness: failure to undertake robust and consistent feasibility studies prior to project initiation. - Some feasibility studies exist to meet development partner requirements, but no consistent process requiring nationwide application, national expert review, and ownership of detailed design. - Consequence: technical aspects inadequately understood and verified prior to implementation; immature projects enter budget and cause delays and inefficiencies. - Need: robust gatekeeping to enforce project selection criteria introduced in 2019. - Climate integration: - Planning system (including National Development Plan and Strategy 2030) guides sector strategies and municipal inclusion, but mainstreaming of climate goals into infrastructure planning and delivery is incomplete. - Lack of Kosovo-specific data hampers quantified national climate goals, hazards assessment, and vulnerability mapping needed for planning and zoning guidance. - Positive developments: climate coverage in recently finalised PPP assessment manual; performance audits on flood preparedness and environmental efficiency programs; near-completion of a new national disaster risk management strategy. - Allocation and budgeting: - Strengths: comprehensive budget presentation and multi-year budgeting practices. - Weakness: absence of policies for routine and capital maintenance calculations, complicating support for long-term productive life of assets. - Project selection criteria exist administratively but can be bypassed; no single prioritized pipeline of appraised projects across funding sources. - Implementation and procurement: - Design stronger than performance; procurement process widely cited as a key implementation challenge — lengthy compliance times and difficulty using metrics other than price for contract award. - Project implementation arrangements exist but are constrained by availability of qualified staff. - Portfolio management practices to identify systemic issues across investment projects are not yet developed. ### PIMA institutional summaries (Table 1 highlights) - Planning (A) - Fiscal targets and rules: Design = HIGH. Effectiveness = HIGH. Reform priority = Low. - National and sectoral planning: Design = HIGH. Effectiveness = MEDIUM. Reform priority = Medium. - Coordination between entities: Design = HIGH. Effectiveness = MEDIUM. Reform priority = Low. - Project appraisal: Design = LOW. Effectiveness = LOW. Reform priority = High. - Alternative infrastructure financing: Design = MEDIUM. Effectiveness = LOW. Reform priority = High. - Allocation (B) - Multi-year budgeting: Design = HIGH. Effectiveness = MEDIUM. Reform priority = Low. - Budget comprehensiveness and unity: Design = HIGH. Effectiveness = HIGH. Reform priority = Low. - Budgeting for investment: Design = HIGH. Effectiveness = HIGH. Reform priority = Medium. - Maintenance funding: Design = LOW. Effectiveness = MEDIUM. Reform priority = Low. - Project selection: Design = MEDIUM. Effectiveness = LOW. Reform priority = High. - Implementation (C) - Procurement: Design = MEDIUM. Effectiveness = MEDIUM. Reform priority = High. - Availability of funding: Design = HIGH. Effectiveness = MEDIUM. Reform priority = Medium. - Portfolio management and oversight: Design = MEDIUM. Effectiveness = LOW. Reform priority = High. - Management of project implementation: Design = HIGH. Effectiveness = MEDIUM. Reform priority = Medium. - Monitoring of public assets: Design = MEDIUM. Effectiveness = MEDIUM. Reform priority = Low. ### Climate-PIMA institutional summaries (Table 2 highlights) - C1 Climate-aware planning: Institutional Strength = MEDIUM. Reform priority = High. - C2 Coordination between entities (climate perspective): Institutional Strength = LOW. Reform priority = Medium. - C3 Project appraisal and selection (climate aspects): Institutional Strength = LOW. Reform priority = High. - C4 Budgeting and portfolio management (climate): Institutional Strength = LOW. Reform priority = High. - C5 Risk management (climate-related fiscal risks): Institutional Strength = MEDIUM. Reform priority = Medium. ### High priority recommendations (Table 3) - Investment Planning - Strengthen project appraisal guidelines, methodologies and reflect these in updated PFM Law. Establish a central support function in the MoFLT to support conduct of high-quality appraisals. Responsible: MoFLT, 2024. - Establish a central project review function in MoFLT to provide expert review of project appraisals regardless of funding source. Responsible: MoFLT, 2024. - Investment Allocation - Improve the quality of project information in the PIP system. Responsible: MoFLT 2024. - Strengthen the review of the estimates for capital expenditure provided by budget organizations in the annual budget process to improve the accuracy and reliability of budget estimates for capital expenditure. Responsible: MoFLT 2024. - Investment Implementation - Finalize and adopt the new draft law on procurement. Responsible: MoFLT 2023. - Establish central monitoring of major projects covering all funding sources. Responsible: MoFLT 2024. - Climate sensitive public investment - Embed a climate perspective in the appraisal and selection of capital projects, including through amendments to the Administrative Instruction on project selection. Responsible: MoFLT with Office of Prime Minister+ MoESPI – 2025. - Strengthen the linkages between the Climate Change Strategy and sectoral and spatial plans to inform public infrastructure investment. Responsible: MoESPI and MoFLT, 2024. ### Recommended institutional priorities and actions - Central MoFLT role: renewed focus on setting rules for project appraisal, establishing central capacity to review project appraisal, and reinforcing project selection process. - Central project management: Kosovo plans to establish a team in MoFLT to manage donor-funded projects more actively; recommend expanding this function to improve management and impact of all major projects while complementing implementing agencies’ accountability. - Climate mainstreaming: dedicated strategy and capacity building across MoFLT, MoESPI and implementing agencies to incorporate climate change in public investment decisions, appraisal and asset management. - Action planning: an action plan to support implementation of all recommendations is included at Annex 1. _Italic source attribution: Preface and Executive Summary from 1kosea2023003 - Preface (IMF Technical Report, mission May 17–30, 2023)_. ### 1. Public investment in Kosovo occurs in a fiscal environment where the general government ### 1. Public investment in Kosovo occurs in a fiscal environment where the general government ### Fiscal context and recent fiscal performance - Since 2014 the general government deficit (covering central and municipal governments) remained below 3 percent of GDP with the exception of 2020. - In 2020 the deficit peaked at 7.8 percent of GDP before immediately bouncing back to the longer-term average in subsequent years. - Government debt increased from 17.7 percent of GDP in 2019 to 22.5 percent in 2020, receding to an estimated 19.9 percent in 2022. - The reduction in debt after 2020 is attributed to better-than-expected performance of budget revenue and, in part, under execution of capital expenditure. - These levels are characterized as well within government fiscal targets and relatively low compared to other countries in the region. ### Trends in public investment and capital stock - Public investment as share of GDP: - Broadly stable at around 7 percent over 2014–2019. - Marked decline to an average of 4 percent of GDP for the remaining period under review. - Budget execution and capital spending: - Capital spending fluctuated around an average of 65 per cent of budgeted amounts over the past five years. - Capital spending has been below projections in Kosovo’s Medium-Term Expenditure Framework (MTEF) and budget, in part due to delays in procurement and challenges in contract execution. - Estimated public capital stock: - Downward trend in estimated public capital stock over the period under review. - Kosovo’s real public capital stock growth was negative on average during the 2014–2019 period. - Relationship with government debt: - The trend in the general government debt to GDP ratio displays a somewhat inverse relationship to the estimated capital stock to GDP ratio, suggesting capital investment is unlikely a large contributor to government debt. - Capital investments financed from grants from international organizations likely contribute to this trend. ### Composition and financing of public investment - Overall funding composition: - The total gross-fixed capital formation of the general government averaged 5 percent of GDP over the past four years. - Of this, project grants and external borrowing approximately account for 18 percent of the capital formation on average. - Table: Kosovo: Funding of Public Investment (Percent of GDP) - 2019: Gross fixed capital formation 7.1; Funded by Project grants 0.1; External funding for projects 0.6; Domestic sources 6.4. - 2020: Gross fixed capital formation 4.9; Funded by Project grants 0.1; External funding for projects 0.9; Domestic sources 3.9. - 2021: Gross fixed capital formation 4.1; Funded by Project grants 0.2; External funding for projects 0.6; Domestic sources 3.3. - 2022: Gross fixed capital formation 3.4; Funded by Project grants 0.1; External funding for projects 1.1; Domestic sources 2.2. - Average over 4-years: Gross fixed capital formation 4.9; Funded by Project grants 0.1; External funding for projects 0.8; Domestic sources 4.0. - External support and EU role: - EU support has largely been provided under Instruments for Pre-Accession, initially focused on reconstruction and more recently shifted towards institution building. - The EU’s Western Balkans Investment Framework, launched in 2021, will support sustainable infrastructure investments in energy and transport. - Municipal contribution: - Capital expenditure of municipal governments was estimated to be 30 percent of the total gross capital formation by the general government for 2022. - Municipal capital expenditure in 2022 equated to 1.1 percent of GDP, compared with an average of 1.3 percent of GDP in comparator countries. - PPPs and POEs: - Kosovo has not yet made extensive use of Public-Private Partnerships (PPPs); only small PPPs have been completed to date. - The POE sector is small; MTEF 2024-2026 reports POEs made a negative contribution to investment with asset values declining by 4.5 percentage points from 20.0 percent of GDP reported in 2021 to 15.5 percent of GDP in 2022. ### Sector composition of investment - Economic infrastructure and social infrastructure shares: - Economic infrastructure accounts for nearly half of capital expenditure. - Economic infrastructure and social-related capital together accounted for around half of Kosovo’s capital investment between 2018 and 2022. - Social infrastructure accounts for around a quarter of all investment over the period. - The percentage of "other" investment spending in Kosovo is higher than in comparators. - Definitions: - Economic infrastructure includes roads, bridges, airports, dams, etc. - Social infrastructure includes hospitals, schools, social housing, recreation, and culture. - Other infrastructure assets include economic affairs, public order, social protection, general services and environmental protection. ### Access, quality, and efficiency of public infrastructure - Access indicators (relative to peers and EMEs): - Kosovo has lower access to education infrastructure and electricity infrastructure compared to the average of emerging market economies (EMEs) and Emerging and Developing Europe. - 92 percent of the population has access to basic drinking water services, which is lower than the average level of access in EMEs. - Kosovo’s access to health infrastructure (measured by hospital beds per 1,000 people) was 5.0 beds in 2020, compared to an average of 3.0 beds in EMEs. - Perceived quality and business constraints: - Perceived quality of infrastructure in Kosovo has decreased in recent years. - The Business Environment and Enterprise Performance Survey (2018-2020) shows electricity and transportation were identified as big constraints to doing business in Kosovo, ahead of access to finance. - Social outcomes: students scored the lowest in the region on PISA scores and less than the international average. - Efficiency of public investment: - The IMF’s physical indicator for public infrastructure efficiency suggests Kosovo has not significantly changed its physical investment efficiency since the 2015 PIMA. - The physical efficiency gap was estimated at 45 percent in the 2015 PIMA, meaning approximately 45 percent of the value of public infrastructure investment is lost through inefficiencies in the investment process compared to the most efficient comparable country on the efficiency frontier. - The 2015 PIMA noted Kosovo’s efficiency gap was larger than regional comparators (Albania, Montenegro and North Macedonia) who were estimated to have an efficiency gap of 30 percent. ### Public Investment Management Assessment (PIMA) framework and Kosovo’s assessment - PIMA framework overview: - The 2018 PIMA framework includes 15 "institutions" involved in three major stages of the public investment cycle: planning, allocation, and delivery of public assets. - For each institution, three indicators are analyzed and scored on institutional design and effectiveness; scores are high, medium, or low. - Reform priority is discussed for each institution. - Kosovo 2023 PIMA findings: - Kosovo’s PIMA update scores are markedly stronger in terms of design compared to effectiveness. - Key design strengths: fiscal targets and rules; national and sectoral planning; coordination; budget comprehensiveness; budgeting for investment; availability of funding; and project implementation. - Significant weaknesses: project appraisal and project selection in both design and effectiveness. - Overall, Kosovo generally scores more highly than the average of European PIMAs to date on institutional design; effectiveness scores for planning and implementation phases are weaker than the European averages, while effectiveness for the allocation phase exceeds the European average. - Changes since 2015: - Kosovo has made significant improvements in public investment management since the 2015 PIMA, including implementation of some 2015 recommendations. - On institutional design, five of the fifteen institutions had sufficiently large changes to alter the overall institution score. - On effectiveness, six scores improved and two declined. - One institution (appraisal) declined in part due to refinement and specification of the PIMA assessment methodology during 2018–2022 rather than substantive performance deterioration. _Italic: Source: IMF Technical Report content unit 1kosea2023003 (excerpts provided)_. ### 1. Fiscal Targets and Rules (Design: High; Effectiveness: High; Reform Priority: Low) ### 1. Fiscal Targets and Rules (Design: High; Effectiveness: High; Reform Priority: Low) ### Overview of institutional scores (selected) - A. Planning - Fiscal principles or rules: HIGH (Effectiveness: MEDIUM TO HIGH). Budgetary developments have stayed within fiscal rules in recent years. - National and sectoral plans: HIGH (Effectiveness: LOW to MEDIUM). NDP has been published and sector strategies are being published on a rolling basis. - Coordination between entities: MEDIUM to HIGH (Effectiveness: MEDIUM). Fiscal risk management improved; budget documents now include contingent liabilities. - Project appraisal: MEDIUM to LOW (Effectiveness: MEDIUM to LOW). Appraisals are rarely required or done and feasibility studies only for some internationally funded projects. - Alternative infrastructure financing: MEDIUM (Effectiveness: MEDIUM to LOW). Effectiveness is weak due to limited penetration of private competition to POEs and through PPPs. - B. Allocation - Multi-year budgeting: MEDIUM to HIGH (Effectiveness: LOW to MEDIUM). Closer alignment of budget ceilings with approved budget; published budget now includes costs for all projects; MTEF explains major project developments. - Budget comprehensiveness and unity: HIGH (Effectiveness: MEDIUM to HIGH). All capital spending of Budget Organisations is undertaken through the budget; PPP investments not included are relatively small concession arrangements. - Budgeting for investment: LOW to HIGH (Effectiveness: MEDIUM to HIGH). Budget documents now distinguish ongoing and new projects and include total project costs; contractual contracts are now protected against reallocations. - Maintenance funding: LOW (Effectiveness: MEDIUM). - Project selection: MEDIUM (Effectiveness: LOW). - C. Implementation - Procurement: MEDIUM (Effectiveness: LOW to MEDIUM). - Availability of funding: MEDIUM to HIGH (Effectiveness: MEDIUM). Treasury single account system includes all externally funded projects' bank accounts and budget organization bank accounts related to grants. - Portfolio management and oversight: MEDIUM (Effectiveness: LOW). - Project implementation: MEDIUM to HIGH (Effectiveness: MEDIUM). Project management arrangements now include management teams, arrangements for adjustments and ex-post audits. - Management of public assets: MEDIUM (Effectiveness: MEDIUM). ### Fiscal rules, MTEF, and budget practice — key findings - Fiscal rules in Kosovo: - Debt rule: general government gross debt limited to 40 percent of GDP. - Deficit rule: general government deficit ceiling of 2 percent of GDP, with an “investment clause” that creates additional space for capital projects financed by donors or privatization proceeds. - Limitation of the increase of the wage bill tied to the previous year’s nominal GDP growth. - Investment clause safeguards and conditions: - Any excessive deficit should be corrected within the next three fiscal years so that the average deficit over the four-year period equals 2 percent. - The fiscal rule may be temporarily suspended for events such as an economic recession (defined when nominal tax revenues are equal to or lower than the tax revenues collected during the same period of prior fiscal year, excluding the impact of policies and one-off tax revenues), natural disasters, a crisis in the banking system, and the call of state guarantees. - The investment clause can only be invoked if the targeted deficit is below 2 percent of GDP; the government’s bank balances are above 4.5 percent of GDP; and public debt does not exceed 30 percent of GDP (in which case, only projects financed by privatization receipts would be exempted). - The investment clause includes a sunset clause of 10 years (from 2015), after which the exemption of donor-funded capital expenditures will expire. - The ministry must submit to parliament semi-annual reports on all new donor-funded projects that qualify under the investment clause, detailing the rationale, expected costs, and financing items. - Medium-Term Fiscal Framework (MTEF) and budget timing: - The MTEF is published in April and has projections of revenues, capital spending and recurrent spending for each ministry, budget organization (BO), program and municipality over a three-year period. - The MTEF informs preparation of the annual budget, which is passed by the Assembly and published before the start of the budget year on 1 January. - Since 2019, the MTEF includes explanations of key factors behind changes of forecasts for a budget year relative to previous forecasts, and explanations for deviations between actual spending outcomes and forecasts. - Performance relative to rules and budget execution: - Government debt and budget balances have moved in accordance with the fiscal rules. - After a large deficit in 2020 related to COVID, fiscal balances have recovered and are set to be in line with the fiscal rule provisions. - MTEF revenue and spending projections are broadly in line with the subsequent budget; budgeted revenues and recurrent spending are reasonably consistent with actual outcomes in recent years. - Persistent shortfall: Actual capital spending has a notable and persistent shortfall relative to budget allocations. ### Identified gaps and recommended improvements (policy implications) - MTEF enhancements: - Consider including in the MTEF an analysis of the fiscal space available for new capital projects after considering existing obligations tied to ongoing projects and other spending. - Strengthening public investment planning: - Build on the positive fiscal framework to further improve fiscal planning through the MTEF and the budget process to support development of public infrastructure investments. - Addressing execution shortfalls: - Investigate deeper causes of weak capital investment budget execution, given persistent under-execution of capital allocations despite improved planning instruments. - Maintain fiscal rule safeguards and transparency: - Continue semi-annual parliamentary reporting for donor-funded projects that qualify under the investment clause and ensure adherence to the clause’s safeguards. ### National and sectoral planning — key findings - National Development Strategy and Plan (NDP) 2030: - The NDP 2030 was approved and published in March 2023. - NDP2030 consists of two parts: long-term vision (SKDH 2030) and a second part defining strategic measures, result indicators and proposed actions for three upcoming years. - Organized around four pillars: Extends sustainable economic development; Equitable human development; Security and rule of law; Good governance. - Eleven development goals (including goal 2: “quality sustainable and integrated infrastructure”; goal 3: “clean environment and efficient use of natural resources”). - Each development goal has indicators and targets for the medium term (2026) and for 2030. - The Financing section presents the MTEF 2022 – 2025 but does not identify major projects or spending drivers; these are found in sector strategies. - Sector strategies and action plans: - Sector strategies are being prepared on a rolling basis; so far four sector strategies have been tabled (health, education, energy, transport). - Over the next few years, up to 30 sector strategies will be prepared based on NDP 2030. - Costing of key projects is provided for in Action Plans for each sector. - Strengths and weaknesses: - The NDP2030 forms the basis for national and municipal planning and is distilled into an annual “statement of priorities” in the MTEF. - Institutional framework: Strategic Planning Committee (Office of the Prime Minister) and Sector Working Groups; serves as the National Investment Committee involved in the Single Project Pipeline (SPP). - Gaps: Timing lag in sector strategy preparation limits detailed inputs to the medium-term budgeting process; with only four sector strategies available there is still lack of detailed information to inform the budget process and MTEF. ### Coordination between central government and municipalities — key findings and recommendations - Design features and formal mechanisms: - Kosovo budget includes both central government and municipalities; municipal capital projects are published alongside central government investments. - Municipalities formally discuss their budget proposal and alignment with government strategic plans. - Transparent formula for general grants and parameters for special grants in legal framework for fiscal transfers; municipalities are notified about expected transfers for three years after Grants Commission meetings in April. - Budget circulars: first issued in May with initial estimates of transfers; second in July with final budget expenditure ceilings. Municipalities present draft budgets by August 31 and approve by September 30. - Contingent liabilities from municipal capital projects and POEs are required to be reported and published per LPFMA Article 21; debt stock figures include guarantees and are disclosed in quarterly debt reports and the MTEF. - Practical weaknesses: - Coordination mechanisms are only partially effective; municipalities often prepare, adopt and execute own-resource funded projects without strong central guidance. - No standard methodology from central government for estimating routine maintenance or major asset improvements; routine maintenance not required to be identified in the budget. - Many municipalities lack costing techniques to prepare complete medium-term fiscal implications of investment plans, particularly current spending linked to investment projects. - Some parameters for the general grant calculation are outdated (e.g., 2011 census data) until new census data becomes available later in 2023. - Own-source revenue funded capital projects are appropriated after proceeds are transferred to the treasury single account and registered in KFMIS, causing delays in implementation. - Contingent liabilities of municipal governments’ PPP projects are not included in budget reports because there are no liabilities to be reported; only three infrastructure PPPs exist (one airport at central level, two at municipality level) and no government guarantees are provided for these PPP contracts. - Recommendations: - Provide municipalities with improved technical guidance on project costing and capital budgeting. - Strengthen structures to monitor and report risks from municipal PPPs as PPP interest grows. ### Project appraisal — key findings and reform priority - Status and design: - Institution score: Design: Low; Effectiveness: Low; Reform Priority: High. - No legal mandate requires appraisal of major projects. - PIP manual (2009) recommends cost-benefit analysis and feasibility studies if available, and establishes a standard methodology for cost-benefit analysis, but does not set an appraisal threshold by project value nor make appraisals mandatory. - The PIP system includes a spreadsheet for cost-benefit analysis and feasibility studies which, if completed, should be uploaded. - Major projects funded by IFIs are required to undergo technical, economic, and financial analysis per IFI requirements. - Risk analysis is required in the Administrative Instruction on Selection Criteria and Prioritization of Capital Projects (introduced 2018) and it encourages technical and economic studies, but this is not binding. - No independent external review of project appraisals is required, and there is no requirement that appraisals be published. - Central support for Budget Organisations or others undertaking project appraisal has not been established. - Implication: - Weak and inconsistent appraisal practices hinder prioritization of projects and understanding of benefits, costs and risks, contributing to suboptimal selection and execution of public investment projects. - Reform priority: - High — establish mandatory, consistent, and transparent appraisal requirements, thresholds, independent review, publication of appraisals, and central support mechanisms to improve project selection and prioritization. *Source: IMF Technical Report (extract).* ### 33. In practice, appraisals are done for some IFI-funded projects, but without independent ### 33. In practice, appraisals are done for some IFI-funded projects, but without independent ### Appraisal practices and shortcomings - Appraisals are performed for some IFI-funded projects but are done without independent review and risks are not generally considered in the appraisal process. - In the roads sector, major road projects are subject to pre-feasibility and feasibility studies conducted by private consultants in accordance with best international practices for IFI-funded projects; these studies are not conducted for projects with domestic funding. - Where studies are done, there is no independent technical review of the appraisal analysis. - The feasibility studies produced are not published. - Ministries report appraisal methodologies vary by funding source of the project and are not unified. - The Auditor General has highlighted shortcomings in the appraisal process. - The PIP system has not been effective in capturing cost-benefit analysis or attached feasibility study information; no examples of completed feasibility reports could be found in the PIP for domestically funded projects (these are sometimes provided directly to budget analysts in MoFLT). - Risk analysis is not regularly conducted. ### Reform rationale and priority - Strengthening project appraisal is characterized as a high priority reform. - Appraisal is critical to ensure projects reach necessary maturity for implementation, minimize likelihood of additional costs later, and ensure selection decisions are based on sound information. - Consistent appraisals with greater scrutiny for the largest and most economically significant projects are recommended to ensure alignment with national priorities and Kosovo’s needs. ### Project complexity and oversight (Box 3.2) - Governments typically apply more oversight and rigorous requirements for larger and more complex public investment projects. - Factors determining enhanced scrutiny include: complexity/novelty, project cost, multi-year development/construction, multiple stakeholders, and transformational/large population impact. - Qualifying projects may be subject to more rigorous appraisal requirements and closer oversight during approval and implementation to focus skilled resources where they achieve the most impact. - Source: Mission. ### Alternative Infrastructure Financing (Design: Medium; Effectiveness: Low; Reform Priority: High) - Multiple channels for public infrastructure exist beyond the government budget, including private sector financing and delivery, supported by competition in network infrastructure. - Legal and institutional framework: - POEs are incorporated as joint-stock companies subject to company law. - Law on Publicly Owned Enterprises established an SOE Monitoring Unit in the Ministry of Economy overseeing 17 POEs and sets high standards for financial disclosure. - Four independent regulators oversee economic infrastructure; Kosovo Competition Authority (established since 2008) can investigate and sanction anti-trust infringements. - PPPs and concessions have a law passed in 2009 supported by five recent directives; PPP Central Department established in MOF in 2010 supports PPP legal framework. - A new manual on evaluation of PPPs clarifies project types supported and procurement process; no separate PPP policy exists. - In practice: - POEs dominate infrastructure supply, limiting private investment; PPPs play a small role more than a decade after the PPP law. - Government does not systematically review POE investment plans; POEs submit business plans to sector ministries for information only and without detailed feasibility studies or analysis. - Once a POE Board approves a business plan, government engagement centers on financing prioritized projects. - Operational performance of most POEs has not markedly improved; service delivery outcomes remain below regional averages. - Sector notes: - Energy sector: unbundling and third-party access are almost fully aligned with international good practice; phasing out the Wholesale Supply Agreement is seen as essential to allow tariffs reflective of market dynamics. - Rail: progress in opening the railway market and unbundling rail monopolies, though private operator entry has been limited; RailTrans Transport and Logistics entered in 2014 but poor network quality limited attractiveness. - Regulatory action: regulatory bodies in energy and transport should consider tariff structures that support greater market entry; Energy Regulatory Office still needs to implement retail electricity market liberalization. - Institutional capacity: - Central PPP Department capacity should be strengthened; it has experienced considerable staff turnover. - Proposed new PPP law may streamline approvals for smaller projects, but capacity to prepare projects (including at municipal level) is equally important. ### Example: 100-MW solar farm in Kosovo (Box 3.3) - 2018: Kosovo simplified administrative procedure for renewable energy projects and created a one-stop shop for Renewable Energy Sources. - 2023 auction process for a solar power plant in Kramovik: - Government issued a contract notice in May 2023 for investors to build and operate a solar power plant on public land. - Location capacity determined for 95 MW to 105 MW in connection capacity. - Government intended to award a 15-year power purchase agreement (PPA) under its first competitive procedure for the Kramovik location. - Under the contract, the land will be leased out for at least 30 years by the selected bidder. - The selected company will have two years to build the facility. - Auction is characterized as the first of its kind in Kosovo and signals intent to increase renewable energy supply in line with the new energy sector strategy. - An administrative instruction was issued as a transitional mechanism while finalizing a more permanent mechanism; expected to fall under a new Law on Renewable Energy being developed. - Source: Balkan Green Energy News; Energy Sector meeting with Authorities. ### Recommendations on Investment Planning (selected) - Issue: A strategic discussion about the room for new capital spending is not part of the MTEF. - Recommendation: Strengthen MTEF-analysis of fiscal space for new capital projects (MoFLT, 2024 – Low). - Action: As part of the preparation of the April MTEF, analyze fiscal space available for new capital projects after considering obligations tied to ongoing projects and other expenditures and include scope for new projects in the report. - Issue: Project appraisals are not consistently done for major projects across funding sources. - Recommendation: Strengthen project appraisal guidelines, methodologies (MoFLT, 2024 – High). - Determine thresholds for small, medium, and large/major projects to guide project development and oversight. - Determine required appraisal methodology and procedures for each type of project and reflect these in an updated PIP manual. - Underpin the appraisal process in the updated PFM Law. - Recommendation: Establish a central support function in the MoFLT to ensure high-quality appraisals. (MoFLT, 2024 – High) - Issue: No central review of project appraisals to ensure projects are robust, consistent, nationally owned, and ready for funding decisions; a proposal to establish a project implementation unit for foreign funded projects in MOF was recently approved but may fragment project development by funding source. - Recommendation: Establish a central review function in MoFLT for project appraisal regardless of funding source (MoFLT, 2024 – High). ### Multi-year Budgeting (Design: High; Effectiveness: Medium; Reform Priority: Low) - Multiyear budgeting provides forward visibility and longer-term funding guidance; major public investment projects are multi-year and lumpy. - Kosovo prepares a rolling medium-term expenditure framework (MTEF) presented to the Assembly in April and published on the MoFLT’s website; it includes projections of capital spending by ministry, BO and program over three years, disaggregated by funding source. - The MTEF gives rise to indicative multiyear ceilings on capital expenditure by ministry and BO in the annual budget circular. - Annual budget submission to the Assembly publishes projections of total capital project costs for all projects, separating new and ongoing projects, showing accumulated costs until the budget year, costs for the budget year, and an annual breakdown for the next three years based on the MTEF. - The budget law has a binding allocation for the budget year; projections are for information. - There is increasing alignment between aggregate spending ceilings and subsequent budget allocations in recent years: - Example: aggregate capital spending in annual budgets passed by the Assembly in 2021-2023 were on average within 4 percent of the projection for those individual years in the most recent MTEFs, and within 12 percent of the average projection for those individual years in the preceding MTEFs. This compares with around 10 and 15 percent, respectively, in the previous three-year period. - Persistent issues: - Significant and persistent gap between capital spending appropriated in a budget year and actual spending realized. - Large variations in budget efficiency between programs and ministries. - The MTEF 2024-2026 identifies under-execution of capital projects (especially borrowing projects) as a fiscal risk and cites delays due to land ownership disputes, court appeals, inefficiencies in procurement, lack of controls over multi-year commitments, delays in external loans, lack of proper preparation/documentation/market analysis, and contract cancellations due to significant price increases since 2021. - The MTEF includes narrative explanations for deviations and an “investment clause” implementation report; the latest MTEF included 40 projects. ### Budget Comprehensiveness and Unity (Design: High; Effectiveness: High; Reform priority: Low) - Comprehensive budget information is required for effective legislative assessment; capital expenditure should not be excluded via extra-budgetary entities. - LPFMA, Article 2 requires all public money be subject to budgetary scrutiny; budget is prepared by MoFLT and finances of all BOs (revenue, current and capital expenditure, and financing) must be integrated in the Budget Law. - Capital expenditure presented in the annual budget law is comprehensive and includes own resources, project grants, and external borrowing (through the investment clause). - Current and capital budgets are required to be presented according to program and sub-program classifications. - In practice, requirements are followed and present a comprehensive picture of capital spending. - The only financing channel missing in budget documentation is limited POE investment financed from own revenue sources. - Existing PPP arrangements are relatively small service concession arrangements where the private sector assumed all risks for capital assets; these investments are not reported in the budget. ### Notes on budget preparation and coverage (Box 3.4) - The annual budget law is prepared by the Budget Department of the MoFLT in consultation with BOs and includes 90 BOs, of which 58 are central government units and the remainder are municipalities. - Capital budgets are presented by BOs, program, and sub-program; all investment spending of extra-budgetary entities is included. - Capital projects are presented in schedules distinguishing central government projects financed from own resources, financed from project borrowing through the investment clause, and capital expenditure of municipalities. - Ministry of Economy budget includes transfers to POEs for financing capital projects under subsidies and transfers; these transfers are subject to approval by the Inter-Ministerial Committee for POEs and are made only after signing a Memorandum of Understanding that sets out criteria for spending of transfers dedicated to capital projects. - Source: Mission team. *Source: IMF | Technical Report (excerpts provided in content unit 1kosea2023003).* ### 46. Two minor additions to the budget could further enhance the comprehensiveness of ### Two minor additions to the budget could further enhance the comprehensiveness of reporting capital projects in the budget. ### Enhancing budget reporting for capital projects - Recommendation: For POEs, disclose the nature of their capital projects, how they complement general government investments, and POEs contribution to investment spending from own revenue resources to provide a more comprehensive picture of public investment in Kosovo. - Recommendation: Add information on PPP investment activities and their implications for the budget, using international guidelines on the reporting of these PPPs. - Rationale: POEs act independently and their capital projects will not be approved or appropriated in the budget process, so disclosure (not appropriation) is the proposed mechanism for comprehensiveness. *Source: IMF | Technical Report* ### Budgeting for Investment (Design: High; Effectiveness: High; Reform priority: Medium) - Finding: Since capital projects are typically implemented over multiple years, the legislature should be provided with information on: - costs already incurred; - costs for the immediate budget year as well as for the medium-term; - total costs estimates for the full duration of the project implementation. - Legal requirements (LPFMA): - Article 19 (e): the MTEF includes an analysis of capital investment trends over the medium-term. - Article 21 (d, iv): the budget must include estimates for the upcoming fiscal year and at least the two following fiscal years, presented alongside information on expenditure to date and the total cost of each project. - Article 23: for capital projects approved by the Assembly, the minister should ensure that funding and appropriations are adequate to timely finance these capital projects—i.e., the law requires that it gets the highest priority under current and future Kosovo Budget and Appropriation Laws. - Article 30: conditions and limits for the transfer and reallocation of budget appropriations within BOs (see Table 3.2). - Table 3.2 transfer rules (as stated): - Cumulative amount < 5 % — BOs decide (no approval by the Finance Minister, excepted for wages and salaries) - Cumulative amount < 15 % — Approval of the Minister of Finance required - Cumulative amount from 15 % to 25 % — Authorization of the Minister of Finance required after written approval by Government - Cumulative amount > 25 % — Authorization of the Minister of Finance required after written approval by Assembly - Practice: - Capital expenditure is appropriated on an annual basis; medium term and total project costs are disclosed; ongoing projects are protected, but some in-year transfers are allowed. - Schedules of the Annual Budget Law present: (i) cost of ongoing projects so far; (ii) estimate for the budget year; (iii) estimated cost annually over the medium term; (iv) estimated costs foreseen for the aggregated time beyond the medium-term; and (v) current estimate for the total expected project cost. - Contractual obligations for ongoing projects receive priority before determining fiscal space for new projects; projects not yet in a contractual stage are vulnerable to transfers within BOs. - During the last quarter of the financial year, resources can be transferred from projects not contracted to projects needing additional resources or to current expenditure needs. - Misclassifying current expenditure as capital frequently occurs though the aggregate size of such errors is less than 0.4 percent of total expenditure. ### Identified weaknesses and recommendations to protect capital expenditure - Finding: Capital outlays are vulnerable due to some reallocation and transfer practices; the budget for capital expenditure is not specifically protected and reallocation from capital to current expenditure occurs often. - Finding: According to the 2021 National Audit Office report, capital investment was the category most often affected by misclassifications: EUR 10.2 million or 78 percent of the total misclassifications recorded in 2021; misclassifications represent only 0.4 per cent of all payments made. - Recommendation: Strengthen virement rules and ensure correct classifications of capital and current expenditure. - Recommendation: Protect funding for ongoing capital projects so they are not applied to fund expenses of a current nature while maintaining flexibility to move funds between capital projects to enhance execution. - Recommendation: Ensure only payments for items that directly contribute to the value of government assets are included in capital expenditure; apply international accounting standards, the Government Finance Statistics Manual 2014, and the European System of Accounts. ### Maintenance Funding (Design: Low, Effectiveness: Medium, Reform Priority: Low) - Finding: Infrastructure cannot deliver intended benefits if not properly maintained; it is important to know maintenance needs and asset condition and to ensure rehabilitation is factored into public investment plans in a timely manner. - Finding: No standard methodology exists for estimating routine maintenance or major improvements of assets; routine maintenance is not required to be identified in the budget. - Legal and regulatory context: - LPFMA, Article 43.3: BOs must maintain records on all assets under their control. - Regulation 02/2013 on the Management of Non-Financial Assets: establishes a Register of Non-Financial Assets and distinguishes improvements (capital) from maintenance (not capital). - Article 15 of the regulation: improvements include expenditure that (i) increase the physical product or service capacity of the asset; (ii) reduce operating costs of the asset; and (iii) improve the quality of production of the asset. - Administrative Instruction 04/2019: defines capital projects and distinguishes capital expenditure from current expenses. - Practice: - All non-financial assets are subject to annual verification to establish quality and physical condition. - For roads, a standard methodology exists to determine maintenance and rehabilitation needs; a specific sub-program in the budget identifies road maintenance needs under capital expenditure. - Routine maintenance amounts are included within goods and services reported in the budget and are available in KFMIS even if not separately identified in the Budget Law. - The Annual Financial Report separately reports routine maintenance and major improvements and contains an Annex with recommended implementation plans where maintenance needs fell behind. - Recommendation: Provide sufficient resources for maintenance activities supported by guidelines for management and maintenance of asset types. - Recommendation: Develop standard methodologies to calculate routine maintenance and capital improvement needs and separately report maintenance resources needed in the Budget. ### Project selection (Design: Medium, Effectiveness: Low, Reform Priority: High) - Finding: Project selection is key to ensure well prepared investment projects are selected; ad-hoc selection reduces total net benefits of the government investment portfolio. - Finding: There are instructions and institutions for project selection and MoFLT scrutiny, but no single project pipeline exists; current pipelines are fragmented by sector and focused on IFI-funded projects. - Existing procedures: - Projects must have a budget allocation and to be in the MTEF they must be in the Strategy of the Ministry. - Administrative Instructions require Budget Department scrutiny and establish a scoring template to rank projects. - Three different project pipelines cover transport, energy and environmental sectors; all projects should be fully appraised to enter these pipelines. - PPP Projects are required to follow the same selection process. - Box 3.5 summary (Administrative Instruction 06/2019 on selection criteria and prioritizing of capital projects): - Assessment commences with technical review of strategic importance, financial and economic assessment as well as readiness for implementation. - BOs are required to input data to the PIP. - No proposed capital project can progress without the independent opinion of the Budget Department about implementation of requirements of this Administrative Instruction. - Key criteria award points to projects and create a priority list based on these points during the budget process. - Practice challenges: - Central review is inconsistent; some projects without any appraisal still enter the budget during the last quarter. - Integrity and quality of data in the PIP System vary greatly. - The Budget Department has recently started to scrutinize projects and has returned proposals to line ministries for improvement; its advice to Ministers is not binding. - Reform priorities and recommendations (with responsible body and timing when specified): - Establish a unified pipeline of major projects, regardless of funding source and across all sectors (MoFLT -2024 – High). - Create a single process for prioritization of major capital projects, irrespective of funding source. [2024, MoFLT]. - Establish a project flow chart describing gatekeeping levels where donors, MoFLT, the PPP Unit can have an input. [2025, MoFLT]. - Improve project quality and information (MoFLT, 2024 and 2025 – High). - Review the Administrative Instruction on selection of capital projects and make aspects mandatory (e.g., completion of design, expropriation information, total costing, risk identification and mitigation). - Progressively strengthen use of the PIP system throughout the public investment cycle and link compliance to budget approvals. - Improve review and protection of capital expenditure estimates and maintenance methodologies: - MoFLT to undertake a robust review of the estimates for capital expenditure provided by BOs in the annual budget process to improve accuracy and reliability of budget estimates for capital expenditure (MoFLT BD – High). - Further strengthen identification and protection of investment expenditure (MoFLT – Medium). - Restrict in-year budget transfers from capital to current expenditure by strengthening the virement rule in the annual budget and the LPFMA (MoFLT - Medium). - Develop standard methodologies to calculate routine maintenance and capital improvement needs and separately report maintenance resources needed in the Budget. ### Investment Implementation — Procurement (Design: Medium; Effectiveness: Medium; Reform Priority: High) - Finding: Public procurement is strategic for infrastructure and service delivery; technology and independent complaint review mechanisms support transparency and better outcomes. - Legal and institutional framework: - Law on Public Procurement requires open and transparent procurement for major capital projects, monitoring of procurement processes, and transparent complaint handling. - All contracting authorities must utilize the e-procurement system established in 2016 and made mandatory in 2019. - Responsibilities assigned to the Public Procurement Regulatory Commission (policy, monitoring, supervision, manages e-procurement). - Article 98 establishes the Procurement Review Body with specified timelines for complaint processing: four days for clarification; an expert has 10 days to review; the Body has 34 days to conclude and publish its decision; in complex cases, another 20 days can be allowed. Subsequent complaints can reset the clock and extend the process. - Practice and weaknesses: - Data for 2018-2022: most contracts followed prescribed procedures; less than 5 percent of contracts were not subject to publication of a contract notice. - Compliance with the e-procurement system is increasing by around 10 percentage points a year, with estimated compliance currently of around 60 percent. - Very high rate of contract award to the lowest price bidder: 99.0 percent of all public contracts, reflecting a perception that procuring agencies must accept the lowest bidder irrespective of realism. - Lack of reference pricing hampers bid analysis. - Statistical reviews are conducted annually and mistakes by contracting authorities are published, but procurement data analysis for management could be enhanced. - The Procurement Review Body’s review of complaints is often a cause of procurement delays and is ineffective due to design flaws and backlog from lack of timely appointment of members. *Source: IMF | Technical Report* ### 62. Procurement is a high reform priority. Properly delineating various types of standard contracts ### 1kosea2023003 - 62. Procurement is a high reform priority. Properly delineating various types of standard contracts ### Procurement reform (Design: implied; Reform Priority: High) - Procurement is a high reform priority. - Recommended measures to improve procurement outcomes and timelines: - Properly delineate various types of standard contracts. - Streamline the complaint processes. - Establish a register for reference prices. - Evaluate the realism of bids before allocating them. - Refrain from allocating bids as a principle to the lowest bidder. - Continue training of procurement officers (urgent requirement). - Implement the FIDIC/ NEC contracts for major civil works contracts as soon as possible to eliminate the time-consuming variation order approval process. - Revise complaint procedures to ensure timely resolution of complaints. - Expected effects: These measures could eliminate many problems in the system and further enhance project execution. ### 12. Availability of Funding (Design: High; Effectiveness: Medium; Reform Priority: High) - Institutional focus: assess systems, processes, and tools to ensure availability of liquid resources (cash or equivalent in bank accounts) to make payments for public investments. - Legal and procedural framework: - Regulation No. 06/2014 requires preparing cash flow forecasts, but does not specify a cash forecasting framework; as such a framework for at least quarterly cash flow forecasts is not in place. - Regulation No. 01/2022 includes provisions to ensure timely release of funds in line with annual appropriations. Allocations of funds for capital expenditures is based on the BOs quarterly commitment and monthly cash plans and allocated at the beginning of fiscal year on a quarterly basis for the four quarters. - LPFMA sets a deadline of 30 days for BOs to prepare payment order after they receive invoices, and the Treasury makes the payments without a delay. - LPFMA, Article 38.3: in the event of cash shortages due to an unforeseen shortfall in revenue, the General Director of the Treasury with the Approval of the Minister shall give lowest priority to payments for capital expenditures. - Kosovo has a TSA held at the Central Bank of Kosovo covering development partners’ bank accounts related to externally funded projects and grants. - Practice and indicators: - Despite lack of an adequate cash flow forecasting and planning framework, there is no delay in capital outlays at the payment stage due to the high TSA balance (around 3.5 percent of GDP). - BOs confirmed no difficulty with availability of funding at the payment stage. - The Treasury intends to reintroduce cash-flow forecasting. - Cash releases are in line with appropriations but challenges undermine efficiency of budget execution and timely delivery of capital expenditures as well as delivery of other goods and services of BOs (Annex 7). - 2022 annual financial statement indicates timely payment of total invoices including capital expenditures has improved since 2020. - Unpaid obligations (accounts payable) for more than 30 days for general government for 2022 is EUR 36 million while the amounts for 2021 and 2020 were EUR 89 and EUR 196 million, respectively. - Recommendations: - Reintroduce cash flow forecasting (focusing on estimation of future cash inflows and outflows). - Review recent changes in fund allocation mechanism. - Address challenges in earlier stages of the expenditure cycle through further automation to make arrangements more robust. ### 13. Portfolio Management and Oversight (Design: Medium; Effectiveness: Low; Reform Priority: High) - Rationale: Portfolio management of major projects supports efficiency in public investment and achievement of policy objectives by monitoring time, budget, and risks across the whole portfolio. - Legal framework and reporting: - Article 17.4 of the Budget Law: all BOs must use the PIP system to report to the Budget Department in MoFLT within three weeks from the end of each quarter on physical and financial progress of capital projects with total value over EUR 1 million. Reports are per BO and do not cover the total portfolio or POEs. - Article 16 of the Budget Act provides rules for re-allocation of funds between projects. - Administrative Instructions on Transfer and Reallocation of Budget Appropriation Procedures describe re-allocation process and provide templates. - Section 11 of the PIP Manual indicates how BO and MoFLT users can generate management and monitoring reports. - Practice and shortcomings: - Quarterly reports to the Budget Department lack detail and limited learning from project implementation is shared. - Example: in the quarterly report for Environmental Sector, 90 percent of the information is financial reporting with limited physical progress information. - Limited evidence that reported information is analyzed for strategic decision-making beyond identifying opportunities to transfer funds. - Forward-looking monitoring to inform strategic management of the portfolio of major projects is not taking place. - Re-allocation of funds is used to accelerate execution of particular projects. - Priority reforms: - Develop a portfolio monitoring function to improve aggregated public investment management. - Consider ex-post reviews as an intrinsic part of the investment life cycle and use findings to enhance investment governance. - Produce a detailed summary table of all major projects including all critical information to enable top management to identify critical projects, act urgently to resolve risks, and prevent delays and additional cost. - Box 3.6 (good practice examples): references to Infrastructure Australia, United Kingdom Infrastructure and Projects Authority, and Ireland reforms illustrating post-completion reviews, ex-post evaluation, quarterly monitoring, annual reporting, and governance/risk management adjustments. - Table 3.3: provides an indicative quarterly project monitoring template (fields include Approved budget; Revised budget; Contractual completion date; Revised completion date; % time lapsed at reporting date; % budget spent at reporting date; % progress at reporting date; % planned progress at reporting date; Variation orders approved; Value of approved variations; New or changed risks; Mitigation steps; Action required at higher authority level). ### 14. Management of Project Implementation (Design: High; Effectiveness: Medium; Reform priority: Medium) - Importance: Effective management of time, money, and quality during implementation is required to realize full benefits of public investment; roles, expectations, project scope and regular independent audits are important. - Legal framework: - Article 81 of the Law on Procurement describes required Contract Management Activities and project management teams and requires project implementation plans (Box 3.7). - Rules and Operational Guideline for Public Procurement: project adjustments defined; no contract adjustment shall increase the total contract price by more than ten percent of the original contract price. If the 10 percent rule is exceeded, negotiated procedures without publication may be used. - Ex-post audits required by the law of the Auditor General; audited institution must submit an action plan within 30 days of report publication. - Contract Management Plan must include (Box 3.7): - Project management teams; Frequent review of the contract; Protocols for handover and commissioned equipment; Regular dialogue with the Contractor; Use of correct quality standards; Management of payments/claims; Complaint procedures; Control remedies specified in the Contract; Performance security for defects/corrections. - Names of officers; Contracting Authority responsible; The supervising qualified resident engineer; Number/categories of assisting personnel; External recruited technical experts; A time schedule or a project plan Gantt chart; Diagrams on contract management activities covering duration of the contract. - Practice and shortcomings: - Most major projects have project monitoring officials, but there is a lack of skilled and experienced personnel and multiple projects are often allocated to one project manager. - Numerous shortcomings identified in the National Audit Office Annual Report 2021 (summarized in Box 3.8). - The existing variation order process is extremely cumbersome; example process described by Ministry of Environment, Spatial Planning, and Infrastructure can take 2-3 months (typically 7-10 days under international contracts such as FIDIC). - Challenges also arise from procurement issues and lack of proper project planning and appraisal, contributing to slower-than-expected project execution. - National Audit Office: has conducted and published 128 performance audit reports since 2011; typically conducts six to eight performance audit reports per year and seeks to increase this number; estimates about half of its audit recommendations are implemented; for some high-value capital projects, audits are conducted during implementation to provide recommendations before completion. - Recommendation: - Ongoing support and adequate training for project managers to improve effectiveness; strengthening upstream processes will reduce negative impacts on implementation. ### 15. Monitoring of Public Assets (Design: Medium; Effectiveness: Medium; Reform priority: Low) - Rationale: Information on stock of assets, value, and condition informs future public investment needs; monitoring public assets should be integral to the investment cycle. - Legal and regulatory requirements: - Article 43.3 of the LPFMA requires the Minister of Finance to maintain accounting records for each BO that includes information on their assets. - Regulation 02/2013 on the management of non-financial assets requires both a Register of Non-Financial Capital Assets and a Register of Non-financial Non-Capital assets be maintained. - The regulation requires establishment of a Non-financial Asset Evaluation Commission by the Chief Administrative Officer of the BO to evaluate non-financial assets. - The regulation requires the Chief Administrative Officer to adopt internal rules and procedures on recording, preserving, and disposing of non-financial assets. - The regulation determines classes of assets and respective depreciation rates and the type of information the asset register needs to contain. - The Non-financial Asset Evaluation Commission is required to annually prepare an inventory of all non-financial assets owned and controlled by the BO, assess physical and qualitative condition, revalue assets where needed, and identify assets to be decommissioned or disposed of. - Note on classification: - Distinction between Capital Assets and Non-Capital Assets is based on value: Capital Assets = assets of a value of more than EUR 1,000; Non-Capital Assets = assets of less than EUR 1,000 in value. *Source: IMF | Technical Report (excerpts from 1kosea2023003 - 62. and related sections).* ### 77. The total value of assets per BO are reported in Annexes to the Annual Financial Report ### The total value of assets per BO are reported in Annexes to the Annual Financial Report ### Asset valuation, recognition, and reporting practices - The total value of assets per BO are reported in Annexes to the Annual Financial Report based on asset registers and depreciation follows international practices. - The Annexes include opening balances, depreciation, and net value at the end of the period, with further detail included in the individual financial reports of BOs. - The assets are not recognized in the balance sheet of government since the financial statements are prepared on the cash basis of accounting. - Depreciation is not recognized in the operating statement but only disclosed in the Annexes. - Depreciation is calculated on a linear method taking into account the useful life of the assets, ranging from 40 years for residential and non-residential properties and other structures to three years for IT equipment. - Land is not depreciated but is subject to revaluation as needed. - Asset registers are comprehensive, although some under- and over-reporting of assets was identified in the Audit report on the Annual Financial Report of 2021. - Causes of reporting differences: - Entities not reporting all their assets. - Differences between the value of assets reported in the Annual Financial Report of government and the individual financial reports of some individual BOs. - Lack of integration between flows reported in the KFMIS system and asset stock data reported in the KFMIS asset module and the e-asset system. - Misclassifications of capital expenditure to some extent. - The extent of these over/understatement of capital stock is relatively small. (Table 3.4) ### Table 3.4 — Kosovo: Reporting on Capital and Non-Capital Non-financial assets 2021 (selected figures) - Units: Millions of Euros; percentages shown as in source table. - Capital Assets over EUR 1 000 - Central level: Value of assets presented in the Annual Financial Statements 2,968.6; Value of assets according to audits 2,894.5; Overstatement / Understatement 74.1; Percentage of Total Assets in Annual Financial Statements 2.5 - Local level: Value of assets presented in the Annual Financial Statements 6,161.5; Value of assets according to audits 6,149.9; Overstatement / Understatement 11.5; Percentage of Total Assets in Annual Financial Statements 0.2 - Capital Assets under EUR 1000 - Central level: Value of assets presented in the Annual Financial Statements 33.1; Value of assets according to audits 34.0; Overstatement / Understatement -0.9; Percentage of Total Assets in Annual Financial Statements 2.7 - Local level: Value of assets presented in the Annual Financial Statements 21.7; Value of assets according to audits 22.9; Overstatement / Understatement -1.2; Percentage of Total Assets in Annual Financial Statements 5.5 - Total Assets: Value of assets presented in the Annual Financial Statements 9,184.9; Value of assets according to audits 9,101.4; Overstatement / Understatement 83.5; Percentage of Total Assets in Annual Financial Statements 0.9 - Source note in table: Kosovo Annual Financial Report, 2021. ### Recommendations to improve asset monitoring and reporting - The monitoring of assets in Kosovo can be further enhanced by improving the classification of assets and ensuring integration of the annual flows recording in the KFMIS system and the asset values. - While such an integration will likely only be attained with the full implementation of accrual accounting, some interim steps could further improve asset reporting. - Specific recommendations (responsibilities and priorities as stated): - Develop general and sector specific guidance to strengthen asset management and reporting practices. (MoFLT Treasury – Low) - Develop a manual to clearly guide the integrated reporting and valuation of assets. - Develop standard methodologies to guide revaluation of assets that could be applied consistently in all BOs. - Consider reviewing whether reporting of assets should establish a minimum - threshold for exclusion of non-capital assets (less than 1,000 EUR), based on international good practices (MoFLT in consultation with National Audit Office). - Strengthen in the budget and fiscal reporting the international definitions of acquisition of assets in line with accounting standards to strengthen the link between spending and asset valuation. ### Recommendations on investment implementation (selected) - Issue: Procurement law reforms are needed to improve procurement - Recommendation: Finalize and adopt the new draft law on procurement (PPRA - High) - Make allowance in the new law for typical construction contracts (FIDIC/ NEC) in secondary law (PPRA and Ministry of Infrastructure) - Issue: There is currently no forward-looking monitoring of the total portfolio of major projects. - Recommendation: Establish central monitoring of major projects regardless of funding source including quarterly monitoring supported by a database of all major project performance data and identified risks using the PIP functionality. (MoFLT - High) - Recommendation: Conduct ex-post reviews on all major projects. [2024, MoFLT - Medium] - Issue: The current allocation system introduced in 2022 could cause increasing delays in implementation - Recommendation: Reintroduce cash-flow forecasting to inform better fund allocation and discuss the new 2022 funding allocation mechanism changes with the BOs to understand and solve any issues in the implementation of capital expenditures [2023, MoFLT – Treasury – Low]. - Issue: The challenges in the earlier stages than the payment stage causes delays in capital expenditure execution - Recommendation: Implement planned reforms to capital payment execution including establishing the linkages among the e-procurement, KFMIS, and PIP; introduce the multi-annual commitment controls in the IT systems and ate recording and verification of invoice receive and registry mechanism. (2025, MoFLT – Medium) ### Climate change, public infrastructure, and implications for public investment - Regional and projected climate patterns: - Temperatures in the Western Balkans region have risen in the last fifty years, and throughout the 21st century, warming is projected to be higher than the world average. - Annual flow reductions in the regions’ rivers of up to 15 percent are projected for 2°C warming above preindustrial levels, and by up to 45 percent in a 4°C world. - Climatic extremes are projected to become more common, including a significant increase in the number of extreme heat events. - Heavier precipitation events are expected in the winter months, whilst summers are projected to become even drier. - Mountain-specific climate hazards listed: reduced snow cover; increasing occurrence of winter and spring flooding from intense precipitation and accelerated snowmelt; increases in the frequency and intensity of wildfires; heavy snow precipitation and cold extremes; appearance of new disease vectors; decreasing annual river discharge and low flow periods. - Observed and estimated impacts in Kosovo: - The three main natural hazards that Kosovo is exposed to are earthquakes, floods and forest fires. - Considerable risk is also posed by landslides, drought, heavy snowfall and water reservoir dam bursts. - Heavy rainfall in 2013, 2014, 2016, 2021 and 2023 across Kosovo caused rivers to flood, resulting in landslides, traffic difficulties, damage to agricultural lands, blockage of sewers, and problems for water treatment facilities. - Costs related to the floods in 2013-2016 have been estimated at over EUR 4 million and the cost in 2021 is estimated to exceed EUR 1 million. - Policy implications and strategic objectives: - Resilient public investments are key to averting the impacts of climate change and natural disasters. - Climate change challenges include high emissions and pollution due to the country's heavy reliance on coal; water scarcity; and environmental degradation. - It is crucial to take full account of climate-related risks in infrastructure planning and project design and implementation and to prepare for the transition. - Closing infrastructure gaps and addressing climate adaptation challenges require transformation across several areas, including scaling up renewable electricity generation (particularly solar and energy storage), promoting low emission public transport and electric vehicles, investing in energy efficient buildings and industrial facilities, and better infrastructure planning across urban and rural areas. - Transformation needs to be complemented by institutional reforms, funding strategies, enabling policies and regulations, and close coordination among institutions and stakeholders. - Mainstreaming climate change considerations into public investment management is instrumental. ### Kosovo climate objectives and emissions data - According to the latest GHG inventory of Kosovo, annual emissions amounted to 9.613 million tons CO2-equivalents in 2019. - The main source of emissions is the energy sector with a share of 86 percent. - Kosovo’s voluntary NDC will be based on Kosovo’s target to reduce greenhouse gas emissions by 8.95 Mt CO2e by 2030. This is a reduction of approximately 16.3% compared to 2016 levels. - Kosovo’s Climate Change Strategy 2019-2028 set out qualitative objectives including: - Developing Kosovo's capacity to meet its future obligations under the United Nations Framework Convention on Climate Change and the EU. - Reducing greenhouse gas emissions. - Development of mechanisms and improving current disaster risk mitigation measures in vulnerable sectors. - To increase capacities of adaptation of natural systems. - Capacity building of central and local stakeholders, to integrate climate change issues and adaptation to development processes. *Source: IMF mission team and Kosovo Annual Financial Report, 2021.* ### 84. Kosovo has made progress in developing policies and investment measures to support its ### Kosovo has made progress in developing policies and investment measures to support its national climate change objectives. ### Progress in strategies and sectoral plans - Kosovo’s Climate Change Strategy 2019-2028: presents qualitative objectives to reduce GHG emissions and integrate climate change and adaptation into development processes, but does not establish a numerical target for reducing greenhouse gas emissions nationally or by sector. - Energy Strategy 2022-2031: - Target to reduce the GHG emissions from the energy sector by 32 percent by 2031 (from 6 316 million tons CO2-equivalents in 2019). - Target for the share of renewable energy to increase to at least 35 percent in 2031 (from 6.3 percent in 2019). - Commitment to have preparations in place by 2025 for introducing a carbon pricing system, accompanied by a phasing out of subsidies for fossil fuels. - Multimodal Transport Strategy 2023-2030: sets plans for a more sustainable and integrated transport system, but lacks granular analysis of its climate impacts. - Expected upcoming instruments: a new law on climate change, a National Energy and Climate Plan, a National Climate Change Adaptation Strategy, a Long-Term Decarbonization Strategy, and a new sectoral strategy for the environment sector. - Examples of climate-motivated public investments: transformation of the energy system (including photovoltaic solar projects) and upgrades to the transportation network aligned with the Multi-Modal Transport Strategy 2030. ### Institutions, governance and coordination - National Council for Climate Change (NCCC): - Established by a government decision in 2022 (07/54) to steer the climate change strategy agenda. - Chaired by the Minister of Environment, Spatial Planning and Infrastructure and supported by a secretariat and a Scientific Advisory Board. - The decision states that the Council shall meet at least once a year. - Climate Change Secretariat: performs administrative, professional and advisory tasks for the Council; headed by a representative of the Ministry for Environment, Spatial Planning and Infrastructure and may include representatives from other ministries, civil society, academy, scientific institutes, local and international organizations. - Ministry of Environment, Spatial Planning and Infrastructure (MoESPI): lead agency for coordinating and mainstreaming government efforts related to climate change; draft Law on Climate Change designates MoESPI as lead agency for coordination across central government. - Ministry of Finance, Labour and Transfers (MoFLT): critical role in climate-related public investment planning and budgeting processes, and disaster risk financing; coordinates and provides policies and guidelines on public investment management. - Sector Ministries: contribute sectoral targets, key performance indicators and programs to the NCCC and incorporate climate policy targets into strategies and action plans. - Regional coordination and funding frameworks: working groups for energy, environment and transport under regional mechanisms; references to EU frameworks (Economic and Investment Plan for the Western Balkans, Green Agenda for Western Balkans, Western Balkans Investment Framework) as financing and coordination vehicles. ### Climate Public Investment Management Assessment (Climate PIMA) - Framework coverage: five key public investment management practices from the climate change perspective (see Annex 7 for full framework). - Specific issues assessed: - C1. Climate-aware planning: Is public investment planned from a climate change perspective? - C2. Coordination across public sector: Is there effective coordination of decision making on climate change-related public investment across the public sector? - C3. Project appraisal and selection: Do project appraisal and selection include climate-related analysis and criteria? - C4. Budgeting and Portfolio management: Is climate-related investment spending clearly identified in the budget and subject to active management and oversight? - C5. Risk management: Are fiscal risks relating to climate change and infrastructure incorporated in budgets and fiscal risk analysis and managed according to a plan? ### Detailed assessment — C1. Climate-aware planning (Design: Medium; Reform Priority: High) - Findings: - Public investment strategies increasingly consider mitigation and adaptation needs; alignment with EU legislation is driving regulatory reform. - Climate Change Strategy lacks quantitative sectoral mitigation and adaptation targets, limiting strong linkages to sectoral plans and investment projects. - Energy Strategy 2022-2031 provides sectoral targets (see above) that will affect public and private investment decisions. - Spatial and urban planning reforms: 2013 law on spatial planning assigns responsibilities for spatial plans and zoning maps and includes principles to protect the environment, support sustainable development and account for natural disaster threats. - Initiatives in Pristina emphasize climate-efficient city planning, including managing urban sprawl, reducing travel times and distances, integrating land use and transport planning, developing low-carbon public transport corridors, expanding the district heating network, implementing the Local Green Building code, and reducing flood risk by upgrading storm water and sewage management infrastructure. - Gaps and constraints: - No written, centralized guidelines or a central “help desk” for planning and costing public investment from climate adaptation and mitigation perspectives. - Limited evidence of concrete integration of climate considerations into infrastructure and spatial planning despite co-location of responsibilities in the same ministry. - Data gaps hinder climate-sensitive management of public investment and public assets. - Need to clearly identify sectoral contributions to mitigation and adaptation targets and to prepare costed investment plans aligned with sectoral and national planning. - Recommendations (priorities identified): - Mainstream national climate goals into national, sectoral and spatial plans as a high reform priority. - Develop guidance and provide training to public bodies on integrating climate change into public investment planning. - Consider preparing and publishing a handbook on incorporating climate resilience and adaptability in sectoral planning and project preparation. - Strengthen administrative capacity and raise awareness across ministries, departments, agencies and municipalities. ### Detailed assessment — C2. Coordination Between Entities (Design: Low; Reform Priority: Medium) - Findings: - MoESPI designated as lead agency in the Draft Law on Climate Change; draft approved by Government and expected to be approved by the Parliament at the end of 2023. - NCCC established in 2022 provides coordination across central government and supports monitoring, reporting and verification of the National Greenhouse Gases Inventory; Secretariat composed of line ministry representatives performs professional, administrative and advisory work. - Regional working groups for energy, environment and transport were established to identify project pipelines under a National Investment Committee remit to benefit from Western Balkans funding sources. - Gaps and constraints: - Coordination exists across central government from a climate perspective but lacks a specific focus on infrastructure and on coordination across all levels (central government, subnational governments, public corporations, and private entities). - Regulatory and oversight frameworks for public corporations (POEs) do not yet ensure their climate-related investments are fully consistent with national policies and guidelines. - Specific budget process gap: - MoFLT’s budget guidelines do not refer to climate change and public investment. - There is no climate tagging and tracking in the budget process; authorities expressed interest in exploring climate tagging in parallel to ongoing work on gender tagging and budgeting. *Source: IMF staff based on various documents from the Government of Kosovo.* ### 96. The budget process covers both central government and municipalties but does not ### 1kosea2023003 - 96. The budget process covers both central government and municipalties but does not ### Overview of current institutional and procedural gaps - The budget process covers both central government and municipalities but does not incorporate a climate change perspective. - Municipalities’ capital projects are published alongside central government projects but are not formally discussed with central government from a climate change perspective. - The MoFLT has not issued guidance for climate sensitive planning or implementation of capital spending by municipalities. - POEs’ regulatory and oversight framework does not enforce or explicitly guide climate change–related decision-making. - New investment projects or programs of POEs have not been assessed for impacts on climate mitigation or for their exposure to climate change by either their sector ministries or the Ministry of Economy. - Some POEs (for example, KEK) incorporate climate perspectives in investment plans despite broader POE development/strategic plans not being discussed with government from a climate change perspective. - Coordination across the public sector’s climate-related public investment is currently mainly facilitated by WBIF funding requirements rather than embedded national processes. ### Project appraisal and selection (Design: Low; Reform Priority: High) Findings: - Climate impacts of project proposals and projects’ exposure to climate-related harm should be understood prior to approval; public investment both supports mitigation (renewables, modal shift, energy efficiency) and can increase emissions during implementation/operation. - Kosovo’s project appraisal procedures do not require climate-related analysis. - For major projects, Environmental impact assessment is required by Administrative Instruction no. 06/2019 (Selection Criteria and Prioritizing of Capital Project), focusing on potential negative environmental impacts including harmful emissions, but not specifically on climate change impacts on project design and implementation. - The PIP manual and the Administrative Instruction do not prescribe requirements on how projects are designed to promote climate change adaptation or strengthen climate resilience. - No standardized guidelines or templates exist for conducting climate-related analysis; some sectoral discussion occurs ad hoc, notably in energy and transport. - Projects seeking EU funding under the National Investment Committee must complete the Project Identification Fiche, which is broadly linked to EU sustainability and climate resilience policies. - Administrative Instruction criteria include a general question on environmental and social risk assessment, but there is no specific decision criterion for climate-specific risks or impacts. - In practice, climate change is considered for directly relevant projects but not through a systematic, consistent methodology. Recommendations for appraisal and selection: - Update frameworks to reflect climate considerations: - Add alignment with climate goals to the revised Administrative Instruction (AI) on project selection (MoFLT in consultation with OPM and MoESPI – 2025, High). - Revise the PIP Manual to include a climate perspective for project appraisal and selection, giving additional weight to major projects that strengthen climate resilience (MoFLT in consultation with OPM and MoESPI – 2025, High). - Prepare and publish a handbook on incorporating climate resilience and adaptability in sectoral planning and project preparation processes and provide training to public bodies on integrating climate change into public investment planning (MoFLT in consultation with OPM and MoESPI – Q1 2025 – High). - Sector working groups should incorporate climate considerations in screening when filtering projects for the pipeline, for both nationally funded projects and WBIF-funded projects. - The United Kingdom’s Green Book is cited as an example of incorporating climate aspects into appraisal. ### Budgeting and portfolio management (Design: Low; Reform Priority: High) Findings: - Effective management of the portfolio of climate-related investment projects at all stages is critical to mitigation/adaptation targets; failure to assess additional costs from climate geophysical risks may underestimate future maintenance costs. - Current budget documents do not identify planned climate-related public investment expenditures explicitly. - Budget presents ongoing programs addressing environmental impacts (energy efficiency, flood mitigation, disaster relief, renewables support) but not specifically labeled as climate-impact measures. - No ex-post reviews or audits have been conducted of climate mitigation/adaptation outcomes of public investments; Kosovo does not conduct ex-post reviews as stated in Institution 14 of the PIMA. - The National Audit Office conducts financial and performance audits covering river management, air quality improvement, and hydropower investments but audits have not focused on climate outcomes to date. - No formalized government asset management policies, methodologies for estimating maintenance needs, or mechanisms for addressing climate-related risks exist; asset climate exposure is considered on an ad-hoc basis by implementing agencies. - Ongoing efforts to improve asset registers will support more systematic assessment and management of climate risks to infrastructure assets. Recommendations for budgeting and portfolio management: - Present spending on climate investment initiatives in budget documents (for example, through a chapter in the budget statements) to mainstream climate budgeting and reporting. - As Budget Department adjusts systems for other expenditure tagging (e.g., gender budgeting), incorporate climate adjustments simultaneously. - Medium-term priorities: - Fill data gaps to enable climate-sensitive management of public investment and public assets (KSA in consultation with OPM, MoESPI and MoFLT – 2024, Medium). ### Risk management (Design: Medium; Reform Priority: Medium) Findings: - Identifying and managing fiscal risks from climate change to public infrastructure should be integral to government risk management. - Governments should (i) develop and publish a disaster risk management strategy identifying exposure of public infrastructure to climate disasters; (ii) develop mechanisms to absorb costs of climate-related damages; (iii) analyze climate-related risks to public infrastructure assets. - Kosovo is developing a new national disaster risk management strategy; responsibility lies with the Emergency Management Agency under the Ministry of Internal Affairs. - The Agency published a risk assessment in 2016 and a government regulation in 2020 on risk assessment methodology; a new national disaster risk management strategy is ready to be adopted and will replace the Integrated Emergency Management System and the National Response Plan from 2010. - The National Audit Office’s 2021 report concluded institutions have not established an appropriate system for prevention and response to flood emergencies. - There is a general contingency appropriation in the annual budget available for climate-related infrastructure damages; no specific ex-ante financing mechanism exists. - Kosovo has not signed up to any natural disaster insurance schemes; limited domestic insurance and risk-sharing arrangements for private and public sector. - The government does not conduct fiscal risk analysis that incorporates climate-related risks to public infrastructure assets. - Fiscal risks are identified and quantified in the MTEF, but none relate to climate change or natural disasters. Recommendations for risk management: - Complete the national disaster risk management strategy and integrate climate-related risk analysis into economic and fiscal planning. - Undertake an assessment of macro-fiscal risks associated with climate-related factors, covering both physical climate changes and the economic transition to a low carbon society. - Assess whether budget allocations dedicated to risk-reduction and prevention are appropriate (MoFLT – 2025). - Assess whether the general contingency appropriation in the annual budget should be strengthened and/or supplemented with an additional financing mechanism (MoFLT – 2025 – Medium). - Publish an analysis of exposure to fiscal risks from climate change in the fiscal risks statement (MoFLT – 2025 – Medium). - Start with a qualitative assessment of major climate risks for Kosovo and plausible scenarios, then develop quantified assessments. - Improve transparency about the purpose and use of the contingency reserve regarding natural disasters to improve accountability. ### Cross-cutting recommendations and capacity building - Strengthen the linkages between the Climate Change Strategy and sectoral and spatial plans to inform public infrastructure investment. - Strengthen the legal framework for public and private investments in renewable energy generation. - Complete the comprehensive national disaster risk management strategy to provide an implementation roadmap for investments and resource mobilization toward better disaster prevention, readiness, and response (EMA). - Develop a training plan to strengthen capacity and raise awareness on climate aspects of public investment management (Ministry of Environment, MoFLT, Ministry of Economy). - Develop and publish guidance, templates, and standardized methodologies for climate-related project appraisal, selection, budgeting, portfolio management, asset management, and fiscal risk analysis. *Source: IMF Technical Report (excerpt).* ### 115. Kosovo’s comprehensive legal, policy and regulatory framework covers all key aspects of ### 1kosea2023003 - 115. Kosovo’s comprehensive legal, policy and regulatory framework covers all key aspects of ### Legal and regulatory framework for public investment management - Kosovo’s legal, policy and regulatory framework covers all key aspects of public investment management, with many important issues covered in legislation and some PIMA institutions governed primarily by regulations and administrative instructions. - Key legislation, regulations and guidelines mapped to PIMA phases include (as listed in Table 5.1): - Planning - Fiscal principles or rules: Law No. 03/L-048 on Public Financial Management and Accountability; Law on Budget Appropriations for the Budget of the Republic of Kosovo - National and sectoral plans: Government Decision no. 15/34 of 07.10.2020 - Coordination between entities: The Law on Public Financial Management and Accountability; Law on Local Government Finance; 2023 Budget Law - Project appraisal: No specific law or regulations in relation to project appraisal - Alternative infrastructure financing: Law No. 03/L-087. on Publicly Owned Enterprises; Law on PPPs and Concessions in Infrastructure and the Procedures for their Award” L03/L-090 - Allocation - Multi-year budgeting: Law No. 03/L-048 on Public Financial Management and Accountability; Annual Budget Laws; The Law on Public Financial Management and Accountability (LPFMA); AI 05/2019 on the transfer and reallocation of budget appropriations - Maintenance funding: The Law on Public Financial Management and Accountability (LPFMA); Regulation 02/2013 on the Management of Non-Financial Assets; AI 04/2019 on the definition of capital projects - Project selection: Administrative instruction no 06/2019 on project selection criteria and prioritizing of capital projects - Implementation - Procurement: Rules and Operational guidelines for Public Procurement. January 2021; Law on Public Procurement, Law No 04/L-042 - Availability of funding: The Law on Public Financial Management and Accountability; Regulation No. 06/2014 on Internal Organization and Systematization of Job Positions within Kosovo Treasury; Regulation No. 01/2022 On the Allocation of Funds and Management of Cash Flow - Portfolio management and oversight: Law on Budget Appropriations for the Budget of the Republic of Kosovo - Project implementation: Rules and Operational guidelines for Public Procurement. January 2021; Law on the Auditor General and the National Audit Office of the Republic of Kosovo, Law 05L/-055; Public Financial Management and Accountability, Law 03/L-048; Law on Public Procurement, Law No 04/L-042 - Management of public assets: The Law on Public Financial Management and Accountability (LPFMA); Regulation 02/2013 on the Management of Non-Financial Assets - Climate PIMA - C1 Climate-aware planning: Draft Law on Climate Change; Decision on the establishment of the National Council for Climate Change; Law No.04/L-110 on Construction - C2 Coordination between entities: Decision on the establishment of the National Council for Climate Change; Draft Climate Change Law - C5 Risk management: Law No. 04/L-027 for Protection against Natural and other Disasters; Law No. 04/L-174 on Spatial Planning; Regulations (GRK) No. 25/2020 on the Methodology for Risk Assessment Development; Law No. 05/L-101 on Energy Performance of Buildings; Law No. 08/L-181 on Environmental Impact Assessment - Observed legal gaps and planned reforms: - The appraisal process for major capital infrastructure projects is weak and there is no law or regulation governing the appraisal process. - Selection processes are governed only by an Administrative Instruction. - A key planned reform is the new Law on Procurement; new PPP Law and an energy sector regulatory framework are also planned. - New laws must be accompanied by training and capacity to implement them. ### Information technology systems for PIM - Legal mandate and reporting - Under the Law on Public Finance Management and Accountability (2008), the MoFLT is responsible for collecting, processing, and disseminating financial data for all General Government units. - Article 43.2 requires that all financial data is recorded through a Chart of Accounts harmonized with the Government Finance Statistics Manual and cash basis IPSAS. - Article 45 and 46 mandate MoFLT to publish quarterly and annual reports of consolidated financial data. - Major IT systems and current issues (Table 5.2 summary): - Kosovo Financial Management System (KFMIS) - KFMIS is the FreeBalance tool for managing and executing the budget within the Treasury; chart of accounts embedded in the general ledger. - The asset management module records large assets above EUR 1,000 in value. - Current issue: functionality for multi-year commitments needs to be added. - Public Investment Program system (PIP) - Managed by the Budget Department and the IT department; comprises an IT system and SQL database; functionality covers full project cycle; supporting documents can be uploaded. - Current issue: All projects are captured in the PIP database, but the information is incomplete; hardly any cost-benefit analyses or feasibility documents are being entered; it is more of a data capture tool to produce budget tables and is not being fully utilized as a planning tool. - Budget Development Management System (BDMS) - Used for budget planning, primarily recurrent expenditures; updated to accommodate the three-year MTEF. - Current reform: Budget Department is working on linking the PIP system and BDMS to KFMIS. - Treasury Single Account (TSA) - Government manages funds through the TSA; most accounts held at the Central Bank; facilitates cash payments for infrastructure projects. - Current reform: Treasury working on linking KFMIS with e-procurement to improve access to information on multi-annual contracts and automate invoice capturing in KFMIS. - E-procurement - Centralized and unified system managed by the Kosovo Public Procurement Regulatory Commission; covers end-to-end procurement; handles Works, supply, and consultancy services. - Use of the e-procurement system is mandatory for all Contracting Authorities; government is trying to automate the link between KFMIS and e-procurement. - System coverage and access: - KFMIS has about 2,000 users of which 50 are in central ministries and the rest are in decentralized BOs. - MoFLT maintains central control by restricting user right access while allowing decentralized points to enter project data directly. - Publicly Owned Enterprises are not BOs and must report directly to the central POE Monitoring Unit. - Interoperability and reforms: - Government adopted the Interoperability Framework; Kosovo Interoperability Framework harmonized with the European Interoperability Framework. - Examples: Kosovo Public Procurement Regulatory Commission working with the Treasury to find interoperability between e-Procurement and KFMIS. - Ongoing reforms to integrate e-procurement, KFMIS and BDMS to improve reporting frequency and quality of asset management. - To realize benefits, users should be incentivized and updated procedures required; BOs/projects not complying with minimum information requirements should be excluded from the project pipeline going into the MTEF. ### Data quality, reporting and performance assessment - Overall financial data integrity: - Public Expenditure and Financial Accountability Framework Performance Assessment Report (2022) ratings: - Budget classification: A - Quality of financial reports: A - Performance Information for Service Delivery: D+ - Budget Documentation: D - Interpretation: Financial data integrity is generally good due to IT systems coverage, but analysis and presentation of information is weak; data on projected capital spending is weak. - Recommended actions: - MoFLT needs to implement quality control checks of data entered in the PIP system to ensure investment quality. - More regular reporting of financial information from BOs, particularly on expenditure, through system enhancements. ### Capacity constraints and human resources - Civil service reforms and staffing: - High staff turnover, delays in filling positions, and limited number and technical capacity of civil servants in BOs have influenced capital investment efficiency. - Two laws adopted in December 2022: (i) the Law on Public Officials and (ii) the Law on Public Wages, aimed to implement a coherent wage scheme and finalize internal ministry organization; effects are yet to be seen. - Project preparation, appraisal and selection capacity weaknesses: - Significant capacity weakness related to project preparation, appraisal, and selection needs to be addressed. - Proposed measures: improve PIM processes, strengthen technical skills, create centralized support teams, rely on independent private sector consultants after establishing adequate terms of reference and oversight in BOs. - New MoFLT regulation requires establishment of a central support team (central Project Implementation Unit (PIU)) for externally funded projects to support cost estimation and implementation plans at early design stage for foreign funded projects. - Risk: PIU targeted to IFI projects could neglect national projects and not build capacity outside PIU for domestically financed projects. - Recommendation: develop a pipeline of investment-ready projects, integrate IFI and domestic projects, and develop a training road map. - Strengthening MoFLT quality assurance role: - Recommendation: MoFLT should undertake a robust review of estimates for capital expenditure provided by BOs in the annual budget process to improve accuracy and reliability of capital expenditure estimates; this requires qualified staff and careful consideration of the number of staff in the Budget Department. - The 2015 PIMA recommendation to provide additional dedicated resources to enable the Budget Department to exercise stronger QA on the PIP remains valid. - Training and retention: - Training needs on PIM and climate change are large and largely dependent on external funding. - MoFLT and the Ministry of Environment, Spatial Planning and Infrastructure should increase internal capacity to train staff at scale. - Training should focus on specific climate change measures in Kosovo and regional participation for peer learning. - The “young cell scheme” scholarship program (co-funded by the EU and the Government of Kosovo) has been effective; compulsory government service requirement is three years; challenge is retention due to public-private salary gap. ### Climate change integration and data gaps - Institutional arrangements: - NCCC and the Secretariat introduced to coordinate climate policy decisions to meet WBIF requirements, but effectiveness limited because NCCC and Secretariat lack permanent staff and meet infrequently (NCCC once a year; Secretariat once or twice a year). - Recommendation: central climate change coordination units must be adequately staffed and empowered to engage public and private sectors at central and municipal levels. - Data and monitoring gaps: - Data and knowledge gaps exist to calculate national climate change related targets and to monitor them (e.g., GHH and other international targets). - According to draft climate change law, KEPA is designated as competent national authority for establishment and maintenance of the National Greenhouse Gas Inventory System as part of the Environmental Information System and preparation of reports. - Recommendation: KEPA should train relevant BOs on expected inputs and how inputs will be utilized to collect meaningful data. - Capacity implications: - Supporting public sector institutions to implement climate agenda requires accelerated reform to realign resources, increase capacity in project preparation/appraisal/selection, and better utilization of IT systems. ### Key recommendations and action priorities - Strengthen legal basis: - Enact planned new laws (new Law on Procurement, new PPP Law, energy sector regulatory framework) and consider legislating appraisal and selection processes currently governed only by administrative instructions. - Ensure legislation is accompanied by training and implementation capacity. - Improve IT integration and usage: - Complete interoperability and integration of PIP, BDMS, KFMIS and e-procurement; add KFMIS functionality for multi-year commitments; automate invoice capture. - Enforce minimum information and analysis requirements in PIP; exclude non-compliant BOs/projects from MTEF pipeline consideration. - Enhance data quality and QA: - MoFLT to implement quality control checks on PIP data and undertake robust review of BO capital expenditure estimates. - Address weaknesses in performance information and budget documentation (ratings D+ and D). - Build capacity and staffing: - Expand training capacity within MoFLT and Ministry of Environment, Spatial Planning and Infrastructure; develop training road map; retain trained staff (address public-private pay gap where possible). - Ensure PIU design balances IFI and domestic project support and builds capacity across BOs. - Strengthen climate governance and data systems: - Staff and empower NCCC and Secretariat; task KEPA to operationalize National Greenhouse Gas Inventory System and train contributors; improve climate-related project preparation and monitoring. *IMF | Technical Report (excerpts from pages 115–127, Annex references to Tables 5.1 and 5.2 as provided in the source)* ### 3. Coordination between Entities: Is there effective coordination of the investment plans of central and other governm ### 3. Coordination between Entities: Is there effective coordination of the investment plans of central and other governm ### 3.a. Is capital spending by SNGs, coordinated with the central government? - Capital spending plans of SNGs are not submitted to, nor discussed with central government. - Major SNG capital spending plans are published alongside central government investments, but there are no formal discussions, between the central government and SNGs on investment priorities. - Major SNG capital spending plans are published alongside central government investments, and there are formal discussions between central government and SNGs on investment priorities. ### 3.b. Does the central government have a transparent, rule-based system for making capital transfers to SNGs, and for providing timely information on such transfers? - The central government does not have a transparent rule-based system for making capital transfers to SNGs. - The central government uses a transparent rule-based system for making capital transfers to SNGs, but SNGs are notified about expected transfers less than six months before the start of each fiscal year. - The central government uses a transparent rule-based system for making capital transfers to SNGs, and expected transfers are made known to SNGs at least six months before the start of each fiscal year. ### 3.c. Are contingent liabilities arising from capital projects of SNGs, PCs, and PPPs reported to the central government? - Contingent liabilities arising from major projects of SNGs, PCs, and PPPs are not reported to the central government. - Contingent liabilities arising from major projects of SNGs, PCs, and PPPs are reported to the central government, but are generally not presented in the central government’s budget documents. - Contingent liabilities arising from major projects of SNGs, PCs, and PPPs are reported to the central government, and are presented in full in the central government’s budget documents. ### Indicator scoring - Indicator Scoring: 1 = To no or a lesser extent 2 = To some extent 3 = To a greater extent --- ### 4. Project Appraisal: Are project proposals subject to systematic project appraisal? ### 4.a. Are major capital projects subject to rigorous technical, economic, and financial analysis? - Major capital projects are not systematically subject to rigorous, technical, economic, and financial analysis. - Major projects are systematically subject to rigorous technical, economic, and financial analysis. - Major projects are systematically subject to rigorous technical, economic, and financial analysis, and selected results of this analysis are published or undergo independent external review. ### 4.b. Is there a standard methodology and central support for the appraisal of projects? - There is no standard methodology or central support for project appraisal. - There is either a standard methodology or central support for project appraisal. - There is both a standard methodology and central support for project appraisal. ### 4.c. Are risks taken into account in conducting project appraisals? - Risks are not systematically assessed as part of the project appraisal. - A risk assessment covering a range of potential risks is included in the project appraisal. - A risk assessment covering a range of potential risks is included in the project appraisal, and plans are prepared to mitigate these risks. --- ### 5. Alternative Infrastructure Financing: Is there a favorable climate for the private sector, PPPs, and PCs to finance in infrastructure? ### 5.a. Does the regulatory framework support competition in contestable markets for economic infrastructure (e.g., power, water, telecoms, and transport)? - Provision of economic infrastructure is restricted to domestic monopolies, or there are few established economic regulators. - There is competition in some economic infrastructure markets, and a few economic regulators have been established. - There is competition in major economic infrastructure markets, and economic regulators are independent and well established. ### 5.b. Has the government published a strategy/policy for PPPs, and a legal/regulatory framework which guides the preparation, selection, and management of PPP projects? - There is no published strategy/policy framework for PPPs, and the legal/regulatory framework is weak. - A PPP strategy/policy has been published, but the legal/regulatory framework is weak. - A PPP strategy/policy has been published, and there is a strong legal/regulatory framework that guides the preparation, selection, and management of PPP projects. ### 5.c. Does the government oversee the investment plans of public corporations (PCs) and monitor their financial performance? - The government does not systematically review the investment plans of PCs. - The government reviews the investment plans of PCs, but does not publish a consolidated report on these plans or the financial performance of PCs. - The government reviews and publishes a consolidated report on the investment plans and financial performance of PCs. --- ### B. Ensuring Public Investment is Allocated to the Right Sectors and Projects ### 6. Multi-Year Budgeting: Does the government prepare medium-term projections of capital spending on a full cost basis? #### 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. ### Indicator scoring - Indicator Scoring: 1 = To no or a lesser extent 2 = To some extent 3 = To a greater extent --- ### 7. Budget Comprehensiveness and Unity: To what extent is capital spending, and related recurrent spending, undertaken 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. --- ### 8. Budgeting for Investment: Are investment projects protected during budget 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. --- ### 9. Maintenance Funding: Are routine maintenance and major improvements receiving adequate 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 major improvements (e.g. renovations, reconstructions, enlargements) to existing assets, 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 routine maintenance and major improvements 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. --- ### 10. Project Selection: Are there institutions and procedures in place to guide project selection? ### 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. --- ### C. Delivering Productive and Durable Public Assets ### 11. Procurement #### 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 process 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. --- ### 12. Availability of Funding: Is financing for capital spending made available in a timely manner? ### 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. --- ### 13. Portfolio Management and Oversight: Is adequate oversight exercised over implementation of the entire public investment portfolio? ### 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. --- ### 14. Management of Project Implementation: Are capital projects well managed and controlled during the execution stage? ### 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. --- ### 15. Monitoring of Public Assets: Is the value of assets properly accounted for and reported in financial statements? ### 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 institutions? *IMF | Technical Report* ### Annex 3 The updated 2018 PIMA framework ### Annex 3 — The updated 2018 PIMA framework ### Key enhancements in 2018 - The updated 2018 PIMA framework introduced a more in-depth focus on four major aspects of a country’s public investment management institutions: - Maintenance: The revised framework includes a specific institution of maintenance. - Procurement: The revised framework establishes a dedicated PIMA institution devoted to procurement. - Independent review of projects: Independent review was expanded as an evaluation criterion to capture input of independent experts and organizations in project appraisal, selection and ex-post review. - Enabling environment: Three cross-cutting “enablers” are assessed qualitatively and separately: (1) a supportive legal framework; (2) good systems for managing information; and (3) adequate staff capacity, with clear roles and responsibilities. ### Streamlining and refinements - The updated framework: - Streamlines some overlaps and provides more precise language on selected principles or criteria previously included in the 2015 questionnaire. - Emphasizes fiscal principles and rules to provide a stable and predictable context to support public investment planning, budgeting, financing, and execution. - Addresses Public-private partnerships (PPPs) in the context of several relevant public investment management institutions rather than in one place. - Merged budget comprehensiveness and the budget unity into a single, new institution. - Modified several evaluation criteria for portfolio management and oversight to clarify challenges of managing a portfolio of projects. - Expanded coverage to include public corporations and all potential financing sources. ### Scoring methodology - Three-point scoring (high/medium/low) was introduced as standard. - This is based on the rounded score of the average of the three sub-dimension scores. - The first Kosovo assessment used an additional category of “good” which covered institutions with either i) two medium and one high score or ii) two highest scores and one low score; both of these in later assessments are presented as medium. - Publication of the PIMA Handbook in 2022 has supported consistent application of the 2018 scoring methodology. - Some earlier assessments would likely be rescored if assessed again after the release of the Handbook. ### Examples of specific changes from the 2015 questionnaire - Fiscal principles and rules: significant revisions to emphasize fiscal policy’s role in supporting public investment. - PPPs: addressed across several institutions. - Budget comprehensiveness and unity: merged. - Portfolio management and oversight: evaluation criteria modified to clarify portfolio challenges. - Public corporations and financing sources: PIMA coverage expanded to include these. ### Implementation status highlights (from Annex 5 — selected recommendations and current status) - Recommendation 1: Implement and publish the National Development Strategy (2016) - Status: Completed. The new strategy, NDP2030, was subsequently completed and published in March 2023. It is a significant improvement over the 2016 strategy. - Consolidate sector strategies as outlined in the government’s new Integrated Planning System (2016–19): Largely completed. Four strategies completed (energy, transport, health and education); other strategies being prepared on a rolling basis. - Recommendation 2: Increase the transparency of the budget documentation by including an annex for PPPs and POE investments (2016). - Status: Not implemented. Budget documentation does not include an annex for PPPs and POE investments. - Record the assets, liabilities, and fiscal risks relating to PPPs, and the contingent liabilities arising from POE investments in the government’s annual financial statements (2017): Not implemented. Existing PPPs are concession arrangements with all assets and liabilities reported on the private sector balance sheets. Contingent liabilities from POE investments are not reported on in the financial statements. - Recommendation 3: Include a schedule of multi-annual commitments /contracts in the budget (2017) and financial statements (2017) - Status: Partly completed. Multi-annual commitments/contracts for capital projects are included as an Annex to budget documentation. - Include an analysis showing the fiscal space available for financing new projects (2016): Not implemented. No distinction between new and ongoing capital projects in MTEF, though budget distinguishes between new and ongoing projects. - Add total project costs and project duration in Tables 3.2 and 4.2 of the annual draft law on the budget (2016): Completed. Budget documents include all project costs for full duration of the project. - Recommendation 4: Plan capital projects and their subsequent maintenance costs comprehensively (e.g., in sector strategies). - Status: Largely completed. Administrative Instructions issued, adopted, and implemented, and makes a distinction. Asset management policy needs to consider both when determining the resource requirement. - Include a specific item for maintenance costs in the budget, and carry out a study of maintenance needs in relevant BOs (2016–17): Not implemented. Maintenance continues to be included as goods and services. However, in the chart of account and annual financial reports, maintenance costs are presented separately. - Recommendation 5: Formalize project appraisal and selection procedures, and the documentation required in the PIP in a regulation or law (2016–17). - Status: Partly completed. An Administrative Instruction was made to guide selection but utilization of is not yet enforced. - Streamline institutional arrangements for taking decisions on the pipeline of eligible projects: Change since 2015 not assessed. After little action, separate sector-based pipelines are being updated. - The PIP system should be upgraded to include links to strategic documents: Partly completed. The PIP now has a field for strategic alignment. - Recommendation 6: Establish quality control checks by the Budget Department (and other relevant entities of the MoF) for data entered by BOs in the PIP system (2016). - Status: Not implemented. - Review the functionalities and use of the PIP system (2016): Not implemented. - Expand the range of standard reports for monitoring investment projects (2016–17): Change since 2015 not assessed. - Provide the PIP procedures with an explicit legal basis (2017): Completed. The Administrative Instruction on selection of capital projects was adopted; however enforcement is currently lacking. - Recommendation 7: Pilot ex-post reviews for selected high-risk projects (2016/2017), by MoF together with BOs. - Status: Not implemented. - Recommendation 8: Examine changes to legislation required to authorize the Auditor General to conduct audits of projects that are under litigation (2016). - Status: Not reviewed. ### Risks to availability of funding (Annex 6) - Cash planning and fund allocation - Cash plans prepared by BOs at the beginning of the year inform fund allocations and are not updated during the year to reflect changes and actual needs unless there is a change in the budget. - New regulation (No. 01/2022) on the fund allocation has caused some delays in capital projects: if monthly expenditures are not realized as planned and entered in the KFMIS system, BOs cannot carry unspent fund allocations to the following month automatically within the quarterly allocated funds but need to wait until the end of the quarter. - BOs have indicated this causes delays in capital project execution. - Manual invoice receipt and registry process and lack of multiyear commitment controls in earlier stages of the expenditure cycle result in further challenges for timely execution of capital expenditures. - Reported arrears (accounts payable > 30 days) for general government: - 2022: EUR 36 million - 2021: EUR 89 million - 2020: EUR 196 million - Note: In practice these numbers can be potentially higher given the current manual invoice receiving and verification process. - Recommended actions to strengthen availability of funding: - Reintroduce cash flow forecasting. - Review the recent changes in fund allocation mechanism and address challenges in earlier stages before the payment stage through further automation. - Analyze future cash inflows and outflows and prepare a quarterly cash flow forecasting to inform fund allocation decisions and strengthen cash management. - Discuss the recent fund allocation system reducing flexibility of moving available funds among months during a quarter to understand BOs problems and solve implementation bottlenecks. - Accelerate automatization of the invoice receipt and registry process and cover multi-year contracts in the IT systems (KFMIS, PIP and BSMS) to improve timely execution of capital expenditures. - IT integration and multi-annual contracts - Systematic recording of multi-annual contracts is important for Budget Department and Treasury for planning and monitoring. - Treasury has worked on linking KFMIS with e-procurement system to improve access to information on multi-annual contracts; the Budget Department has also been working on linking their IT systems (PIP and BDMS) to KFMIS and expect to establish these links in 2024. - Integration would allow e-procurement to check commitment (fund reservation) in KFMIS to prevent overcommitment and allow KFMIS access to all signed contracts in real time. - Manual invoice process weaknesses - Manual invoice receiving and registry mechanism causes irregularities identified in the Auditor General’s report and delays in capital projects, particularly at local government levels. - There is no procedural mechanism to ensure data validation and internal controls during the process. ### Climate-PIMA Questionnaire (Annex 7) — structure and key indicator themes - Scoring: 1 = To no or a lesser extent; 2 = To some extent; 3 = To a greater extent. - Major indicator groups and example sub-indicators: - C1. Climate-aware planning: Is public investment planned from a climate change perspective? - C.1.a: Consistency of national and sectoral public investment strategies and plans with NDC or other overarching climate change strategy on mitigation and adaptation. - C.1.b: Whether central/sub-national regulations on spatial and urban planning and construction address climate-related risks and impacts on public investment. - C.1.c: Presence of centralized guidance/support for government agencies on preparation and costing of climate-aware public investment strategies. - C2. Coordination between entities: Is there effective coordination of decision making on climate change-related public investment across the public sector? - C.2.a: Coordination across central government from a climate-change perspective (including externally financed projects, PPPs and extra-budgetary entities). - C.2.b: Coordination of planning and implementation of SNG capital spending with the central government from a climate-change perspective. - C.2.c: Regulatory and oversight framework for public corporations to ensure climate-related investments are consistent with national climate policies and guidelines. - C3. Project appraisal and selection: Do appraisal and selection include climate-related analysis and criteria? - C.3.a: Requirement for climate-related analysis in appraisal of major infrastructure projects according to a standard methodology with central support. - C.3.b: Whether frameworks managing longer-term public investment contracts (such as PPPs) explicitly address climate-related challenges in risk allocation and contract management. - C.3.c: Inclusion of climate-related elements among selection criteria for infrastructure projects, across budget-funded, externally financed, extra-budgetary, and PPP projects. - C4. Budgeting and portfolio management: Is climate-related investment spending subject to active management and oversight? - C.4.a: Identification, monitoring, and reporting of planned climate-related public investment expenditure, sources of financing, outputs and outcomes in the budget and related documents. - C.4.b: Ex-post reviews or audits of climate change mitigation and adaptation outcomes of public investments. - C.4.c: Whether government asset management policies and practices, including maintenance, address climate-related risks and include climate-related information in asset registers. - C5. Risk management: Are fiscal risks relating to climate change and infrastructure incorporated in budgets and fiscal risk analysis and managed according to a plan? - C.5.a: Publication of a national disaster risk management strategy that incorporates climate change impacts on public infrastructure assets and networks. - C.5.b: Ex ante financing mechanisms to manage exposure of public infrastructure to climate-related risks (e.g., an annual contingency appropriation). - C.5.c: Conducting and publishing fiscal risk analysis that incorporates climate-related risks to public infrastructure assets (qualitative and/or quantitative assessments over the medium and long term). - Cross-cutting issues: - A IT support: Presence of a comprehensive computerized information system for public investment projects to support decision making and monitoring. - B Legal Framework: Legal and regulatory framework supporting institutional arrangements, mandates, coverage, standards and accountability for effective PIM. - C Staff capacity: Whether staff capacity (number of staff and/or their knowledge, skills, and experience) and clarity of roles and responsibilities support effective institutions. *Annex 3 — The updated 2018 PIMA framework (extracted content).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1kosea2023003.pdf_