## _cr16100

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---

### Mission and engagement
- IMF Fiscal Affairs Department mission to Kosovo conducted a Public Investment Management Assessment during December 9–22, 2015.
- Mission leader: Johann Seiwald (Fiscal Affairs Department). Team: Isabel Rial (FAD), Duncan Last (Regional Advisor), Richard Allen (FAD expert).
- Meetings with: Minister of Finance Dr. Avdullah Hoti; Deputy Minister Agim Krasniqi; senior staff of Ministry of Finance (Budget Department, Department of Municipal Budget, Department of Joint Services and Finance, Macro Department, PPP unit); Prime Minister’s Office of Strategic Planning; Ministry of Economic Development; Ministry of Education; Ministry of European Integration; Ministry of Health; Ministry of Infrastructure; Ministry of Local Government; Ministry of Public Administration; Ministry of Trade and Industry; Office of the Auditor General; Municipality of Pristina; Municipality of Prizren.
- Donor briefings: EBRD, GIZ, KfW Development Bank, European Union Office in Kosovo, SECO, USAID, World Bank.
- Coordination and support acknowledgements: Ms. Sanije Himai; IMF Resident Representative in Kosovo Mr. Ruud Vermeulen and staff; Ms. Merita Kernja; interpreters Mr. Ukshin Ahmetaj and Mr. Hyjnor Jasiqi.

### Key facts on public investment trends (Executive Summary)
- Public investment peaked at 11 percent of GDP in 2012 and reverted to about 8 percent of GDP in 2014.
- Kosovo’s public capital stock has remained fairly stable at around 50 percent of GDP, slightly below the regional average of 60 percent.
- Post-conflict roughly one-third of total public spending was allocated to procurement of basic infrastructure needs.
- Efficiency of public investment:
  - Kosovo’s efficiency gap is 45 percent.
  - Regional average efficiency gap: 30 percent.
  - Emerging Market Economies (EME) average efficiency gap: 40 percent.
- Sectoral observations:
  - Significant investment in roads and economic infrastructure showing results.
  - Quality of education and health infrastructure is well below regional standards.
- Public-Private Partnerships (PPPs):
  - PPPs capital stock of 1.7 percent of GDP in 2014 (Executive Summary).
  - Table 0 reports existing PPPs capital stock of 1.2 percent of GDP (both figures appear in source).

### Institutional strengths and weaknesses (summary)
- On paper, many PIM institutions score good or medium; practical implementation is weaker.
- Stronger (on paper):
  - Fiscal rules: debt rule since 2009; deficit rule since 2014 with escape clause, automatic correction mechanism, and investment clause.
  - Management of PPPs; independent regulators for infrastructure pricing; multi-year budgeting (MTEF ceilings published); asset monitoring in accounting system.
- Weaker and implementation gaps:
  - Budget comprehensiveness: externally financed grants and PPPs not included in budget documentation; 5 percent of capital expenditure misclassified in 2014.
  - Project selection and appraisal: PIP Manual exists including cost benefit analysis but many BOs do not carry out required procedures and risk assessment is not conducted.
  - Project management and protection of investment: appropriations annual only; virements from capital to current allowed; limited carryover; monitoring and ex post reviews/audits limited; asset data quality questioned by Auditor General.
  - MTEF forecasting errors: 23 percent two years ahead and 10 percent one year ahead.
  - Budget execution under-execution: average under-execution of capital budget recent years is 10 percent; under-execution in 2014 was just under 23 percent.
  - Cash flow and arrears: cash flows planned quarterly and generally released in time; 1.1 percent of capital spending is in arrears; total arrears are 2 percent of GDP in 2014.

### Eight headline recommendations (condensed)
- Implement and publish the National Development Strategy; consolidate sector strategies with costing for capital and current costs over the medium term.
- Increase budget transparency by including an annex for PPP and POE investments, and a statement of contingent liabilities.
- Include schedule of multi-annual commitments/contracts and information on total project costs and project duration in the budget.
- Plan subsequent operation and maintenance costs in capital project proposals and sector strategies; carry out studies of maintenance needs in key sectors.
- Strengthen Budget Department and MoF role in project appraisal and selection through legislation; streamline institutional arrangements for pipeline decisions.
- Establish MoF quality control checks for data entered by BOs in the PIP system; review functionalities and use of the system.
- Pilot ex post reviews, by MoF and BOs, of selected high risk projects.
- Initiate dialogue to allow Auditor General audits of projects under litigation using a risk-based approach.

---

### 1. Capital spending has been a key element of fiscal policy since independence

- Fiscal context and aggregates:
  - General government deficit peaked at 3.0 percent of GDP in 2013.
  - General government gross debt averaged 17.5 percent of GDP.
  - Public investment increased from 8 percent of GDP in 2008 to 11 percent of GDP in 2012.
  - Capital stock averaged 50 percent of GDP over 2008–2012.
- Major projects and execution:
  - Route 7 accounted for 40 percent of total capital spending in 2012 and 2013.
  - Cost of constructing Route 7 to the Albanian border between 2012–14 amounted to about 20 percent of GDP.
  - Implementation rate improved from 80 percent in 2008 to an average of 90 percent between 2009–13.
- 2014 fiscal adjustment:
  - Investment spending decreased by 2.5 percentage points of GDP, falling to 7.3 percent of GDP in 2014.
  - Excluding Route 7, investment spending increased by 0.8 percentage points of GDP relative to 2013 but remained below budget.
- Financing:
  - Public investment mostly financed domestically.
  - By 2013, donors financed less than 7 percent of public investment.
  - Around 40 percent of donor external funding takes place off-budget.
- Composition and comparisons:
  - Average 2009–13: almost 60 percent of total public investment went to economic infrastructure; 50 percent relates to transport rehabilitation.
  - Capital spending in social sectors is about half the level in EDE countries.
  - Municipal spending close to one-fifth of total investment (2013); expected to increase to 26 percent in 2018 from 22 percent in 2009.
  - POEs contribution marginal: about 0.1 percent of GDP in 2013.
  - PPP capital stock estimated at 1.2 percent of GDP as of 2013; PPP program size reported as 1.7 percent of GDP in 2014; about a dozen new PPP projects in development with estimated cost of 1.5 percent of GDP.
- Efficiency and impact:
  - Efficiency gap: 45 percent (Kosovo) vs 30 percent (neighboring countries) and 40 percent (EME).
  - Infrastructure access substantially lower for education, public health, and roads; broadly in line for electricity and water.
- Sectoral issues and recommendations (select):
  - Transport: road maintenance budget less than half of neighboring Serbia or Bosnia Herzegovina per capita; IMF and World Bank suggested increasing road user charges and vehicle registration fees.
  - Energy: 98 percent of electricity generation from two lignite power plants; power outages persist; about 50 percent of companies cite electricity access as major obstacle.
  - Education: half of population under 25; 60 percent of unemployed are unskilled; capacity constraints in secondary education and lingering multi-shift schools.
  - Health: deficiencies in sewage and water supply to health institutions; World Bank recommended contributory health insurance to come into effect in 2017.

---

### 2. National and sectoral planning (Strength—Good; Effectiveness—Low)

A. National and sectoral planning — findings
- Office for Strategic Planning (OSP) established in 2010; NDS under preparation with expected approval early in 2016.
- Since 2012 OSP developed administrative procedures and methodologies; Integrated Planning System (IPS) adopted July 2015.
- About 80 sectoral strategies exist; many have incomplete medium-term costing and weak outcome indicators.
- BOs often do not include maintenance costs in multi-year costing despite requirement to provide life-cycle costs.

B. Central-local coordination
- Public Debt Law limits municipalities’ total gross debt at 40 percent of their own revenues and general grants.
- LLGF requires municipalities to seek MoF approval to borrow.
- Kosovo has 38 municipalities.
- Grant Commission oversees compliance; transfers include general grants and specific health/education grants; no specific central capital transfers and no rule-based central capital transfer mechanism.
- Budget timetable key dates:
  - By April 30: MoF provides aggregate transfer info for coming year and next two years.
  - First budget circular: May.
  - Second budget circular: July (final ceilings).
  - Municipal draft budgets presented by August 31 and approved by September 30.
- Municipal data and capacity constraints: municipalities lack medium-term costing techniques; municipal share of capital expenditure expected to increase to 26 percent in 2018 from 22 percent in 2009.

C. Public-private partnerships (PPPs) — findings and risks
- Legal framework: PPP Law No. 04/L-045 (25 November 2011); PPP Development Strategy 2014–16.
- PPP institutional arrangements:
  - Minister of Finance chairs Public-Private Partnership Committee (PPPC) with veto power over MoF termination of projects.
  - Dedicated PPP unit in MoF advises contracting agencies, checks value-for-money and budget affordability.
  - PPPC has five permanent members including Minister of Finance.
- Fiscal risk assessment and reporting limited:
  - Annual reports to PPPC provide limited fiscal risk information; PPP unit does not systematically assess fiscal risks or mitigation measures.
  - Legal framework lacks accounting provisions for PPPs per IPSAS 32 and GFSM 2014; PPP data not required in budget and annual financial statements.
- PPP utilization and pipeline:
  - Two user-funded PPPs executed: Pristina International Airport modernization and Urban Bus Transport project in Peja; combined capital stock reported as 1.7 percent of GDP at end-2014.
  - Several general government projects in development estimated at 1.5 percent of GDP; majority expected to be fully user-funded with no government guarantees.

D. Regulation of infrastructure companies
- Procurement Law broadly in line with EU standards: 12,551 public procurement contracts in 2013 valued at €444 million; open competition represented 88 percent of total value; negotiated procedures 6 percent (PEFA, July 2015).
- Four independent regulators: Water and Waste Regulatory Office; Railways Regulatory Office; Telecommunication Regulatory Authority; Energy Regulatory Office (ERO). ERO faces political interference, low capacity, 17 percent budget cut, and has only two of five board members.
- Weak financial oversight of 18 POEs: MED reports operational focus with limited financial data; POE investment spending €5.6 million in 2014 (0.1 percent of GDP); limited coordination between MED and MoF on fiscal risks from POEs; Auditor General highlights financial management weaknesses.

E. Investment allocation — MTEF, comprehensiveness, unity
- MTEF: rolling three-year MTEF presented end-April; includes capital projections by ministry/BO/program and municipalities; ceilings do not systematically include multi-annual commitments; KFMIS can record multi-annual commitments but entries incomplete.
- BOs submit full-cost projections with budget proposals but data not published and no system monitors expenditure against projections.
- Ceilings non-binding and frequently revised; average forecasting errors: 23 percent two years ahead and 10 percent one year ahead.
- Budget comprehensiveness:
  - 93 percent in 2015 of capital spending financed domestically through the budget.
  - Capital projects financed by external grants not explicitly recorded in PIP or budget but < 3 percent of total capital spending.
  - All projects financed by external loans are recorded and documented in PIP.
  - PPP information not shown in the budget; PPP program size reported as 1.7 percent of GDP in 2014.
- Budget unity:
  - Budget presents capital and associated current spending by ministry/program and municipality but not by project.
  - Misclassification of current to capital occurred amounting to around 5 percent of total capital expenditure in 2014, contributing to Auditor General qualification of 2014 financial statements.

---

### 3. Investment implementation, monitoring, and data quality

Maintenance funding and asset readiness
- BOs and municipalities report insufficient maintenance funding; delays in bringing new assets into use due to shortages in current expenditure.
- Current maintenance budget at historic low of less than 0.5 percent of the capital stock.
- PIP requires BOs to forecast operations and maintenance costs, but systematic maintenance information unavailable.

Project appraisal, selection, and implementation
- PIP Manual provides comprehensive guidance; required procedures more elaborate for projects > €400,000.
- In practice:
  - Not all BOs carry out cost-benefit analysis and required appraisals; analyses rarely published.
  - Important project data not always entered into PIP database.
  - MoF Budget Department provides ad hoc support but lacks systematic quality control.
- Project selection:
  - Largely rests with BOs; no legal basis for MoF to formally propose and reject investment projects.
  - PIP holds > 15,000 projects but is limited as a prioritization pipeline; two pipelines (PIP and Single Project Pipeline) provide limited guidance.
  - MoF lacks institutional strength to lead prioritization; central coordination weakness contributes to 45 percent efficiency gap.
- Protection of investment:
  - Capital appropriations annual; documentation omits cumulative spending and total project lifetime cost.
  - Virements from capital to current allowed up to 5 percent (BO), up to 15 percent with MoF approval, up to 25 percent with government approval (Article 30 LPFMA).
  - Restricted carryover rules: Article 27 LPFMA prohibits carryovers except municipal own revenues; Article 7 Annual Budget Laws broaden exceptions; carryovers averaged 8 percent of total investment over last five years.
  - Under-execution: 10 percent underspent on average 2010–2013; under-spending increased to 23 percent in 2014; in 2015 a major project under-budgeted by €25 million (5 percent of total investment).
- Availability of funding and arrears:
  - BOs prepare annual cash flow plans; Treasury issues quarterly allocations; payments generally timely via TSA using KFMIS.
  - LPFMA payment deadlines: BOs request payment within 30 days; creditors may go to Treasury after 60 days; 318 court cases in 2015 totaling €5 million.
  - Recognition of unpaid obligations in 2014 added €113.8 million for past expropriations, bringing total unpaid obligations to €165.4 million (just under 11 percent of total expenditure).
  - In 2014, just under half of unpaid obligations related to capital spending totaling €5.6 million (1.1 percent of capital spending), €3.2 million at municipal level.
  - External financing channeled through budget is integrated in TSA; some bilateral grant financing remains outside TSA; estimated about €10 million per year outside TSA; external loan funding well under 1 percent of total spending except 2013 when 6.4 percent.

Transparency, procurement, and procurement reform
- Procurement law adequate in principle but implementation weak: Auditor General identifies poor procurement planning, contracts without committed funds, splitting tenders, customization favoring certain operators, weaknesses in evaluation, and contracts with abnormally low prices.
- New procurement law adopted December 2015:
  - Improved centralized control via Central Procurement Agency.
  - Removes domestic supplier preference clause.
  - Option to establish e-procurement system.
  - Enhanced provisions to combat corruption; requires secondary legislation and training.
- Corruption Perceptions Index: Kosovo ranks lower than regional comparators with a declining trend.

Monitoring, data quality, and PIP system
- Monitoring framework exists but PIP data quality and comprehensiveness are questionable.
- Major-project sample (appropriation > €1 million) in 2015:
  - 57 Total project sample (appropriation > €1 million)
  - 38 Projects where end date changed at least once
  - 8 Projects where end date changed 4 or more times
  - 7 Projects where end date < current year (2015)
- Around 60 percent of 57 major projects were delayed and around 15 percent had continuous revisions.
- Auditor General rarely undertakes ex post audits of major projects; policy decision not to audit projects under litigation as more than 90 percent of projects are reported under litigation.
- Absence of ex post audits reduces learning; recommendation to pilot ex post reviews for selected high-risk projects (e.g., Route 6 and 7, 2016/2017).

Assets accounting
- Regulation 02/2013 requires BOs to appoint asset officers, maintain registers, document movements, undertake annual stock taking, and prepare statements of nonfinancial assets.
- Asset reports consolidated into annual financial reports; linear depreciation rates established.
- Auditor General questions data reliability; 2014 audit noted limited top management interest and mismatches between national systems.
- Figure 3.G indicates average difference between nonfinancial asset stocks and capital spending of 33 percent.

Key policy recommendations (condensed and timed)
- Recommendation 1: Implement and publish National Development Strategy (2016) and consolidate/cost sector strategies (2016–19).
- Recommendation 2: Increase transparency by including annex for PPPs and POE investments (2016); record PPP assets/liabilities and contingent liabilities in annual financial statements (2017).
- Recommendation 3: Include multi-annual commitments and fiscal space analysis in budget and financial statements (2016–17); add total project costs and duration in Tables 3.2 and 4.2 (2016).
- Recommendation 4: Plan maintenance costs; include specific maintenance budget line and carry out maintenance needs studies (2016–17).
- Recommendation 5: Formalize appraisal/selection procedures and PIP documentation in regulation or law (2016–17); streamline pipeline decision arrangements (2016).
- Recommendation 6: Establish MoF quality control for PIP data (2016); review PIP functionalities and expand standard reports (2016–17); provide legal basis for PIP procedures (2017).
- Recommendation 7: Pilot ex post reviews for selected high-risk projects, such as Route 6 and 7 (2016/2017).
- Recommendation 8: Examine legislative changes to permit Auditor General audits of projects under litigation; undertake risk-oriented audits and agree approach with MoF, MoJ, Procurement Commission, and Prosecutorial and Judicial Councils (2016).

---

### Annex I — Prioritization and Selection of Capital Investment Projects

Background and institutional assessment
- 2010 Letter of Intent: pledge to establish Public Investment Committee, prepare ranked project list, mandatory cost-benefit analysis for large projects, and quarterly monitoring reports.
- 2013 PIP framework: IT system and PIP Manual.
- Public Investment Committee did not function effectively; met infrequently and provided limited coordination; MoF plays limited role.
- IPS (May 2015) introduced Strategic Planning Committee (SPC) chaired by Prime Minister and proposed abolition of previous committees; three-stage review: MoF (or MEI), Strategic Planning Steering Group, SPC.
- National Investment Committee (NIC) created, jointly chaired by Minister of European Integration and Minister of Finance; Single Project Pipeline (SPP) announced December 2015.

PIP database: size and limitations
- PIP contains > 15,000 projects and capital purchases with total cost in excess of €1,000.
- 2,803 projects identified in 2015 budget: 689 national and 2,114 municipal.
- 362 qualify as major projects (> €400,000): 286 national and 76 municipal.
- Limitations include misclassification of recurrent spending as capital, inclusion of administrative capital, incomplete fields for early-stage projects, uncertain inclusion of POE projects and donor-financed projects, and inconsistent entry of cost-benefit analyses and maintenance projections.
- PIP Manual requires MoF validation for major projects but Budget Department limited (21 staff; 16 budget officers/analysts).
- Single Project Pipeline uses more comprehensive methodology and links projects to the EU “Berlin process”; SPP projects estimated total cost €2.35 billion over ten years.

Recommendations to strengthen selection and PIP
1. Strengthen central decision-making:
  - Prepare single pipeline including all new projects regardless of financing.
  - MoF to carry out first screening; Strategic Planning Steering Group to evaluate funding options; pipeline divided into four lists: budget-financed; EU/donor-financed; PPPs; POE-financed.
  - NIC to act as sub-committee of SPC with mandate to review and approve major new capital projects and monitor implementation.
2. Review and modify PIP:
  - Comprehensive review of PIP delivery, functionalities, user perspectives, reports, and resource needs.
  - Key fixes: separate existing vs new major projects; limit BO ranking to major projects; develop cost-benefit and ranking procedures aligned with SPP methodology; generate analytical reports for missing fields; produce standard reports for ministers; close unused fields; assess PPP assessment functionalities.
  - Revise PIP Manual after review.

---

### 3. Strengthening the Legal basis for Public Investment Management

Legal framework and reforms
- No formal legal basis currently for appraisal, prioritization, and selection procedures.
- Recommendation: approve formal rules via Cabinet and Assembly to provide clear framework and reinforce Budget Department/MoF oversight.
- Capacity and resource realignment needed in MoF to support IPS and strengthen Budget Department quality assurance.
- Sequenced implementation steps (timing):
  - Changes to institutional arrangements for pipeline decisions (2016).
  - Review of PIP (2016).
  - Preparation of new legislation on public investment management (2016).
  - Changes to PIP database and PIP Manual (2017).

Sequenced Action Plan (selected items and timing)
- Implement and publish national strategy; consolidate and cost sector strategies (2016–18). Responsible: MoF (Budget Department), MEI, OSP, BOs.
- Increase transparency: include statement of contingent liabilities related to PPPs and POEs in 2016 financial statements; IPSAS-based reporting for PPPs and annexes in 2017 budget. Responsible: MoF (Budget Department, Treasury), PPP Unit, POE Unit in MED.
- Disclose multi-annual commitments and fiscal space analysis in 2016–17; redesign Tables 3.2/4.2 by 2017. Responsible: MoF (Budget Department, Treasury), BOs.
- Include maintenance costs in planning and budget (2016–17). Responsible: MoF (Budget Department), BOs.
- Strengthen MoF role in appraisal and selection; amend regulatory framework (2016). Responsible: MoF (Budget Department), OSP, MEI.
- Improve PIP: review functionality (2016); implement changes and revise Manual (2017). Responsible: MoF (Budget Department, IT Department), BOs.
- Establish ex post review procedures and pilot (2016–17). Responsible: MoF (Budget Department), BOs.
- Expand ex post audits by Auditor General, with legislative review (2016–17). Responsible: Auditor General, MoF, MoJ, Prosecutorial and Judicial Councils.

*Source: IMF Fiscal Affairs Department mission report (Public Investment Management Assessment), Kosovo, December 9–22, 2015.*

### PREFACE ................................................................................................................

### _cr16100 - PREFACE

### Mission and engagement
- IMF Fiscal Affairs Department mission to Kosovo conducted a Public Investment Management Assessment during December 9–22, 2015.
- Mission leader: Johann Seiwald (Fiscal Affairs Department). Team: Isabel Rial (FAD), Duncan Last (Regional Advisor), Richard Allen (FAD expert).
- Meetings with: Minister of Finance Dr. Avdullah Hoti; Deputy Minister Agim Krasniqi; senior staff of Ministry of Finance (Budget Department, Department of Municipal Budget, Department of Joint Services and Finance, Macro Department, PPP unit); Prime Minister’s Office of Strategic Planning; Ministry of Economic Development; Ministry of Education; Ministry of European Integration; Ministry of Health; Ministry of Infrastructure; Ministry of Local Government; Ministry of Public Administration; Ministry of Trade and Industry; Office of the Auditor General; Municipality of Pristina; Municipality of Prizren.
- Donor briefings: European Bank for Reconstruction and Development (EBRD), Gesellschaft fuer Internationale Zusammenarbeit (GIZ), KfW Development Bank, European Union Office in Kosovo, State Secretariat for Economic Affairs (SECO), USAID, World Bank.
- Coordination and support acknowledgements: Ms. Sanije Himai (organizing mission schedule); IMF Resident Representative in Kosovo Mr. Ruud Vermeulen and staff; Ms. Merita Kernja; interpreters Mr. Ukshin Ahmetaj and Mr. Hyjnor Jasiqi.

### Key facts on public investment trends (Executive Summary)
- Public investment peaked at 11 percent of GDP in 2012 and reverted to about 8 percent of GDP in 2014.
- Kosovo’s public capital stock has remained fairly stable at around 50 percent of GDP, slightly below the regional average of 60 percent.
- Post-conflict roughly one-third of total public spending was allocated to procurement of basic infrastructure needs.
- Efficiency of public investment:
  - Kosovo’s efficiency gap is 45 percent.
  - Regional average efficiency gap: 30 percent.
  - Emerging Market Economies (EME) average efficiency gap: 40 percent.
- Sectoral observations:
  - Significant investment in roads and economic infrastructure showing results.
  - Quality of education and health infrastructure is well below regional standards.
- Public-Private Partnerships (PPPs):
  - Executive Summary: PPPs capital stock of 1.7 percent of GDP in 2014.
  - Table 0 (summary heatmap): existing PPPs capital stock account for 1.2 percent of GDP (note: both figures appear in source).

### Institutional strengths and weaknesses (summary)
- Overall: Many PIM (Public Investment Management) institutions score good or medium on paper but are weaker in practical implementation.
- Stronger areas (on paper):
  - Fiscal rules (debt rule since 2009; deficit rule since 2014) with escape clause, automatic correction mechanism, and investment clause.
  - Management of PPPs, independent regulators for infrastructure pricing, multi-year budgeting (MTEF ceilings published), asset monitoring in accounting system.
- Weaker areas and implementation gaps:
  - Budget comprehensiveness: externally financed grants and PPPs not included in budget documentation; 5 percent of capital expenditure misclassified in 2014.
  - Project selection and appraisal: PIP Manual exists with comprehensive guidance (including cost benefit analysis) but many BOs do not carry out required procedures and risk assessment is not conducted.
  - Project management and protection of investment: appropriations annual only; virements from capital to current allowed; limited carryover; monitoring and ex post reviews/audits limited; quality of asset data questioned by Auditor General.
  - Multi-year budgeting effectiveness: forecasting errors of the MTEF are large—23 percent two years ahead and 10 percent one year ahead.
  - Budget execution: average under-execution of capital budget recent years is 10 percent (EME average 26 percent); under-execution in 2014 was just under 23 percent.
  - Cash flow and arrears: cash flows planned quarterly and generally released in time; 1.1 percent of capital spending is in arrears; total arrears are 2 percent of GDP in 2014.

### Findings on planning, allocation, and implementation (selected)
- Planning institutions:
  - National Development Strategy (NDS) under preparation; around 80 sectoral strategies published with performance indicators and costings for major projects, but many costings are incomplete.
  - Central and municipal investment plans consolidated and discussed during budget process; no comprehensive rule-based system for capital transfers to municipalities.
  - Legal/regulatory framework supports competition in economic infrastructure markets; prices set by four independent regulators; oversight of 18 POEs focuses on operational performance; fiscal risks of POEs not fully assessed.
- Allocation institutions:
  - MTEF incorporates indicative ceilings for capital expenditure for a three-year period but lacks information on multi-annual commitments.
  - Budget provides relatively comprehensive picture of capital spending; projects funded by external grants (less than 3 percent of total investment) and PPPs not included.
  - Two pipelines of investment projects established but provide limited guidance for inclusion in budget and MTEF.
- Implementation institutions:
  - Procurement law provides for competitive and transparent procedures but not always systematically implemented.
  - Ex post audits of major projects rarely undertaken (many cases under litigation); ex post reviews by MoF and BOs generally not conducted.
  - Law requires project implementation monitoring and explanations for delays/cost overruns, but monitoring and explanations are limited in practice.
  - Government accounting system includes comprehensive asset statement with depreciation, published annually; Auditor General routinely questions data quality.

### Recommendations (eight headline actions)
- Implement and publish the National Development Strategy, and consolidate sector strategies, including costing for capital and current costs over the medium term.
- Increase transparency of budget documentation by including an annex for PPP and POE investments, and a statement of contingent liabilities.
- Include a schedule of multi-annual commitments/contracts and information on total project costs and project duration in the budget.
- Include planning of subsequent operation and maintenance costs in capital project proposals and sector strategies, and carry out systematic studies of maintenance needs in key sectors.
- Strengthen the role of the Budget Department and the Ministry of Finance in project appraisal and selection through legislation, and streamline institutional arrangements for pipeline decisions.
- Establish quality control checks by the Ministry of Finance for data entered by Budget Organizations in the PIP system, and review the functionalities and use of the system.
- Pilot ex post reviews, by the Ministry of Finance and Budget Organizations, of selected high risk projects.
- Initiate dialogue on conditions under which the Auditor General may conduct audits of projects that are under litigation, aiming to initiate audits on investment projects as soon as possible using a risk-based approach.

*Source: IMF Fiscal Affairs Department mission report (Public Investment Management Assessment), Kosovo, December 9–22, 2015.*

### 1.      Capital spending has been a key element of fiscal policy since independence.

### 1.      Capital spending has been a key element of fiscal policy since independence.

### Overview and fiscal context
- Since 2008, authorities adopted a counter-cyclical fiscal policy prioritizing public investment in infrastructure to support economic growth.
- General government deficit—covering central and local governments—peaked at 3.0 percent of GDP in 2013.
- Despite deterioration of the deficit by almost 3 percentage points of GDP since 2008, general government gross debt remained within sustainable levels, at 17.5 percent of GDP on average.
- Public investment increased from 8 percent of GDP in 2008 to 11 percent of GDP in 2012.
- Capital stock averaged 50 percent of GDP over 2008–2012, with small improvements after 2012 due to high investment since 2009.

### Major projects and execution
- Route 7 accounted for 40 percent of total capital spending in 2012 and 2013.
- The cost of constructing Route 7 to the Albanian border between 2012–14 amounted to about 20 percent of GDP.
- Implementation rate (budget appropriation relative to actual execution) improved from 80 percent in 2008 to an average of 90 percent between 2009–13, partly reflecting Route 7’s influence.

### 2014 fiscal adjustment
- In 2014, capital spending reverted to 2008 levels as a result of fiscal measures to preserve fiscal sustainability.
- Investment spending decreased by 2.5 percentage points of GDP, falling to 7.3 percent of GDP in 2014.
- Excluding Route 7, investment spending increased by 0.8 percentage points of GDP relative to 2013, but remained below the originally budgeted amount.

### Financing of public investment
- Public investment is mostly financed through domestic sources.
- By 2013, donors financed less than 7 percent of public investment.
- Around 40 percent of donor external funding takes place off-budget (administered directly by donors and not included in the budget).

### Comparisons with peers
- Since 2008, Kosovo spent more on public investment than the average of Emerging and Developing Europe (EDE) countries (2005 PPP$-adjusted, percent of GDP).
- Despite higher investment spending, Kosovo’s capital stock remains slightly below the average for neighboring countries.

### Composition of public investment
- Over the last five years (average 2009–13), almost 60 percent of total public investment went to economic infrastructure; 50 percent of total public investment relates to rehabilitation of the transport network.
- Capital spending in social sectors (health, education, housing) is about half the level in EDE countries.
- Municipal spending accounts for close to one-fifth of total investment by general government (2013), close to the EDE average.
- Municipalities’ share of capital expenditure expected to increase to 26 percent in 2018 (from 22 percent in 2009).
- Contribution of publicly owned enterprises (POEs) to total public sector investment is marginal, about 0.1 percent of GDP in 2013.
- Estimated capital stock of PPP projects accounted for 1.2 percent of GDP as of 2013, less than one-third of the average for EDE.
- About a dozen new PPP projects are in development with an estimated cost of 1.5 percent of GDP.

### Efficiency and impact of public investment
- Kosovo’s overall public investment efficiency is relatively low.
- Efficiency gap: 45 percent compared with an average for neighboring countries (Albania, Montenegro, FYR Macedonia) of 30 percent and EME average of 40 percent.
- Infrastructure access is substantially lower for education, public health, and roads; broadly in line for electricity and water.
- Measured infrastructure access indicators (2014):
  - Public education infrastructure: secondary teachers per 1,000 persons (units as reported).
  - Electricity production per capita: thousands of kWh per person.
  - Roads per capita: km per 1,000 persons.
  - Public health infrastructure: hospital beds per 1,000 persons.
  - Access to treated water: percent of population.

### Factors contributing to low efficiency
- Political pressures to spend in non-urgent areas from powerful lobby groups (pensioners, veterans, former political prisoners, civil servants) and some foreign partners, risking crowding out investments in health, education, and other growth-boosting capital projects.
- Tendency to over-invest in new capital stock and under-invest in maintenance of roads and other infrastructure; maintenance expenditure has fallen in monetary value and as a ratio of the capital stock.
- Weak decision-making process for capital investment; in education, decision-making is fragmented between central government and municipalities and accountability is blurred.

### Initiatives and reforms to improve efficiency
- Government establishing a new integrated planning framework (details in Annex 1 of the source).
- EU initiative preparing a pipeline of projects to improve investment efficiency in transportation (roads and rail), energy, drinking water, wastewater treatment, and flood protection.
- About a dozen PPP projects in pipeline, as noted above.

### Sectoral issues and recommendations
- Transport:
  - Heavy emphasis on building new roads may crowd out low-emission transport (rail).
  - Road maintenance budget is less than half of neighboring Serbia or Bosnia Herzegovina on a per capita basis.
  - IMF and World Bank suggested increasing road user charges and vehicle registration fees to ensure sufficient funds for road maintenance in the medium- to long-term.
- Energy:
  - Ninety-eight percent of electricity generation comes from two outdated, inefficient, and highly polluting lignite power plants.
  - Power outages still occur in some areas when demand is high.
  - About 50 percent of companies in Kosovo identify access to electricity as a major obstacle, compared to 6 percent in Montenegro, 8 percent in Serbia, and 10 percent in Bosnia Herzegovina.
  - Kosovo Electricity Corporation (KEK) considering a 500 MW power plant project financed by the private sector.
  - Scope exists for renewable energy sources and improved energy use in public buildings.
- Education:
  - Kosovo has the youngest population in Europe (half of the population is under 25 years).
  - Unemployment is very high; 60 percent of unemployed people are unskilled.
  - Recent investment could broadly replace three-shift systems, but many schools still run in two shifts.
  - Capacity for secondary education is insufficient; better resource use needed, especially in rural areas with small classrooms.
- Health:
  - Investments made in new medical equipment and buildings, but deficiencies exist in sewage and water supply systems to health institutions.
  - Efficiency could be increased by refocusing spending on primary health care and improving maintenance of existing facilities.
  - World Bank recommended a contributory health insurance scheme to come into effect in 2017 to raise additional resources for the under-financed health sector and expand the tax base.

### Public Investment Management (PIM) institutions
- Overall, PIM institutions are generally well designed and moderately effective in implementation.
- Planning institutions score quite high on average, but challenges in costing and fragmentation of sector strategies remain.
- Allocation mechanisms score good or medium; weaknesses in project appraisal and selection.
- Implementation institutions: investment is not well protected during budget execution; project management scores poorly.
- Asset accounting is comprehensive, but data quality needs improvement.

### Fiscal rules and investment clause
- Existing rules:
  - Debt rule enacted in 2009 limits general government gross debt to 40 percent of GDP (including guarantees); requires government strategy to correct deviations; adhered to since implementation.
  - New fiscal rule adopted in 2013, in effect since 2014, sets a ceiling for the general government deficit of 2 percent of GDP.
  - Deficit rule allows capital projects financed from privatization receipts to be exempted and includes an automatic correction mechanism.
  - Fiscal rule specifies circumstances for temporary suspension: economic recession, natural disasters, crisis in the banking system, and call of state guarantees.
- December 2015 amendment to the investment clause (as part of SBA commitments) allows new donor-financed capital projects—in addition to privatization-financed projects—to be exempted from the deficit ceiling, subject to safeguards and conditions:
  - Applicability conditions:
    - targeted deficit is below 2 percent of GDP;
    - government’s bank balances are above 4.5 percent of GDP;
    - public debt does not exceed 30 percent of GDP (if exceeded, only projects financed by privatization receipts would be exempted).
  - Includes a sunset clause of 10 years for the exemption of donor-funded capital expenditures.
  - MoF to submit semi-annual reports to parliament on all new donor-funded projects qualifying under the investment clause, detailing rationale, expected costs, and financing items (structural benchmark for the second review under the SBA).
- First year of deficit rule implementation (2014) required deep cuts to capital spending to compensate for a sharp increase in current spending; overall fiscal deficit exceeded the ceiling by 0.4 percentage points (though within ex post margin allowed).
- The amendment is expected to encourage public investment by protecting capital-spending allocations under the investment clause from being diverted to non-priority spending or to fund current spending shortfalls.

*Source: IMF staff report content from the provided chapter "1.      Capital spending has been a key element of fiscal policy since independence."*

### 2. National and sectoral planning (Strength—Good; Effectiveness—Low)

### 2. National and sectoral planning (Strength—Good; Effectiveness—Low)

### A. National and sectoral planning — findings
- Office for Strategic Planning (OSP) established in 2010 within the Prime Minister’s Office; mandate to coordinate preparation of the NDS and related sectoral strategies.  
- The National Development Strategy (NDS) is under preparation; authorities expect to approve it early in 2016.  
- Since 2012, OSP developed administrative procedures and methodologies for preparation and approval of sectoral strategic documents that serve as the basis of the MTEF, the annual budget, and possible donor funding.  
- In June 2015, the government adopted the Integrated Planning System (IPS) (Strategy for Improving Policy Planning and Coordination in Kosovo (Integrated Planning System), July 2015) to harmonize, integrate, and improve planning and monitoring systems, including investment planning.  
- There are about 80 sectoral strategies covering major economic sectors, most identifying priorities, objectives, milestones, activities, and measurable output targets; outcome indicators are broadly defined and difficult to monitor.  
- Strategic planning process is fragmented partly due to absence of the NDS; development of the NDS is an opportunity to consolidate sectoral strategies and better link priorities to the budget.  
- Weaknesses in multi-year costing of investment projects: sectoral plans include medium-term costing but some are incomplete; BOs are required to provide full life-cycle costs but multi-year costing often excludes maintenance costs, producing unrealistic plans and partial inconsistency with macroeconomic projections.

### B. Central-local coordination — findings
- Public Debt Law limits municipalities’ total gross debt, including guarantees, at 40 percent of their own revenues and general grants (Article 32 of the Public Debt Law No.03/L – 175, 29 December 2009). No borrowing limits specifically related to investment are set.  
- Law on Local Government Finances (LLGF) requires municipalities to seek MoF approval to borrow.  
- Kosovo’s subnational government sector comprises 38 municipalities.  
- Central and municipal investment plans are consolidated and discussed during the budget negotiation process; the Grant Commission (assisted by a secretariat headed by the Director of the Municipal Budget Department in the MoF) oversees compliance with LPFMA and LLGF.  
- Transfers to municipalities: three main types—general grants, specific health care grants, and specific education grants; no specific central capital transfers. Specific purpose grants can finance/co-finance investment projects in health care or education but do not follow a predetermined rule-based mechanism.  
- Budget timetable and information sharing:
  - By April 30 each year, MoF provides aggregate information on transfers for the coming year and the next two years.  
  - First budget circular issued in May includes initial estimates of transfers.  
  - Second budget circular issued in July provides final expenditure ceilings.  
  - Municipalities present draft budgets to Municipal Assemblies by August 31 and approve by September 30.  
- Data limitations complicate coordination: municipalities lack costing techniques for medium-term fiscal implications (notably maintenance), and municipal investment allocations rely on increasingly optimistic own-revenue projections; under-collection of revenues (e.g., 2014) contributed to under-execution of capital spending.  
- One-fifth of Kosovo’s public investment is managed by municipalities; municipalities’ share of capital expenditure expected to increase to 26 percent in 2018 (from 22 percent in 2009).

### C. Public-private partnerships (PPPs) — findings and risks
- Legal framework and three-year PPP strategy guide policy and engagement (PPP Law No. 04/L-045, 25 November 2011; PPP Development Strategy for 2014–16), but PPPs are not fully embedded in the MTEF and annual budget cycle; PPPs are evaluated, selected, and approved separately from other public investment projects.  
- PPP institutional arrangements:
  - Minister of Finance chairs the Public-Private Partnership Committee (PPPC), an inter-ministerial body with veto power for the MoF to terminate projects deemed too risky or unaffordable.  
  - A dedicated PPP unit in the MoF advises contracting agencies, checks value-for-money and budget affordability, and provides an opinion to the Minister.  
  - PPPC has five permanent members: the Minister of Finance and four other members with the rank of Deputy Prime Minister or Minister.  
- Limited fiscal risk assessment and reporting:
  - Annual reports to PPPC by PPPs include only limited information on fiscal risks.  
  - PPP unit does not systematically assess fiscal risks of existing projects (e.g., termination clauses) or pipeline projects (e.g., availability of land) nor proactively identify mitigation measures.  
  - Legal framework lacks provisions for accounting PPP-related assets and liabilities according to international standards and does not require PPP data in the budget and annual financial statements (IPSAS 32 and GFSM 2014 noted as relevant standards).  
- Current PPP utilization and pipeline:
  - Only two user-funded PPP projects executed so far: Pristina International Airport modernization and Urban Bus Transport project in Peja municipality, with combined capital stock of 1.7 percent of GDP at the end of 2014.  
  - Several general government projects in development with estimated construction cost of about 1.5 percent of GDP; majority expected to be fully user-funded with no government guarantees.

### D. Regulation of infrastructure companies — findings
- Legal and regulatory framework supports competition in markets for economic infrastructure; Procurement Law broadly in line with EU standards. In 2013, 12,551 public procurement contracts were awarded with a value of €444 million; contracts awarded through open competition represented 88 percent of total value, negotiated procedures (particularly without publication) amounted to 6 percent (PEFA Assessment in Kosovo, July 2015).  
- Four formally independent regulators for infrastructure (Water and Waste Regulatory Office; Railways Regulatory Office; Telecommunication Regulatory Authority; Energy Regulatory Office). By law regulators have full organizational, financial independence, and managerial autonomy. For ERO, EC Progress report identifies political interference, low administrative capacity, lack of human resources, and a 17 percent budget cut; ERO board has only two out of five members. Recommendations include safeguarding independence, appointing full board, ensuring financial stability, and setting transparent mechanisms to adjust energy prices.  
- Weak financial oversight of 18 POEs:
  - MED consolidated reports focus on operational performance with limited financial information and no formal fiscal risk assessment.  
  - Investment allocations for POEs financed via own resources, capital grants, on-lending. In 2014, investment spending by POEs totaled €5.6 million, accounting for 0.1 percent of GDP.  
  - POEs required to have audited annual financial statements and to submit quarterly and annual reports to MED’s Unit for Policies and Monitoring of POEs; MED prepares an annual summary report to inter-ministerial Commission and to the Commission for Monitoring Public Finances in the Assembly. The government does not prepare a consolidated report on investment plans.  
  - Limited coordination between MED and MoF on fiscal risks from POEs; MTEF and annual budget documents do not address POE fiscal risks. The Auditor General’s annual reports have highlighted financial management and monitoring weaknesses in POEs.

### E. Investment allocation — multi-year budgeting, comprehensiveness, and unity
- Multi-year budgeting (MTEF):
  - Government prepares a rolling MTEF presented to the Assembly at the end of each April and published on MoF’s website; includes projections of capital spending by ministry, budget organization (BO), and program, as well as municipalities, over three years. Indicates funding sources but data are disaggregated by ministry and program, not by project.  
  - Ceilings on capital spending are incorporated but do not systematically include multi-annual commitments (e.g., legally binding contracts). KFMIS can record multi-annual commitments but data entered are incomplete.  
  - BOs submit projections of full cost of capital projects with budget proposals, but these data are not published and no system monitors actual expenditure against projections.  
  - Ceilings in the MTEF are not binding and frequently revised before the annual budget; substantial in-year revisions to capital appropriations during execution. Average forecasting errors (absolute value of difference between actual and budget): 23 percent looking two years ahead and 10 percent looking one year ahead. Ceilings were consistently below outturns until 2010, with reverse bias since 2011; MoF does not currently explain changes to ceilings in budget documents or the MTEF.  
- Budget comprehensiveness:
  - Budget provides relatively comprehensive picture of capital spending:
    - A high proportion (93 percent in 2015) of capital spending is financed by domestic resources through the budget.  
    - Co-financing of externally financed projects is integrated in the budget.  
    - Capital projects financed by external grants are not explicitly recorded in the PIP or the budget but account for less than 3 percent of total capital spending.  
    - No extra-budgetary entities/funds undertake significant capital expenditure, except a small foreign aid distribution fund with municipal capital spending less than one percent of municipal total.  
    - Information on PPPs is not shown in the budget; PPP program size was 1.7 percent of GDP in 2014 and is expected to expand.  
    - All projects financed by external loans are recorded in the budget and documented in the Public Investment Plan (PIP).  
  - Accounting and reporting of PPPs do not conform to good practice: annual financial statements include no information on government-controlled PPPs as assets and liabilities; guarantees and other contingent liabilities from PPPs are not recorded as memorandum items.  
- Budget unity:
  - Budget presents capital expenditures together with associated current (operations and maintenance) spending by ministry and program and a summary by economic classification for each municipality, but does not break down information by project. Chart of accounts distinguishes capital and current costs and definitions broadly in line with GFSM 2001.  
  - PIP Manual requires BOs to submit forecasts of recurring operational costs associated with investments. In practice, misclassification of current to capital expenditures occurred—amounting to around 5 percent of total capital expenditure in 2014—partly under MoF direction, leading the Auditor General to qualify the government’s 2014 financial statements.

*Source: _cr16100 - 2. National and sectoral planning (Strength—Good; Effectiveness—Low)*

### 39.      Line ministries and municipalities claim that the budget has provided

### _cr16100 - 39.      Line ministries and municipalities claim that the budget has provided

### Maintenance funding and asset readiness
- Line ministries and municipalities claim insufficient funding of maintenance expenditure in recent years; delays in bringing new assets (such as schools and health facilities) into full operational use have occurred because of shortages of funds for current expenditure.
- BOs are obliged to prepare projections of the operations and maintenance costs associated with new capital projects, but systematic information about maintenance needs is not available.
- Spending on current maintenance has stagnated in budgetary terms while assets have continued to increase.
- The current maintenance budget is currently at an historic low of less than 0.5 percent of the capital stock.
- Figure 3.D shows spending on current maintenance as a percent of both the capital stock and the budget, as reported in successive annual financial reports (2009–2014).

### Project appraisal (Strength—Medium; Effectiveness—Medium)
- Comprehensive guidance on appraisal of capital projects provided in the PIP Manual; PIP framework covers whole project cycle and is in line with good international practice.
- BOs and the MoF are required to demonstrate that investment proposals are in line with the government’s Economic Development Plan and the MTEF, and sector strategies.
- Required procedures are more elaborate for major projects (in excess of €400,000) than smaller ones.
- The PIP Manual requires PPPs to undergo appraisal and review procedures plus an additional value-for-money test, but not all of the twelve PPP projects that are currently planned are recorded in the PIP.
- In practice:
  - Not all BOs systematically carry out cost-benefit analysis and other appraisal procedures required by the PIP Manual; analyses are rarely published.
  - For major projects, cost-benefit analyses are not always undertaken and published.
  - Important project data (e.g., projections of current costs) are not always entered into the PIP database by project managers in BOs.
  - Ministries reported technical capacity needs following staff rotations since initial training on the PIP Manual.
  - MoF’s Budget Department provides ad hoc support if requested, but the MoF does not carry out systematic checks that required analyses have been done in accordance with procedures.
- Appraisal process gaps:
  - Information on appraisals carried out by BOs is not made public; the PIP Manual has not been published.
  - Despite frequent and often substantial cost overruns, the manual does not require BOs to estimate financial and operational risks (e.g., of cost overruns).
  - Cost overruns are normally absorbed by transferring funds between budget lines during the fiscal year rather than using the budget’s contingency fund.

### Project selection (Strength—Medium; Effectiveness—Low)
- Project selection largely rests with BOs, following PIP Manual procedures and criteria; ministries may hire external experts but not systematically.
- Approval stages: project manager in BO → relevant departmental manager → chief financial officer → secretary general of the ministry concerned.
- According to the Manual, all major projects should be reviewed by the MoF, but there is no legal basis to formally propose and reject investment projects; BOs sometimes implement projects without MoF formal approval.
- The PIP comprises more than 15,000 projects approved or proposed for budget financing and has limitations as a prioritization pipeline:
  - PIP and associated manual have no explicit legal basis; MoF has difficulty enforcing procedures for entering data and analyzing projects.
  - Appraisal and selection criteria are not systematically applied by BOs.
  - Standard reports generated by the PIP are of variable quality and usefulness for senior officials and policymakers.
- Two pipelines exist—the PIP and the Single Project Pipeline of Infrastructural Projects—but currently provide limited guidance for budget and MTEF inclusion:
  - Coverage of PIP database is not comprehensive; shortcomings in methodology for ranking and selecting major projects.
  - Methodology for the Single Project Pipeline was questioned by donors; estimates of economic impact not clearly defined; final ranking differed from initial ranking without explanation.
  - Projects in the Single Project Pipeline are linked to an EU program (“Berlin process”), would benefit primarily from EU financing, and are currently limited to three sectors (transport, environment, and energy).
- Institutional limitations and consequences:
  - MoF lacks institutional strength to lead prioritization and selection of major infrastructure projects.
  - Absence of a strong central coordination mechanism contributes to a sub-optimal allocation of budgetary resources and to the 45 percent efficiency gap discussed in Section II.
  - Weak central role may undermine government negotiating position with IFIs and donors.
- IPS framework shortcomings:
  - Two pipelines for donor vs. budget financing is economically inefficient and conflicts with integrated strategy concept.
  - MoF control of domestically-financed projects would be increased, but donor-financed projects initially screened by the Ministry of European Integration.
  - Management of PPPs not integrated within the new framework.
  - Annex 1 proposes a revised governance framework: single pipeline of projects that have satisfied tests of economic viability and consistency with national strategic plans; enhanced MoF screening role; PPPs included.

### Investment implementation — Protection of investment (Strength—Low; Effectiveness—Medium)
- Capital outlays appropriated annually; Table 3.2 presents: budget year allocation; carryovers plus planned spending for the budget year; estimates for two outer years; and the sum of these three amounts.
- Documentation does not disclose amount already spent on the project up to the budget year, nor the total cost of the project over its lifetime.
- Municipal projects require explicit approval of their Municipal Assembly; this is not applied at the central level despite LPFMA requirements to give high priority to securing funding for approved capital projects.
- Redesigning the capital budget format to include project lifetime costs and duration (drawn from the PIP database) could strengthen oversight and allow identification of cost overruns and project extensions.
- In-year transfers (virements) from capital to current spending are not restricted:
  - Article 30 of the LPFMA establishes authorization levels: virements up to 5 percent can be made by the BO, up to 15 percent with MoF approval, and up to 25 percent with government approval.
- Restricted carryover allowed under current legal framework:
  - Article 27 of the LPFMA prohibits carryovers except for municipal own source revenues; Article 7 of the Annual Budget Laws broadened exceptions to include own source revenues of central government, donor grants, and capital projects.
  - Government approves amendments to Tables 3.2 and 4.2 to cover obligations from last year and informs Parliament by January 30.
  - Article 7 of the Annual Budget Law is a general principle of the PFM system and should be systematically part of the LPFMA.
  - During the last five fiscal years, carryovers amounted to 8 percent of total investment on average.
- Under-execution of the capital budget:
  - Between 2010 and 2013, public investment was underspent by 10 percent on average.
  - Under-spending increased to 23 percent in 2014.
  - Kosovo’s experience is comparable to other countries in the region but less than in EMEs (26 percent).
  - Under-execution and under-budgeting can be significant at project level; in 2015 a large capital project was under budgeted by €25 million or 5 percent of total investment.
  - Over-optimistic plans and implementation constraints have contributed to under-execution.

### Availability of funding (Strength—Good; Effectiveness—Medium)
- BOs prepare annual cash flow plans; the Treasury uses them to issue quarterly spending allocations. BOs update cash flow plans quarterly.
- LPFMA requires BOs to notify contracts (including multi-annual contracts) to the Treasury for recording; provision not fully enforced.
- Treasury plans to upgrade KFMIS to provide an e-documents module to help address this shortcoming.
- Annual procurement plans are prepared but not always aligned with cash flow plans.
- Payments are generally released in a timely manner, in line with appropriations; all payments made through the TSA using KFMIS.
- LPFMA sets a deadline of 30 days for BOs to request payment of invoices; creditors may go directly to the Treasury if not paid within 60 days; enforced payment through court judgments is last resort.
- In 2015, there were 318 such court cases totaling €5 million.
- Recognition of significant unpaid obligations in 2014 risks undermining payment discipline:
  - New provisions for past expropriations add €113.8 million (7.5 percent of total expenditure) to unpaid obligations reported in the 2014 annual financial report, bringing total unpaid obligations for general government to €165.4 million, just under 11 percent of total expenditure.
  - By comparison, unpaid obligations averaged 2.5 percent of total expenditure between 2010 and 2013.
  - Around one-third of unpaid obligations relate to unpaid invoices outstanding for 60 days or more.
  - In 2014, just under half of those related to capital spending representing a total value of €5.6 million (or 1.1 percent of capital spending) of which €3.2 million were at municipal level.
  - Future settlement of expropriation claims could adversely affect capital expenditures given low priority in the LPFMA.
- External financing:
  - Where external financing is channeled through the budget, funds are fully integrated within the TSA, except direct donor payments to suppliers.
  - Some external financing—mainly bilateral grant financing—remains outside the budget and the TSA (but within the Central Bank for central government); BOs must register such funds with the Treasury in KFMIS.
  - Efforts by the Ministry of European Integration to track donor funding through the Aid Management Platform (AMP) have not delivered reliable data.
  - Accurate data on donor grant funding outside the TSA are not available, but it is estimated at about €10 million per year.
  - External loan funding is well under 1 percent of total spending, with the exception of 2013 when it was 6.4 percent; loan funding is channeled through the TSA.

### Transparency of execution (Strength—Medium; Effectiveness—Low)
- Procurement law contains adequate provisions but implementation is weak per the 2014 Auditor General’s report:
  - All procurements above €100,000 require competitive international bidding; a web-based system for procurement information exists.
  - Auditor General identified shortcomings: poor procurement planning; entry into contracts without committed funds; splitting tenders to avoid open procedure; customization of tender criteria favoring certain operators; weaknesses in tender evaluations; entry into contracts with abnormally low prices.
- New procurement law adopted in December 2015 aims to address shortcomings:
  - Provides improved centralized control through the Central Procurement Agency.
  - Removes domestic supplier preference clause from old law.
  - Gives government option to establish an e-procurement system.
  - Introduces enhanced provisions to combat corruption.
  - Full implementation will require secondary legislation and sustained training.
- Corruption context:
  - In the Corruption Perceptions Index, Kosovo has a lower ranking than regional comparator countries with a declining trend (Figure 3.F).
- PIP reporting:
  - PIP process provides a comprehensive system for establishing annual and quarterly reporting of capital projects.
  - BOs enter basic information into the PIP database including total costs, timeframes, and data on financial and physical progress; this is done as part of annual budget preparation and updated quarterly.
  - MoF budget analysts have access to PIP data and use it during appraisal of BO budget submissions and for semi-annual budget reviews.

*Source: _cr16100 - 39.      Line ministries and municipalities claim that the budget has provided*

### 59.      However, while a monitoring framework is in place, the quality and

### _cr16100 - 59.      However, while a monitoring framework is in place, the quality and

### Monitoring, data quality, and PIP system
- A monitoring framework exists, but the quality and comprehensiveness of the data recorded in the PIP system by BOs are questionable.
- Annual budget preparation focuses on the three-year timeframe of the MTEF and not on total cost of projects (which are not reported in the budget) or delays in implementation.
- Table 3.B analysis of major projects in the 2015 budget (appropriation > €1 million):
  - 57 Total project sample (appropriation > €1 million)
  - 38 Projects where end date changed at least once
  - 8 Projects where end date changed 4 or more times
  - 7 Projects where end date < current year (2015)
- Around 60 percent of the 57 major projects were delayed and around 15 percent had continuous revisions.
- Tables 3.2 and 4.2 of the annual budget documentation provide data on capital projects and are produced directly from the PIP database.
- Preliminary analysis of data from the PIP database indicates that in 2012 and 2013 around one-fourth of the projects reported delays, but mission discussions suggested delays and cost overruns are more prevalent.

### Ex post audits, litigation, and learning from implementation
- Ex post audits of major projects by the Auditor General are rarely undertaken, though audits of some donor-funded projects are being conducted.
- For domestically funded projects (the bulk of public investment), the Auditor General has a policy decision not to audit any project that is under litigation on the basis that the audit could prejudice court proceedings.
- According to the Auditor General, more than 90 percent of projects are under litigation.
- The absence of ex post audits significantly reduces opportunities to learn from past implementation challenges and mistakes.
- Ex post audits, especially of big projects such as Route 7, would provide information on oversight and management, assessing financial and physical performance during implementation and whether economic, efficient, and effective use of resources was achieved.
- Recommendation (from later section): Pilot ex post reviews for selected high-risk projects, such as Route 6 and 7 (2016/2017), by MoF together with BOs.

### Management of implementation (Strength—Medium; Effectiveness—Medium)
- Most ministries establish formal procedures for managing implementation of large projects, but this is not required by law; practices vary across line ministries depending on project size/complexity and number of projects.
- In the Ministry of Infrastructure:
  - Only the largest projects have a dedicated project implementation unit outside the ministry.
  - Most road project management is carried out by the relevant department, with quality control outsourced to an independent company.
  - Clear reporting lines exist up to the general secretary and/or minister.
- The PIP requires implementation plans to be submitted for all projects prior to approval for inclusion in the budget.
- Project management needs further strengthening to reduce cost overruns and delays.
- The Auditor General’s report for 2014 confirms significant delays and problems in management and oversight of contracts, contributing to underperformance of the capital budget noted in IMF staff reports and reports by the World Bank and the EU.
- The PIP process establishes rules for adjustments to projects during implementation:
  - Adjustments require approval at various levels within BOs as well as the MoF.
  - Article 14 of the Annual Budget Laws regulates adjustments between capital projects appropriated within the same sub-program (or program for the municipal level) in the budget.
  - Rules require submission of justifications but rarely result in a fundamental review of the project even for substantial changes.
- Up to 15 percent adjustments with the approval of the Minister of Finance, and up to 25 percent with the approval of government.

### Assets accounting (Strength— Good; Effectiveness—Medium)
- Management and reporting of nonfinancial assets in Kosovo is generally well regulated.
- Regulation 02/2013 requires BOs to:
  - appoint officers to manage the assets;
  - maintain a register of assets;
  - document all purchases, sales and movements in assets;
  - undertake a stock taking of assets at least once a year;
  - prepare statements of nonfinancial assets.
- These arrangements have not yet been fully implemented in a few BOs and municipalities.
- Asset reports of BOs are consolidated into the annual financial reports prepared by the Treasury.
- Regulation 02/2013 establishes asset-specific linear depreciation rates applied by BOs and municipalities when preparing their annual financial reports; these contain analytical data essential for preparing full balance sheets should authorities move to accrual-basis reporting.
- The Auditor General continues to raise concerns about reliability of data and management of assets in audits of BOs:
  - The 2014 audit noted limited interest by top management of BOs in control and oversight of nonfinancial assets, contributing to qualified opinions for the accounts of four municipalities.
  - The 2014 audit questioned reliability of nonfinancial asset data reported in the government’s Annual Financial Report of 2014, noting mismatches between the two national systems used for recording assets.
- Figure 3.G shows an average difference between nonfinancial asset stocks and capital spending of 33 percent, illustrating questions about asset data reliability.

### Key policy recommendations (from Section IV — condensed)
- Recommendation 1:
  - Implement and publish the National Development Strategy (2016) and consolidate sector strategies as outlined in the government’s new Integrated Planning System (2016–19).
  - Prepare and implement costing methodologies for estimating capital and current costs (2016–19).
- Recommendation 2:
  - Increase transparency of budget documentation by including an annex for PPPs and POE investments (2016).
  - Record assets, liabilities, and fiscal risks relating to PPPs, and contingent liabilities from POE investments in the government’s annual financial statements (2017).
- Recommendation 3:
  - Include a schedule of multi-annual commitments/contracts in the budget (2016) and financial statements (2017).
  - Include an analysis showing the fiscal space available for financing new projects (2016).
  - Add total project costs and project duration in Tables 3.2 and 4.2 of the annual draft law on the budget (2016).
- Recommendation 4:
  - Plan capital projects and subsequent maintenance costs comprehensively (e.g., in sector strategies).
  - Include a specific item for maintenance costs in the budget and carry out a study of maintenance needs in relevant BOs (2016–17).
- Recommendation 5:
  - Formalize project appraisal and selection procedures, and the documentation required in the PIP in a regulation or law (2016–17).
  - Streamline institutional arrangements for decisions on the pipeline of eligible projects, as described in Annex 1 (2016).
- 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).
  - Review the functionalities and use of the PIP system (2016).
  - Expand the range of standard reports for monitoring investment projects (2016–17).
  - Provide the PIP procedures with an explicit legal basis (2017).
- Recommendation 7:
  - Pilot ex post reviews for selected high-risk projects, such as Route 6 and 7 (2016/2017), by MoF together with BOs.
- Recommendation 8:
  - Examine changes to legislation required to authorize the Auditor General to conduct audits of projects that are under litigation to permit timely assessment of all investment projects based on a risk-oriented approach.
  - This requires discussions between Ministry of Finance, Auditor General, Procurement Commission, Ministry of Justice, and Prosecutorial and Judicial Councils to agree on the most appropriate approach (2016).

*Source: _cr16100 - 59.      However, while a monitoring framework is in place, the quality and (PDF chapter/section).*

### Annex I. Prioritization and Selection of Capital Investment Projects in Kosovo

### Annex I. Prioritization and Selection of Capital Investment Projects in Kosovo

### Background
- In its July 2010 Letter of Intent with the IMF, the Government of Kosovo pledged to:
  - Establishment of a Public Investment Committee to oversee the planning and prioritization of capital spending.
  - Preparation of a list of investment projects, ranked in order of priority.
  - Introduction of a mandatory system of cost-benefit analysis to appraise all large-scale investment projects.
  - Preparation of quarterly monitoring reports on the execution of capital spending.
- In 2013, based on advice from the EC, the government established the Public Investment Planning (PIP) framework, comprising:
  - An IT system and database into which project managers in BOs can enter data on all investment projects.
  - A PIP Manual providing guidelines for project managers and other users of the system.

### Assessment of institutional arrangements and the PIP database

H3: Institutional arrangements
- The Public Investment Committee did not work as intended:
  - Met infrequently.
  - Did not provide an effective mechanism for coordinating prioritization, selection, or monitoring of capital projects.
  - The MoF continues to play only a limited role in the prioritization process.
  - No explicit legal basis exists for the process of prioritizing and selecting projects.
  - MoF experienced difficulties enforcing PIP Manual procedures and ensuring sufficient quality of information in the PIP database.
- In May 2015 the Office of the Prime Minister (OPM) announced the Integrated Planning System (IPS):
  - IPS considered programming of investment a core element; OPM noted public investment requires distinct identification to link to MTEF and annual budget.
  - The OPM announced abolition of the Public Investment Committee and the Fiscal and Budget Affairs Committee, merging functions into a new Strategic Planning Committee (SPC), chaired by the Prime Minister.
  - SPC mandate includes: selection of strategic priorities, approving the National Development Strategy, reviewing new policy initiatives, establishing the government’s macro-economic framework, deciding ceilings for the MTEF, and reviewing strategic issues related to public investment and external assistance.
  - Support structure: committee of high-level officials, Strategic Planning Steering Group, and Strategic Management Group at ministerial level to monitor implementation under the National Development Strategy.
  - Three-stage process for reviewing public investment projects: first review by the MoF (or MEI for externally-financed projects), second review by the Strategic Planning Steering Group, final review by the SPC.
- National Investment Committee (NIC):
  - Created separately and jointly chaired by the Minister of European Integration and the Minister of Finance.
  - In December 2015 announced the Single Project Pipeline (SPP) of Infrastructural Projects, partly donor-financed.
  - OPM report does not discuss PPPs or the role of the PPP Council (established by law in 2011).
- Implications of IPS framework summarized:
  - a) Two pipelines of investment projects established, economically inefficient and conflicting with integrated planning strategy.
  - b) MoF retains control of selection of domestically-financed projects, but not donor-financed projects (screened initially by MEI).
  - c) Mandate and role of the NIC within IPS governance remains unclear.
  - d) Management of PPPs has not been integrated within the new framework.

H3: PIP database — key statistics and limitations
- Size and composition:
  - PIP contains more than 15,000 projects and capital purchases with a total cost in excess of €1,000.
  - Only 2,803 projects are identified in the 2015 budget ― 689 at national and 2,114 at municipal level.
  - Of these, 362 (286 national and 76 municipal) qualify as major projects with estimated total cost in excess of €400,000.
  - Around 20 percent of the central government’s capital budget relates to non-infrastructure capital spending, and 80 percent to infrastructure projects.
- Noted limitations of the database for prioritizing and selecting major capital projects:
  - Designed for capital spending only, but includes many “soft” development projects typically in education and health; such inclusion encourages misclassification of recurrent spending (consultants, goods and services, salaries) as capital.
  - Used for administrative capital spending (vehicles, photocopiers, computers), which differ from multi-year investment projects and require different planning and implementation systems.
  - Includes projects at all stages of development; data on earlier-stage projects are not systematically recorded.
  - Uncertainty whether PIP includes all projects to be implemented by POEs requiring budget financing; extent of donor-financed projects in the database needs confirmation.
    - MEI Annual Report on Donor Activities for 2014 indicates disbursements of €212 million recorded in AMP database.
    - Annual Financial Report of the Republic of Kosovo for 2014 shows only €12.4 million of donor grants and €9.8 million of external borrowing.
  - Many BOs do not systematically enter required data, including important fields on cost-benefit analysis for major projects and medium-term projections of operational and maintenance costs associated with capital investments.
  - MoF’s Budget Department does not carry out rigorous scrutiny or quality control of BOs’ capital investment proposals or PIP data.
    - PIP Manual requires MoF validation that major projects are government priorities, best option, satisfy cost-benefit analysis, and are affordable in capital and associated operational and maintenance costs; such analyses are rarely undertaken.
    - Budget Department comprises 21 staff, including 16 budget officers/analysts; some officers cover four or more BOs.
  - PIP could, in principle, be used for assessing PPPs, but has not been tested; functionalities for PPPs need assessment.
    - PPP process should require BOs to enter PPP information in PIP (including public sector comparators and availability-payment type cases).
  - Standard reports from PIP do not meet all requirements for guiding prioritization and tracking performance of large projects (e.g., delays and cost overruns).
    - By comparison, Single Project Pipeline report (July 2015) includes chapters on each of the 39 projects summarizing strategic relevance, ranking, maturity, overall cost, and year-by-year cost breakdown.
- Single Project Pipeline (SPP) observations:
  - Uses a different and more comprehensive methodology than the PIP for prioritization and ranking.
  - Projects are explicitly linked to the EU-led “Berlin process” to strengthen infrastructural interconnectivity in the Western Balkans and would benefit partly from EU financing via the Western Balkans Investment Framework.
  - Currently limited in sector coverage (transport, environment, and energy); intended that coverage be extended to social sectors.
  - Comparison between SPP and PIP projects has not been made; unclear how financing would fit into the 2016–18 budget envelope.
  - Projects in SPP have an estimated total cost of €2.35 billion spread over ten years.

### Recommendations for strengthening project selection and the PIP

H3: 1. Strengthen central decision-making on public investment
- Current IPS envisages two separate pipelines (budget-financed and externally-financed), creating bifurcation and complication.
- Proposal: prepare a single pipeline at the beginning including all new investment projects regardless of financing source. Key steps:
  - MoF carries out first screening of new investment projects; all new projects proposed by BOs subject to same appraisal procedures. Projects that pass tests of economic viability and conform to national and sectoral priorities are ranked and submitted to the Strategic Planning Steering Group.
  - Strategic Planning Steering Group identifies potential funding options: budget, donor funding, PPPs, or POEs. Discussions to obtain donor expressions of interest would be chaired jointly by the MoF and the MEI.
  - Pipeline divided into four lists of new projects:
    - (i) those expected to be financed through the budget;
    - (ii) those expected to receive financing from the EU or other donors;
    - (iii) those expected to be procured as PPPs;
    - (iv) those expected to be financed from budgets of POEs.
  - Preparation of these pipelines would inform selection of new projects by MoF subject to the investment clause of the fiscal rule.
  - Four pipelines submitted and discussed at ministerial level, possibly by the NIC; second round of consultation with donors could follow. PPP decisions continue to be approved by the PPP Council as per PPP Law, with MoF veto power.
  - NIC would send final list for confirmation by SPC and final approval by the Cabinet.
- Streamline committee structure by amending NIC role and mandate to act, together with the PPP Council, as sub-committee of the SPC. Proposed NIC mandate:
  - Review and approve all major new capital projects before inclusion in MTEF and draft budget, ensuring alternative, more efficient options have been considered.
  - Ensure approved projects are consistent with National Development Strategy and related sectoral strategies.
  - Consider alternative funding sources, including external loans or grant finance.
  - Monitor implementation of major projects, including cost overruns and delays in bringing assets into use.

H3: 2. Review and make modifications to the PIP
- MoF should carry out a comprehensive review assessing:
  - How well PIP delivers objectives in the PIP Manual.
  - Extent to which functionalities are applied.
  - Perceived strengths and weaknesses from different users’ perspectives.
  - Adequacy of reports generated.
  - Skills and resources required to operate the system effectively.
  - Recommendations for modifying or improving the PIP.
- Key issues for the review:
  - a. Separate the two core functions of the PIP database (existing projects vs proposed new major projects) or generate special reports on new major projects for screening by MoF and NIC.
  - b. Limit requirement for BOs to rank projects in order of priority to new major projects only (municipal PIP budgets may require separate treatment).
  - c. Develop specific procedures and criteria for conducting cost-benefit analyses, ranking, and project selection based on international good practice and incorporate into proposed legal framework. Procedures should consider SPP methodology and PIP Manual guidelines.
  - d. Prepare analytical reports to highlight missing fields not completed by BOs (e.g., cost-benefit analyses and medium-term operational and maintenance cost projections) so budget officers can follow up.
  - e. Produce standard reports, tables, and charts from PIP that provide essential information for ministers and senior officials to monitor implementation of major projects and approve new projects.
  - f. Close fields and functionalities in PIP that are not systematically used and do not contribute significant value to appraising, selecting, implementing, and monitoring projects.
  - g. Assess suitability of PIP functionalities for assessing economic value and fiscal risks of proposed PPPs and generating reports usable by PPP Council for approvals and monitoring.
- After the review, prepare a revised version of the PIP Manual. Results should be discussed and agreed with BO counterparts and other stakeholders.

*Annex I. Prioritization and Selection of Capital Investment Projects in Kosovo*

### 3. Strengthening the Legal basis for Public Investment Management

### 3. Strengthening the Legal basis for Public Investment Management

### Legal framework and formal rules
- There is currently no formal legal basis for procedures and rules relating to the appraisal, prioritization, and selection of investment projects.
- Recommendation: Approve formal rules for the appraisal and selection of major investment projects by the Cabinet and the Assembly.
- Purpose of new law or regulations:
  - Provide a clear framework for policymakers and users of the PIP.
  - Reinforce the authority of the Budget Department and the MoF in general to exercise its oversight and quality assurance role.

### International practice and references
- Example references noted:
  - European Union, 2008, Guide to Cost Benefit Analysis of Investment Projects.
  - World Bank, 2012, The Power of Public Investment Management: Transferring Resources into Assets for Growth, Case Study on Korea by Jay Hyung-Kim.
- Korea: cited as having implemented a state-of-the-art system of public investment management, including procedures for projection prioritization and selection.

### Capacity building and resource realignment
- Need: Realignment of resources in the MoF to support the Integrated Planning System process and its implications for public investment and the budget process.
- Rationale:
  - Additional resources would enable the Budget Department to exercise a stronger quality assurance role on the PIP.
  - Improve oversight and quality assurance of technical work carried out by the BOs.
  - BOs need to review their skills base and human resource requirements.

### Implementation—sequenced steps (with timing)
- Changes to the institutional arrangements for taking decisions on the pipeline of eligible projects (2016);
- Review of the PIP (2016);
- Preparation of new legislation on public investment management (2016);
- Changes to the PIP database and the PIP Manual (2017).

### Assessment methodology (Annex II) — dimensions and scoring
- Two dimensions assessed for each institution: Institutional strength and Effectiveness.
- Institutional strength:
  - Assesses the design of the processes, laws, systems, and managerial tools from a design point of view.
  - Based on the questionnaire in the IMF Board Paper “Making Public Investment More Efficient.”
  - Questionnaire comprises 15 institutions each with three indicators.
  - For each indicator, three possible scores: low, medium, and good.
  - Scoring of three indicators per institution aggregated using simple averaging.
  - Color code and assignment principles:
    - Strong / Highest score on average
    - Good / Highest scores and one low, or 2 medium, and one highest score
    - Medium / Medium score on average
    - Low / Lowest score on average
- Effectiveness:
  - Assesses how well the institution is implemented in practice and whether it achieved the envisaged results.
  - Assessed qualitatively, based on evidence (e.g., numerical, reviews and assessment of international organizations, audit reports).
  - Color code used: High, Medium, Low.

### Sequenced Action Plan (Annex III) — selected recommendations, timeline, and responsible agencies
- 1. Implement and publish the national strategy and consolidate and cost sector strategies
  - 2016 actions: Finalize national strategy; Take stock of all sector strategies; Develop framework for costing of sector strategies.
  - 2017 actions: Consolidate sector strategies and cost them; Extend the pipeline of projects and integrate with national strategy.
  - 2018 actions: Continue consolidate sector strategies and cost them.
  - Responsible: MoF (Budget Department), MEI, OSP, BOs.

- 2. Increase transparency of budget documentation by including PPPs and POE investments and the fiscal risks related to them
  - 2016 action: Include a statement of contingent liabilities related to PPPs and POEs in the 2016 financial statements; Develop IPSAS-based accounting and reporting standards for PPPs.
  - 2017 actions: Include an annex in the 2017 budget for PPPs and related risks; Include an annex in the 2017 budget for public investments in POEs; Apply IPSAS-based accounting and reporting standards for PPPs in 2017 financial statements.
  - Responsible: MoF (Budget Department, Treasury), PPP Unit, POE Unit in MED.

- 3. Include on-going project obligations versus fiscal space for new projects, and project total cost and duration in the budget documentation
  - 2016 actions: Include a statement of contingent liabilities related to PPPs and POEs in the 2016 financial statements; Disclose multi-annual commitments in 2016 financial statements.
  - 2017 actions: Design of revised format for Table 3.2 and 4.2 and include in 2017 budget documentation; Enforce reporting of multi-annual commitments as required in the LPFMA; Disclose multi-annual commitments in 2017 budget; Present an analysis of fiscal space for new projects in 2017 budget.
  - 2018 actions: Monitor multi-annual commitments through KFMIS.
  - Responsible: MoF (Budget Department, Treasury), BOs.

- 4. Include subsequent maintenance costs in the planning of capital projects
  - 2016 actions: Conduct studies on maintenance needs; Include an “out of which” line for maintenance under Goods and Services in the 2017 budget.
  - 2017 actions: Scrutinize 2017 budget submissions to ensure that capital and current spending are classified appropriately; Strengthen the focus on current costs of capital projects in sector strategies.
  - Responsible: MoF (Budget Department), BOs.

- 5. Strengthen MoF role for project appraisal and selection
  - 2016 actions: Align institutional arrangements for taking decisions on the pipeline; Amend the regulatory framework for public investment management.
  - Responsible: MoF (Budget Department), OSP, MEI.

- 6. Improve the PIP system
  - 2016 actions: Review functionality and use of the PIP system; Develop changes in PIP system, including targeted monitoring reports; Establish an MoF quality control process for major projects and follow up BOs; Establish tracking for projects under investment clause.
  - 2017 actions: Implement changes to the PIP database; Revise the PIP Manual.
  - 2018 actions: Expand the MoF quality control process to cover mid-sized projects; Extend MoF quality control to other projects.
  - Responsible: MoF (Budget Department, IT Department), BOs.

- 7. Establish procedures for ex post reviews
  - 2016 actions: Design an ex post review process undertaken on a selected high-risk basis; Select pilot projects.
  - 2017 actions: Conduct pilot ex post reviews.
  - Responsible: MoF (Budget Department), BOs.

- 8. Expand ex post audits by the Auditor General
  - 2016 actions: Review necessary changes in legislation to permit auditor general to carry out ex post audits of projects with pending court cases; Undertake ex post audits of all major projects.
  - 2017 actions: Undertake ex post audits of all projects.
  - Responsible: Auditor General, MoF, MoJ, Prosecutorial and Judicial Councils.

*Fiscal Affairs Department, International Monetary Fund — content from "3. Strengthening the Legal basis for Public Investment Management" in the provided PDF chapter.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16100.pdf_