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Sigma Balkans I and II
Lessons Learnt and Implications for Future Programming
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Bosnia and Herzegovina ( BiH).
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Former Yugoslav Rep. of Macedonia ( FYROM).
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Federal Rep. of Yugoslavia( FRY).
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1. General
Under the Balkans I contract with OECD, Sigma was asked to make reports on the basic situation of the entities in public administration, donor activities and implications for future work. The attached reports satisfy this request as defined with AidCo; as agreed they have significantly reduced purpose relative to the annual reports prepared for Candidate countries.
In line with Sigma’s mandate, the following sectors are covered for each entity:
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Civil service, legal framework and public administration reform.
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External audit.
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Financial control and internal audit.
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Public expenditure management systems.
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Public procurement.
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Tax administration.
They are structured by entity and by sector. Since the request was made under Balkans I, the reports do cover neither Albania not the Trade sector. FRY is analysed together with Serbia; there are separate reports for Kosovo and Montenegro.
This report reflects one year’s experience in the entities. We have become convinced that there are some areas, not explicitly contained within Sigma’s mandate, that we should address in the future. We base this opinion on several factors, in particular, the results of this reporting process, our experience in Candidate countries and previously in BiH and fYROM, and our understanding of the pressures resulting from the SAp. We believe that we have the capacity (based on past experience), to address these areas which could be incorporated within the existing ToR for Balkans II. On the other hand there are areas within the Mandate which we do not see high as priority for continued Sigma involvement.
In this initial part of this report we provide an overview of the lessons learned and implications for the future. We briefly review the situation in each entity as a whole and for each sector.
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2. Overall assessment of public administraton in ex-Yugoslavia
Public administration cannot be divorced from its social, economic and democratic context. These also constrain reform possibilities. To various degrees, all the entities of the region suffer from weak States with weak legitimacy, in many cases grounded in weak national identities with underlying ethnic tensions. Furthermore, thinking is still dominated by the aftermath of conflict. Two of the entities covered are under international administration. All of the entities have major problems of corruption (only Croatia is cited in the latest TI index at 51st place). Administrative reform explicitly addresses vested interests and the direct " advantages" of power holders. Such problems overwhelm the advantageous position of ex-Yugoslav States (e.g. economic and educational openness, specific legal tradition) relative to Candidate countries. The exception is property rights, because of the legacy of the SFRY "self management" system.
Elections scheduled in several entities in the near future are consuming attention. However, membership of the EU is widely seen by "modernisers" as a defining framework for reform and a federating goal. In this context, the entities are for various reasons at different stages in their SA process. But whatever the perceptions of the entities, for example Croatia, in terms of their readiness relative the Candidates none of the governments have really understood the dimension of the needed changes.
These general observations set the context for reform and lead to a conclusion which underlies this entire report. The possibilities for PA reform in Western Balkans are severely constrained; administrative quality is low and reform is low priority. Aid policy must recognise this and projects should be characterised by:
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Realistic expectations.
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A long-term stable incentive (and disincentive) framework with clear targets.
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Sensitivity to current and historical conditions.
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Long-term continuity and partnership.
The international administrations in BiH and Kosovo have definitely stabilised their respective areas. However, they have created considerable flaws as concerns the adequate legal framework, the education in democracy etc. The legal frameworks created by the international community are not always in line with EU standards, thus undermining the SAp; drafting techniques differ, and much legislation leaves too much room for interpretation and/or is contradictory to previous, still valid legislation. The powers of the "international governments" provide little possibility for the "locals" to learn/re-establish democratic behaviour as every decision can easily be overruled by the OHR or the SRSG. The international administration is cautious in transferring real power and responsibilities. On the other hand, it is unclear if the "locals" are really willing to take over responsibilities; for example, in Bosnia, the Members of Parliament seem to prefer that the OHR imposes laws so as to avoid compromises which may have a negative impact on their respective constituencies. Neither the Kosovo not the state level BiH government have taken responsibility to push forward reform of administration.
BiH
The administrative structure is extremely fragmented; the new legal framework is not compatible across the entities: some parts have introduced common law models to organise the economy, while others have chosen continental models. The Dayton agreement has created severe administrative problems: a proliferation of Prime ministers and different legal frameworks, not only at State and Entity level but also in each canton. These problems will need to be urgently addressed. A first step seems to be the DfID project on a government review. The EU should closely link in with this review to ensure that all projects emerging from this exercise are geared to a converging development towards EU standards in the Entities and take account of the inherited legal and administrative culture in the region.
Croatia
Croatia is surely the most advanced entity in the CARDS region regarding its economy. Despite this fact the administrative capacity is low in most parts of the administration. Although in general, the awareness of needs for change in the legal framework, administrative structures and procedures is limited, there have been recent changes in perception and more pro-active behaviour. The Austro-German heritage is most visible in Croatia and is often stated by the counterparts in the administration. This heritage should be taken into account by the EU when delivering TA. The lack of central capacity for substantive policy development, co-ordination and evaluation as well as a clear responsibility for overall PAR may seriously slow down Croatia's development towards EU. The Delegation is working hard to create awareness of these insufficiencies in the Croatian government. However, possibly only strict SAA reporting will lead to more political will in speeding up the PAR.
FYROM
FYROM has a relatively long exposure to EU. Despite the recent tensions, significant progress has been made in the entity over the years. In particular, EU approximation has been taken seriously. The entity has adopted a strategy for PAR and EU approximation. It is following an action plan for implementing these strategies and is working on strengthening the Centre of Government (with help from DfiD) to strengthen capacities for developing, monitoring and evaluating substantive policy. However, ethnic nationalism and corruption, including top level of public administration, is hampering the development at least to the same extent as the low economic performance and possibilities of the entity. The fact that the Civil Service Commission, and thus, in practice, the civil service, has been put under the parliament (CS law amendment of 2001), may increase political influence over the civil service and jeopardise the achievements made so far. In this context, implementation of the Ohrid agreement, as far as civil service is concerned, could provoke further tensions.
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FRY
The situation in FRY is marked by the unclear political and constitutional situation. In SFRY the powers of the Federation were limited, but they were clearly defined. In the present situation the Republics observe federal jurisdiction as it suits them. For example, the administrative procedures law, which is a Federal jurisdiction and needs modernisation, is being reviewed in Serbia, but not in Montenegro which claims its "incapacity" to do so. On the other hand, Montenegro has changed its customs and tax laws, which are also under Federal jurisdiction. The legal and structural developments in the two Republics are in many respects incompatible: e.g. the new legal frameworks in Montenegro and Kosovo are rather influenced by common law principles and US models; Serbia, on the other hand, seems to be more oriented to continental law principles and EU models. However, there are indications that the Ministries of Finance are co-ordinating to align their legal frameworks. The diverging developments of legal/administrative frameworks in FRY will need to be addressed quickly, as they are increasing the costs and risks of possible future settlements and reducing the possibility of regional mobility.
Serbia
The Serbian government is very ambitious in implementing PA reforms in all major policy areas. A central capacity to steer and monitor PAR is missing. In practice the minister of Finance is fulfilling most of this role, and reform initiatives in his jurisdiction are most advanced, though here also administrative capacity is lacking and absorption capacity is limited. In Serbia the EAR seems to have taken the lead among the donors in the areas of PAR and has started to carry out rather effective donor co-ordination. Main other donors are EU member states on a bi-lateral basis. There is some IMF intervention at the National Bank and the US treasury works on one project in the Ministry of Finance. Donor competition seems to be less than in other parts of the region. As is typical of the region, there is limited professional capacity at the centre of government to develop, monitor and evaluate substantive policy.
Montenegro
Since distancing itself from Milosevic in 1998, Montenegro has been living from donor money. The Solana agreement led to instability in Government and a call for elections which will take place in October. The American influence in TA is overwhelming. The legal framework (in particular in economic issues, but also in finance and justice) is therefore, to a great extent, not aligned with EU standards and the gap is growing. However, USAID affirms that they want to observe EU standards. As Montenegro is not willing to use the PLAC in Belgrade to have new legislation reviewed, the EU may wish to consider providing a review facility for Montenegro.
Kosovo
Developments in Kosovo have been largely influenced by non-EU donors. The International Community’s lack of shared views on institutions and its inability to smoothly allocate responsibilities is a major impediment to institution building in the entity. As in BiH major efforts will be necessary to review the legal framework to make it comprehensive and compatible with both the prevailing legal culture and legal framework and EU standards. The EAR in Kosovo is gaining influence in this respect, however the overwhelming presence of USAID/KPMG consultants (about 50 at any point in time) makes it difficult to ensure EU compatibility and alignment in particular in the public finance and economic sector.
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3. Horizontal systems of public administration in ex-Yugoslavia
Horizontal systems of public administration condition the development of the overall administrative system, and provide levers for carrying through change. They are a main focus and lever of reform activity in Member States. However they are not, with the exception of aspects of Financial Control and procurement, subject to direct acquis (there is some ECA jurisprudence concerning administrative standards). For Candidate countries, the EU went through a cycle: initially horizontal systems were a focus of assistance. But partly due to disappointment with results (against unrealistic expectations) and with the prioritisation of specific sectoral aspects of acquis implementation, horizontal systems dropped out of favour. Recently there has been renewed interest, partly because of emerging sustainability problems in sectors, and partly as a recognition that it effective horizontal systems are necessary if Governments are to be able to reform the overall administrative environment and ensure integrity.
Responsibilities for horizontal systems are usually distributed amongst several ministries (interior, justice, finance, council of ministers office etc). Managing this fragmentation and implicit policy tensions (for example between budget and civil service reform) requires strong leadership and co-ordination. However, given the difficulties of PAR, elevating it to an explicit policy goal and allocating leadership to the Head of Government is politically risky. Intermediate solutions are needed which depend on traditions and opportunity; donors should not impose models.
The lessons, from this report and which emerge from Candidates of relevance to the Balkans at this stage of their development are:
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Reform of horizontal systems is a necessary (but not sufficient) condition for achieving reliable, efficient and effective administration.
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Explicit Anti-Corruption programmes are less effective than creating the legal/administrative framework for integrity.
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Reform of public administration must be pursued over the long term and reforms measured against realistic expectations.
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The reforms of the different systems should be left in the responsible Ministries but subject to strong overall co-ordination.
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Reforms should be set in the context of a widely recognised substantive policy framework, preferably European integration; however, since administrative and compliance capacities are so weak, "consistency" should be interpreted in a gradualist sense of reducing the transactions costs of future harmonisation.
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Political leadership should be given at the highest level, if possible through a Ministerial committee.
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Donor inputs should not be allowed to dominate reforms, especially when donors have incompatible views on reform content.
Centre of government
Throughout the region, capacities to develop, co-ordinate, monitor and evaluate substantive policy is, at best, only in an embryonic state. The link between budget allocation and policy objectives is usually missing. The centre of government is mostly just an administrative unit to prepare the papers for the government meetings and to review legislation in view of legality. Some policy development is done in independent agencies reporting to the government, which often do not consult with the respective ministries. Impact assessment of policy options and new legislation is usually not carried out. Legal drafting is not done in a way coherent with the existing legal framework but dependent on the drafting tradition of respective consultants; a fact which makes the laws rather inaccessible for the addressee. Since the SAp is largely a regulatory programme, backed up by reform of administrative capacities, it is vital that this policy system be strengthened, and that the EU take a strong lead. Based on the information gathered in entities, Sigma sees this as a priority area for the EU, DfID being the only other donor addressing this problem, and one in which Sigma has a long experience and the back up of OECD networks.
Civil service and PAR leadership
Former Yugoslavia has, contrary to most CEECs, a very legalistic tradition and also a public law tradition. This is why all the entities have an administrative legal framework, based on public law, for example, they all have administrative procedures law based on the Austrian law of the 1920s. This existing public law legal framework is an advantage for the entities, as it needs only adaptation to the new requirements but not complete new creation. Furthermore public servant are used to working with this type of law. At the same time the entities have enough lawyers who could adapt - in the prevailing tradition - the existing legal framework to the new requirements, if some additional training would be provided. The more the existing legal and organisational tradition can be preserved, the easier will be the modernisation process. However, much new legislation is drafted, under the influence of consultants, in a common law manner especially in the economic sector, which makes the legal framework incoherent and may impede regional trade and alignment with EU standards. Efforts should be made to take a consistent global approach to the administrative framework (including all the other horizontal systems). In all entities the strategic leadership of PA is weak or misplaced, which has allowed undue and often incompatible interventions by donors. Additional efforts are needed to reinforce entities’ capacities to lead their own reforms.
Financial management
It is desirable that the EU takes the lead in this field and puts in place the necessary processes to assure greater co-ordination between donors and to ensure that reforms proposed by donors are consistent with the objective of harmonisation with EU standards and other aspects of administrative law. To date USAID is very active in the field of public expenditure management in the region and has substantial projects in place in several entities. Indeed, USAID’s aggressive involvement in this area has caused some friction with other donors, most notably in Croatia and fYROM. It has been working to its own agenda in the region, with little or no co-ordination with other donors and with less attention to the requirements of European harmonisation and integration than is desirable. The EU’s interest, in addition to the compatibility with European standards is (a) to improve the local management and absorptive capacity for EU funds, and (b) to improve resource planning for substantive policy. An emerging major issue in the region is that of fiscal decentralisation. There are numerous projects in this field, but relatively little attention has been paid to the need to educate and equip local government with the tools and knowledge necessary to handle the resources that will shortly be under their control. This needs urgent attention if problems are to be avoided. There is substantial scope for short-term assistance to: provide training at the municipal level in most entities; advise the various Ministries of Finance on the analysis of budget proposals; assist with the definition of requirements in IT; and, draft regulations and directions, etc.
Public procurement
Although modern public procurement has, until recently, been a neglected public function, all the entities in the region have started the process of implementing public procurement legislation, often based on elements of the procurement related Acquis. Nevertheless considerable further legal changes will be required to bring the systems further into line with the EC Directives and good practice. The process of creating comprehensive procurement systems has so far concentrated on the legal framework and substantial work will be necessary to create and upgrade the administrative capacity and the monitoring systems. Generally speaking the current capacity is very weak and continuing efforts to improve it at the operational level will be needed to ensure fair competition, professional handling of tenders, and to encourage the development of competition in the domestic market.
Public procurement systems are at a crucial stage in development. Donor assistance in this area has been scarce and uncoordinated. USAID has been very active in Montenegro and to some extent Kosovo. During 2003 a number of EU financed projects, concentrating on the institutional developments should be commencing in Serbia, Bosnia and Herzegovina, Croatia and possibly fYROM.
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Internal audit, financial control and external audit
As the former Yugoslav Central Payment Office (ZOP) carried out all auditing and financial control tasks, these areas are severely underdeveloped in the entire region. This has direct effects on the ability to control corruption and capacity to take on responsibilities for EU programmes. Projects to create and improve the financial control and internal audit function are underway or will start in the near future, except for BiH though there an USAID project covers also to a certain degree internal audit. In FRY, including Kosovo, and in Croatia all these projects are or will be carried out through CARDS projects. In fYROM, a USAID project is developing the internal audit function. fYROM is more advanced in this area than the rest of the region, however further serious efforts will be necessary to create an adequate internal audit and financial control system.
External audit institutions only exist in Croatia, fYROM and BiH. The Croatian SAI is the most advanced although it still needs considerable strengthening. The SAI's in fYROM and BiH are severely understaffed but have shown some remarkable progress. There are CARDS projects to assist in the creation of SAIs in Serbia and Kosovo, which should start soon. In Montenegro a bi-lateral German GTZ project has just started. In BiH the SAI's are assisted by SIDA. In fYROM the SAI has some limited support from the WB and the Netherlands. In Croatia Sigma is undertaking a peer review which most likely will lead to a TA project in the near future.
Tax and tax administration
The area is crucial since the weak tax yield creates permanent budget stress, and uneven law and implementation distorts economic development. Budget revenues are mainly based on customs and indirect taxes. Revenue tax is a rather new concept for employees as the salary system was net based; evasion attempts are therefore considerable. This results in most entities in a large area of grey economy and in addition to high more or less petty corruption. However, there is a plethora of donors active in the area. Besides bilateral donors introducing VAT and other taxes, there are also multi-lateral networks and last but not least the EU Customs assistance missions in BiH, Croatia and Kosovo. The reporting exercise enforced the impression that Sigma could add little value in embarking in additional support to the tax administration. However, useful value added could be provided through the general administrative framework, e.g. administrative procedures and the financial control area, and ensuring consistency with EU norms. However, there is a plethora of donors active in the area.
Work with parliaments
Parliaments in the region very often lack adequate support structures; Sigma has worked on this issue in Romania. This experience could be useful for parliaments in the Balkans. Another issue concerning parliaments is the fact that parliamentarians often have very little substantive knowledge; this coupled with the lacking professional support structures often lead to bad legal quality or in the case of external audit; insufficient follow-up, and guidance by the parliament for the SAI. There is some, though not sufficient, assistance to Balkans parliaments provided by EU parliaments; but there is very little to parliaments on substantive issues. Some support could be provided by Sigma on an ad hoc basis, e.g. to provide comparative information and specific advise on legal drafts in the Sigma areas of expertise.
Judiciary
Justice and home affairs is a priority area for the CARDS programme in 2003. Though Sigma has only limited capacity in-house in this area, it could, based on some prior work in this area for Bulgaria, mobilise additional external expertise to assist the EAR and the Delegation to identify projects in this area. Administrative justice and court procedures, and possibly training for judges in administrative issues, could fall within Sigma’s mission.
Property rights
The establishment of property rights is fundamental to a market economy. Most donor involvement in this area is limited to technical issues such as mapping and cadaster. But property rights systems are far more complicated and should be addressed as an integrated whole, starting with land and then physical property. Sigma would propose, as a separate project, to undertake a systematic assessment of property rights systems to provide a framework for EU programming and donor co-ordination.
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4. Regional issues
The EU regional Strategy and the SAp specifically recognise the inter-entity nature of the problems of the region and the need for regional co-operation for economic development and resolving post-conflict issues. Regional co-operation is encouraged as an instrument for regional security and development. The SAAs provide specific incentives for regional co-operation, and the Stability Pact provides an additional framework, although the relation between the two needs clarification and the Stability Pact is being reformed under a new Special Co-ordinator. Regional co-operation on governance issues is especially useful since there are both commonalities and unresolved problems resulting from the break-up of SFRY. Undertaking regional work responds to four objectives:
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Increasing efficiency in use of external resources and sharing information and experiences.
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Stimulating interaction to rebuild intra-regional communications and professional networks.
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Providing arenas to address problems where there is inherent interdependence, for example civil servant’s old age pension rights that have been accrued in the Yugoslav era, and that are not being paid in the (now) independent entities, or portability of qualifications, regional approach to infrastructure planning and procurement.
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Providing arenas for co-ordination and harmonisation amongst entities (e.g. Montenegro and Serbia) which could not take place in directly.
Although regional actions of this type support the international communities objectives, they are not necessarily supported by the entities. Albania does not share the SFRY experience, and some of the successor states believe themselves to be superior to others. And of course the ethnic tensions inherent in individual entities are even stronger in inter-entity dialogue. Regional activities need therefore to be developed sensitively and low key to encourage initially professional exchange, and to encourage CARDS entities to participate in their steering.
5. Assistance to administrative reform
Currently donor activity in the PA field is unstructured and dominated by 2 major actors (USAID and DfID), with EU coming on stream. US aid is insufficiently close to the needs of gradual European alignment and the UK aid risks reinforcing US with inappropriate common law solutions. The EU should benefit from its, so far under-exploited, leadership to ensure greater coherence amongst donors. However, this will imply providing greater substantive assessment of other donors activities and improved quality control over its own consultants (including twins) to ensure consistency across sectors and in time while allowing beneficiary entities to drive their own development.
The Acquis has proven a great benefit to Candidate countries because of the substantive framework it set for law and policy. It was less successful in imposing administrative standards and raising capacities. The SAp should be developed in the light of this experience and in particular to focus on indigenous reform capacities (especially horizontal systems) and encourage entities to develop law and administrative capacities in parallel. In some cases this may mean deliberately slowing down harmonisation processes.
Continuity and long-term approaches are vital to successful reform. Yet the aid structures of the EU tend to create regular discontinuities in provision especially for major projects. A twin track approach is recommended where major programmes with fixed time spans are paralleled by an ongoing capacity which invests in relationships and continuity. This capacity should provide both substantive inputs to EU managers and assist in orienting fixed term TA projects.
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6. Donor activities
The most important bilateral EU donor seems to be UK/DFID. DfiD may now include consultants other than UK citizens. DfID uses this possibility to try to reduce the common law bias in its work. However there remains concern that administrative systems put in place in previous and also ongoing projects are not building on the existing legal and institutional culture in the region and thus seemingly creating unnecessary implementation problems.
Non-European donors are still dominant in the region, in particular in Kosovo and Montenegro. The US in particular, often contracting KPMG, US Treasury, and ABA-CEELI, is mainly geared to public finance and economic legislation, with an anti-corruption and anti-terrorist context. ABA-CEELI, however, is drafting a considerable amount of legislation in the area of justice and home affairs, often not with a European system in mind.
Of the international donors, UNDP is present in the civil service area, where it is promoting public/private training institutions, which has caused frictions with other donors, and (in Serbia) in external audit. The World Bank has done some work in this area, but its main comparative advantage is in leveraging its infrastructure and adjustment lending.
7. Leadership role of the EU
The potential leadership of the EU in PAR is recognised by donors both in terms of its legitimacy and its resources. However, the EU is, in most CARDS beneficiaries, still in the phase of "building trust and credibility". International donors theoretically accept the EU’s leadership but have little support in ensuring that their proposals, in particular regarding new legislation, are EU compatible. Entities, in particular in Croatia, Serbia and fYROM, recognise that association to Europe is a strong incentive for change and reform, but there remains some scepticism about EU and other donors performance.
Apart from its own direct assistance, the EU’s contribution, with respect to other donors, can be to improve project implementation and substantive co-ordination, provide the substantive framework for reform (which will have to be made more explicit so that other donors can work with it) and co-ordinate donor leverage, e.g. by working with the Bank and the Fund to promote reform of civil service salary systems. In order to make the substantive framework for reform operational, the EU might invest in specifying targets more precisely and in strengthening its regular reporting (using the successful Candidates model).
The need for assistance to improve horizontal management systems and to enhance administrative capacity is obvious. However, for most of the CARDS beneficiaries access to CARDS assistance is still difficult as the entities are basically not yet in a position to draft ToRs and are not used to being proactive and asking for projects so CARDS assistance has started slowly. To keep the positive attitude towards EU in the entities while taking into account the rather slow disbursement process, Sigma seems to be an asset as bridging facility and at the same time to ensure during the life span of PAR projects, and thereafter, continuity, necessary comparative input and assistance to Delegations and EAR in monitoring the projects.
The EU should consider some institutional possibility (e.g. such as the PLAC in Serbia) to review new legislation in other than Sigma areas.
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8. Implications for Sigma
In the first phase, Sigma has concentrated on assisting the EU build up its programmes in PAR. In the coming second phase, Sigma proposes to concentrate more on direct-delivery projects to complement the newly launched EU programmes.
At the regional level Sigma proposes to assist with the following functions (individual actions would be subject to PDS-level decision):
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Increase in-region communications: Sigma publications are well known in the region. Practical papers on topics of interest for the region and also a regular newsletter were requested from Sigma staff during the last year. A newsletter would help to keep permanent contact and improve cross regional information on administrative reform; it would at the same time increase the visibility of the CARDS programme and could assist to some extent in fostering its lead role. Sigma gives the production of an electronic newsletter a high priority. A market survey will be carried out, on the basis of which a project proposal with budget will be submitted. As part of its communication effort Sigma also proposes to develop public management profiles of each entity; this would offer comparative information to the beneficiaries in the Balkans and at the same time be a tool to brief external experts. The proposed profiles would follow the model on the Sigma web site for candidates (plus Macedonia and Albania from 1999).
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Promote raised awareness of reform needs through regional workshops.
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Develop appropriate assessment and monitoring instruments (adapted from Candidates) and contribute to possible future annual reporting in the SAp context.
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Create networks of senior civil servants in the Sigma areas to exchange views and foster alignment and convergence. Such regular meetings could be held e.g. for heads of budget departments, internal audit units, secretaries of the government and heads of personnel.
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Facilitate integration of entities/institutions into professional networks (e.g. NISPAcee or the ECA/SAI Presidents).
For its work for individual entities, Sigma could:
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Adjust its scope and priorities, focusing on horizontal management systems and accountability institutions e.g. administrative justice, parliaments (see below).
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Build up its substantive expertise.
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Invest in deepening its networks and relationships in the countries.
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Assist in PAR steering and donor co-ordination by entities.
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Provide continuity and back-stopping for EU projects.
9. Suggested adjustment to scope and priorities for Sigma
Sigma’s original "delivery model" is based on having substantive expertise within the core staff. This is in contrast to programmes where core staff are essentially managers of consultancy contracts. The Sigma model has been confirmed by all of the several evaluations that have been carried out on the Programme over the last 10 year, and is further confirmed in that DfID and EuropeAid have set objectives to increase their in-house substantive resources. The Sigma model enables the Programme to:
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Act responsively to requests from countries, since substantive resource mobilisation is an internal decision (subject to Project Definition Sheet).
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Engage in substantive dialogue with decision makers, which facilitates access at high levels.
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Build internal expertise, especially on the beneficiary countries and Member States practices, as an investment, the rewards of which are captured by the Programme, and co-operate in professional networks especially within EU and OECD (GOV).
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Provide continuity beyond fixed term consultancy contracts and across electoral cycles.
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Manage consultants more effectively (because peer-to-peer relationship).Considering its comparative advantages, in the light of our past year’s experience and the recently completed reporting exercise, Sigma has re-examined its priorities. The basic orientation to working on horizontal management systems is confirmed. Broadly the proposed priorities break down into four categories:
i) Maintain:
These areas are in the current contracts, and are considered to be priority.
ii) Add within current resources:
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General legal framework of public administration (including laws strengthening integrity)
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Centre of Government and "production normative"
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Aspects of the justice system which concern the accountability of public administration and judicial review of administrative decisions
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Parliamentary secretariats and "production normative" in Parliaments
It is possible to add these areas within current resources because, in substantive terms, they are close to the "maintained areas" [category (i)]. They, too, are considered priority. By combining the contents of categories (i) and (ii), Sigma will have the possibility to address all the most important general management systems and will thus be able to take a coherent view of developments and complement the sometimes less comparative perspectives of consultancies and bilateral donors.
(iii) Reduce:
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Tax: Sigma has found that a large number of donors are active in the tax field, and there are international and European-wide co-ordination and delivery mechanisms. Especially since it is not within Sigma’s existing expertise, Sigma assess there as being little added value from continued operations in this area in general. Sigma cold however make a contribution on the specific issues of Administrative procedures and financial control for tax. Both of these can be handled from within the maintained [category (i)] sectors.
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Trade: an initial report will be prepared this year (as foreseen under Balkans 2) after which the priority can be reviewed.
iv) Add with extra resources:
The establishment and defence of property rights is a function of the State which is the essential underpinning of economic development. Sigma has found, in all the countries, that this area is poorly addressed by the countries themselves and the international community. It is an area where the EU could give a lead consistent with its overall objectives for economic development and long-term European integration. It is suggested that Sigma manage a systematic assessment of property rights in all CARDS countries, for delivery in 2003, to include recommendations on how the issue could be addressed by the Commission in the future. The carrying out of an assessment could be the subject of a contract amendment to Balkans II against a budget proposal.
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10. Overall Assessment of Public Administration Reform in Albania
Albania has had a relatively long exposure to the EU and has benefited from substantive Phare and CARDS assistance. From 1997 onward, a comprehensive State Institutions and Public Administration Reform (SIPAR) Package was developed and implemented under EU leadership. The programme’s main objective was to create the basic preconditions for implementing the rule of law. It helped the Albanian authorities to develop and implement their Public Administration strategy. SIPAR promoted in particular the stabilisation of civil service management, the improvement of public expenditure management and the transformation of the State Control into a Supreme Audit Institution. For a variety of reasons, as from 2000 the co-ordination of public administration reform was taken over by the Albanian authorities. This transfer of responsibilities has instigated a certain shift from supply-driven to demand-driven technical assistance projects. Despite considerable donor investment, real change has been rather limited. While most of the newly adopted legislation meets international standards, its implementation is lagging far behind.
Endemic corruption is hampering economic and social development. Supporting the strengthening of horizontal integrity systems -- such as policy development, co-ordination and monitoring; civil service management; sound financial management and control; audit; procurement; etc. -- will help to reduce the level of cronyism and corruption.
Civil Service and PAR leadership reform has attracted a lot of attention from both the donors and the Albanian authorities. The general administrative legal framework exists and is basically in line with EU standards; however, its implementation, e.g. of the administrative procedures law, is very limited. Administrative redress and judicial review exist but are not reliable. While there is a legal and institutional basis for human resources management within government, HRM practices have still barely evolved. Politicisation and nepotism persist in wide parts of the public administration and, according to donors, also in the judiciary. Further assistance will be needed to improve the legal and institutional setting and in particular the implementation of the legal instruments and the monitoring capacity within the administration.
Financial Management is the only area where notable progress has been made. The government is considering amending the organic Budget Law in the light of experience since the adoption of the current legislation in 1998. There is ample supply of technical assistance in this field, and further assistance will be needed to spread reforms across levels of government and to build up the needed critical mass of trained human resources.
Public Procurement was mentioned in the SIPAR, but was not selected as a priority area. The public procurement legal system is largely based on the UNCITRAL Model Law, and remains generally unchanged since 1996. Substantial technical assistance will be necessary to align the law with both the acquis communautaire and WTO’s GPA. In addition, further support in building up administrative capacities to adequately implement the public procurement system will be required.
Internal Audit and Financial Control are areas where until now no clear legal framework exists that would force line ministries to carry out sound internal control. If internal control mechanisms exist, they often focus on identifying non-compliance in the formal disbursement process; assessment of financial risks and/or cost/benefit is practically non-existent. A central financial control department was set up in 2000 in the MoF, but needs to be developed. Each line ministry has a generally weak internal audit capacity, and the central internal audit department within MoF has no authority to supplement the audit work in line ministries. While laws on internal audit and internal control are under consideration, further TA will be needed to establish the legal and institutional frameworks.
External Audit, as required by international audit standards, is a fairly new concept in Albania. The SAI was created through the reform of the State Control Services, which was initiated in 1997. The legal basis of the SAI was amended in 2000 and changed the SAI from a collegiate body to a monocratic institution. The SAI is fairly isolated and receives little support from international donors. In recent months, the SAI was at the centre of a politico-constitutional debate that has frozen further international co-operation.
Tax and Tax Administration: The major instruments of modern taxation exist in principle. Revenues from VAT have risen in recent years. Direct taxation contributes little to government revenues and essentially stems from social security contributions. The MoF and its general taxation department do not have the necessary resources to formulate tax policies. Assistance will be needed to synchronise further development of the tax policy framework and the development of supporting instruments.
11. Overall Assessment of Trade in ex-Yugoslavia and Albania
The trade performance of the Western Balkans during the last decade has lagged behind that of other economies in transition in Central and Eastern Europe. While market access issues have constrained trade for some individual countries and during particular periods, at present the countries enjoy generous trade preferences with the EU, towards which most of their trade is oriented.
Three main processes are currently shaping and evolving trade policies in the Western Balkan countries: the Stabilisation and Association process with the EU, the implementation of the Memorandum of Understanding (MoU) on Trade adopted by the SEE countries, and the accession to the WTO.
Each of the countries/entities finds itself at different stages in these three processes of integration. They also face different problems and challenges, some of which are unique to a particular country. But they all face the necessity to strengthen the capacity of their trade- related domestic institutions and to improve their policies so as to further their integration into the world economy.
Policies towards imports have been liberalised in most countries and territories, in particular in Albania, Bosnia and Herzegovina, Croatia and Kosovo.
The design and implementation of trade policies are continuously suffering from serious weaknesses in institutional development. Especially the institutional capacity to develop comprehensive trade strategies and to implement trade-related legislation and regulations is very much in doubt.
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