Mapping Trends in Public Financial Management in the CEE/CIS region
The results of a study mapping the trends in public financial management (PFM) reforms in 19 countries belonging to the following three regions: Western Balkans, Eastern Europe and Central Asia, have been published the in CASE Network Report No. 92 “Challenges and Trajectories of Fiscal Policy and PFM Reform in CEE/CIS”.
The CASE study “Public Financial Management Reforms in the CEE/CIS Regions: Supporting UNICEF to Achieve Improvements in Outcomes for Children and Families” was analyzed the period of 2003-2007 with the purpose to provide an overview of fiscal policies and PFM in countries of the former Soviet Union and former Yugoslavia. Whereas the period of 2003-2007 was characterized by an extraordinary high rate of economic growth, both worldwide and in the CEE/CIS region, the global financial crisis in the years 2008 and 2009 will certainly change the economic landscape of the CEE/CIS. The authors outlined the possible developments for the countries stating that the recession will deteriorate the fiscal situation but may also be a possibility for reforms as the politicians will be pushed to restart various abandoned and frozen reforms, including those related to social policy and public services in order to increase the efficiency of the public sector.
Although the improvement of the economic situation in the years of 2003 – 2007 was proven by increases in living condition of the people, the analysis of the public sector expenditures has lead the researchers to conclude that the post-communist welfare state in the Western Balkans and the European part of the CIS (without the Caucasus) is both premature (given the low level of economic development of these countries) and inefficient as it does not help to reduce poverty and inequality (and sometimes even increases them). A common problem of CEE/CIS countries is an insufficient level of fiscal decentralization (apart from the Russian Federation and Bosnia & Herzegovina), which creates an obstacle to improving social assistance targeting and the quality of public services on a local level. There are various reasons for this phenomenon such as: high shares of pension expenditure and revenue from indirect taxation which favour centralization, a historical development under the authoritarian regime and the tradition of a strong “vertical power” scheme with very little room for horizontal cooperation, and the fear of territorial disintegration or separatism that hinders some countries from decentralization. The researchers noticed the positive impact of the prospects of an EU membership for the Western Balkans in terms of building and upgrading democratic institutions, protecting civil liberties, strengthening the rule of law and starting various institutional reforms and they expressed the hope of a similar effect of the Eastern Partnership in the European CIS countries.
The overall conclusion and the advice for UNICEF is that rather than concentrating on direct help for children and families a greater emphasis should be placed on improving governance and institutional reforms such as greater transparency and accountability of government, modernization of civil service, decentralization, including building a genuine system of local and regional self government, etc. In the PFM area, the key although uneasy reform task concerns lengthening fiscal planning horizon and gradual movement toward Performance Oriented Budgeting (the measures which can allow better expenditure targeting and decrease volatility in expenditure allocation).
