Speech by Milovan Filimonovic, State Secretary of the Ministry of Finance of Serbia, made at the regional conference on Public Administration Reform Challenges in Western Balkan Countries held at the OECD in Paris, 4 December 2015.

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Speech by Milovan Filimonovic
State Secretary, Ministry of Finance of Serbia
« Enhancing accountability and delivering services within a
sustainable fiscal framework »
Regional ministerial conference on public administration reform
challenges in Western Balkan countries
Paris, France
4 December 2015

2. The Government of Serbia has initiated and is currently in the process of implementing a series
of reform measures aimed at stabilising public finances and reforming its public administration
by reducing excessive government expenditure, reducing the fiscal deficit and level of public
debt whilst at the same time improving the functionality of public institutions in line with the
European Public Administration space, as part of the EU accession process.
Stabilising public finance and ensuring a sustainable fiscal policy have been top priorities of
several Governments of Serbia since 2008 in an attempt to mitigate the effects of the economic
and financial crisis whose consequences are still felt throughout the EU and region.
The 2015 Fiscal strategy stipulated a 10% reduction in salaries in the public sector and pensions,
a public sector pay freeze until 2017, job cuts of 5% per annum across the public sector over the
next three years and restructuring of state owned enterprises, with the goal of stabilising the
general government debt to GDP at approximately 76, 9% in 2017.
The measures stipulated in the Fiscal Strategy have been strongly reinforced by the Stand by
Arrangement with the IMF, which was endorsed in early 2015.
The conclusions of the most recent IMF monitoring mission to Serbia, which took place last
month, confirmed that Serbia has made “significant progress since the economic program
started and that the fiscal consolidation measures which were introduced in late 2014 have
started in bear fruit, that the financial and public sector reforms are progressing as planned and
on track, ad that the comprehensive measures aimed at restricting State-owned Enterprises
have started at yield positive impacts on their efficiency and financial discipline.”
The fiscal outturn in the first three quarters of 2015 was well within the targets agreed with the
IMF and the general government fiscal deficit amounted to 51.1 billion Serbian dinars which is
well below the adjusted program target of 143.6 billion, owing to both conservative projections,
improved revenue collection (80%) and under-execution of expenditure (20%).
Despite the fact that current expenditures are in line with the Budget, the Government has
recognised that if under-execution of capital expenditure continues, it will definitely have a
negative impact on economic growth on the long run.
The Government deficit at the end of this year is expected to be 4.1 % of GDP, slightly above the
adjusted projection of 4% but still way below the original target of 5.9 % for 2015.
Significant progress was made in the reforms of the general government employment and wage
system in 2015 including the creation of a Task Force to strengthen the control of the public
sector Wage bill in June 2015, the adoption of the appropriate legislative framework to ensure
full coverage of public sector employees and for setting ceilings on the number of employees in
public sector institutions.
A Decision was adopted by the Government, stipulating a reduction of at least 14.500
employees compared to the number in the Public Registry as of the end of December 2014.
Despite the noticeable achievements of the Serbian Government in stabilising public finances in
2015, there are still significant challenges and obstacles to growth that need to be addressed
within the comprehensive reform framework adopted by the Government throughout 2015.
As a candidate country for EU membership, which is on the verge of officially opening the first
Negotiation Chapters, which is expected next week, the Government of Serbia has taken an
active approach to meeting EU accession requirements and conditions and at the same time,
invested a lot of consideration and effort into making the best of them.

3. The Government adopted its first National Economic Reform Program in early February 2015,
with a slight delay due to prolonged negotiations with the IMF, which caused a subsequent
delay in the adopting of the Fiscal Strategy, which provided the basic macro-fiscal framework
and high level structural reform agenda for the NERP.
Even though an explicit EU requirement, the Government of Serbia took advantage of the
occasion and the means and extended its scope and coverage beyond EU requirements and
promoted it to the level of a high level, medium term framework for national economic policy
and development, exerting full ownership throughout its preparation and current
implementation.
The preparation of the ERP for 2016 is in an advanced stage and is currently being pursued
within an improved institutional framework and with a revised scope which will provide an
extensive high level economic reform agenda, into which the Public Administration Reform
Strategy and the Public Financial Management Reform, as a crucial component of the previous,
with be embedded.
The primary focus of the Government in 2016 will be on further reduction of mandatory
expenditures by implementing an organisational and functional restructuring of the general
government in line with the Public Administration Reform strategy, reducing government
employment in line with the targets agreed with the IMF and implementing the Public Financial
Management Reform Program for the period 2016-2020, which was adopted by the
Government last Saturday. In line with the 2016 Fiscal Strategy, which was adopted at the same
Government session, the Government adopted the 2016 National Budget yesterday, even
though with delay in comparison to the Budget Calendar.
I would take this opportunity to make a remark with regrets to these delays as they weren’t
incurred due to administrative inefficiency or inherent deficiencies within the public financial
management system. They are the result of the scheduling of quarterly monitoring missions of
the IMF, and the required adjustments to the macro-fiscal and budgetary framework that had to
be made, in line with the conclusions and recommendations of the mission. I mention this not
only to clarify but and also to bring this issue to the attention of the colleagues from SIGMA so
that these circumstances can be reflected in an appropriate manner in their 2016 Assessment
for Serbia.
In summary, the budget for 2016 foresees a 3% reduction on salaries with approximately 150
billion dinars for capital investments and anticipates an economic growth rate of 1.7% in 2016.
Bringing public finances on to a sustainable path is the overarching priority of the Serbian
Government as public services need to be delivered within a financial framework that is
affordable and sustainable.
Having partially achieved this, the Serbian Government is aware that the next challenge is to
develop a public service that can play its part in helping the economy grow, deliver jobs and
increase the standard of living for its citizens. In order to this, the public sector needs to deliver
services to both citizens and businesses in order to attract the kind of investments that can grow
the economy and create jobs.
Governments do not create jobs but they are responsible for creating an optimal environment
in which businesses create jobs and this can only be done through a public service which works
efficiently and can implement the policies that the Government sets out.

4. There is a strong line between the Public Administration Reform Strategy and the Public
Financial Management Reform Program. Change needs to be delivered within a financial
framework and reforms at the central level come at a cost and need to be paid for.
An effective and constructive partnership between the Ministry of Finance and the Ministry of
Public Administration and Local Self-Government in Serbia is key to the successful
implementation of these reforms.
There is of course room for improvement and the Government has taken steps with regards to
conducting functional reviews, identifying and eliminating overlaps and duplication of
responsibilities across budget beneficiaries.