© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Budgeting EU Funds in Estonia Siim Sikkut Ministry of Finance, Estonia Seminar on Budget and EU Funds Skopje, May 2007

ABC of Estonian budgeting system ■Budget entails all revenues, expenditure and planned financial transactions ■Medium-Term Budgeting Framework = State Budget Strategy  Based on sectoral and ministerial development plans/strategies  Basis for annual budget preparation  1+3 years on a rolling basis;  Fiscal strategy + activity strategy + financial framework ■Budget in administrative classification, sub-division by economic classification

Estonian experience with EU funds ■Pre-accession assistance ■EU Structural Funds and Cohesion Fund from 2004 ■ Structural Funds + Cohesion Fund volume 3,4 bln euros ■Rural Development and Fisheries fund additional 800 mln euros ■Foreign funds represent minor part of budget (11,4% in 2007 budget) – EU funds most of it (95% of foreign funds)

EU funds integration to budgeting system: SNAPSHOT ■Planning: fully integrated ■Execution: partially integrated ■Audit: partially integrated ■Reporting: fully integrated ■Monitoring and evaluation: separate

Fully integrated planning of EU funds ■For Structural Funds period, a separate planning document (Single Programming Document) prepared as basis for MTBF ■For Structural Funds strategy (NSRF) prepared as part of MTBF – longer-term strategic “roof” for rolling 4-year MTBF ■State Budget Dept. in charge of most foreign financing planning (with exception of specialized funds – Schengen, INTERREG, bilateral funds, etc.)

EU funds in budget bids ■Ministerial budget bids include all EU and other foreign funds – for both 4-years MTBF and annual budget ■Foreign financing and co-financing identified per project (if the institution is beneficiary) or measure/programme (if intermediary body) in the bid ■As part of budget bid, subject to budget negotiations each year – absorption capacity considered

EU funds in annual budget law ■Foreign financing directly allocated to lowest possible state institution as intermediary body implementing the funds – decentralized allocation in the budget ■All foreign financing given per institution and economic main category as lump-sum – (EU) funds not separated in budget document ■Division by fund and explanations given in budget memorandum for each foreign financing line ■During budget planning, a separate overview prepared on foreign funds in the budget – included in memorandum

Budget picture (hypothetical figures) ■Ministry of Economic Affairs governing area REVENUES Foreign funds225 EXPENDITURE Purchase of Material Goods200 Incl co-financing of foreign funds 25  Ministry of Economic Affairs Transfer to Estonian Enterprise Foundation100 Incl co-financing of foreign funds 25  Estonian Road Administration Operating expenses200 Incl co-financing of foreign funds25

Co-financing in the budget ■Included as lump-sum per institution’s economic activity for all foreign funds – on separate budget lines (i.e. earmarked) ■Division by fund and explanations given in budget memorandum for each co-financing line ■The state institutions have the right to show as co- financing all their expenditure (with exception of expenditure from foreign funds) – limited by the eligibility rules of funds ■The institution has to make sure co-financing funds are reported in uniform manner in state budget execution and foreign funds utilization reporting

Foreign funds during budget execution ■Separate management and payment system for foreign funds (most EU funds in particular) in place ■Cabinet has the right to make changes into the administrative and economic division of foreign funds related expenditure in the parliamentally approved annual law during the fiscal year ■State institutions can take multi-year commitments when giving structural funds support - within the limit of the measure/programme volume

Bridge financing ■Used to facilitate the absorption of funds ■Rather centralised: the MoF prepares the Cabinet order, Cabinet decides per project or programme basis ■Annual budget law determines the total bridge financing level for state (35% in 2007 budget) ■Bridge financing can also be used for paying back the recovered sums to donors ■Treasury’s business – as opposed to Payment/Certifying authority in charge of foreign funds execution in general

Carrying funds over to next fiscal year ■Carry-over allowed once for:  All investment expenditure  All foreign financing related expenditure (incl. co- financing)  3% of other expenditure lines  The purpose has to stay the same

Audit and reporting ■For audit, the general system of internal audit used more and more as it develops ■Separate Audit Authority for Structural Funds ■Accounting and related reporting same as for other budget funds ■In state annual economic report,  overview of execution given for each budget line  separate overview of foreign funds utilization per fund

Monitoring and evaluation ■For budgetary funds at large, no real monitoring and evaluation to date ■A requirement for foreign funds, especially EU funds – import of evaluation culture ■Current aim: to cover the whole budget (State Budget Strategy implementation) with monitoring and evaluation – integrate EU funds monitoring and evaluation ■To start in spring 2008 with 2007 budget’s execution report ■Tied with funds’ coordination effort

Challenge: moving to program budgeting ■Experimentations through MTBF which is prepared and adopted as program-based ■Need to elaborate the system for making multi-year commitments under the programmes ■Need to integrate state own funds under programmes: currently a third category, additional financing created in state budget (in addition to foreign funds and co- financing lines)  For period, to reinforce the Structural Funds programmes in key fields with national money  Specified on separate budget lines per institution and economic activity – like co-financing

Thank you!