1. REPUBLIC OF BULGARIA MINISTRY OF FINANCE CURRENT CHALLENGES IN BUDGET REFORM SOFIAMR. LYUBOMIR DATZOV 03 DECEMBER 2004DEPUTY MINISTER L.datzov@minfin.bg

2.  Macro framework gives only limited guidance to the budget cycle  Fiscal framework with functional priorities is in practice not translated to expenditure ceilings for the line ministries policies  Weak translation of national and line ministries policy priorities into the budget  Line ministries’ budgets give very limited insight in their policies/priorities due to the currently used budget classification systems  Insufficient capacity for analysis of structural/microeconomic issues at MoF and line ministries WHY IT WAS NECESSARY?

3.  Functioning Medium-Term Fiscal Framework (MTFF)  Adequate time frame for the budget cycle  Budget process decentralization  Introduction of Programme and performance budgeting  Fiscal decentralization and elimination of municipal arrears MAJOR BUDGET REFORM INSTRUMENTS

4. EXISTING SITUATION IMPROVING POLICY PLANNING LINKING POLICY PLANNING TO THE BUDGET PROCESS MORE EFFECTIVE POLICY EVALUATION AND ACCOUNTABILITY DIRECTIONS FOR IMPROVEMENT Developing policy planning and hierarchy Determining the types of policy planning documents and their place within policy process Introducing performance oriented management system Setting procedure for approving new policy initiatives Introducing a system of strategic planning within institutions Developing policy impact assessment and evaluations of policy implementation Improving accountability systems OBJECTIVES AND DIRECTIONS OF POLICY PLANNING

5. INSTITUTIONALIZATION OF CAPACITY BUILDING Public Finance School created to institutionalize capacity building:  Permanent structure for vocational training of public administration employees involved in public finances management  Supports Ministry of Finance management in its role of budgetary reform leader  Facilitates the better performance of financial officers by providing specialized courses and seminars on the basis of identified training needs  Facilitates harmonisation of budget principles and practices with EU requirements Support for strengthening the capacity of the School:  Currently Dutch Ministry of Finance assistance within a two-year MATRA project  Request for further support through a PHARE project starting in 2005

6. THE EXPECTED RESULTS STILL PENDING BROADER POLITICAL SUPPORT Political acceptance of the medium term expenditure framework and an integrated approach of top-down and bottom-up information All first level spending units competent of preparing and executing a budget in programme classification Fully operating expenditure and budget directorates within MoF and the line ministries in line with modern EU working practices Increased capacity at the Expenditure Directorate in the Ministry of Finance to analyze policy proposals and their medium term budgetary impact Increased capacity at the new to be established and/or upgraded financial economic departments of line ministries in the analysis and monitoring of expenditures on a programme basis Full responsibility for the preparation and defense of line ministries budgets and policy initiatives proposed within the budgetary framework Increased support within the Parliament to work with and use modern public expenditure management techniques

7. WHY IS IT SO DIFFICULT? POTENTIAL THREATS DECISION-MAKING CENTER Low level of commitment by legislators Lack of central leadership of the reform process The implementation of the approach is time consuming and requires strong administrative support and building the respective capacity The wish the approach to be simultaneously introduced across the board in ministries and agencies that are ill-prepared to implement it Lack of interest of programme managers to have programme and performance data as well as on objects of expense TECHNICAL PROBLEMS The existing accounting systems are inadequate to identify the full costs of the implemented government activities Equally constraining problem of developing and identifying performance indicators Budgeters feel more comfortable with detail line item controls rather than providing lump-sum appropriations in return for specified level of performance.

8. MOTIVATING THE REFORM PROCESS  BUILD CONSENSUS BEFORE LEGISLATING THE CHANGE  BUILD CONFIDENCE BETWEEN CoM AND LINE MINISTRIES  DEVOLVE GREATER RESPONSIBILITIES TO LINE MINISTRIES

9. THANK YOU