Annual Report of the Ministry of Finance for 2007... - Ministarstvo ...

Annual report of the Ministry of Finance of Montenegro / 200738-3940-4647-515253-5455-5758-6768-7172-7475-82MODERNISATION OF THE CUSTOMS SERVICE OFMONTENEGRO AS AN ANSWERTO MODERN CHALLENGES- Miodrag Radusinović, DirectorFUNCTIONING AND RESULTS OF THE TAXADMINISTRATION IN 2007- Mirjana Pešalj, DirectorACTIVITIES OF THE REAL ESTATEADMINISTRATION IN 2007- Mićo Orlandić, DirectorRESULTS OF ADMINISTRATION FOR THE PREVENTION OFMONEY LAUNDERING IN 2007- Predrag Mitrović, DirectorREALISED ACTIVITIES OF THE DIRECTORATE FORANTI-CORRUPTION INITIATIVE IN 2007- Vesna Ratković, DirectorWORK OF THE PUBLIC PROCUREMENTDIRECTORATE IN 2007- Mersad Mujević, DirectorACTIVITIES OF THE MINISTER OF FINANCEIN 2007, PR SERVICE- Ana Miljanić, Spokesperson,- Biljana Bataković, Assistant SpokespersonLEGISLATIVE ACTIVITIES OF THE MINISTRYOF FINANCE IN 2007- Ana Miljanić, SpokespersonSTATE DEBT – ON 31. DECEMBER 2007- Nemanja Pavličić, Coordinator of the Department forPublic Debt Management, Indebtedness Analysis, CashManagement and International RelationsCONSOLIDATED PUBLIC SPENDING IN 2007. GODINI- Stanko Jeknić PhD, Coordinator of the MacroeconomicAnalysis and International Cooperation Department,- Vladislav Karadžić, Independent Advisor,- Radovan Živković, Independent Advisor- Iva Vuković, Senior AdvisorMinistry of Financeof MontenegroAnnual Report of theMinistry of Finance2007NUMBER:2PUBLISHED:annualyPUBLISHER:Ministry of FinanceFOR PUBLISHER:Igor Lukšić, PH.D.EDITOR-IN-CHIEF:Ana MiljanićASSISTANT EDITOR-IN-CHIEF:Biljana BatakovićEDITORIAL BOARD:Koviljka MihailovićMilorad KatnićKrsto RackovićTRANSLATOR:Jelena ČađenovićDESIGN:Adil TuzovićCONTACT:PR Office of theMinistry of FinanceTEL:+382 81 224 581FAX:+382 81 224 450E-MAIL: mf@mn.yuWEB:www.ministarstvo-finansija.vlada.cg.yuADRESS:Stanka Dragojevića br 2, PodgoricaPRINT:DPC - GrafotisakCOPYES:400

Annual report of the Ministry of Finance of Montenegro / 2007EditorialDear Readers,The logical sequence of achievedeconomic independence and economicself-sustainability of Montenegrois the impetus of economic integrationprocesses, equal participationin simpler promotion of numerousresources of the country in 2007.After regaining of independencein June 2006, Montenegro has realisedmore intensive communicationwith international partners and higherprogress on political and economicplan. Beside the admission of Montenegroin OSCE, United Nations andPartnership for Peace, it also becamethe member of the most significantinternational financial institutions– European Bank for Reconstructionand Development EBRD, on 3 rd June2006, International Monetary Fundand World Bank, on 18 th January 2007and Development Bank of Council ofEurope on 19 th November 2007, whichcertainly confirms that we are leadingthe stable economic policy.In October 2007, the new Constitutionhas been adopted, and in thesame month Stabilisation and AssociationAgreement with EU, whichrepresents the significant formal steptoward accession of the country intoEU. Beginning of application of CEFTAand adoption of systematic propertylaws are certainly an important part ofmentioned processes, primarily as theadditional impetus to attractiveness ofMontenegro at the investment map.Simultaneously with the very fastprocess of enrolment of the country,results realised in different areas ofstructural reforms and forming of thestable institutional business environment,have led to improvement ofposition of Montenegro at the globalmarket, and had a positive effect onstate credit rating, which has beenimproved this year from BB to BB+ inone of leading rating agencies Standard& Poor’s.Macroeconomic stability is presentseveral years now, and favourabletrends continue also in 2007. Stableleading of public finances, structuralchanges in the sphere of price andtrade liberalisation, privatisation andnumerous other reforms led to impetusof the economic growth.Combination of growth of personalspending and investments causedthe higher demand this year in economy,which had as a result growth ofpublic revenues. Montenegrin publicfinances in last two years have recordedsurplus of more than 3% of GDP,which is one of main guidelines of fiscalpolicy, and part of that surplus was

Annual report of the Ministry of Finance of Montenegro / 2007Total Budgetary Receipts(of Current and Capital Budget)and Receipts of State FundsPlan of receipts of the Budget of Montenegro and state funds for 2008, was made based on realisation of revenues in previous years and in first ninemonths in 2007, of estimated growth of GDP, growth of retail proces and estimated fiscal influences of new regulations which will be applied in 2008.Based on stated parameters, current budgetary revenues in 2008 are estimated to 1.139,68 mil €. Budgetary revenues for 2008, earmark budgetaryspending which will have a positive effect on GDP growth, increase of employment in the real sector and which will be used for regular servicing oflegal and contractual liabilities.Increase of direct revenues of the budget is based on positive trends of collections of value added tax, customs, duties and compensations.Classification DESCRIPTION Amount7 RECEIPTS 1,220,965,361.2471 Current Revenues 1,139,681,361.24711 Taxes 755,564,841.327111 Personal Income Tax 83,784,984.227112 Corporate Tax 47,402,228.107113 Property Tax 11,980,308.747114 Value Added Tax 432,519,428.967115 Excises 99,516,451.667116 Tax on International Trade and Transactions 72,893,300.837118 Other Taxes of the Republic 7,468,138.81712 Contributions 296,953,288.897121 Contributions for Pension and Disability Insurance 172,000,000.007122 Contributions for Health Insurance 117,468,888.897123 Contributions for Unemployment Insurance 7,484,400.00713 Duties 28,859,739.207131 Administrative duties 14,964,159.737132 Court fees 8,925,633.567133 Residence taxes 947,545.917136 Other duties 4,022,400.00714 Compensations 26,562,351.427141 Compensations for usage of goods of common interest 5,746,368.347142 Compensations for usage of natural resources 3,697,774.107143 Ecological fees 2,769,488.077144 Games of chance fees 4,830,000.007148 Road fees 6,637,061.267149 Other compensations 2,881,659.64715 Other revenues 31,741,140.407151 Yields on capital 4,102,000.007152 Penalties and divested property benefits 11,717,212.487153 Revenues made by authorities and their activities 6,572,940.007155 Other revenues 9,348,987.9372 Receipts from sale of property 35,000,000.00721 Receipts from sale of non-financial property 10,000,000.007211 Receipts from sale of real-estates 10,000,000.00722 Receipts from sale of financial property 25,000,000.007221 Sale of shares 25,000,000.0073 Receipts from credit repayments and funds transferred from previous year 15,784,000.00731 Receipts from credit repayments 15,784,000.007311 Receipts from repayments of credit given to other government levels 15,784,000.00741 Donations and transfers 800,000.007411 Current donations 800,000.0075 Loans and credits 29,700,000.00751 Loans and credits 29,700,000.007512 Loans and credits from foreign sources 21,700,000.007513 Project loans 8,000,000.00

Annual report of the Ministry of Finance of Montenegro / 2007reason for that is the improved collection in 2007.Contributions for Health Insurance are planned to the amountof 117,47 mil €, and are 9,14 % higher than planned for 2007. Thisincrease is the result of increase of salaries of employees and numberof employees in the public, real and banking sector. At the same time,planned growth is lower than in contributions of the Pension andDisability Insurance Fund, due to reductions of rates of health insurancecontributions.Other taxes of the state are planned to the amount of 7,47 mil.€,which is 29,91 % higher than the planned amount for 2007, as a resultof the positive trend in collection of these revenues in 2007, and theplanned growth of the GDP rate in 2008.2. CONTRIBUTIONSPlanning of contributions of the Budget for 2008 is realised basedon realised revenues in previous years, and in first nine months of2007, projection of the Ministry of Finance by the end of 2007, of basicmacro-economic and fiscal indicators for 2008 and planned changes ofcontribution rates in 2008.Revenues based on contributions for 2008 are planned to theamount of 294,95 mil €, or 11,67 % of GDP.Contributions for Unemployment Insurance are planned to theamount of 7,48 mil €, and are 8 % higher than the plan for 2007.3.DUTIESContributions for Pension and Disability Insurance are plannedto the amount of 172,00 mil €, which is for 27,05 % higher than the planfor 2007. This increase is the result of increase of salaries of employeesand growth of number of employees in public, real and bankingsector.Planned collection of revenues based on duties in 2008 amounts28,86 mil. €, which is 64,76 % higher than the amount planned for2007. The highest level of revenue is planned based on collection ofadministrative duties to the amount of 14,97 mil.€. Reason of increaseof the plan of collection of administrative duties is the planned changeof personal documents in 2008.( revenues on these grounds wereplanned by the Budget Law for 2007)4. COMPENSATIONS10

Annual report of the Ministry of Finance of Montenegro / 2007Planned compensations in 2008, amount 26,56 mil. €, or 1,05 % ofGDP. Largest share Is planned in road fees to the amount of 6,64 mil.€, compensations for usage of goods of common interest 5,75 mil.€,games of chance fees to the amount of 4,83 mil. €, compensation forusage of natural resources to the amount of 3,67 mil.€, ecologic fees2,77 mil. €, road fees 6,64 mil€ and other compensations 2,88 mil €.This increase of the plan is caused by significantly higher collection ofgames on chance fees.PROJECT LOANSProject loans are planned to the amount of 8 mil.€ and refer tocredit of the European Investment Bank for reconstruction of theAdriatic high way.8. DONATIONSReceipts based on donations are planned to the amount of 0,8 mil€ and refer to the project Integral management of eco-system SkadarLake.EXPENDITURES OF THECURRENT BUDGETOF MONTENEGRO FOR 2008Funds of the current budget to the amount of 662,97 mil. € areplanned by the Bydget Law for 2008.5. OTHER REVENUESPlanned other revenues in 2008 amount 31,74 mil. €, or 1,26 % ofGDP. Largest share in planned other revenues in 2008 have revenuesbased on collection of penalties and property divested rights to theamount of 11,72 mil.€ , other revenues to the amount of 9,35 mil. €,revenues realised by the authorities and their activities to the amountof 6,57 mil. € and yields on capital 4,10 mil. €.6. RECEIPTS FROM PROPERTY SALEReceipts from property sale are planned to the amount of 35,00mil. € and will partly be used for financing of the capital budget. Theplanned amount of receipts from sale of army property amounts10,00 mil. €, while the rest refers to the revenue from plannedsale of shares owned by the Republic in enterprises (Institut SimoMilošević – Igalo, Lovćen insurance, Jadransko brodogradilište Bijela,Montenegroairlines)7. LOANS AND CREDITSThese receipts are planned to the amount of 29,70 mil.€, out ofwhich loans and credits from foreign sources ( 21,7 mil €) and projectloans ( 8 mil €) .PROGRAMME CREDITSLoans and credits from foreign sources are planned to the amountof 21,7 mil €, out of which:-Hungarian credit for construction of education objects (5 mil €).-credits of International Development Agency (IDA) for projects:Promotion of the system of pension administration ( 3,7 mil €), Reformof the eductation system ( 0,3 mil € ) and promotion of the healthsystem ( 2,2 mil €).-credit of the Societe Generele bank for project of introduction ofthe IT system in education (0,5 mil €).-funds from the European Bank for Reconstruction and Development(EBRD) to the amount of 10 mil €.Total expenditures of the Current budget for 2008 amount 662,97mil. € and are 5,09 % than expenditures planned by the Law Amendingand Supplementing the Budget law for 2007.Total expenditures for Current budget are planned to the amountof 662,97 mil.€ by the Budget Law for 2008. Expenditures are planned inaccordance with the Economic Politicy for 2008 and with the estimatedgrowth of the gross domestic product, and goals which are anticipated bythe Agenda of Economic Reforms for Montenegro.Structure of expenditures of Current budget is given in thefollowing table:EconomicClassificationDescription Plan for 2008% ofshare1 2 3 441 Current expenditures 453,307,685.30 68.3742Transfers for socialprotection45,973,400.00 6.9343Transfers to institutions,individuals, nongovernmentand public54,473,357.18 8.22sector44 Capital expenditures 67,238,812.96 10.1445 Loans and credits 3,985,003.28 0.6046 Debt repayment 28,790,000.00 4.3447 Reserves 9,207,949.28 1.39Total: 662,976,208.00 100.00In the structure of expenditures of the Current budget, currentexpenditures have a share of 68,37%, transfers for social protection of 6,93%,transfers to institutions, individuals and non-government sector of 8,22%,capital expenditures of 10,14%, loans and credits 0,60%, debt repayment4,34% and reserves 1,39%.41 – Current ExpendituresCurrent expenditures are planned to the amount of 453,30mil.€ andtheir overview is given in the following table:11

Annual report of the Ministry of Finance of Montenegro / 2007EconomicclassificationDescription Plan for 20081 2 3 4411412413414Gross salaries andcontributionspayable byemployerOther personalincomeCosts for materialand servicesCurrentmaintenance% ofshare254,920,429.56 56.2420,525,773.60 4.53105,374,353.84 23.2522,098,620.00 4.87415 Interests 18,888,600.00 4.17416 Rent 9,559,116.08 2.11417 Subsidies 16,015,000.00 3.53418 Other expenditures 5,925,792.22 1.31Total: 453,307,685.30 100.00411 - Gross salaries and contributions payable by anemployerFunds for gross salaries and contribytions payable by empoyer areplanned to the amount of 254,92 mil. €, which makes 56,24% of totalplanned current expenditures of the Budget of Montenegro for 2008.Funds for gross salaries and contributions payable by employer areplanned in accordance with the regulations which regulate this area suchas:- Law on Salaries and Other Income of Members of the Parliament andOther Officials;- Law on Salaries and Other Income of Judiciary Constitutional-CourtOfficials;- Draft Law Amending and Supplementing the Law on Salaries of CivilServants and State Employees;- Law on Agency for National Safety;- Law on Police;- Collective Agreement for professional service of the MontenegrinAcademy of Science and Arts;- Amendments and Supplements to the Industry - Wide CollectiveAgreement for the sphere of education;- Amendments and Supplements to the Industry - Wide CollectiveAgreement for the sphere of culture and- Amendments and Supplements to the Industry – Wide CollectiveAgreement for health and social activity.412 – Other personal incomeFunds for other personal income are planned to the amount of 20,52 mil. €and with 4,53 % participate in total planned current expenditures for 2008.Largest share of these funds refers to compensation for mealallowance to the amount of 8,80 mil. € and compensations for paidvacations to the amount of 5,04 mil. €.Compensations for housing and separation allowance are plannedto the amount of 1,88 mil. €.Other compensations are planned to the amount of 4,78 mil. € andrefer to severance pays, compensations to members of the Parliamentand other compensations.413 – Costs for material and servicesCosts for material and services are planned to the amount of 105,37mil. € and with 23,24% participate in total planned current expenditures for2008. Largest share of funds is allocated for financing of contracted services53,94 mil. €, material 19,15 mil. € and energy 17,17 mil. € .EconomicclassificationDescription Plan for 2008% ofshare1 2 3 44131 Costs for material 19,155,996.80 18.184132Costs for businesstrips6,503,944.54 6.174133Costs forrepresentation705,416.00 0.674134 Costs for energy 17,142,996.59 16.274135Costs for telephoneservices5,045,556.41 4.794136Costs for postalservices1,424,432.89 1.354137Bank services andnegative currency 364,006.00 0.35differentials4138 Transport services 1,088,654.00 1.034139 Contracted services 53,943,350.61 51.19Total: 105,374,353.84 100.00Costs for material are planned to the amount of 19,15 mil. € andare designated for procurement of material necessary performing ofactivities of budgetary beneficiaries, as office material, small inventory,cleaning agents, work clothes, publications, magazines, newspapers,means needed for delivering of lectures etc.Costs for business trips are planned to the amount of 6,50 mil. €,and refer to costs of biusiness trips in the country, abroad, moving costs,compensations for using of own vehicle for business purposes etc.Costs for energy are planned to the amount of 17,14 mil. € and with16,27% they participate in total costs for material and services. Largestshare of these funds refer to financing of the costs for firewood, electricpower and fuel for needs of spending units.Contracted services are planned to the amount of 53,94 mil. € andmake 51,19% of total costs for material and services. These funds includeall expenditures which occur by concluding of contracts and are directlyin function of renewal of the activity of spending unit, and refer to:lawyers and legal services, consulting services, making and maintenance ofsoftware, translation services, printing and copying, media and promotiveactivities, audit services, insurance and other services.414 – Current maintenanceFunds planned for current maintenance amount 22,09 mil. € and havea share of 4,87% in total planned current expenditures for 2008. Largestshare of these funds is designated for maintenance of public infrastructureto the amount of 16,33 mil. € as follows: 1,3 mil. € for current maintenance ofconstruction objects of the Army of Montenegro and 16,25 mil. € for currentmaintenance of public roads and railway infrastructure.For maintenance of construction objects 2,84 mil. € was designated. Thesefunds, mostly refer to current maintenance of object of the Police Directorateto the amount of 0,25 mil. €, maintenance of objects of Administration for JointServices to the amount of 0,12 mil. €, Institution for effectuation of criminalsanctions and notaries to the amount of 0,14 mil. €, Ministry of Defence tothe amount of 0,22 mil. €, for Ministry of Education and Science the amounts12

Annual report of the Ministry of Finance of Montenegro / 2007of 0,74 mil. €, and 0,18 mil. € which mostly refer to maintenance of objectsfor social and children protection. Remaining funds are allocated to otherbeneficiaries for current maintenance of construction objects.Current maintenance of the equipment is planned to the amount of2,91 mil. €. Mostly, these funds refer to maintenance of 17 locations andpolygon for training of the Ministry of Defence and they amount 1,08mil. €; for maintenance and change of transmission telecommunicationnetworks, links, generators, 58 light houses, 6 buoys, and transmitingdevices on Oćas and Obosnik the funds are allocated to the MaritimeSafety Department to the amount of 0,13 mil. €. Other funds are assignedto other beneficiaries of the budget for procurement of computer andoffice equipment and means of transport.415 - InterestsFunds for interests are planned to the amount of 18,88 mil. € andthey have a share of 4,16% in the total planned curren expenditures of thebudget for 2008. Funds are mostly earmarked to the payment of intereststo non-residents to the amount of 18,38 mil. € and 0,50 mil. € for paymentof interests to residents.416 - RentFunds for rent are planned to the amount of 9,55 mil. € and their share is2,10% in the total current expenditures of the current budget for 2008. Thesefunds are earmarked for:• Payment of liablilities based on differing of costs with municipalities andfor payment of rent of business premises for bodies which are not situated inthe units of the local self-government to the amount of 2,64 mil. € and• For rent of objects to the amount of 5,00 mil. € for needs of missionsin foreign countries.Other funds are earmarked to other spending units according to theirneeds.417 - SubsidiesSubsidies are planned to the amount of 16,01 mil. € and their share inthe current budgetary expenditures of the budget for 2008 is 3,53%, andthey refer to subsidies for production and providing of services:• Subsidies to the Ministry of Economic Development to theamount of 7,00 mil. €. These funds are earmarked to the Governmentalsubsiding of the difference in the price of the electric power assumedby the Contract on sale of shares of the Steal Plant-Željezara ADNikšić;• Subsidies to the Veterinaty institution to the amount of 1,81 mil.€ for preventive veterinary measures on prevention of dangerouscontagious diseases of animals, prevention and extermination ofcontagious diseases of animals, preventive veterinary measures andfor the implementation of the Law on Identification and Registrationof Cattle, sheeps and goats in Montenegro, which is realised with thehelp of the field veterinary service;• Subsidies to the Ministry of Agriculture, Forestry and WaterManagement to the amount of 6,90 mil. €. These funds are designatedbased on the existing legal regulations, and especially based on the Lawon Incentive of the Development of the Agriculture, in the sphere ofproviding of the alimentary safety, export of typical Montenegrin products,balancing of the regional development of Montenegro and including ofMontenegrin agriculture into the European integration trends;418 – Other expendituresOther expenditures are planned to the amount of 5,92 mil. €and has a share of 1,30% in total planned expenditures for 2008.From total planned funds for covering of communal fees 4,43 mil.€ is planned. The amount of 1,72 mil. € is planned for the Ministryof Education and Science for usage of communal services basedon Rule Book on Normatives for Acquirng of Funds from PublicRevenues for institutions which perform pulbic valid educationalprogrammes, 0,72 mil. € for communal services and fees to PoliceDirectorate and 0,72 mil. € for communal fees for Administration forJoint Activities.42 - Transfers for social protectionEconomicclassificationDescription Plan for 2008%Ofshare1 2 3 4421Rights from the sphereof social protection41,323,400.00 89.89422 Funds for redundancies 4,650,000.00 10.11Total: 45,973,400.00 100.00421- Rights from the sphere of social protectionRights from the sphere of social protection are planned to theamount of 41,32 mil. € and they have a share of 6,23% in total plannedexpenditures for 2008. Envisaged funds are earmarked for:• Realisation of the programme on child allowances to the amountof 4,05 mil. €. The programme includes the social protection of about19.070 benificiaries;• Disabled veterans care, to the amount of 8,90 mil. € forapproximately 6.453 beneficiaries of the right on disabled veteranscare, and for subsiding of 2.135 most endangered citizens aimingsatisfaction of minimal needs in electric and thermal energy;• Material help to the amount of 13,30 mil. €;• Maternity leaves to the amount of 6,85 mil. €;• Social aid to the amount of 4,60 mil. € for about 6.335benificiaries;• Food for children in preschool institutions to the amount of 0,34mil. €;• Allowance to protégés in institutions to the amount of 2,90 mil. €;• Other rights from the sphere of social protection, to the amountof 0,20 mil. € that include, among others, insurance of priests.422 - Funds for redundanciesFunds for redundancies are planned to the amount of 4,65 mil.€ and have a share of 10,11% in the total planned transfers for socialprotection. These funds are earmarked for: solving of unrealisedliabilities based on the Programe for Restructuring of Enterprises whichare in the privatisation process, for solving of redundancies in the PublicEnterprise Željeznica, Radio and Television of Montenegro and Pobjedato the amount of 3,65 mil. €, and for payment of severance pays for190 persons (40 non commissioned officers and 150 civilians) to theamount of 1,00 mil. €.43-Transfers to individuals, institutions, non-government andpublic sector431 – Transfers to institutions, individuals, non-governmentand public sectorTransfers to institutions, individuals, non-government and publicsector are planned to the amount of 51,08 mil €. Transfers for these13

Annual report of the Ministry of Finance of Montenegro / 2007purposes have a share of 7,80% in the total planned expenditures in2008.EconomicclassificationDescription Plan for 20081 2 3 443114312Transfers to publicinstitutionsTransfers to nongovernmentorganisations, politicalparties, parties andassociations% ofshare34,959,796.06 64.187,679,852.72 14.104313 Transfers to individuals 8,813,708.40 16.1843174319Transfers tomunicipalitiesTransfers to publicenterprises2,735,000.00 5.02285,000.00 0.52Total: 54,473,357.18 100.00Transfers to public institutions are planned to the amount of34,95 mil. €. These funds are earmarked for financing of the PoliceAcademy to the amount of 1,40 mil. €, in Ministry of Education andSciences for financing of homes for pupils and students; amoint of16,30 mil. € for financing of the University of Montenegro, and theamount of 6,07 mil. € to the Ministry of Culture, Sports and Mediafor co-financing of programmes of municipal institutions for culturein Plužine, Plav, Pljevlja, Bijelo Polje; and in Ministry of Health, Labourand Social Welfare to the amount of 1,15 mil. € for the Public HealthInstitute, Medical Association and Farmaceutical Association and theamount of 3,00 mil. € in Ministry of Transportation, Maritime andTelecommunication.Transfers to non-government organisations, political parties, parties andassociations are planned to the amount of 7,67 mil. €. From these funds forfinancing of political parties, pursuant the Law on Financing of PoliticalParties (“Official gazette of the Republic of Montenegro”, No. 33/05,47/06)2,91 mil. € was earmarked, for non-government organisations 0,35 mil,€, Red cross 0,24 mil. €, Centre for Refugees 0,14 mil. €. Commission fordistribution of games of chance to the amount of 3,00 mil. €.Transfers to individuals are planned to the amount of 8,81 mil. € for2008. They are designated for single financial aids to families and individualswhich are temporarily in the state of social need, and for procurement ofschool kits for children in the most needed families, to the amount of 1,45mil. €; for payment of pensions to the head of the household – agriculturalmanufacturer which has spent the whole life in the village and has notacquired the right for pension, older than 65 for men and 60 for womentheamount of 2,70 mil. €; for pupils and students which are beneficiariesof scholarships and transfer allowances, and for beneficiaries of aid andscholarships for scientific and vocational specialisation to the amount of1,90 mil. €.Transfers to municipalities are planned to the amount of 2,73 mil.€, and are earmarked for realisation of investment projects (conditionalgrants) pursuant the provisions of the Law on Financing of the LocalSelf-Government to the amount of 1,82 mil. € , the amount of 0,44 mil.€ for jobs of the inspection control in the sphere of civil engineeringwhich are entrusted to the local self-government.Transfers to public enterprises to the amount of 0,28 mil. € and areplanned in the Ministry of Finance.44 – Capital expendituresCapital expenditures are planned to the amount of 67,23 mil.€ andthey make 10,14% of total expenditures planned for 2008.441 – Capital ExpendituresEconomicclassificationDescription Plan for 2008% ofshare1 2 3 44411Expenditures forinfrastructure of 2,137,600.00 3.18common interest4412Expenditures for localinfrastructure11,148,000.00 16.584413Expenditures forconstruction objects11,986,037.62 17.834414Expenditures for landmanagement970,000.00 1.444415Expenditures forequipment26,444,615.34 39.334416Expendituresfor investment 14,297,560.00 21.26maintenance4417Expenditures forsupplies255,000.00 0.38Total: 67,238,812.96 100.00For expenditures for the infrastructure of common interestfunds are planned to the amount of 2,13 mil. €. In the Public WorksDirectorate the amount of 1,29 mil. € for needs of the construction ofthe road Ostrog – Ždrebaonik, and funds to the amount of 0,77 mil. €are earmarked to the Water Management Directorate for maintenanceand promotion of the water system, construction, maintenance andreconstruction of water resources objects, prevention against thefloods, protection from the erosion and torrents, protection of waterfrom pollution etc.For expenditures for local self-government funds areearmarked to the amount of 11,14 mil. €. Largest share of thesefunds is planned in the Public Works Directorate, to the amountof 8,14 mil. €, for construction of local roads, arrangement of theriver bed of Ćehotina in the town zone of Pljevlja, construction oftown road in Mojkovac, reconstruction of town roads in Bijelo Polje,reconstruction of the Street 29. novembra in Berane, constructionof town road in Gusinje, reconstruction of the town infrastructurein Cetinje, reconstruction of town road for the settlement Liman-Ulcinj II phase and repayment of liabilities from previous period,and in the Ministry of Agriculture, Forestry and Water Managementthe amount of 2,80 mil. €, and refers to the village infrastructure andrural development, and to financing of 40 water-system objectsinitiated in the previous period.For expenditures for construction objects the amount isplanned of 11,98 mil. €. The amount of 4,75 mil. € is planned forFunds for solving of housing needs and refers to the liabilities ofthe Commission for Housing Issues occurred due to subsiding ofthe interest rate in the project “1.000 housing credits from 2006”,and for solidary housing construction for employees in the areaof health and education within the common project of local selfgovernments,Ministry of Health, Labour and Social Welfare, Ministryof Education and Science and the Government of the Republicof Montenegro, in Public Works Directorate for construction ofelementary schools in Podgorica, Bar, Budva, settlement Guke-Dolovi and of Gimnasium in Bar.For expenditures for arrangement of land the amount of 0,9714

Annual report of the Ministry of Finance of Montenegro / 2007mil. € was planned to the Forestry Directorate and they refer to thereconstruction of the part of buildings belonging to the Directorate forForestry and planting of seedlings within the forestry growing works inthe phases of woods care, renewal of woods etc.Expenditures for equipment are planned to the amount of26,44 mil. €. The amount of 2,35 mil.€ is planned in the Ministry ofInternal Affairs and refers to procurement of computer equipmentfor personalisation of the centre for printing of new identificationdocuments, and of equipment for public order and safety and it refersto procurement of aircrafts for fire fighting protection; amount of 2,90mil. € is planned in the Police Directorate, and refers to the procurementof computer equipment, telecommunication needs, and equipmentfor public order and safety aiming continuation of works on project“VERINT” ; the amount of 9,83 mil. € is planned in the Ministry of Defencefor procurement of: 2 wans for needs of the Army of Montenegro, onevehicle, 10 terreing motor vehicles for anti-terrorism battalion, 15 terreinmotor vehicles of lower class for mountain battalion, 12 transport vehicles,for procurement of diving and commando-equipment, equipping andmodernisation of helicopters, construction of the unique informationsystem, and modernisation and reconstruction of the rocket frigateinto the patrol boat; amount of 1,40 mil. € is planned in the Real EstateAdministration for procurement of 15 peaces of the total stations, 50computers and 10 new terrain vehicles; amount of 1,69 mil. € to theProject on Promotion of the Pension System; and the amount of 1,80 mil.€ is planned to the Ministry of Education and Science for equipment foradministration and teachers, equipment for ICT classrooms for schoolswhich have entered the reform and procurement of the software andequipment for learning on distant locations.Expenditures for investment maintenance are planned to theamount of 14,29 mil. €. The amount of 1,50 mil.€ is planned in theAdministration or Joint Activities of Governmental Bodies and refers tothe investment maintenance of objects in Montenegro and 32 bordercrossings; the amount of 2,69 mil.€ in the Ministry of Defence and isearmarked mostly for change of the roof covers, internal and externalwoodwork reconstruction of pipes, change of plankings, electricinstallations etc.45 - Loans and creditsLoans and credits are planned to the total amount of 3,98 mil. €and have a share of 0,60% in current expenditures of the budget for2008.451 - Loans and creditsEconomicclassificationDescription Plan for 2008% ofshare1 2 3 44511Loans and creditsto non-financial 5,003.28 0.134513institutionsLoans and credits toindividuals1,830,000.00 45.924515 Other loans and credits 2,150,000.00 53.95Total: 3,985,003.28 100.00Loans and credits to individuals are planned to the amount of1,83 mil. € and the total amount is planned in the Ministry of Educationand Science.Other loans and credits are planned to the amount of 2,15mil. € in the Directorate for development of small and medium sizeenterprises, in accordance with the Strategy on Export Promotion,adopted by the Government at the end of 2005.46 - Debt repaymentsEconomic% ofDescription Plan for 2008classificationshare1 2 3 4461 Debt repayment 15,690,000.00 54.50462Repayment ofguarantees600,000.00 2.08463Repayment of liabilitiesfrom previous years12,500,000.00 43.42Total: 28,790,000.00 100.00461 - Debt repaymentsRepayment of debt is planned to the amount of 15,69 mil. € and itmakes 54,49% of debt repayment.For repayment of securities and credits to residents theamount of 3,02 mil. € was planned, and it was planned for the Ministryof Finance. Namely, it is stated in the Strategy on Debt Mangementof Montenegro 2005-2007 that the objective of the public debtmanagement is the reduction of costs of the borrowing of the state,or servicing of the public debt with the lowest risk rate. However, in2008, only liabilities based on contracts which have not been repaidwill be serviced.For repayment of securities and credits to non-residents wereplanned to the amount of 12,67 mil. € and represents succeededlong-term liabilities to the International Bank for Reconstruction andDevelopment (IBRD), Paris Club of Creditors, International FinanceCorporation (IFC), Development Bank of the Council of Europe, AngloYugoslav bank and European Investment Bank (EIB).462 - Repayment of guaranteesFunds for repayment of guarantees in the Budget for 2008, areplanned in the Ministry of Finance to the amount of 0,60 mil. € or 2,08%of funds for repayment of debts.463 - Repayment of liabilities from previous yearsRepayment of liabilities from previous years is planned to theamount of 12,50 mil. € and represents 43,41% of total debt repaymentin the Budget for 2008. It was planned in the Ministry of Finance andrefers mostly to call in arrears from previous period.47- ReservesReserves are planned to the amount of 9,20 mil.€ or 1,38% of totalbudgetary expenditures. Funds of current budgetary reserves wereplanned to the amount of 7,70 mil. €, and funds of current budgetaryreserve to the amount of 1,50 mil. €.Assistant to the MinisterNikola Vukićević MA15

Annual report of the Ministry of Finance of Montenegro / 2007Planned Projectsin the Capital Budgetfor 2008According to the Law on Budgetof Montenegro for 2008, in line withthe Economic Reform Agenda, Economicpolicy of Montenegro for 2008, Guidelinesfor the preparation of the CapitalBudget, the process of implementationof the capital projects continues. Thefunds planned for the Capital Budgetamount to 67.432.973,00 €.According to the Capital Budgetfor 2008 the funds allocated to theDirectorate of Public Works amount to35.642.973,00 €, out of which the fundsplanned for the realization of the capitalprojects that were started in 2007amount to17.276.973, 00 € and the fundsfor the new capital projects amount to18.366.000,00 €.Therefore, through Directorate ofPublic Works in 2008 besides projectsthat were started in 2007, the followingnew capital projects will be implemented:- Administrative building of theMinistry of Internal Affairs and PublicAdministration in Pljevlja valued at406.000,00 €.Due to jeopardized stability anddilapidation of the administrative buildingin which identification documentsare issued the Ministry started the preparationof the project documentation in2007. The construction of the buildingwith the boiler room of the area of ca 370m 2 is planned to begin in 2008.By construction of this building theconditions for the introduction of thenew system of for identification documentsissuing will be created in accordancewith the functionally new procedures.Ljiljana Crnčević- Reconstruction of the main roadin Žabljak valued at 650.000,00€In 2005 the Directorate of PublicWorks has started the reconstruction ofthe main road in the town, from pumpstation to Crno jezero, in order to improvethe infrastructure in the town and addvalue to the existing tourism capacities.The reconstruction of the street in thelength of 650m (from the pump station tothe crossroad in the downtown Žabljak)was completed in 2005. The reconstructionof 1.100m long street was completedin 2006 (between Durmitor Hotel andCrno jezero), while the preparation of theproject documentation and the beginningof the reconstruction works on partof the street in the length of 1.500m areplanned for 2008.It should be emphasized that thecontribution of the municipality to therealization of this project is settling of theproperty- legal relations.- Elementary School “Risto Manojlović”and Elementary music Schoolin Kolašin valued at 500.000,00 €.Due to the lack of adequate schoolspace the realization of this project wasinitiated.By construction of modern schoolbuilding, of the approximate area of 4.300m 2 , the optimal teaching conditions willbe created. The Elementary music schoolin Kolasin will use part of the building.Preparation of the project documentationand the beginning of the works areplanned to take place during 2008.- Sports Hall in Berane valued at700.000,00 €.Extremely poor conditions, particularlyof the roof and wooden roof construction,as well as inadequate heatingsystem (the boiler room located in theelementary school, ca 150 m, is used forheating resulting in huge amount of heatloss), were the reasons for the beginningof the realization of this project. Preparationof the project documentation andthe beginning of the works are plannedto take place during 2008.The aim of this project’s realizationis creation of the optimal conditions fortraining of the sports clubs and developmentof the sports in this municipality.- Construction of the mini roundaboutin Plav valued at 650.000,00 €.The lack of main road, which wouldenable better and safer traffic flow in thetown, was the reason for the beginning ofthe realization of this project. The projectincludes the construction of 1.100m longroundabout with all the necessary infrastructure.Preparation of the project documentationand the beginning of the worksare planned to take place during 2008.16

Annual report of the Ministry of Finance of Montenegro / 2007Besides, it should be emphasized thatthe municipality’s contribution to therealization of this project is settling of theproperty- legal relations.- New building for the Ministry ofDefense, Headquarters of the Army ofMontenegro and the Ministry of ForeignAffairs valued at 1.350.000,00 €.The new building needs to be constructedin order to provide office premisesfor the newly established Ministryof Defense, Headquarters of the Army ofMontenegro (which will result in morerational and functioning and better communicationbetween Ministry of Defenseand Headquarters of the Army) and theMinistry of Foreign Affairs.Preparation of the project documentationand the beginning of the works onthe construction of the building for thestated institutions is planned for 2008.The project site is located in Nova Varos IIand it is owned by the State of Montenegroand used by the Ministry of Defense.- Kindergarten in Golubovci valuedat 400.000,00 €.Currently there is one facility for preschooleducation in Golubovci and itdoes not meet the needs of the citizensof Golubovci. Therefore it is necessary tobuild a new and modern building. Thebeginning of the construction of thekindergarten of the area of ca 1.700 m 2is planned for 2008. By realization of thisproject the quality of pre-school educationwill be improved.- Health centers in Podgorica valuedat 1.300.000,00 €.In terms of the development of thehealthcare the priority is given to the primaryhealth care whose key elements arethe health centers. In the reformed healthcenters the method of working and theorganization will be entirely changed. Atthe same time the units for health improvementand developmental healthcenters for children will be opened in sothat complete health care for the entirepopulation could be provided.The reconstruction and renovationof the existing health centers Pobrežje,Nova varoš and Student polyclinic in Podgorica,as well as the small-scale workson the facilities in Tuzi, Golubovci, LijevaRijeka and Ubli are planned under thisproject.Ministry of Health, Labor and SocialWelfare prepared all the necessary projectdocumentation in 2007.The realization of this project providesthe support to the reform of thehealth centers structure and the optimalconditions for the primary health careare created.- Danilovgrad – Spuž road valued at1.170.000,00 €.Low traffic safety standards on theDanilovgrad-Spuz road have led toDanilovgrad municipality’s initiative andthe beginning of the realization of thisproject.The reconstruction works on thisroad that begun in 2007, are expected tobe completed in 2008, thus creating theconditions for two-way traffic flow.- New Command building inthe barracks “Milovan Šaranović” inDanilovgrad valued at 150.000,00 €.The existing facilities and infrastructureare in very bad condition. Largenumber of military units of the Army ofMontenegro is located in the Danilovgradgarrison. By construction of the new facility,the space for the Command of theunits will be provided in the barracks.Preparation of the project documentationand obtaining of the necessary permitsand approvals are planned for 2008.- Administrative building of thePenitentiary institution valued at295.000,00 €.The lack of space for the administrativedepartments as well as the safetyClinical Centre of Montenegroissues regarding the functioning of thepenitentiary institution’s departmentsinitiated the realization of this project.By construction of the building ofthe area of ca 400m2 the conditions forworking of the penitentiary institution’sadministration will be created.The penitentiary institution will obtainall project documentation and the necessaryapprovals and permit during 2007while the beginning of the constructionof the facility is planned for 2008.- The swimming pool on the square-Herceg Novi valued at 500.000,00 €.The lack of open swimming pool forthe organization of the large internationalcompetitions initiated the realization of thisproject. Preparation of the project documentationand the beginning of the workson the reconstruction of the swimmingpool on the Square are planned for 2008.The municipality of Herceg Novi willcontribute to the realization of the projectby granting the exemption of payingof all utility fees for the facility.- Reconstruction and renovation ofthe Public institution Center for Childrenand the Youth “Ljubović”- Podgorica,PI Children’s Home “Mladost”-Bijela and PI “Lovćen” – Bečići valuedat 100.000,00 €.The aim of this project’s realization isthe creation of better conditions for childrenand the youth in these institutions.The necessary documentation is plannedto be prepared during 2008 in order tocreate conditions for the beginning of17

Annual report of the Ministry of Finance of Montenegro / 2007the reconstruction and renovation of theexisting capacities during 2008.- Creation of the conditions for thedevelopment of “Hiking and biking” inMontenegro valued at 900.000,00 €.From future tourism developmentaspect Hiking & Biking is a type of tourismoriented towards nature and has thehighest development potential. One ofthe goals of the revision of the MasterPlan is integration of the hinterland andthe mountain areas into the tourismdevelopment of Montenegro.Construction the new infrastructureand upgrading of the existing one willcontribute to extension of the touristseason, employment rate growth andincrease of incomes from tourism as wellas positioning of Montenegro as internationallycompetitive and unique destinationfor hiking and biking.Preparation of the program and projectdocumentation which will provideoverview of the current state of theinfrastructure as well as suggestions forthe upgrading of the existing paths andconstruction of the new ones is plannedto take place in 2008.- Installation of the electronic infopoints on the border crossings andinland linked to the portal of the Ministryof Tourism and EnvironmentalProtection valued at 300.000,00 €.Due to continuous increase in thenumber of foreign tourists the informationon tourism destinations and offer inMontenegro need to be provided on thevery border crossings.By realization of this project the touristswill be able to get all the relevantinformation at the border crossing andwhich will make the planning of theirstay easier.Preparation of the project documentationand project realization are plannedto take place in 2008.- Sanitary landfills valued at1.545.000,00 €.The main condition for the implementationof the Law on waste management(whose enforcement is expected inNovember 2008) is the construction ofthe regional sanitary landfills for the communalwaste disposal. This project will beinitiated in the following towns: Nikšić,Bijelo Polje, Berane, Pljevlja, Kotor andConstruction site of the administrative building Regional Police Unit in PodgoricaBar. The aim of this project’s realization issolving of one of the priority infrastructuralproblems in Montenegro.During 2007 the Ministry of Tourismand Environmental protection will prepareScope of work for the preparation of thestudies while the feasibility study, environmentalimpact assessment, and final designsare planned to be prepared in 2008.- Wastewater treatment plants valuedat 800.000,00 €.The implementation of this projectis aimed at providing permanent solutionto the problem of wastewater treatmentin the following towns: Herceg-Novi, Tivat, Budva, Bar, Ulcinj, Cetinje andPlav-Gusinje. The feasibility study andenvironmental impact assessment areplanned to be prepared in 2008.- Administrative building of theRegional police unit in Podgorica valuedat 3.000.000,00 €.Considering the initiative of the Capitalof Podgorica for the change of the currentlocation of this building, the PoliceManagement has started the activities onthe realization of this project.Construction of this building will createthe conditions for the police to work inaccordance with the new Law on criminalproceedings and the Law on police. Alsothe European standards related to thecapture room, the room where identificationstake place etc. will be met which willimprove the efficiency of the police.- “13 jul” Street in Nikšić valued at500.000,00 €.“13. jul” Street in the total length of4,6 km was part of the old Nikšić – Podgoricaroad, and it connects Kličevo settlementwith the downtown. The existingroad does not have the necessary infrastructureand its condition jeopardizesthe safety of the drivers. Therefore thereconstruction of this road including thenecessary infrastructure creates the conditionsfor safe two-way traffic flow. Preparationof the project documentation aswell as the performing of the works on450m of the street are planned to takeplace in 2008. The Municipality will contributeto the realization of this project bysettling of the property-legal relations.- Penitentiary in Kotor and reconstructionof the Penitentiary in BijeloPolje valued at 1.500.000,00 €.Based on the decision made by theGovernment of Montenegro the formerpenitentiary building in Kotor will beleased for a period of several years. Thelease income will be used for the constructionof the penitentiary in Kotorand renovation and reconstruction ofthe penitentiary in Bijelo Polje. Preparationof the project documentation andthe beginning of the construction of thepenitentiary in Kotor and reconstructionand renovation of the penitentiary inBijelo Polje are expected to take placein 2008.- Reconstruction of the building ofthe Parliament of Montenegro valuedat 100.000,00 €.There is a lack of office space in theParliament building. Reconstruction of18

Annual report of the Ministry of Finance of Montenegro / 2007the building will create normal conditionsfor the work of the Parliament. Preparationof the project documentation isplanned to take place in 2008.- Department of Oncology of theClinical Centre of Montenegro in Podgoricavalued at 1.000.000,00 €.The lack of adequate space for theaccommodation of the patients and specializedmedical equipment are the reasonsfor the construction of the newbuilding for the oncology department.By construction of the new building oftotal area of 5.684 m 2 , which would beequipped with high technology devicessuch as new radiotherapy equipmentand brachytherapy system, they necessarypreconditions would be created forthe treatment of the patients, so thywould not need to go to the clinical centersin the surrounding countries. Preparationof the project documentation andthe beginning of the construction willtake place in 2008.- University Centre – Berane valuedat 400.000,00 €.This project is initiated due to thelack of space for the accommodation ofthe students of the Medical College. Byreconstruction of the existing medicalcentre the necessary conditions would becreated for functioning of the student’sdormitory in one part of the building andpractice in the other part of the building.The facilities for 350-400 studentswill be organized in accordance with thenorms that apply to this type of buildingsBuilding of the Parliament of Montenegro(accommodation, shared rooms, readingroom, room for extra-curricula activities,practice, dining room with the kitchen,administration). The beginning of theconstruction is planned for 2008.- The building for the institutionsunder the authority of the Ministryfor Economic Development valued at100.000,00 €.After declaration of independence ofMontenegro, the Ministry for EconomicDevelopment took over the jurisdictions fromthe state union in the area of quality infrastructureand intellectual property, which ledto the need for provision of the additionalworkspace for the new institutions.By construction of this building theconditions for working of the followinginstitutions of the Ministry for EconomicDevelopment will be created: MontenegrinInstitute for Standardization, Instituteof Metrology, Accreditation Body,Intellectual Property Institute, Directoratefor development of small and mediumenterprises, Agency for Landscaping andSpatial Planning, Mine Management andCompetition Protection Administration.Preparation of project documentation isplanned to take place in 2008.Mausoleum on Lovćen- Reconstruction of the Mausoleumof Petar II Petrović Njegoš onLovćen valued at 50.000,00 €.Mausoleum of Petar II PetrovićNjegoš, located on the Lovćen Mountain,was built in 1974 and it is owned by thestate. Because of its architectonic andartistic values it was declared a 1 st categorycultural monument and put underthe protection of the law. The currentstate of the monument is not satisfactoryand it is a reason for concern becauseof significant damages on the accessstaircase, tunnel (along its entire length),lighting, protective walls, lightning rodinstillation etc.The reconstruction of the mausoleumwill prevent further devastation andit will preserve one of the cultural, historicaland tourist symbols of Montenegro.Preparation of the project documentationand the beginning of the constructionare planned to take place in 2008.According to the Capital budget for2008 of the Directorate for the Traffic,which amounts to 31.790.000,00 €, totalof 16.200.000,00 € is planned for the realizationof the capital projects that werestarted in 2007 and 15.590.000,00 € isallocated for the realization of the newcapital projects.According to the Capital budgetfor 2008, Directorate for Traffic plans toimplement two new projects:- Designing of the roundabouts inorder to avoid the bottlenecks on themain road and the regional roads valuedat 4.180.000,00 €.The tenders will be advertised forthe preparation of the designs for theroundabouts for the following locations:Herceg Novi Riviera, Tivat, Budva, Bar, Golubovci,Bijelo Polje, Nikšić, Kolašin.- The third lane and the roundabout19

Annual report of the Ministry of Finance of Montenegro / 2007around towns valued at 11.410.000,00 €.Construction of the roundabouts on the following locations: Herceg Novi Riviera - Savina, Verige crossing ( Kamenari - Lepetani), Tivat,Kotor, Budva (Markovići- Radanovići), Bar, Golubovci, Bijelo Polje, Nikšić, Rožaje,Berane and Kolašin. Construction of the third lane: Bečići iSutomore and the bridge on Port Milena in Ulcinj.Summary table of the planned capital projects included in the Capital budget for 2008ProjectsBudget2008Budget2009Budget2010Budget2011I. Directorate of Public Works 35,642,973.00 41,406,580.00 15,737,480.00 7,980,000.00Projects started in 2007 17,276,973.00 11,187,080.00 4,657,480.00New building of the Government ofMontenegro – PodgoricaRectory in Podgorica 2,365,687.00Center for Criminal Expertise and Training -forensic laboratory in Danilovgrad2,000,000.00 3,665,600.002,330,000.00Institute for Public Health in Podgorica 1,748,000.00 1,000,000.00Centres for Transfusion 500,000.00 1,000,000.00State Agencies’ Building in Podgorica 2,603,286.00Rehabilitation and cultivating of lead and zincmine waste deposit in MojkovacAdministrative building for the Customs Servicein KotorAdministrative building for the Customs Servicein Podgorica1,000,000.00 1,903,780.00 1,903,780.00250,000.00Home for the elderly - Bijelo Polje 500,000.00Home for the Palliative Care of the elderly“Grabovac”- RisanMusical Center – Reconstruction and renovationof the Military Home in PodgoricaReconstruction of the High school “TvrtkoBijelić” Nikšić90,000.00 2,029,000.00 1,165,000.001,140,000.001,500,000.00 1,588,700.00 1,588,700.001,250,000.00New projects in 2008 18,366,000.00 30,219,500.00 11,080,000.00 7,980,000.00Administrative building of the Ministry ofInternal Affairs and Public Administration inPljevlja406,000.00Reconstruction of the main road in Zabljak 650,000.00 900,000.00Elementary school “Risto Manojlović” andElementary music school in Kolašin500,000.00 3,040,000,00Sports hall in Berane 700,000.00 1,645,000,00Construction of the mini roundabout in Plav 650,000.00 700,000.00New building for the Ministry of Defense,Headquarters of the Army of Montenegro andthe Ministry of Foreign AffairsKindergarten in Golubovci 400,000.00 915,000.00Health centers in Podgorica 1,300,000.00Danilovgrad – Spuž road 1,170,000.00New Command building in the barracks“Milovan Šaranović” in DanilovgradAdministrative building of the PenitentiaryInstitution1,350,000.00 5,680,000.00 5,680,000.00 5,680,000.00150,000.00 1,870,000.00295,000.00The swimming pool on the square- Herceg Novi 500,000.00 2,845,000,0020

Annual report of the Ministry of Finance of Montenegro / 2007Reconstruction and renovation of the Publicinstitution Center for Children and the Youth“Ljubović”- Podgorica, PI Children’s Home“Mladost”- Bijela and PI “Lovćen” – Bečići100,000.00 2,025,000.00Creation of the conditions for the developmentof “Hiking and biking” in Montenegro900,000.00 600,000.00Installation of the electronic info points on theborder crossings and inland linked to the portalof the Ministry of Tourism and Environmental300,000.00ProtectionSanitary landfills 1,545,000.00Wastewater treatment plants 800,000.00 250,000.00Administrative building of the Regional PoliceUnit in Podgorica3,000,000.00 3,500,000.00 3,000,000.00“13 jul” Street in Nikšić 500,000.00 1,490,000.00 1,400,000.00 1,300,000.00Penitentiary in Kotor and reconstruction of thePenitentiary in Bijelo PoljeReconstruction of the building of the Parliamentof MontenegroDepartment of Oncology of the Clinical Centreof Montenegro in Podgorica1,500,000.00100,000.001,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00University Centre – Berane 400,000.00The building for the institutions underthe authority of the Ministry for EconomicDevelopmentReconstruction of the Mausoleum of Petar IIPetrović Njegoš on Lovćen100,000.00 2.609,200.0050,000.00 1,050,300.00II. Directorate for Traffic 31,790,000.00 29,000,000.00 34,000,000.00 34,000,000.00Projects started in 2007 16,200,000.00 14,000,000.00 14,000,000.00 14,000,000.00Risan – Grahovo – Žabljak road 7,000,000.00 10,000,000.00 10,000,000.00 10,000,000.00Overhaul of the tunnels, bridges, landslides,slopes and walls on the main and regional roads2,000,000.00 2,000,000.00 2,000,000.00 2,000,000.00Mišici – Buljarica over the saddle Kufin 2,000,000.00Reconstruction of the asphalt layer of the mainand regional roadsDesigning of the highway from Smokovac toVeruše3,900,000.00 2,000,000.00 2,000,000.00 2,000,000.001,300,000.00New projects in 2008 15,590,000.00 15,000,000.00 20,000,000.00 20,000,000.00Designing of the roundabouts in order to avoidthe bottlenecks on the main road and the 4,180,000.00regional roadsThe third lane and the roundabout aroundtowns11,410,000.00 15,000,000.00 20,000,000.00 20,000,000.00Total I +II : 67,432,973.00 70,406,580.00 49,737,480.00 41,980,000.00Coordinator of the Department for Public Investment PlanningLjiljana Crnčević21

Annual report of the Ministry of Finance of Montenegro / 2007Budget of State Fundsfor 2008The Parliament of Montenegro has adopted the Law Amending and Supplementing the Budget Law. Part ofchanges refers to the recent extra-budgetary funds, which are integrated into the system of the state budget andtherefore become the spending units of the country and are defined as state funds.Law Amending and Supplementing the Budget Law, also erases the provisions referring to the process ofadoption of budgets of extra-budgetary funds in the sense that competence of extra-budgetary funds is beingabolished for adoption of the annual budget.Structure of expenditures of state funds is defined in accordance with the Rule Book on Unique Classificationof Accounts for the Budget of the State, Extra-Budgetary Funds and Budgets of Municipalities and needs of funds,in order to provide the most adequate accounting records and unique classification, as in other spending units.Another important change due to the integration of state funds into the State Budget is that the missingfunds for realisation of the function of funds will not be provided through transfers to funds, but from generalrevenues of the budget.State funds are:• Pension and Disability Insurance Fund of the Montenegro,• State Fund for Health Insurance,• Employment Agency of Montenegro,• Development Fund of Montenegro and• Compensation Fund.Nikola VukićevićSPENDING UNITGeneralrevenuesEarmarkedrevenuesOwnrevenuesCredits Donations Total1 2 3 4 5 6 7 ( 2 do 6)60101PENSION ANDDISABILITY INSURANCE 76,000,000 174,000,000 0.00 0.00 0.00 250,000,000FUND60201HEALTH INSURANCEFUND37,086,111 107,468,889 0.00 0.00 0.00 144,555,00060301 EMPLOYMENT AGENCY 8,316,500 21,852,800 0.00 0.00 0.00 30,169,30060401 DEVELOPMENT FUND 0 22,312,301 0.00 0.00 0.00 22,312,30160501 COMPENSATION FUND 529,591 8,000,000 0.00 0.00 0.00 8,529,591TOTAL 121,932,202 333,633,990 0.00 0.00 0.00 455,566,192HEALTH INSURANCE FUNDclassification description amount % of share411 Gross salaries and contributions payable by employer 2.038.642,43 1,41412 Other personal income 194.906,60 0,13413 Costs for material and services 1.575.440,21 1,09414 Current maintenance 144.133,80 0,10415 interests 272.555,43 0,19416 rent 8.345,00 0,01418 Other expenditures 198.956,36 0,14424 Other rights from the sphere of health protection 10.483.592,00 7,25425 Other rights from the sphere of health insurance 5.201.194,00 3,60431 Transfers to institutions, individuals, non-government and public sector 123.000.000,00 85,09441 Capital expenditures 1.337.234,17 0,93463 Repayment of liabilities from previous years 100.000,00 0,07TOTAL 144.555.000,00 100.00State Fund for Health Insurance is the legal person with rights, liabilities and obligations determined by the Law.State Fund for Health Insurance performs its activity which consists of providing of health protection and other rights from the sphere of healthinsurance to insured persons.Funds are planned to the total amount of 144,55 mill. € for the State Fund for Health Insurance in 2008.Gross salaries are planned to the amount of 2,03 mill. € and refer to the payment of salaries to employees in the Fund.22

Annual report of the Ministry of Finance of Montenegro / 2007Costs for material and services are planned to the amount of 1,57 mill. €. Other rights from the sphere of health protection are planned to theamount of 10,48 mil. € and they refer to the medical treatment in health institutions in Serbia and other foreign countries, in Army Hospital Meljine,Institute Igalo, expenditure for artificial insemination, other health protection.Rights from the sphere of health insurance re planned to the amount of 5,20 mill. € and they refer to expenditures for orthopaedic and otherhelping devices, travel costs and compensations for sick leaves.Transfers to institutions, individuals, non-government and public sector are planned to the amount of 123,00 mill. € and that is the largest item inthe budget of the State Health Insurance Fund, and they refer to expenditures of health institutions.For capital expenditures the amount was planned of 1.33 mill. €.COMPENSATION FUNDclassification description amount % of share411 Gross salaries and contributions payable by employer 149.616,00 1,75412 Other personal income 24.375,00 0,29413 Costs for material and services 302.600,00 3,55418 Other expenditures 3.000,00 0,04441 Capital expenditures 50.000,00 0,59463 Repayment of liabilities from previous years 8.000.000,00 93,79TOTAL 8.529.591,00 100.00Compensation Fund was formed for providing of funds for former holders for rights expropriated in favour of national wide, national, public orcommon property.Activity of the Fund providing of legal, economical and rational usage of funds earmarked for compensation of former holders.Increase of the number of employees in the Compensation Fund depends on the new role which was given to the Fund by Law Amending andSupplementing the Law on Restitution of Expropriated Property Rights and Compensation, which requires the increase of all expenditures on thatbasis.Amount of general expenditures:Gross salaries in the total amount of 0,14 mill. €Costs for material and services 0,30 mill. € .Earmarked funds are anticipated for compensation of former holders, and were planned within the position of expenditures- repayment ofliabilities from previous period to the amount of 8,00 mil. €.DEVELOPMENT FUND OF MONTENEGROclassification description Amount % of share411 Gross salaries and contributions payable by employer 108.225,14 0,49412 Other personal income 19.776,25 0,09413 Costs for material and services 478.900,00 2,15414 Current maintenance 11.300,00 0,05431 Transfers to institutions, individuals, non-government and public sector 7.954.500,00 35,65441 Capital expenditures 39.600,00 0,18451 Loans and credits 13.700.000,00 61,40TOTAL 22.312.301,39 100.00Development Fund of Montenegro was established for stimulation of the economy growth and property, production and financial restructuringof the capital market and promotion of the efficiency of the capital usage.Funds are planned to the amount of 22,31 mill. € for 2008 for the Development Fund.Gross salaries are planned to the amount of 0,108 mill. €.The highest item in the budget plan for 2008 is loans given to other institutions. They are planned to the amount of 13,70 mil. €. Namely, in itsrecent activity Fund has invested a large share of money into banks in the form of the term deposits and in that way obtained significant revenueswhich had a great influence on positive financial indicators of the Fund. Part of these funds will be directed to the financing of infrastructural, part intowater-supply projects and solving of problem of waste waters disposal in accordance with the policy of the Government which deals with this areas.Loans to municipalities in 2008, are planned to the amount of 8.000.000 €. It is a continuous activity of the Fund with which the Fund, by repurchaseof bonds of local self-governments or by credit arrangement, finances the realisation of infrastructural and ecologic project in municipalities, inaccordance with economic policy of the Fund.Other loans and credits to the amount of 7 mill. € refer to the basic activity of the Fund, and that is the creating of investment projects of smalland medium size enterprises. This activity began in 1996, and is continuously performed every year. Objective of this credit line is providing of goodfinancial aid to small and medium size enterprises through and with guaranties from business banks. Special treatment in the next year will have smalland medium size enterprises whose projects are being realised in the northern part of Montenegro, and the Fund will invest the largest share of itsfunds in order to moderate the regional disproportions in Montenegro.Transfers to institutions, individuals, non-government and public sector are planned to the amount of 7,95 mill. €.PENSION AND DISABILITY INSURANCE FUND23

Annual report of the Ministry of Finance of Montenegro / 2007classification description Amount % of share411 Gross salaries and contributions payable by employer 2.240.357,50 0,90412 Other personal income 270.512,50 0,11413 Costs for material and services 1.916.000,00 0,77414 Current maintenance 100.000,00 0,04415 interests 400.000,00 0,16416 rent 50.000,00 0,02418 Other expenditures 64.000,00 0,03423 Rights from the sphere of pension and disability insurance 243.459.130,00 97,38431 Transfers to institutions, individuals, non-government and public sector 300.000,00 0,12441 Capital expenditures 900.000,00 0,36451 Loans and credits 100.000,00 0,04473 Other reserves- funds of deposits 200.000,00 0,08TOTAL 250.000.000,00 100,00Gross salaries and contributions payable by employers are planned to the level of 2.24 mill. € for 2008 and they refer to the employees in the Fund.Other personal income are planned at the almost the same level as for 2007, to the amount of 0,27 mill €Costs for material and services are planned at the level of 1.92 mill. € and depend on changes of prices of telephone services, postal services, fuelprice, electric power and office material.Right from the sphere of pension and disability insurance are planned to the amount of 243,45 mill. € and they refer to needed funds for financingof elderly, disability and family pensions, compensations, allowances, pensions in foreign lands and contributions for health protection of pensioners.Rights from the sphere of the pension and disability insurance will be financed from general revenues to the amount of 29 %, and earmarked revenuesof the amount of 71%.Capital expenditures for 2008 are planned to the amount of 0.90 mill € and their share in total expenditures is 0.36%. The implementation of thenew information system in the Fund is also planned which implies the procurement of the new software and hardware equipment.Transfers to institutions, individuals, non-government and public sector are planned to the amount of 0,30 mill. €. Namely, the Fund during the yearand based on the Resolution of the Board of Directors allocates funds in the form of aid to the Alliance of Unions of Pensioners. These are the funds ofone-time aid which are directed to pensioners which represent materially most endangered part of population.EMPLOYMENT AGENCYclassification description Amount % of share411 Gross salaries and contributions payable by employer 3.846.600,00 12,34412 Other personal income 816.300,00 2,62413 Costs for material and services 2.569.200,00 8,24414 Current maintenance 146.400,00 0,47415 interests 201.000,00 0,64416 rent 34.800,00 0,11418 Other expenditures 14.100,00 0,05422 Funds for redundancies 6.482.800,00 20,80431 Transfers to institutions, individuals, non-government and public sector 11.362.100,00 36,45441 Capital expenditures 420.000,00 1,35451 Loans and credits 4.556.000,00 14,62461 Debt repayment 720.000,00 2,31TOTAL 31.169.300,00 100.00Employment Agency is a public service with characteristics of the legal person.Activity of the Agency encompasses the intermediation in the employment and business engagement, taking of measures and activities in theprocedure of implementation of the employment policy and other rights from this area.Funds were planned for 2008 for the Employment Agency to the total amount of 31,17 mill. €.Gross salaries of employees are planned to the amount of 3,84 mill.€.Costs for material and services are planned to the amount of 2,57 mill. € and are planned with the increase when compared to 2007, for 0,3%,Funds for redundancies are planned to the amount of 6,48 mill. €.Transfers are planned to the amount of 11,36 mill. € and they encompass the funds hired by the Employment Agency for realisation of measuresof the active employment policy through vocational training and prequalification of unemployed persons, realisation of public works programmes,employment of trainees from the funds of the Agency, special measures for employment of disabled persons and other activities related to the activeemployment policy. These funds are planned based on estimations of realised revenues from duties to the work engagement of non-residential naturalpersons and from funds from privatisation.Loans and credits are planned to the amount of 4,55 mill. € and they mostly refer to the crediting of self-employment.Assistant to the MinisterNikola Vukićević ma24

Annual report of the Ministry of Finance of Montenegro / 2007Medium-termMacroeconomicand FiscalFramework2008-2010BASIC MACROFISCAL INDICATORSIn the period 2008-2010 the average nominal growth of the gross domestic product (hereinafter: GDP) of 9,67% is expected, with the average real growthof 6,2% per year. Inflation level will be 3,5 % on average per year. Public spending surplus will not be lower than 0,90 of GDP on average per year. Share of thecurrent public spending in GDP in period 2008-2010 will be reduced by rate of 2,37 % of GDP, with the simultaneous growth of capital expenditures at the levelof 0,43 % of GDP, and the expenditures for the Capital budget of Montenegro will grow by rate of 1 % of GDP per year. Average increase of deposits of publicsector will not go below 3,77 % of GDP.In the following table basic estimated macroeconomic and fiscal aggregates are given:Growth rates 2008 2009 2010Nominal growth of GDP 11.00% 9.50% 8.50%Real growth of GDP 7.00% 6.00% 5.50%Inflation 4.00% 3.50% 3.00%Consolidated expenditures (in % of GDP) 50.01 48.08 46.43Capital expenditures (in % of GDP) 8.07 8.60 9.21Current public spending (in % of GDP) 41.95 39.49 37.21Surplus/deficit (in % of GDP) 0.70 0.94 1.06Increase/reduction of deposits (in % of GDP) 2.84 4.41 4.05Fiscal projections are based on macroeconomic scenario, which implies the moderate growth of economic activities and stable and relatively low inflationlevel. It is expected that the level of foreign investments will gradually fall from the extremely high level in 2007. In the period 2008-2010 a gradual fall of the levelof banking credits is expected. This will lead to the moderate reduction of spending of households and stabilisation of the investment activity.Reduction of the private spending combined with the planned reduction of the current public spending will provide the improvement of the balanceof payments. Expected moderate reduction of import of goods and increase of revenues based on export of goods and services should have as a result theimprovement of the trade account.Macroeconomic stability was provided and economic growth was initiated with the economic policy during the previous period. Main goal of the economicpolicy in the following period will be stable growth of economic activity and growth of the living standard of population. Macroeconomic framework has as astarting point realised results in period 2003-2007 and stands, opinions and prognoses both from domestic and experts from international financial institutions.It is expected that the real growth of GDP in period 2008-2010, will be at the level of 6,2 % per year. These expectations of growth of economic activity in the Stateare based at the high inflow of foreign direct investments in the previous period and expectations of continuation of this tendency in future. High level of investmentsis expected in realisation of construction works in tourism and promotion of the public infrastructure so that the civil engineering and tourism mark of as branches25

Annual report of the Ministry of Finance of Montenegro / 2007in which the extremely dynamic growth rates will be realised. Development of tourism also carries the influence to the connected services of economic activity withtourism industry like traffic, agriculture and food industry which will continue to give contribution in the creation of the projected growth.In favour of positive expectations of economic activity growth there is also the fact that the banking sector has totally regained its credibility and become one of thekey subjects in the improvement of economic activity in Montenegro. Significant progress is evident in this sphere in the last couple of years- which is reflected throughthe strong increase of deposits of the private sector, introducing of new international standards, and through progress in strengthening of monitoring based on risk andmonitoring regarding obeying of regulations. Credit activity of banks in these conditions becomes additional factor of growth and economy development.According to data for first nine months 2007, public revenues were realised to the significantly higher amount than planned with the high growth in theareas of services- tourism, trade, real-estates, and financial mediation. Positive trends of collection of current revenues will continue by the end of 2007, and infollowing years. Surplus of current revenues of the budget over the consolidated expenditures in period 2008-2010 will enable the reduction of tax rates withoutjeopardising of fiscal balance, by paying of all legal liabilities, capital investments and repayment of debts and call in arrears.MEDIUM-TERM FRAMEWORK OF PUBLIC SPENDING 2008-2010Estimation of public spending of Montenegro for 2008, and medium-term macro fiscal framework 2008-2010 are made based on evaluated data on GDPtrend and inflation level, data on trend of public spending in the period from 2003 until 2006, on realisation of public spending for first nine months 2007, LawAmending and Supplementing the Budget Law of Montenegro for 2007, and reforms of public sector which are in the phase of implementation and which areplanned in the following years. Public spending policy in the following three fiscal years is based on basic goals of Economic Programme of Government ofMontenegro, on evaluation of fiscal potential of Montenegro and macro-economic trends for following period.In accordance with goals and guidelines of economic policy, further balancing of the Budget is planned in 2008, integration of extra-budgetary fundsin Consolidated account of treasury, reduction of fiscal burdening for economy and citizens by reduction of tax rates on contributions, continuation ofimplementation of Medium-term framework of budgetary spending. Aiming more transparent and efficient public finances system, “organic” Law on Budget andLaw on Financing of Local Self-Governments are amended and supplemented.3.1 STARTING ASSUMPTIONS FOR DRAFTING OF MEDIUM-TERM FRAMEWORK OF PUBLIC SPENDINGFiscal and structural reforms of the public spending system in period 2008-2010 are directed at the creation of the stimulating economic environmentthrough reduction of tax burdening, which will provide competitiveness of economy and additional attraction of foreign investments. At the same time, functionof the sustainable health and pension system is to be provided. Special attention is directed at the reduction of the total level of public debt, taking into accountthat we are EURO economy. For drafting of the medium-term framework of public spending, starting assumptions are the following:• Stable macroeconomic environment with average real growth of GDP of 6,2 % in period 2008-2010 and average inflation level of 3,5 %• Integrating of extra-budgetary funds into the Budget – from 01. 01. 2008 receipts and expenditures of extra-budgetary funds will be planned as integral partof the Budget of the State. In that way, transparency of the budget will be improved and control of spending of budgetary funds, and also the liquidity.• Gradual reduction of tax burdening- reduction of the rate of the personal income tax from 15 % in 2008 to 12 % in 2009 and to 9 % in 2010. This measurewill especially affect the creating of the framework of development of the private entrepreneurship and increase of competitiveness.• Gradual reduction of contribution rates - reduction of contribution rate for health insurance from 13,5 % in 2007 to 12 % in 2008, further reduction to 10,5% in 2009 and to 9 % in 2010.• Gradual reduction of contribution rates – reduction of the contribution rate for pension insurance from 21,6 % in 2007, to 21 % in 2008, further reductionto 20,5 % in 2009, and to 20 % in 2010.• Limiting of the public spending level is envisaged with the annual reduction of its share in GDP for 1,5% in the period 2008-2010. Final objective isthe reduced role of the state in the economic life of the country, which will provide higher competitiveness of the private sector with the increase of totalemployment and growth of real salaries.• Increase of expenditures for the Capital Budget of Montenegro for 1% of GDP in the period 2008-2010 with containing of the same nominal level ofcapital expenditures in the current budget and capital expenditures of local self-government. Additional funds which are planned for these purposes, throughinvestments into infrastructure will enable creating of assumptions for faster growth and development of economy.• Reduction of share of revenues from taxes on international trade and transactions in GDP as a result of harmonisation of the customs system with the WorldTrade Organisation and EU• Balanced balance account of the consolidated public spending with realisation of the current revenues surplus over expenditures to the level of 0,9 % ofGDP averagely per year in the period 2008-2010 and increase of deposits of the public sector. Increase of deposits will enable accumulation of reserves for capitalinvestments and eventual external shocks which can occur in the small and open economy such as the economy of Montenegro. Accumulated deposits willnot be used for increase of current spending.3.2 BASIS OF THE BUDGETARY POLICY IN THE MEDIUM-TERM FRAMEWORKIn the medium-term framework 2008-2010 the following budgetary policies will be implemented:Medium-Term Budgetary FrameworkCondition for drafting and application of the medium-term budgetary framework is the reform of the process of preparation and planning of the budgetand introduction of the financial limits for budgetary beneficiaries in the period of many years. Budgetary appropriations for the period of many years would bebased on the strategic documents of the Government and some competent ministries in accordance with the fiscal framework of the total public spending. Thus,a method “from up to bottom” would be introduced in the process of preparation and planning of the budget. Implementation implies establishment of the limitin the medium-term period in the cumulative amount, by economic classification, or by budgetary beneficiaries while the detailed overview of costs would bespecified by the annual Laws on Budget. Main advantage of introduction of the medium-term budgetary framework reflects in the more stable and sustainablefiscal policy, higher capacity for regulating of future budgetary effects/results and improved possibility of the Government to perform the allocation of resourceswithin the programme and organisational units, in accordance with its policy and priorities.Consolidation of the Budgetary StructureIn order to achieve the necessary efficiency of management of public finances, including of the state funds in the unique account of the treasury is planned,and so is the consolidation of public spending by including of regulatory agencies and public enterprises in the area of commenting of the budget. Also, the26

Annual report of the Ministry of Finance of Montenegro / 2007greater attention will be given to the functional analysis in the structure of the budget. In the medium-term reduction of the number of direct beneficiaries ofbudgetary funds is planned, with the increase of responsibility of the Ministry for coordination of the budgetary process and budgetary beneficiaries in the sectorof its competences.Continuation of Implementation of the Capital Budget of MontenegroContinuation of implementation of the Capital Budget of Montenegro is planned, with introduction of obligatory appropriations for two-year period inthe Budget Law of Montenegro for 2009. In the first half of 2008, introduction of the plan on five-year capital investments in Montenegro is planned, based onwhich a two-year Law on Capital Budget will be proposed. Aiming that, forming of the database is envisaged on all projects, related to the Budget. That wayadequate analysis of fiscal risks would be achieved, but also the decision making process in choosing of priorities would be improved. Adoption of the new Lawon Concessions and Privately-Public Partnership will be a significant regulatory framework for management of one part of investments.Continuation of Programme Budget ImplementationIn implementation of the programme budget in Montenegro the model of the budget programme is present which represents the main activity (programme)which is being realised through spending units. Two levels of programme budget implementation are introduced, which are shown through programmes andsub-programmes. The programme budget reform plans the introduction of the logical programme classification for the total budget, and the preparation of theIT system for monitoring and realisation of the budget according to the programme structure. Transition from the linear to the programme budget is planned for2009, so that the budget in 2009 is prepared with the programme structure. Complete implementation of the programme budget, which includes the indicatorsand the total application of the “from up to bottom” method in the process of preparation and planning of the budget, is planned in the medium-term.Public Debt ManagementPublic debt of Montenegro, thanks to the successful rescheduling of inherited debt, and to the revenues from privatisation, has been significantly reducedin last years. At the end of 2006, public debt was reduced to 701,1 mil € or 36,3% of GDP, with high state deposits in banks and Central Bank of Montenegro(CBCG). In conditions of the favourable liquidity the Government has reduced to minimum the programme of issuance of T-bills. The new borrowing is mostlydone for financing of projects from international financial institutions and mostly European. Call in arrears to suppliers has been redeemed, and new liabilitiesare not cumulating.In the following table a medium-term framework of public spending is given for the period 2008-2010:CONSOLIDATED PUBLIC SPENDINGPlan 2008 Projection 2009 Projection 2010DESCRIPTIONin % ofin % ofin % ofin mil €in mil €In mil €GDPGDPGDPCURRENT REVENUES 1282,09 50,72 1357,83 49,03 1426,80 47,48Taxes 839,30 33,20 883,45 31,90 923,03 30,72Personal income tax 104,73 4,14 96,33 3,48 86,23 2,87Corporate tax 47,40 1,88 51,91 1,87 56,32 1,87Property tax 39,93 1,58 43,73 1,58 47,45 1,58Value added tax 432,52 17,11 462,80 16,71 490,56 16,32Excises 99,52 3,94 108,97 3,93 118,23 3,93Tax on international trade and transactions 72,89 2,88 73,40 2,65 73,99 2,46Local taxes 34,83 1,38 38,14 1,38 41,38 1,38Other revenues of the Republic 7,47 0,30 8,18 0,30 8,87 0,30Contributions 269,95 10,68 285,12 10,29 298,42 9,93Contributions for pension and disability insurance 172,00 6,80 187,68 6,78 203,69 6,78Contributions for health insurance 90,47 3,58 89,30 3,22 85,94 2,86Contributions for insurance from unemployment 7,48 0,30 8,13 0,29 8,80 0,29Duties 45,45 1,80 49,77 1,80 54,00 1,80Compensations 74,36 2,94 81,42 2,94 88,34 2,94Other revenues 35,85 1,42 39,25 1,42 42,59 1,42Receipts from credit repayments 17,18 0,68 18,82 0,68 20,42 0,68EXPENDITURES- I level of consolidation 1264,37 50,01 1331,75 48,08 1395,08 46,43EXPENDITURES- II level of consolidation 1225,99 48,50 1294,68 46,75 1360,98 45,29CURRENT PUBLIC SPENDING 1060,42 41,95 1093,59 39,49 1118,23 37,21Current expenditures 525,06 20,77 539,49 19,48 550,27 18,31Gross salaries and contributions payable byemployer288,04 11,39 294,18 10,62 297,60 9,90Net salaries 165,24 6,54 178,11 6,43 190,75 6,35Personal income tax 33,01 1,31 28,34 1,02 21,89 0,73Contributions payable by employee 46,79 1,85 45,88 1,66 45,94 1,53Contributions payable by employer 38,38 1,52 37,08 1,34 34,10 1,13Municipal surtax 4,62 0,18 4,78 0,17 4,92 0,16Other personal income 26,61 1,05 27,54 0,99 28,37 0,94Costs for material and services 128,22 5,07 132,70 4,79 136,69 4,55Current maintenance 27,56 1,09 28,53 1,03 29,38 0,98Interests 20,26 0,80 20,97 0,76 21,60 0,72Rent 10,11 0,40 10,47 0,38 10,78 0,36Subsidies 16,60 0,66 17,18 0,62 17,69 0,59Other expenditures 7,66 0,30 7,92 0,29 8,16 0,27Transfers for social protection 284,90 11,27 294,87 10,65 303,72 10,11Rights from the sphere of social protection 41,59 1,65 43,05 1,55 44,34 1,48Funds for redundancies 11,16 0,44 11,55 0,42 11,90 0,4027

Annual report of the Ministry of Finance of Montenegro / 2007Rights from the sphere of pension and disabilityinsurance216,46 8,56 224,04 8,09 230,76 7,68Other rights from the sphere of health protection 10,48 0,41 10,85 0,39 11,18 0,37Other rights from the sphere of health insurance 5,20 0,21 5,38 0,19 5,54 0,18Transfers to institutions, individuals, NGO andpublic sector212,32 8,40 219,76 7,93 226,35 7,53Transfers to public institutions 171,37 6,78 177,37 6,40 182,69 6,08Transfers to non-government institutions 11,45 0,45 11,85 0,43 12,20 0,41Transfers to public enterprises 8,24 0,33 8,52 0,31 8,78 0,29Transfers to individuals 21,27 0,84 22,02 0,79 22,68 0,75Capital expenditures 136,52 5,40 136,52 4,93 136,52 4,54Capital Budget of Montenegro 67,43 2,67 101,64 3,67 140,33 4,67Loans and credits 23,11 0,91 23,92 0,86 23,41 0,78Repayment of guarantees 0,60 0,02 0,62 0,02 0,64 0,02Reserves 14,43 0,57 14,93 0,54 13,84 0,46DEFICIT/SURPLUS 17,72 0,70 26,08 0,94 31,72 1,06FINANCING -17,72 -0,70 -26,08 -0,94 -31,72 -1,06Domestic financing -30,12 -1,19 -20,43 -0,74 -21,04 -0,70Loans and credits from domestic sources 4,82 0,19 0,00 0,00 0,00 0,00Debt repayment to residents 7,24 0,29 7,49 0,27 7,72 0,26Repayment of capital sum 7,24 0,29 7,49 0,27 7,72 0,26Repayment of liabilities from the previous period 27,70 1,10 28,67 1,04 29,53 0,98Repayment of old foreign currency savings 12,50 0,49 12,94 0,47 13,33 0,44Repayment based on restitution 8,00 0,32 8,28 0,30 8,53 0,28Repayment of liabilities from previous period 7,20 0,28 7,45 0,27 7,68 0,26Foreign financing 18,69 0,74 49,02 1,77 50,25 1,67Credits and securities 9,03 0,36 9,30 0,34 9,58 0,32Loans and credits from foreign sources 21,70 0,86 22,35 0,81 23,02 0,77Repayment of debts to non-residents 12,67 0,50 13,05 0,47 13,44 0,45Donations 1,66 0,07 31,72 1,15 32,67 1,09Project loans 8,00 0,32 8,00 0,29 8,00 0,27Revenues from privatisation or deposits 65,50 2,59 67,47 2,44 60,72 2,02INCREASE/REDUCTION OF DEPOSITS 71,79 2,84 122,13 4,41 121,65 4,05In the period 2008-2010 gradual reduction of current public revenues was reduced from 50,72 % of GDP in 2008 to 47,48 % of GDP in 2010. This reduction isdirect result of the reduction of the tax burdening- reduction of the rate of the personal income tax and gradual reduction of rates of contributions for pensionand health insurance.Slower growth of taxes on international trade and transactions is the result of harmonisation of customs rates with the World Trade Organisation andEuropean Union. For other revenues the growth was projected in accordance with the nominal growth rate of GDP.Consolidated public expenditures will fall with the rate of 1,79 % of GDP in the period 2008-2010, as a result of the slower growth of expenditures thanprojected growth of GDP. For Capital budget of Montenegro, the growth of 1 % of GDP was projected per year, while other capital expenditures (in current budgetand capital expenditures of local self-government) in the nominal amount will be permanent, which means that their share in the GDP will gradually fall (0,43 %on average per year). For other expenditures the annual growth rate was projected in accordance with the average inflation rate.Total expenditures for gross salaries of employees will fall from 11,39 % of GDP in 2008 to 10,62 % of GDP in 2009, and 9,90 % of GDP in 2010. Also, it willcome to the fall of other income of employees from 1,05 % of GDP in 2008 to 0,94 % of GDP, in 2010. Reasons for this reduction are rationalisation of the numberof employees and faster GDP growth than expenditures for gross salaries. Growth of gross salaries will depend on possibility of the budget.Surplus of public revenues over expenditures in 2008 is projected to 17,72 mil € which makes 0,70 % of GDP. In 2009, surplus of public revenues overexpenditures was projected to 26,08 mil € of 0,94 % of GDP for that year, while for 2010 the surplus of revenues over expenditures is projected to 31,72 mil € whichmakes 1,06 % of GDP. Pursuant organic Budget Law, realised surplus of revenues will be used for financing of the debt repayment, capital projects and increaseof deposits. Funds of deposits will not be used for current spending financing.High level of public revenues collection, surplus of public revenues over expenditures in the period 2008-2010 will provide regular repayment of liabilities byforeign debt- repayment of capital sum for credits taken to residents and non-residents, repayment of old foreign currency savings and repayment of liabilities basedon restitution. Self-government units will regularly reduce call in arrears from the previous period and there will be no accumulation of new call in arrears.Coordinator of Macroeconomic Analysis and International Cooperation Department, Stanko Jeknić PhDIndependent Advisor, Vladislav KaradžićIndependent Advisor, Radovan Živković28

Annual report of the Ministry of Finance of Montenegro / 2007Development Strategyof the Internal FinancialControl in the Public Sectorof MontenegroThe Government of Montenegro hasadopted the Development Strategy ofInternal Financial Control of Public Sectorof Montenegro, at the session heldon 20 th December 2007, which realiseddetermined short-term priorities fromthe Action Plan for Implementation ofRecommendations from the EuropeanPartnership. The Strategy defines basicelements of the concept of the internalfinancial control in the public sector,analysis of the current situation is given,and basic directions of development ofcomprehensive and efficient system ofinternal financial control in the publicsector of Montenegro. Framework deadlinefor implementation of the Strategyis 5 to 7 years. Action Plan, which is theintegral part of the Strategy, determinesactivities on development and implementationof the system of internalfinancial control in public sector whichare planned to be conducted in the followingperiod.Idea and concept of internal financialcontrol in the public sector (PIFC – Publicinternal financial control) was elaboratedby the European Commission, as a help forunderstanding and implementing of welldeveloped and efficient control systemsupon accession in EU. Namely, by adoptionof the Strategy of PIFC and its implementationin public administration bodies, is oneof requests of European Union for countriesCandidates, which should contributeto better management and usage of budgetaryfunds and assets of accession fundsof European Union.Mila BarjaktarovićBasic Elements of the PIFC ConceptBased on internationally acceptedstandards and best practice of EU, term“public internal financial control” (PIFC -Public Internal Financial Control) impliescomprehensive, united system establishedby the Government for control, revisionand reporting on usage of budgetary fundsand funds of EU. Objective of this systemis to provide for public assets (national andassets of the EU) economical, efficient andeffective management and control.Public Internal Financial Control Systemcontains the following elements:1. Financial management and internalIvana Vuletićcontrol (FMC)2. Functional independent internalaudit (IA) and3. Central units for harmonisation andcoordination of the system of financialmanagement and control and methodologyif internal audit (CHU)Financial management and control(FMC) encompasses the total system offinancial and other controls which is integratedin all activities of the institution,including organisational structure, methods,procedure which are applied not onlyto financial systems, but also to operativeand strategic systems of beneficiaries of29

Annual report of the Ministry of Finance of Montenegro / 2007budgetary funds.Primary objective of financial managementand control is to provide:= Successful completion of goals andassignments of institution;= Security, reliability, timelines andinformation integrity, and especially financialof information;= Harmonisation of operations withlaws, regulations, policies, plans and procedures;= Protection of property;= Economical, efficient and effectiveusage of resources.Conduction of financial managementand control is the responsibility of everyemployee in the institution, pursuant thedetermined business processes and operations,and job description of every workplace. Therefore, it is necessary for all processesin which there are control activities,to adopt written directions and procedures,which will precisely determine theway of execution of process and responsibilityof managers and employees.Functionally independent internalaudits. Internal audit performs independent,professional and systematic evaluationof the system of financial managementand controls, which implies revision of allfunctions and processes of operations andestablished controls. It objectively collects,checks, analyses, evaluates and projectsdata and reports to management on databased on which decisions are made. Oneof main focuses of audit is checking of thefunctioning of the FMC system in institution.Within EU, PIFC concept of internalaudit implies that this function shouldbe performed by authorised functionallyindependent unit within the institution.That independence implies that it is independentfrom the activity it is revising; thatit is subordinate directly to the head ofthe institution, or that it makes decisionson area which it will revise, independentlywithout the influence of the director.Functional independence implies that theinternal audit is not part of one businessprocess, or part of the organisation, andin its work it is directly responsible to thehead of state body.Central harmonisation unit is theintegral and necessary condition of successfulapproach and development of thesystem of public internal financial controland this concept has become the part ofthe PIFC.Central harmonisation unit is responsiblefor development and conduction ofmethodology and standards for systemsof FMC and internal audit in the privatesector. Special attention is given to thedevelopment of procedures and auditingtraces for FMC, and for drafting of manuals,drafts of treaty for internal audit and ethicalcodex for state employees included in theinternal audit. This unit, also, develops themethodology for risk assessment whichshould be used by all institutions, givesmethodological guidelines related to FMCand internal audit, estimates activities ofunits for internal audit and FMC and supervisesimplementation of determined claimsand analyses functions of units for internalaudit and FMC in ministries, or other bodiesof public administration. CHU reportsto the Government on development ofthe system of financial management andcontrol and internal audit, degree of implementationof adopted standards, commonweaknesses and measures necessary for itsimprovement.Analysis of Current State of InternalFinancial Control in the Public Sector ofMontenegroExisting legislation framework in Montenegrostipulates certain elements of FMC,but the establishment of the whole systemof FMC, based on generally acceptedstandards of internal control, is not comprehensivelystipulated.Framework Law of the existing systemof FMC in Montenegro is the Budget Law,which regulates planning, adoption andexecution of the State Budget, budgetsof local self-governments, borrowing andissuance of guarantees, internal control,accounting of the budget and internalaudit. Bylaws, adopted based on thisLaw, further stipulate rules, proceduresand responsibilities in certain phases ofbudget management. Beside the BudgetLaw, some elements of financial managementand internal control are stipulatedby the Law on Public Administration, Lawon State Employees and Civil Servants,Law on Salaries of State Employees andCivil Servants, Law on Salaries and OtherIncome of Officials, Public ProcurementLaw, Law on Control of State Assistanceand Aid, and other laws and bylaws adoptedby them.Important segment of the existing systemof FCM in Montenegro represent clearlydefined organisational structures determinedby enactments on organisation andsystematisation, which define responsibilityof some organisational units and personsin institutions. Also, in many institutionsthere are internal acts in which individualbusiness processes or specific activities arestipulated. For most of business processesway of their performing is not stipulated,which should be done, in order to providetheir implementation in accordance withthe principles of legality, economy, effectivenessand efficiency. Also, auditors tracesalso were not prepared, which representwritten procedures which chronologicallydetermines documentation and businessprocess from its beginning until end.We should emphasise that the existingsystem of control is not adequately establishedhaving in mind goals which institutionswant to reach and risks which affectthe realisation of goals. Furthermore, existingcontrols were directed at the realisationof legality and regularity, but not economy,efficiency and effectiveness..As for the subsequent control, weshould emphasise that a certain numberof institutions has established departmentsfor internal control, which perform activitiesof subsequent control regarding obeyingof the laws, bylaws and intern normativeacts within their competences, and thecontrol of financial operations. Controls aremostly directed at discovering of possiblemistakes, deviations or irregularities afterthe performed activities.Internal AuditActivities on development of internalaudit in the public sector have started withthe adoption of the Budget Law in 2001,which stipulated obligation of the Ministryof Finance to perform the audit in thepart of: accounting documents, receipts,contracted obligations and expendituresin spending units, extra-budgetary fundsand municipalities. At the end of 2003 inthe Ministry of Finance, the Department ofInternal Audit was formed, which as a centralisedinternal audit performs operationsof audits in all budgetary beneficiaries.Development of the PIFC System inMontenegroStrategy envisages the adoption of30

Annual report of the Ministry of Finance of Montenegro / 2007the Law on System of Internal FinancialControls in Public Sector, in order to stipulatein a unique way the establishment ofcomprehensive system of financial managementand control and internal audit,based on generally adopted internationalstandards and best practice of EU. TheLaw will in general arrange the system ofpublic internal financial control, which willencompass the management responsibility,financial management and control andinternal audit in public sector of Montenegro,and methodology, standards, relationsand responsibilities, and competences ofMinistry of Finance and other bodies inimplementation of the system of internalfinancial control in public sector. Plannedperiod for adoption of the Law is 2008, andafter that bylaws will be drafted.After adoption of the Law, institutionsof public sector, in a certain deadline, willhave to draft and implement: written proceduresin the form of internal enactments(rule books) which will define basic businessprocesses and presented diagramof trends of business processes, directivesin which business operations will bedescribed in details, and based on that alsoa detailed descriptions of all work placesin the organisation and systematisation.Based on these enactments, implementationof the risk assessment will be enabled,which could endanger some objectivesof business operations. Based on analysisof possible risks control activities will bedetermined which should be establishedregarding the size of the risk. On shapesof establishment of ex ante, current andex post controls decision will be made bythe head of the spending unit, respectingneeds, specificity of operations and resultsof risk analysis in certain period.Having in mind the fact that the independentinternal audit is one of elementsof internal financial control in public sector(PIFC), public sector institutions will beobliged to set functionally independentunits for internal audit which will performindependent, professional and systematicestimation of the system of financial managementand control established by themanagement. That will imply revision ofall functions and processes of business andestablished controls in budgetary beneficiaries,suggesting of measures and giving ofrecommendations for improvement of thesystem, tracking of activities on removalof noticed problems, shortcomings andmistakes in business, and counselling ofmanagement in the sphere of evaluationand risk management. Units for internalaudit in institutions in public sector will bedirectly responsible to managers, for performingof objective estimation of establishedsystem of financial managementand control. Organisational positioning ofunits for internal audit is very importantfor its independence in work, therefore theinternal audit by its organisation it is not apart on any business process, or organisationalpart, and in its part is only responsibleto the leader of the institution. It isfunctionally independent, which meansthat its work cannot be negatively affectedby the leaders whose activities are beingcontrolled.Establishment of internal audit inbudget beneficiaries will be performed inbudgetary beneficiaries in one of the followingways:a) by forming of independent unitwithin the budgetary beneficiary whichwill be directly responsible to the head ofinstitution.b) by forming of common unit for internalaudit upon proposal of more budgetarybeneficiaries with previous accordance ofthe Minister of Finance;c) by agreement of performing of internalaudit works with competent state bodyor other body or unit of local self-government,with previous accordance of Ministerof Finance.Forming of independent units for internalaudit in budgetary beneficiaries willdepend on criteria which will be stipulatedby Minister of Finance. As criteria fortheir forming, the following will be takeninto consideration: financial funds at theirdisposal, degree of risk for budgetary beneficiary,number of programmes, organisationalstructure and number of employees,specificity of activity of the budgetary beneficiary.Department for internal audit of Ministryof Finance, which performed activitiesof centralised internal audit, will be transformedinto the Department for PublicInternal Financial Control as the CentralisedHarmonisation Unit (CHU), which will beresponsible for development and promotionof the internal control and methodologyof internal audit in the publicsector, based on internationally adoptedstandards and best practice, for coordinationand implementation of new regulationsregarding management responsibility(FMC) and internal revision (UR).Suggested activities on establishmentof total system of financial managementand control, including also the internalaudit, should satisfy the requests for managementof pre-accession funds of EuropeanUnion. Basic way of management of EUfunds is coherent with the general principlesof healthy financial management andtherefore, the framework of PIFC providesimportant structure and rules for insuringof transparent and responsible financialmanagement of these funds.Development strategy of PIFC which isthe same for national and EU funds, and isextremely important in the European Integrationprocess of Montenegro. Althoughthe establishment of PIFC is obligatory inthe sense of harmonisation of with thelegal framework of EU, it is not only thecondition, but also the contribution topromotion of responsibility, economy, efficiencyand effectiveness in usage of publicfunds and their better management.Assistant to MinisterMila Barjaktarovićauthorised officer IIvana Vuletić31

Annual report of the Ministry of Finance of Montenegro / 2007Montenegro: Economicand Fiscal Framework2007 - 2010- General Guidelines -Objectives and Key Directions of EconomicPolicy for the Upcoming PeriodEuro-Atlantic and EU integrations areoverall strategic objectives of Montenegro.Apart from clear political commitment, theopenness and considerable links of Montenegrineconomy with the EU and economiesof the countries in the region make sucha commitment only logical in the economicsense. Priorities so defined constitute a certainanchor guiding economic policy towardsincreased competitiveness by using domesticresources. Such a commitment stems fromintensive cooperation between our Governmentand the European Commission, aswell as other international institutions andorganisations, towards creating a frameworkconducive to continuous inflow of foreigndirect investments and bolstering domesticinvestments as the pillars of development.Long-term stable and competitive economywith predictable rules of the game is a guarantorfor developing a true market economybased on free trade of property rights towardscompliance with one of the Copenhagen criteriafor EU accession. Within this framework,the Government has identified the followingthree key development priorities:• Encourage sustainable economic developmentthrough growing economic freedomsand strengthening the role of private sector;• Strengthening the rule of law as a prerequisitefor developing modern institutionsof parliamentary democracy; and• Improving living standards for citizensby provision of better public services, throughefficient education, health and social protectionsystems.Bojana BoškovićShort-term economic prospects of Montenegroare highly favourable. The macroeconomicscenario forecasts the economicgrowth in 2008 kept at some 7%, and itsgradual decrease in the coming two years- to 6.0% in 2009 and 5.5% in 2010. In otherwords, the average economic growth in thecoming three years should be at some 6.2%with the inflation rate averaging to some 3.5%giving the nominal GDP growth of some 9.7%.Thus, by 2010 Montenegrin economy shouldgrow to some 3 billion euros, or 4.800 europer capita. The economic growth should beencouraged with continuing expansion intourism, both directly and indirectly, throughthe growth in the construction industry andother sectors related to tourism. It is expectedthat constant strong demand for metals inthe world market would continue to stimulateMilorad Katnićeconomic growth, although the assumptionsare based on gradual decrease of the aluminiumprice.Although possible risks for short-termdecrease of economic growth are rather limited,Montenegro’s capability for a controlledprocess of reducing economic growth rateswill, in the conditions of “euroisation” whereeconomic policy-makers have at their disposala limited range of economic policy tools,largely depend on (i) stable, i.e. consolidatedpublic finances, and (ii) speedy continuationof structural reforms, primarily in the labourmarket, the financial sector and certainly thepublic services sector, such as energy andtransport. Wise policy-making in these areasincreases considerably the economic system1 - Text is integrally taken over from the Economic and Fiscal Programme for Montenegro, adopted by the Government of Montenegro at the session held on 22nd November 2007.2 - Economic policy of Montenegro in 2007: Government of Montenegro, December 2006.3 - Reports of the World Tourism Organisation and of operators are optimistic and it is expected that large investments in tourism- like recent contract on renovation of Sveti Stefan, contract on building of marina for mega yachts in Tivat, expected construction ofnew capacities and valorisation of underused potentials- will continue to appear in next several years.4 - Although there are some estimation of the slower growth of West European economies and USA, the further growth of demand in Russia, India and China is expected, which in the next medium-term period implies sable Montenegrin industrial aggregates.32

Annual report of the Ministry of Finance of Montenegro / 2007competitiveness, and could also significantlycushion the risks of possible rapid decrease ofeconomic growth rates and thus contribute tothe achievement of development priorities.Stable Public FinancesAs already mentioned, in the context ofa “eurised” economy, fiscal policy is practicallythe only macroeconomic policy-makingtool. Thus, its role only gains in significance.It becomes the only significant tool withwhich economic policy may act countercyclically,i.e. to provide efficient managementto strong demand pressures. At the times ofhigh economic growth rates, as is the casewith Montenegro for the time being, it wouldmean much more restrictive fiscal policy bywhich the state would contribute to reducedpressures that may result in economic overheating.Montenegro’s fiscal policy in 2007 has notfully used its capabilities for counter-cyclicactions. In the context of vigorous increaseof economic growth having as its consequencethe increase of public revenues inthe range of 4 to 5 percentage points of GDPcompared to the previous year, rebalancingthe state budget where originally envisagedexpenditures were increased for almost ¼,considerable part thereof being used for prematurepayment of the debt towards theWorld Bank, thus leaving the surplus at thelevel exceeding 4% of GDP. Simultaneously,although part of the increased expenditures isaimed for increased investments, greater partof the increase still went for increased currentexpenditures. Such relative expansive publicfinance policy-making is also expected for thecoming year, i.e. the year 2008. In a situationwhere public revenues are forecasted at thelevels similar to the 2007 ones, the Governmentenvisages continued trend of increasedstate expenditures expressed as a share ofGDP. The forecasted increase of expendituresunder the items of current expenditures (primarilyaccounted for by increased wage bill inthe public sector) and capital investments willresult in a significant reduction of the expectedbudgetary surplus. As forecasted, it shouldgo down to below 1% of GDP. We should alsobear in mind major financing needs primarilyaimed to strengthen the existing institutionsof parliamentary democracy and building newinstitutions with the aim of proper absorptionof EU legislation through the stabilisationand association process. Also, increasinglyless competitive public administration as thebearer of EU integration processes in relationto ever more advanced private sector imposesthe need for strengthening administrativecapacities through a revised wage policy.Montenegrin Government is aware ofthe need to take the opportunity offered bygood times for the fiscal reform. The unavoidabilityof economic cycles and the inevitableslowing down of economy at a certain pointimposes the need to create conditions conduciveto long-term productive economy,notwithstanding certain pro-cyclic decisionwithin this context. Therefore, tax reforms,apart from creating an additional space forinvestments within the economy, are alsoaimed at establishing the long-term controlover state expenditures in line with balancedbudget policy. With this in mind, we needto establish continuing analysis of mediumtermfiscal sustainability determined by publicsector wage policy, implementation of taxreforms to provide for their completeness,implementation of the capital budget, i.e. thedefinition of the response to high demandfor infrastructure investments and internaldebt servicing. The definition of medium-termobjective of the budgetary policy will helpharmonise competing demands for budgetaryresources. The elimination of infrastructurebottlenecks will require the allocation ofincreasing share of public finances aimed forcapital investments, primarily those into physicalinfrastructure, contributing to strengtheningthe state capacity for the implementationof EU standards, possible only through longtermcontrol of current expenditures. While in2006 capital investments participated in publicfinances with mere 3% of GDP, this shareshould increase to more than 9 % of GDP in2010. We should also note that capital investmentsin the public sector are greater sincethey include the investments into regionalwater supply of the coastal region, renewal ofrailroads and power transmission grid.Apart from these activities, the Governmentwill continue with the processesaimed to improve budget management. Asignificant step forward in this direction isfurther budget consolidation by merging sofar extra-budgetary funds into the treasurysystem. Not only will it lead to improvedcash and state deposits management andincrease the economics of public finances,but also increase public finance transparency.Apart from the above, the strategic frameworkof public finances implies the implementationof the programme budgeting in orderto increase effectiveness in using taxpayers’money. Simultaneously, the implementationof the medium-term budgetary frameworkintroducing budget consumption ceilings forall budgetary units should ensure the implementationof key economic policy goals.Accelerated Continuation ofStructural ReformsPromote the inflow of foreign directinvestments (FDI): FDI are extremely significantfor the development of Montenegrineconomy. The comparison with other countriesin the region and new EU memberstates reveals that FDI is more important forMontenegro than for most of these countries.Montenegro’s aim is to attract FDI to acceleratethe development in all areas. Due to itsstrategic location, natural resources, lowestprofit tax rate of mere 9% and qualified labour,Montenegro has the potential of increasingthe FDI inflow. In 2006 the Governmentadopted the Strategy to Promote ForeignDirect Investments, focusing on key levers ofinvestment policy, targeting foreign investorsthrough the implementation of fiscal, financialand institutional incentives, as well asthe definition of key promotional activities. Increating an environment conducive to investments,the Government focuses on: (i) commitmentto sustainable development programme,responsible fiscal policy and creatingan environment conducive to the operationof foreign investors; (ii) further financial marketdevelopment; (iii) further developmentand strengthening of institutions to attractFDI; (iv) harmonisation of labour legislationwith EU standards as well as the adoptionof new property legislation; (v) borrowingwith international financial institutions andconcession investments for the constructionof major infrastructure facilities; (vi) creatinga liberalized fiscal system to attract FDI; (vii)further strengthening of the banking sectorand financial intermediaries; (viii) adaptingthe structure of the employees to the needsof foreign investors; (ix) education reformsin terms with the needs of developmentsectors in Montenegro. The activities of theMontenegrin Investment Promotion Agency(MIPA) should contribute to further increase ofFDI inflow into the country. In February 2007,the Foreign Investor Council was establishedto play an active role in investment policymaking.< Completion of the PrivatisationProcess; So far, Montenegro has privatisedsome 85% of the state capital. Still, continuedprivatisation, primarily in the energy andtransport sectors, is of vital importance forfurther increased competitiveness of Montenegrineconomy. Further privatisation ofstate-owned enterprises should contribute tobetter economic performance, strengtheningthe competitiveness of the country and enablingthe Government of Montenegro to collectgreater revenues in order to improve publicservices in education and health system, aswell as in the achievement of higher level ofcapital investments with continued policy ofreduced debts. Apart from the privatisationmodels involving strategic investors, the newPPP models are also to be introduced. Overallshare of state property in larger companiesbound to be partially or fully privatised in33

Annual report of the Ministry of Finance of Montenegro / 2007the coming several years (EPCG, Railroads ofMontenegro, Adriatic Shipyard, Plantaže, Portof Bar, Tobacco Plant Podgorica, Institute Dr.Simo Milošević, HTP Budvanska rivijera, HTP,Ulcinsjka rivijera) amounts to €1,078 millionor 64% of their total nominal value. In eachof these, the state is currently a major shareholder.< Further improvement of the businessenvironment and active support toSMEs; The improvement to business environmentis one of the main highlights ofthe economic policy 2007-2010. The businessenvironment in Montenegro has beengreatly improved over the past several years.Nevertheless, entrepreneurs are still facingdifficulties stemming from complicated legaland regulatory framework: complicated andlengthy administrative procedures, poor coordinationof inspection services, time-consumingand burdensome process for purchasingland and transferring property titles, issuesconcerning property insurance, lack of flexibilityin the labour market, limited accessto finances for SMEs, high share of informaleconomy. Future economic policy measuresto improve business environment in Montenegroconcern primarily the eliminationof business barriers or their minimisation,legalisation of informal economy and activepolicy to encourage SME development. Measuresenvisaged to eliminate business barriersconcern further facilitation of business startup,simplification of the licensing procedure,simplification of business wind-up procedure,enhanced policies in the area of urban constructionland, more efficient process for thetransfer of property rights, increased professionalismof administration, introduction ofon line registration and regular update ofdata at the official site of the Central Registerkept with the Commercial Court, facilitationof access to additional sources of finance.As for the active policies to encourage SMEdevelopment, the economic policy measureswill be directed towards the creation of anenvironment conducive to SME development,strengthening various forms of institutional(non-financial) support to SME, strengtheningvarious forms of financial support to SME,etc. Some measures to further increase thecompetitiveness of Montenegro concerningtaxes and social insurance contributions arealso envisaged.< Flexicurity of the labour marketand reduced role of the state in this field;Employment rate is constantly increasing,while the unemployment rate is falling downquite speedily. This is primarily the result ofaccelerated economic development, but alsoactive labour market policies the Governmentand the Employment Agency have been followingfor the past years. By far the greatestproblem of unemployment in Montenegrois the structural unemployment seen in noncorrespondencebetween labour supply anddemand for certain qualifications. The Governmentpolicy in the area of labour market andhuman resources stems form the EU guidelinesand is based on the National EmploymentStrategy 2007-2008 and EmploymentProgramme 2007. Greater flexibility of thelabour market is sought, as well as increasedsecurity, i.e. flexicurity. The state will graduallystep away from the labour market, in particularlyconcerning the direct influence on therelations between employees and employersand the influence on the wage level. Suchefforts will be supported by the new LabourLaw, already in the pipeline for adoption whichis expected by the end of 2007, as well as theestablishment of the tripartite Social Council.On one hand, the Labour Law will enablegreater freedom to employers in negotiatingthe employment relations and greater flexibilityof the labour market in general, while, onthe other hand, facilitate the loss of securityfor employees by better provision of unemploymentbenefits and effective assistance inseeking new employment. The Social Councilwill greatly enhance the social dialogue andresolve essential issues with equal participationof social partners. The National EmploymentStrategy has identified three main prioritiesfor the labour market and employment:(i) increased employment and reducedunemployment with measures to stimulateemployers to open new jobs, by measuresto reduce long-term unemployment and theunemployment among the young, measuresto encourage entrepreneurship, prolong serviceyears, strengthen labour market institutionsand encourage partnerships for employment;(ii) increased productivity and labourquality with measures directed to enhancelabour quality and sustainability of jobs, (iii)strengthening social cohesion with measuresto enhance/promote employment of women,prevent social exclusion, and reduce povertyin the northern region of Montenegro.< Acceleration of tourism developmentas one of most prosperous industriesof Montenegrin economy; Tourism isone of the most important and most thrivingactivities within Montenegrin economy. Itsimportance is expected only to increase infuture. Tourism has traditionally enjoyed Governmentsupport in Montenegro, increasingconsiderably in the past several years. Suchapproach of the Government is evidenced inrelevant strategic and economic policy documents,such as the Master Plan – Strategy forTourism Development until 2020. The maingoal of the Master Plan is to enhance competitivenessof the sector through diversificationand substantial upgrading of the tourismproduct quality. Economic policy measures fortourism development are focused on completionof the hotel industry privatisation processand, consequently, the increase of foreigndirect investments in tourism, in constructionof infrastructure indispensable for tourismdevelopment (regional water supply projectfor the coastal region, transport infrastructureprojects essential for tourism development),qualified staff development as defined in theStrategy for Human Resources Developmentin Tourism in Montenegro, diversification ofMontenegrin tourism products and markets,or destinations, establishing closer cooperationwith local authorities, the private sectorand education institutions. Regular inter-ministerialdialogue and consultations concerningvarious issues bearing relevance on tourismare established; all stakeholders regularlyparticipate to meetings dealing with theseissues.< Further strengthening of financialsector stability; The external financialenvironment shaken by recent disturbancesin international financial markets has worsened.The Central Bank responded to thischallenge, primarily to increased credits, bymaking more stringent the requirement forobligatory reserves and some other measuresaimed to improve banking control. TheGovernment will continue to support themeasures aimed to increase the stability ofthe banking sector as a pillar of the overallfinancial system. This is particularly importantdue to increased exposure of banks to occurrencesin the property and capital markets. Inthis context, the anticipated adoption of thenew Law on Banks to secure the application ofbest international practices is seen as particularlysignificant. In addition, strengthening thesupervision of other segments of the financialmarket will continue, primarily through theimplementation of the new Law on Insurance,the adoption of all relevant by-lawsand strengthening capacities of the InsuranceSupervision Agency.< Education and Social Security SystemsReform; Over the past period substantialreforms of the education and social securitysystems were carried out. The implementationof the new legislative framework in linewith the education reform strategy resultedin the introduction of the new curricula inelementary schools, as well as in increasedcompetition in higher education with theinclusion of the private sector. Also, substantialinvestments into new equipment andschool buildings should create the preconditionsfor speedy modernisation of this sector.In the upcoming period the possibilities formore market allocation of resources into thisfield should constitute the next stage of theeducation reform. Over the past period, socialsecurity system was consolidated. The param-34

Annual report of the Ministry of Finance of Montenegro / 2007eter reform of the state pension fund wasundertaken in order to mitigate the consequencesof chronic deficit, and the conditionswere created for the introduction of voluntarypension funds. Appropriate demographicanalyses should be undertaken to establishthe possibilities for the introduction of theso-called second pillar. The health care systemis among the most delicate and this reformshould be introduced with great caution. It isobvious that the appropriations for medicalservices at the level of the economy considerablyexceed the state consumption in thisfield. Through continued reforms in the sector,downsizing of the staff and the introductionof the voluntary health insurance should fullyconsolidate this sensitive sector. The system ofunemployment insurance is being reformedin line with international standards and Government’scommitment to active labour marketpolicies by offering prequalification andfurther training programmes. At the sametime, lack of labour is becoming one of keychallenges for Montenegro; thus, one of thetasks is to define the conditions for employingforeigners based on principles of the equalityand openness.< Efficient spatial and environmentplanning as a key to sustainable upscaletourism development; Considerable prospectsMontenegro has for tourism developmentare accompanied by ever increasingenvironmental pressures, in particular alongthe coastline. To preserve the beauties ofthe natural environment and attract upscaletourism, opening at the same time the spacefor comprehensive economic development,make one of the key challenges for long-termsustainable development of Montenegro. TheGovernment progresses in harmonising theLaw on Environmental Protection with EUstandards and legislation, and at the sametime is bringing to a closure the developmentof the Spatial Plan for Montenegro tobe adopted in spring 2008. The new planningdocuments should open up investmentopportunities following sustainable developmentprinciples with the definition of specificopportunities for economic developmentand use of domestic resources. Improvedsustainable environmental management willin particular require further strengtheningof institutional capacities and greater effortsthan those municipalities have invested so farin attempts to reach agreements concerningthe sites for regional landfills and waste waterfacilities. Considerable investments in preventionof air, water and soil pollution by severallarge industries recognised as environmentalhotspots will also be needed, as well ascurrent poor regulation of waste and wastewaters and unsustainable management ofnatural resources and coastal zone. The properresponse of the Government to this challengeand the expectation of citizens lies in cooperationwith relevant international institutions,including the financial ones which shouldassist in carrying out the demanding plans.The Government may not remain inactivein the area of global climate changes either.Capacity development for proper responseis possible through global and regional programmeswe need to participate in to protectthe environment.< Comprehensive energy sectorreform; Continued reforms of the energysector will be of particular importance consideringthe significance this sector has for overalleconomic activity. Montenegro currentlyimports about 1/3 of the required electricity,which constitutes one of major reasons for thelarge deficit in the current payments balance.The power supply situation in Montenegro,as is the case with a large part of the WesternBalkan, but also Europe in general, is tobecome increasingly more difficult judging bythe forecasts for the world energy market. Inaddition, power generation and transmissionwithin the country is greatly weakened bythe age of facilities, limited investments andexhaustion of the assets of the state-ownedElectric Power Supply of Montenegro (EPCG).To provide for an effective response to thesechallenges, the Government is soon to adoptthe Energy Development Strategy by 2025striving to considerably increase investmentsinto the energy sector, including the opportunityoffered to an independent regulatorybody to set margin cost tariffs and minimisecross-subsidizing among different groups ofconsumers. The fact that tariffs for individualconsumers and largest industry consumerswill have to be further increased is of particularimportance. Apart from that, the required tariffincrease will entail well targeted and properlyfinanced social security programmes to minimizetheir impact on the most disadvantagedgroups. As for EPCG restructuring, it focuseson unbundling the generation, transmission,distribution and supply units. In this context,the new unbundled units should connectwith strategic partners through privatisationand PPP models to stimulate new investmentsof private capital. Also, more attention needsto be given to improved energy efficiency inthe public and private sectors to reduce pressuresto increasing power demands, as well asto promotion of alternative energy sources.< Reforms of the transport sector asa prerequisite for sustainable economicdevelopment of the country; Alike the energysector, transport is also characterised byrelatively poor quality infrastructure causedprimarily by limited investments over thelast two decades, inadequate service tariffsreflecting in financial problems of the economicentities in the sector. Since good qualitytransport infrastructure and services area necessary prerequisite for sustainable economicdevelopment of Montenegro, includingtourism development and more balancedregional economic development, as well asefficient integration into EU, in the upcomingperiod the Government will focus great effortson considerable increase of the investmentsin this sector. Part of the investments shouldbe financed from the budget, or credits, butprivate sector investments are also consideredthrough PPPs and concessions. Largestinvestment activities are anticipated for theroad infrastructure, envisaging over a rathershort-term the construction/modernisationof bypasses around a number of Montenegrintowns, and in the longer run the largest shareof investments should go to finance the constructionof the Adriatic-Ionian Highway, Bar-Boljare Highway and Risan–Žabljak road. Asfor the road infrastructure, major investmentsare envisaged for the modernisation of therailroad from Bar to the border with Serbia.Its modernisation is of strategic importance ifMontenegro intends to capture the potentialsof the Port of Bar for transit goods to othercountries. Accelerated investments in transportinfrastructure will be accompanied bylegislative changes towards its alignment withEuropean legal order and by strengtheningstate institutions competent for the provisionof quality transport services.< Encourage public-private partnershipsand concessions as finance tools forinfrastructure facilities; Considering greatneed of investments in various segmentsof infrastructure and scarce traditional fiscalresources of the country, i.e. budget resourcesand state guaranteed borrowing, the Governmentwill endeavour to investigate the opportunitiesfor substantial PPP. If implementedproperly, PPPs and concessions may bringabout some realistic advantages and shouldbe encouraged. At the same time, however,PPPs need to be entered into in a competitiveand transparent framework with properlydefined investment priorities. To that effectthe Government will strengthen the existinglegislative framework for concessions to providefor reasonable risk-sharing with investors.In addition, independent, comprehensive andstrict feasibility studies need to be developedto ensure economic justification of investmentsto prevent the Government from endingup with substantial contingent liabilitieson its side – or at least for such liabilities tobe quantified in advance and thus reflected inthe overall budget frame and priorities.< Accelerating regional developmentof underdeveloped areas of Montenegro;Although Montenegro is relatively small inarea, there are still considerable differences inthe development levels of its different regions.35

Annual report of the Ministry of Finance of Montenegro / 2007The most developed areas are located in thecoastal region and around Podgorica, andthe least developed are within the northernregion. Reducing regional discrepancies is oneof Government’s important goals, and the EUaccession process provides certain opportunitiesfor the achievement of that goal. TheEU accession process has the potential ofincreasing the area for export of specific agriculturalproduce to the internal market as wellas for the enhancing regional developmentby using IPA funds available to Montenegroduring the pre-accession period and throughstructural funds available for member statesafter joining EU. Still, regional developmentis possible only by using the resources theunderdeveloped areas abound in by attractingforeign direct investments and internaltransfers of revenues stimulated by domesticinvestments. Public finance policy shouldensure appropriate local level public serviceswith minimum distortions.Rule of Law and InstitutionBuilding in the process ofEU ApproximationAdministrative reforms and strengtheningthe rule of law; The adoption of thenew Constitution and the Stabilisation andAssociation Process give a clear frame foroverall efforts to develop institutions andstrengthen the rule of law. Some of the particularchallenges identified in this respectfor Montenegro by the last Progress Reportof the European Commission are democraticinstitution building, comprehensive reformsto harmonise policies and legislation andstrengthening limited administrative capacitiesfor the enforcement of the legislativeand regulatory framework. The Governmentwill continue to carry out the Action Planto Prevent and Curb Corruption and OrganisedCrime via its National Commission. Fullimplementation of the Action Plan will creategood basis to strengthen the rule of lawand institutions of parliamentary democracy.In this framework, intended implementationof a number of research studies of causesand manifestations of corruption followinginternationally recognised methodology willconstitute a basis for future specific activities.The research should cover the area of judiciaryand local authorities, as well as the educationand health systems.Public administration reform in thecontext of EU integrations;The Government of Montenegro was constitutedon 10 November 2006, after which followedthe adoption of the Decree on Amendmentsto Decree on Organization and WorkProcedure of Public Administration, Decisionon Amendments of Rules of Procedures ofWork of Government (OG RoM, No. 71/06) andnew Rule Books on organization and systematizationof ministries and other state authorities.Members of the Government, beside thePrime Minister are: Deputy Prime Minister forEuropean Integration, Deputy Prime Ministerfor Economic Policy and 14 ministers, one ofwhom has no portfolio. The number of Ministrieshas been reduced from 16 to 13.The new position of Deputy Prime Ministerfor European Integration ensures continuousmanagement of the integration processand strengthens the importance of theEuropean Integration process in the Government.The position of the National Coordinatorfor IPA fund management (NIPAC) is alsostrengthened in that way.The Government is aware of the needto modernize public administration and itsinstitutional adjustment to EU approximationprocesses. The adjustment of the publicadministration is established through threeinstitutional mechanisms: (i) Secretariat forEuropean Integrations (SEI) established at theproposal of former Ministry for InternationalEconomic Relations and European Integrations,to enhance EU integration efforts andtheir coordination within the Government.The Secretariat’s role implies coordination andsupervision of EU integration processes, legalassistance in the stabilisation and associationprocess, coordination of inter-sectoral preparationsfor negotiations and coordination ofnegotiations with EU, coordination of draftingkey documents pertaining to the process,monitoring the implementation of theagreements with EU and the activities of jointbodies established pursuant to these agreements,cooperation of state bodies with EUinstitutions and bodies, member states, candidatecountries and prospective candidatecountries during the stabilisation and associationprocess, cooperation with the bodiesof the Montenegrin Parliament, cooperationand direct communication with Montenegro’sMission with EU and other diplomaticand consular bodies in the stabilisation andassociation process. (ii) EU units establishedin each ministry in charge of managing andcoordinating EU-related tasks in the givenministry and in state administration in general.(iii) coordination bodies for European integrations.The first among these is the EuropeanIntegrations Collegium, as the supreme politicalbody of the Government to manage theEU association and deal with political andstrategic issues, chaired by the Prime Minister.The second among such bodies is the EUIntegrations Commission, chaired by DeputyPrime Minister for European Integration, thekey expert body for horizontal coordination ofthe accession process, also to deal with coordinationof pre-accession assistance. The thirdpillar of coordination bodies consists of sevenEU Integrations Groups as basic coordinationbodies in charge of different Acquis areas, correspondingto the structure of sub-boards forStabilisation and Association Agreement.Progress MadeSince becoming independent in June2006, Montenegro has made major progressboth politically, and economically speaking.Following an intensive political process, thenew Constitution was adopted in October2007, the same month when the Stabilisationand Association Agreement with theEU was signed, being a significant milestonein the EU integration process. At the sametime, Progress Report of the European Commissionfor candidate countries publishedin early November speaks of considerableprogress made by Montenegro over the lastyear towards the compliance with Copenhagencriteria. The report also clearly identifiesnumerous challenges that should be tackledin the upcoming period. The challenges concernstrengthening of democratic institutions,including the continuation of reforms withinthe judiciary and implementation of measuresto prevent and curb corruption, as well ascomprehensive reforms towards the harmonisationof policies and legislation, then buildingnow rather limited administrative capacitiesfor the implementation of the legislativeand regulatory framework.Recently attained results in the politicalfield rely on country’s good reputation concerningthe transition process over the pastdecade. Over that period Montenegro successfullylaid the foundations for market economy,strengthened democratic institutionswith gradual public administration capacitybuilding dealing with political and economictransformation. Thanks to these efforts, thecountry regained its macroeconomic stabilityrelying at the time on the introduction ofthe German mark in late 1999, to be replacedsubsequently by euro as the sole means ofpayment. Euroization of the national economyis followed by stable public finance managementand structural changes concerningprice and trade liberalisation, privatisationand a number of other reforms which all gaverise to economic growth. After relatively loweconomic growth rates early in the decade,over the past two years they increased to over7% annually. High economic growth rates arebased to a great extent on exceptionally highinflow of foreign direct investments, which,expressed in relative terms, as a share of GDP,is among the highest in the world. High economicgrowth is accompanied by strengtheningcountry’s fiscal position. For the pasttwo years public finances record a surplus ofover 3% of GDP, and the public debt remainsrelatively low. Opening the restitution process36

Annual report of the Ministry of Finance of Montenegro / 2007in 2004 will in the upcoming period have animpact on the level of public debt, althoughrecent amendments to the respective lawlimit this component not to exceed 5 percentagepoints of GDP for the given year, butsimultaneously the public debt will reducedue to premature debt payments.Today Montenegro is a small open economywith GDP per capita of 3,700 euro. Itmeans its GDP per capita is at the same levelor slightly above the values for most otherWestern Balkan countries, but still considerablylower in comparison to new EU memberstates, with the exception of Bulgariaand Romania. Montenegrin economy is open,with overall trade making up some 130%of GDP. The country is currently accedingto the World Trade Organisation (WTO) andhas become a party to the Central EuropeanFree Trade Agreement (CEFTA), which wasextended in late 2006 to include the countriesof the South-East Europe, that guarantees freetrade for some 90% of industrial products.Reflecting its size, the economy is rather narrowlybased. Services make up for some 60%of economic activity. Although making maybeonly one fourth of the service sector, tourismis the key component of the economy andmain generator of growth, in particular atthe Adriatic Coast. Production, in particularthe aluminium industry, makes close to onequarter of overall economy and accounts formore than half of exports. Agriculture makes15% of the economy; still, agriculture is a considerablesource of income for many peopleof the disadvantaged northern region of thecountry.As of late the strong economic growthis accompanied by certain less favourabletrends, the growth of foreign economicimbalance reflected in the increasing currentbalance deficit is worth particular mention.Although reaching almost 29% of GDP in2006, it does not necessarily mean the causefor alarm. Great deficits in the current balanceare not unusual for small, open economieswith free flow of capital at the times of rapidgrowth, as is the case with Montenegro atthis point. In addition, the current balance ofMontenegro is to a large extent bolstered byforeign direct investments. Very high level ofinvestments, in particular in the constructionindustry, “sucked in” the import, while theenrichment caused by property investmentsboosted high domestic demand. Eurisation ofthe economy also removes the currency crisisrisks, although with the side effect of any significantdecrease of foreign investments havinga large and direct impact on growth.The successes Montenegro achieved inboth the stabilisation of its economy andin different segments of structural reforms,alongside with, following the country’s independence,speedy membership to the InternationalMonetary Fund and the World Bankin early 2007 had a positive impact on internationalfinancial markets. The state credit ratingof Montenegro with one of the leading ratingagencies Standard & Poor’s in spring this yearwas improved from BB to BB+.Main Potential Risks and Challengesfor Economic Policy in theComing PeriodOverall undeniably good economic resultsMontenegro achieved over the past severalyears brought about some new challengesand risks. Thus, the country is today facingthe same kind of problems other transitioncountries were facing over the past years. Themain potential economic risk Montenegro isexposed to is sudden decrease of economicgrowth due to its great dependency o fluctuationswithin several economic sectors. Amongthese, the most prominent ones are tourismand metal production, greatly depending onthe global demand. Possible changes in theworld market in each of the two segmentswould have a direct impact on the economicgrowth of Montenegro. Similarly as for othercountries in the region, an additional risk isseen in constant increase in energy price.Although the possibility for rapid reduction ofthe economic growth in Montenegro is ratherlimited, this possibility could not be ruled outaltogether. In addition to the above reasons,the reduced level of economic activity in theupcoming period could cause the reductionof annual net inflow of foreign direct investments,rapid credit and personal consumptiongrowth, decrease in industrial production,inflation rate increase, observed shortcomingsin the organisation of tourism season andexpected corrections at the capital market.Despite the prudent macroeconomicpolicy over the past period, Montenegro isshowing some indications of an overheatingeconomy. The property prices have increasedconsiderably and there are some partial indicationsshowing that prices at tourist resortsare already comparable to those in Croatia.Similarly, market capitalisation at both Montenegrinmarkets has risen abruptly over thepast several years. After low growth levels inthe official employment over several years, theunemployment rate decreased significantly in2006, from some 19% to some 14%, and furtherdecrease below 12% in late 2007. Labourmarket is becoming ever more dynamic withreduced times the young unemployed stayregistered with the Employment Agency,but also with ever more prominent employmentof non-residents. In connection withthe above decrease of unemployment, rapidwage increase is maybe the clearest sign ofincreasing pressure. Economy-wide, in 2006salaries increased for some 16% and it is obviousthey have exceeded the profit from productivityover several years, although there isa realistic possibility of underestimated GDPgrowth. Wage increase is most evident in constructionindustry, tourism and energy sectors.After several years of very strict wage bill policiesand their real decrease, the past two yearshave seen the increased public sector salaries.At the same time, the social dialogue is gearedtowards defining a three-year wage framein order to ensure predictability of the wagebill. Concurrent downsizing of the employeesfinanced from the state budget for some 15%in the past 4 years (primarily within the Army)has nevertheless contributed to the overalldecrease of public sector wage bill fromslightly above 13% of GDP in 2003 to some11% of GDP in 2006. However, in 2007 minimumwage was increased from €50 to €55,and starting from 2008 all public servants willhave an increased job complexity quotient ofsome 30%, and thus the estimated wage billfor 2007 is 12.25% of GDP, while in 2008 it willmake 14.5% of GDP.Current Montenegro’s good economicperformance creates not only the opportunitiesbut some actual grounds for even moreintensive structure reforms. Although thesereforms are necessary if the country wishes tomaintain the high economic growth rates notonly in the short-, but also in the mediumterm,the experiences of many other countriesstill warn that current good economic andfiscal standing of the country could lead tomore loose economic policy, i.e. to conclusionthat a more relaxed fiscal policy followed byslower pace of structure reforms is possible.Linking reforms with EU integration processescould provide a possible framework for ensuringand maintaining public support to stablepublic finances and continued structurereforms, in order for public goods productionto lead to increased standard of living for thepopulation.Assistant to MinisterMilorad Katnić MASenior AdvisorBojana Bošković37

Annual report of the Ministry of Finance of Montenegro / 2007Modernisation of theCustoms Service ofMontenegro as an Answerto Modern ChallengesMiodrag RadusinovićWorld Customs Organisation has prepared an adequate strategy as an answer to forthcomingchallenges for the customs services in 21 st Century. Namely, globalisation of economy has imposedthe need for increase of the transfer of goods and facilitating of the unremitting chain of internationaltrade. It is also necessary to provide safety of shipments and boarders, and safety of collectingand charging of fiscal revenues. In order to successfully realise these, apparently opposed goals,customs services must adjust to demands of modern economy.Having in mind the role of customs services around the world for safety of boarders, anti-terrorism,collecting of fees and trade facilitations, World Customs Service has developed Frame Work ofStandards to Secure and Facilitate Global Trade (“WCO SAFE”). Framework standards are the resultof need for establishment of the international regime for promotion of safety and facilities in thetrans-boundary movement of goods. Until present day, 147 members of the SCO have confirmedtheir willingness to apply Frame Work Standards, and among them all countries of EU.Customs Administration has signed the Letter of Intent for implementation of the Frame WorkStandards, in December 2006.Four main elements of Frame Work Standards are:- Capacity and authorisation for reception and exchange of electronic information onannouncement of the shipment- Implementation and carrying out of the risk management for selection of goods of high risk,which apply to the total import, export and transit of goods- Capacity and authorisation for control of import, export and transit of goods- Establishment of partnership between customs and business surrounding and promotion ofimplementation of the Programme on Authorised Economic Operator.Frame Work Standards consist of two pillars (I pillar of Customs –customs, II pillar of Customs –business community) which consist of 17 standards for securing and facilitation of the world trade,and which should be applied by the members of the SCO, which have committed their selves forimplementation of the Frame Work Standards.PillarPillarcustoms-Customscustoms-Business Environment1. Integrated management of the supply chain 1. Partnership2. Authorisation for inspection of the cargo 2. Safety3. Modern technological inspection equipment 3. Advantages4. Systems for risk management 4. Technology5. Cargo or container of high risk 5. Communication6. Electronic early informing 6. Facilitations7. Aiming/monitoring/communication8. Evaluation of results9. Evaluation of safety of harbours10. Integrity of employees11. Safety inspections of goods leaving the territoryCustoms Administration of Montenegro implements the Programme of the Government of Montenegro in the Customs System, guidedby the necessary guidelines which stem from the Strategy of the World Trade Organisation. In that way a modern Customs Informational System wasdeveloped, that in 2003 fully supported the new tax and customs system. That system was constructed in the Partnership with the World Bank andother important partners (Telekom Crne Gore, ZZI Ljubljana, Customs Administration of Slovenia, World Bank, Informatika Crne Gore, Čikom-ComnetPodgorica and Montora Podgorica, Digit Podgorica etc.). At the same time, a Strategy for Development of the Customs of Montenegro was adopted; in38

Annual report of the Ministry of Finance of Montenegro / 2007whose base is the strengthening of integrity,facilitation of the trade and safety of shipmentsand boarders. System for measuringof efficiency on pilot location was establishedwith partners from the World Bankin 2002. Business indicators collected onpilot locations during previous years, havepointed at the high level of inspection ofgoods, and low rate of discovering of misdemeanours.During 2006, drafting of the model ofRisk Analysis was initiated, as a very importantelement of realisation of the mentionedstrategy. In cooperation with the World Bankand company Charles Cendall & Partnersfrom Great Britain, a model of Risk analysiswas made, which was integrated into thecustoms informational system and into theexisting work organisation of the customsservice.Introduction of risk management (selectivityand monitoring) aims supporting ofcustoms officers for directing of inspectionsto the high risk shipments and simultaneousacceleration of other customs procedures.Modern customs procedures are basedon assumption that most of customs-payersoperate in accordance with rules andregulations, except in cases when there isa reasonable doubt on fraud. Trade confirmations/verifications,controls and auditsperformed after the sending of the importedgoods into the free trade, and controls basedon risk or casual/random inspections, supplementunburdened direct inspections ofgoods. They turned out to be more effectiveand they also reduce the possibilities forsecret agreements between importers andcustoms officers, which contributes to thestrengthening of the credibility and reductionof corruption in the customs service.The same principles apply on inspectionsperformed at the boarder and in the tradeand tourism traffic.System for risk analysis has been fullyintegrated since 24.04.2007, into the organisationalstructure, operations and existingcustoms informational system and is on disposalall organisational units in the CustomsAdministration.Main functions of the System for riskanalysis are:• Collection of data and information forestablishment of parameters and profiles ofrisk (mechanism of defining, modernisationand maintenance, organisation of feed backinformation);• Analysing and evaluation of riskthrough processing of data at declarationsusing the risk profiles, intelligence data andother sources;• Establishment of the integrated datasystem on suspicious persons and vehicles(including ships and vessels) which will beused for controls, audits, monitoring andsafety;• Determination of adequate measures(level/number of controls); and• Monitoring of results, preparing ofreports and providing of feed back informationaiming promotion of risk profiles.The information system itself indicatesthe possibility for fraud and leads to inspectionof delivery or vehicles. It does notreplace human estimation. Other shipmentscan be inspected, but the outcome of allcontrols, initiated by the system of humanestimation will be measured and analysedby the System for Risk Management.Introduction of the System for Risk Analysisrelies on 3 basic multidisciplinary levels:level for risk management (RMT) for selectivity,level for targeted tracking (TT) for safetywith support of the IT, level of risk managersand strategic level for risk.1. Level for risk management (RMT)manages risk profiles and has total accessto parameters of selectivity or processesfor selection of shipments of high risk. RMThas developed adequate answers for identifiedrisks, by usage of results of the systemand increases the efficiency of the CustomsAdministration by including these resultsinto the risk analysis which is being conducted.Risk Management System can combinedifferent criteria in risk profiles, to automaticallyand independently create acceptabilityframeworks for different parameters,to monitor export data regarding certaingoods, to indicate to the cases where thesame importers/exporters import the samefinal products, to point at the possibility fordeclaring of goods by items of less taxed orregulated tariff, and to constantly updatedata connected to customs procedures anddata acquired through inspections after thefinished customs procedure.2. Level for targeted tracking (TT), onepart of preventive and security departmentof the Customs Administration manages thesystem of base of security data and encompassesdata on previous violations of regulations,intelligence data from various domesticand international sources.Both systems contain a high level ofhighly sensitive data. According to that, RMSwas carefully planned regarding procedureof marking, safety and approach. The structureis rational, and relevant data are availableonly to certain officers. Exchange of databetween these two sub-systems is determinedby operative needs and demandsof legislation and is defined by the specialdirections.3. Assignments of the level of the riskmanagers are following:- Providing instructions to analytics formonitoring of frauds and smuggling in thetrade turnover- Establishment and updating of selectivitymodules based on risk- Evaluation of results of the selectivitycriterions- Development and maintenance ofinformation sources such as Governmentalbodies, Agencies, Trade associations, banksetc.- Providing of effective communicationwithin the organisation- Ensures achieving of planned resultsand directs efforts to new priorities- Collects and forwards data which couldbe helpful in the decision making process atstrategic and management operative levels.- Monitors all activities within the cycleof risk management- Assists in reporting to management- Collects ideas for upgrading of thewhole organisation4. Tasks of the strategic level for risk are:- Determination of total priorities whichare in accordance with the customs strategyand annual customs plan.- Determination of directions for profilesof selectivity and activities of targetedtracking.- Active promoting of approach basedon risk and intelligence data in all organisationalunits of Customs Administration.- High level of coordination and cooperationwith other Governmental bodiesregarding exchange of intelligence data anddata on risk.By application of the risk analysis model,during 2007, customs procedures have beensignificantly accelerated. Inspections of thecustoms goods led by risk profiles werein total significantly lower and reduced toabout 12% but they were also of higherquality. With this way of work customs misdemeanourswere discovered and administrativeproceedings were opened, but alsoproceedings for determining of responsibilityfor performed irregularities. That contributedto the fact that the work of somesegments of the service is transparent andsubmitted to the mutual control, which hasas a result strengthening of integrity.Customs Administration has providedgood grounds for application of Strategy ofFrame Work Standards, by modern informationalsystem and model of risk analysis.DirectorMiodrag Radusinović39

Annual report of the Ministry of Finance of Montenegro / 2007Functioning andResults of the TaxAdministrationin 2007(January - November)Mirjana PešaljTax system and Tax policy are important segments of the overalleconomic policy of a country. Financing of state, i.e. public functions andactivities is based on public Budget, thus representing a complex systemthat involves both system of public revenues and system of public expenditures.Tax system is also a tool of economic regulation, besides beingused for collection of public revenues. Taxation has an impact on othersegments of economic policy as well, such as employment, competitiveness,pension and health insurance system and other areas. Therefore, Taxpolicy is an important element for realisation of objectives determined byenactments of the Government and highest state authorities’.For realisation of the Tax policy of a country, one of the importantpostulates is functioning and results of work of the Tax Administration.Tax Administration of Montenegro is being transformed into a moderntax administration, based on the high level of voluntarily paymentof tax, management of tax collection, intensive control and efficient taxcollection enforcement with balanced approach to the rights and obligationsof taxpayers in accordance with European standards.It is important to emphasise that Montenegro, on its way to the mainobjective, i.e. joining EU, is still in the phase of harmonization of domesticwith European legislation, therefore the objectives of Tax Administrationare not only in the realm of functioning of the existing Tax system, butin contributing to harmonization of the above mentioned legislations,as well.In this period there was no introduction of new taxes or increase oftax rates. On the contrary, the rates of the most important taxes havebeen reduced, i.e. the rate of the Personal Income Tax was reducedfrom 15% to 12% and the rate of the value added tax has been loweredto 7%. Nevertheless, not only the revenues have not been reduced asa result of some lower tax rates, but they were increased. The growthof the revenues is much higher than the growth of the gross domesticproduct.Before the beginning of 2007, Tax Administration determined thePlan of Activities and set objectives that were in accordance with overalleconomic and fiscal policy of the Government of Montenegro, above allin accordance with Budget Law which is determined in accordance withavailable resources, both personnel and material. The basic functions ofTax Administration are accomplishing the highest level of collection andthe highest level of tax discipline. The most rational system of work isdetermined in accordance with the functions provided by the Law.Efficient administrative procedures are mostly being applied (inspectionsupervision, forced collection etc.), but the practice showed that providinggood services to taxpayers leads to accomplishment of thriftinessin the procedure of tax collection and higher level of tax discipline.Results of the work of Tax Administration are measurable and exactdata may be obtained through realised collection, trend of collectioncompared with various categories (realised collection in previous year,planned collection, comparison of growth index of revenues and growthindex of domestic product and other indicators), then through theamount of determined revenues in the procedure of inspection supervision,i.e. participation of the unreported incomes in overall Budget revenues.These are direct effects, but indirect effects that are not as measurableshould not be neglected, since they are the long-term goal of TaxAdministration. For example, when it comes to the issue of accomplishingtax discipline, then we are dealing with a complex category that canbe evaluated from different aspects. If the starting point is that the higherlevel of collection has been accomplished then we may say that therehas been progress in tax discipline, as well. However, the other aspectsmust be taken into consideration too; the number of taxpayers needsto be considered, then the trend of turnover of goods and services andseveral other indicators in order to achieve a proper evaluation throughsome sort of cross-check analysis. These are all issues that relate withcross-resource and Government’s politics. The most representative dataregarding the perception of Tax Administration’s work are those regardingmeasures taken in inspection supervision of taxpayers, accomplished taxcollection and final effects of those measures.FILING AND PROCESSING TAXPAYERS REGISTRATIONSComprehensive tax reforms in Montenegro have started in 2001 withthe changes in tax legislation in order to adjust fiscal system of Montenegroto European standards.One of the novelties in the tax system of Montenegro is certainly theself-taxation as a basic principle in a procedure for establishing and collectingtaxes and other duties. Self-taxation implies that taxpayers establishtheir tax obligations, prepare and file tax returns in legally enforceableperiod of time and at the same time, with filing they pay the obligationenlisted in the registration itself. The principle of self-taxation is basedon free will participation of taxpayers in a procedure of establishing taxobligations.Basic requirements for successful functioning of a self-taxation system,beside a voluntarily participation of a taxpayer are also activities ofTax Administration. Tax Administration has significantly contributed toincrease of the level of taxpayers’ cooperation with its numerous activitiesaimed at taxpayers being timely informed on obligations and deadlines offiling tax returns, availability of tax return application as well as guidelinesfor their filing.The Law on Tax Administration determined the Register of taxpayers.Registration of taxpayers is compulsory for all taxpayers and it is implementedby filing registration application, above all, the application forgeneral registration. Afterwards, depending on the scope of activities as40

Annual report of the Ministry of Finance of Montenegro / 2007well as the amount of turnover in previous tax period, the taxpayer mustsubmit application for value added tax return (VAT), while taxpayers thatdeal with excise products, must submit application for excise tax return aswell. Tax returns are submitted apart for different taxes, in a manner andfollowing the deadlines prescribed by the Law on different taxes.Monthly registrations, i.e. value added tax returns and applications– monthly calculation of excise, are being filed in accordance with provisionsof the Law on value added tax and Law on excise, by the 15 th of themonth for the previous month.Profit tax return for legal entities are filed not later than three monthsafter the of tax accounting period.Tax period, when it comes to profit tax calculation is financial,i.e. calendar year, except in cases of liquidation or beginning with activitiesduring the year.At the present level of our tax system development, i.e. the principleof self-taxation, there’s a certain number of taxpayers who aren’t filingtheir tax return in the time period prescribed by the Law. Toward thesetaxpayers that aren’t filing their tax returns timely, Tax Administrationstakes measures prescribed by the Law in order to insure «delinquent taxreturns», i.e. tax collection.Basic aim of Tax Administration is to make taxpayers cooperative,both those that are filing their tax returns on time and those thataren’t and this is achieved, among other procedures, with well designedannual plan of measures for insuring tax returns that aren’t filed.Securing “delinquent tax returns” is performed by notification on notfiling tax return (via phone call, written notification and in some caseswith personal delivery of the notification).Activities of Tax Administration on securing delinquent tax returnshave started intensely in 2005 and they have continued in following taxperiods, contributed to the higher level of taxpayers’ cooperation.As a result data show that in 2005, 81% of the total number of taxpayersfiled the value added tax return, in 2006 86%, while in the periodfrom December 2006 until September 2007, 90% of the total number oftaxpayers filed VAT return.Trend of the number of filed VAT returns as well as the number of registeredVAT taxpayers in the period from December 2006 until September2007, compared to the same period in 2006 and 2005 is best illustratedby the following charts:Number of filed VAT registrations/comparison data, 10 months in 2005/2006/2007/104,99087,042122,4302005.god.2006.god.2007.god.2005.god.2006.god.2007.god.Presented data indicate that there has been decrease in a numberof taxpayers who decide to voluntarily act in accordance with tax regulations.Trend of growth of the number of applicants of tax returns also confirmswhen profit tax return for legal entities is considered. In 2005, profittax return for legal entities filed 86% of the total number of registeredtaxpayers, while in 2006, 91% of the total number of registered taxpayersfiled this tax return.Following chart provides comparative data on the number of taxpayersthat filed profit tax return in 2005 and 2006, as well as the number oftaxpayers that filed profit tax return for legal entities in 2005 and 2006.Number of taxpayers and number of filed registrations/comparison data 2005/200610,20811,83013,19812,0522006.god. number br.prijava of applications2006.god. number br.obveznikaof taxpayers2005.god. number br.prijava of applications2005.god. number br.obveznikaof taxpayers2005.god. number br.obveznikaof taxpayers 2005.god. number br.prijava of applications2006.god. number br.obveznikaof taxpayers 2006.god. number br.prijava of applicationsTax Administration considers activities regarding the measures forsecuring delinquent tax return, both monthly and annual as the mostimportant task. Securing that taxpayers are timely filing tax returns enablesTax Administration to have updated and complete collection of taxes,i.e. accomplishment of the basic task of Tax Administration – collection oftaxes, duties and other public receipts.Creating conditions for development of more advanced tax cultureincrease of the level of voluntarism regarding complying with the Lawand adhering to tax regulations is one of the fundamental objectives ofthe Tax Administration.Successful organization and establishment of self-taxation principleswith complete adherence to regulation regarding the equal conditionsfor all taxpayers have resulted in decrease of the compliance with taxregulations by taxpayers, primarily through voluntary and timely filing oftax returns.Bearing in mind the fact that regular filing of tax returns and record oftax obligations in Information system of Tax Administration is a conditionfor up to date collection of current tax obligations, based on the resultsachieved regarding the collection of public receipts in 2007, it is possibleto realistically measure results achieved in the field of filing and processingtax returns.Processing all tax returns and legal framework that provided for bythe Law is completely automatised and it proceeds with determineddynamics.Statistic data on processed tax returns show trend of increase, yearafter year.• During eleven months in 2007, 453.368 monthly tax returns and53.065 annual tax returns were processed in the system of Tax Administration.Above mentioned number of processed monthly tax returns showincrease of 21,71% when compared with the same period in 2006, whilethe number of annual tax returns increased for around 10%.• Analysis of monthly tax returns that were filed and processed in2007 show the biggest increase when it comes to returns on tax paymentper deduction (IPPO1) and monthly reports on accounted personalincomes (OPD1) when compared to the same period of time in 2006.41

Annual report of the Ministry of Finance of Montenegro / 20072007.god.2006.god.2007.god.2006.god.Number of filed and processed IPPO1 registrations/comparison data 11 months 2006/2007/1046581414030 50000 100000 150000Number of filed and processed OPD1 registrations/comparison data 11 months 2006/2007/1263421388480 50000 100000 1500002007.god.2006.god.2007.god.2006.god.• The biggest increase of filed and processed annual tax returns isregistered with profit tax return (PD) and it amounts to 20% when comparedto 2006.2007.god.2006.god.Number of filed and processed profit tax returns/comparison data 11 months 2006/2007/10053120300 5000 10000 150002007.god.2006.god.At the beginning of 2007, the work on the realization of the Project»Integrated tax return and collection» has begun. It should provideadequate information support to the Law on integrated tax return andcollection.The new approach to data collection and process on accounted taxand contributions of, that primarily imply electronic submission of taxreturns, their processing and updating will create conditions for simpler,faster and more efficient filing and processing of tax returns, both for taxpayersand for Tax Administration.Implementation of the Project and full implementation of the Lawon integrated tax return and collection will create conditions for bettercompliance with tax regulations and other Laws, as well as for better collectionof taxes and contributions.INSPECTION SUPERVISIONWhen it comes to activities regarding the control, the aim is to maximisethe successfulness of control through two segments. One segmentrepresents the level of estimated tax obligations in control procedure andthe other segment is development of strategy of voluntarism when itcomes to fulfilment of tax obligations. The procedure of control presentsa complex process and the aim of Tax Administration is to minimize thelevel of control that is not productive, i.e. to create conditions for usingmethods of risk analysis and method of selection of taxpayers for a controlin order to enable control of the taxpayers that are not fulfilling their taxobligations on time.PYRAMID OF RISKOne of the most important strategic measures is detecting publiclydangerous occurrences, i.e. repression of tax criminal activities such asorganized and designed activities of several individuals. Tax frauds areharmful in two ways. First, they present direct loss of revenues andsecond, high level of tax frauds result in bad image of the country itself.The country must act against these occurrences in an organized mannerand inter-institutional cooperation must be accomplished regarding thisissue.Tax Administration has a good cooperation with other relevantstate authorities, both in signing memorandums of understanding andin procedures and priority’s determination when it comes to concreteoccurrences. Above all, the cooperation has been established with StateProsecutor, Police Directorate, Administration for prevention of moneylaundering, Real Estate Administration and regular Courts.Significant role for selection of taxpayers for control play solutionsthat are provided for by the Information system of Tax Administration,i.e. database on taxpayers, then information received from other relevantstate authorities and there are efforts to establish data exchange withforeign Tax Administrations, first within the region and later within thecountries of European Union.During the period from January to November 2007, Tax Administrationperformed 2731 controls. Bearing in mind average time needed forperforming control (7 days) and number of surveyors employed in TaxAdministration, we can come to a conclusion that the average periodof time spent in the procedure of inspection supervision was 160 days.Therefore, it can be concluded that use of working hours was adequate,if we bear in mind that tax surveyor spends part of his/her working hoursfor administrative and other work and that he/she is entitled to usingvacations and other leave days.The biggest number of controls was performed on legal entities,mostly the companies with limited liability that present the dominantcategory of taxpayers in Montenegro. Percentage of controls where irregularitieswere established was 58% out of total performed controls andthis is evident positive trend when compared to previous years. Therefore,this is definitely the right way toward achieving one of the basic aims, i.e.minimization of controls (without irregularities).During the procedure of inspection supervision, established incomesthat taxpayers did not report amounted to 32.449.520,00€. Irregularitieswere discovered in 1557 controls and average established obligationsper a control amounted to 28.841,00€. Discovered irregularities werefound for the period from January to November 2007, therefore therevenues that will be determined by the end of the year may project toapproximately 10% of the overall amount of the planned Budget receipts.Taking into consideration a fact that incomes discovered through inspectionsupervision present additional receipts for the Budget, and thenthe increase of Budget means is rather significant in above mentionedpercentage. In the inspection supervision procedure, special attention isgiven to the highest Budget receipts, therefore, there were 1380 controlson value added tax, irregularities were discovered in 966 of them whichis 70% of the total number of controls, thus, there has been a significantimprovement in proper selection of taxpayers for control.In addition, the amount of established obligations through the processof inspection supervision is significant, more than 14 million euros.Similar situation is within inspection supervision on tax and contributionsof employees’ incomes where the established obligations amount to 13million euros. Profit tax is determined in accordance with the rate that islow and it does not have a significant part of the Budget receipts, but theamount of 3,5 million euros that has been established through inspectionsupervision procedure is financially very important and it impliesthat big attention is being given to this kind of tax. Starting point of Tax42

Annual report of the Ministry of Finance of Montenegro / 2007Administration is that the basic aim of economic operation is profit and that realistic profit declare will result in higher importance of tax on profit on onehand, and on the other hand, which could be even more important, this will lead to a more realistic balance of taxpayers and better record of data thataffect forming of a tax basis of other taxes as well.Beside performing inspection supervision, tax surveyors are doing other important works, i.e. they are participating in other procedures performed in TaxAdministration. The most important of those activities are reviews of the justification of VAT tax returns demands, that were performed in 689 cases, and theamount resulting from not granting VAT tax return demand was 925.935,00€; then there’s review of turnover recorded through tax cash register and duringthis year there were 2893 such reviews and irregularities were discovered in 2069 cases. In this procedure, most often penalties were fines for tax violationand there were some cases where temporary closure of the objects and confiscation of goods were adjudicated.Action plan of Tax Administration is established in such manner that is adjusted to increased seasonal activities, i.e. period of summer and winter tourismseason. Tourism season has many specific features, compared to the rest of the year and from the aspect of economic operation and at the same timefrom tax aspect, but the most important issues are multiple increase of taxpayers in the season, more complex structure of taxpayers, significant number ofnon-residential employees, performance of activities that are connected only to tourism season, occurrence of big number of individuals that are performingbusiness activities as secondary business activity, primarily persons that are renting private rooms to tourists. Above mentioned specific features of theseason are described in the shortest way and there are occurrences that are hard to keep precise track off, therefore, the procedure of inspection supervisionis supplemented with other procedures, such as contact via media, direct detour of locations where business activity is being performed, phone calls totaxpayers etc. Thus is ensured higher level of taxpayers’ registration, i.e. voluntary filing of tax returns. Nevertheless, the basic aim of inspection supervisionis to provide for additional receipts, i.e. to establish as much undeclared incomes as possible.Results of the work of inspection supervision in tourism season may be reviewed from several aspects. Following chart illustrates work of tax surveyorsduring the season and data refer to regional departments in Bar, Budva and Herceg Novi.column. DESCRIPTION 01.06.-30.09.2007 01.06.-30.09.2006. 01.06.-30.09.2005.no. 1 2 3 41. NUMBER OF CONTROLS 2040 2136 12332.ESTABLISHED OBLIGATIONS RESULTING FROM THEPROCEDURE PERFORMED BY INSPECTION SUPERVISION8.672.568 6.616.092 4.108.2502.1. Tax on turnover 34.872 43.987 23.1452.2. Profit tax 256.175 73.221 60.0102.3. Employees’ salaries 3.459.652 377.297 326.6252.4. Value added tax 4.888.196 4.606.009 3.698.4702.5. Excises 1.497.6282.6. Personal income tax 14.3452.7. Interest 33.673 4.5053. NUMBER OF VIOLATION RETURNS 1812 1.509 9784. NUMBER OF CRIMINAL RETURNS 2 45.NUMBER OF PROHIBITIONS OF PERFORMING BUSINESSACTIVITIES17 14 26. FORCED COLLECTION 105.114 105.542 48.2427. TURNOVER ESTABLISHED BY RECORDING 17.400.509 8.777.704 7.666.4558. OUTPUT VAT ESTABLISHED BY RECORDING 2.458.555 1.293.026 1.113.93543

Annual report of the Ministry of Finance of Montenegro / 2007Accomplished results show positive trend, i.e. significant increase ofdetermined revenues, both total and its structure. The growth of determinedrevenues is illustrated graphically as well and these charts showthe structure of the accomplished receipts and representation of therealised revenues and representation of the growth of receipts, comparedto the same period last year.10,000,0008,000,0006,000,0004,000,0002,000,0000minute.Fiscal 2007 presents a very successful business year, from any pointof view when it comes to activities of Tax Administration, primarily in thefield of collection of public revenues. In the first half of the year, accomplishedresults in the collection of public receipts have been higher thanthe planned ones and this trend continued in the second half of 2007.During the first ten months of 2007, accumulated gross collection oftaxes and contributions and other public revenues amounted to 569.355million euros. Compared to the gross collection for the same period lastyear, the collection has increased for 29%. In the structure of the accomplishedcollection – compared to the same period last year – tax collectionincreased for 36%, and it amounted to 334.517 million euros, whilethe collection of contributions for social insurance increased for 21% andit amounted to 234.838 million euros.Accumulated gross collection – comparison data, January-October2006/2007PP PD PLP PDVrealised from Junerealised from June A PDFL KOstvareno to September 2006 VI-IX 2006 Ostvareno to September 2007 VI-IX 200710.000.0008.000.0006.000.0004.000.0002.000.000U Kcategory Accumulated in 2006 Accumulated in 2007 indextaxes 246.317 334.517 136contributions 194.775 234.838 121total 441.092 569.355 1290PPPDPLPPDVAPDFLKU Krealised from Junerealised from Juneto Ostvareno September 2006 VI-IX 2006 to Ostvareno September 2007 VI-IX 2007Charts represent results of the work, i.e. gives illustrative data thatshow the successfulness of the work in the field of inspection supervision.However, the results are measured with some more precise methods;feedback after the inspection supervision procedure, comparison ofresults with estimated risk, behaviour of the taxpayer after the procedureof inspection supervision and other parameters that aim at improvementof the work of Tax Administration.It is evident that year after year there is a progress and the resultsof control, observed separately and in combination with results of otherdepartments of Tax Administration, can be assessed as successful.PROCESSING AND REALISATION OF COLLECTIONCollection procedures are provided by provisions of the Law on TaxAdministration and in a Department for realisation of collection, throughguidelines for work, are turned into the operational activities of branchesfor collection, at the field. However, the tendency that Tax Administrationand its consisting part Department for realisation of collection that hasbeen implemented for several years consists of higher level of taxpayers’cooperation, which results in higher level of collection of publicrevenues.It must be emphasized that Tax Administration performs its activitieswith full transparency and professionalism which is in accordance withthe modern European Administration. Dynamic data flow of informationto and from taxpayers is a regular, daily work procedure in Tax Administration.The reason for this is that duly records of all changes at analyticalaccounts of taxpayers that are being performed in Information system ofTax Administration presents a postulate for having a review of determinedand collected obligations regarding any tax and for all taxpayers at anyResults of the collection for the first 10 months of the 2007 enclosethe results of the collection of the revenues during the summer tourismseason that was very successful this year, due to the big number ofdomestic and foreign tourists. Accumulated collection during the tourismseason this year is increased for 30,57% compared to the season in 2006.In addition, the number of taxpayers that are performing their businessactivities during the season increased for 24,78%, compared to the seasonin 2006. The fact that Montenegro is very attractive tourist destinationresulted in the significant increase of turnover of goods and services insummer months and at the same time in bigger tax claims.Until 31.08.2007, Tax Administration has already reached the realisationof total tax collection with efficient organisation of its activities inthe season, based on lump sum determined liabilities from independentactivity, which represents the most common form of taxation in the seasonwhen it comes to “small” tax payers.Since the weather conditions in September 2007 were very good,i.e. in the after-season, tax payers were able to continue performing theiractivities, the dynamics of work by already established principles in TaxAdministration continued. This resulted in good effects, so on 30.09.2007,percentage of collection of tax liabilities in lump sum amounted 97,38 %.In order to realise the total result of collection of public revenues in2007, we are taking the realised result in the previous year as parameterof successfulness.44

Annual report of the Ministry of Finance of Montenegro / 2007Analysing the effects for first ten months in 2007, it is obvious thatextremely good results of collection when compared to the same periodlast year, were realised in:• Corporate tax (collection of these revenues is 164% higher andamounted 29.689 mill.€),Gross collection of the corporate tax, comparable data January-October 2006/2007.• VAT, domestic market (collection of these revenues is 23% higherand amounted 88.156 mill.€),Gross collection of Value Added Tax, comparable data January- October 2006/2007• Capital turnover tax (collection of these revenues is 228% higher andit amounted 32.597 mill. €),Gross collection of the capital turnover tax, comparable dataJanuary-October 2006/2007• Excises (collection of these revenues is 24% higher and amounted71.011 mill. €).Gross collection of excises, comparable data January-October2006/2007.Expansive turnover of real-estates which started during previousyear in Montenegro, represented also the increase of the workvolume in all regional units of Tax Administration, and especially inthe coastal region, than also the northern part of Montenegro. Largenumber of contracts which arrived from first instance courts, whichperform certification of contracts and contracts submitted by partiesthemselves to Tax Administration, demanded taking of activities onnew organisation of work within branches for collection, regionalunits of Tax Administration. Of course, the objective of these activitieswas fast, efficient and quality determining and collection of taxliabilities on these grounds.• Concession compensations (collection of these revenues is 48%higher and it amounted 20.139 mill.€),Gross collection of concession compensations for usage ofnatural goods, comparable data January-October 2006/2007Presented results commit and demand further continuity of activitiesof Tax Administration, so that positive trends of collection of publicrevenues would not cross to stagnation or fall.TAKING OF MEASURES AGAINST CORRUPTIONDetermining, control and collection are the basic competences ofthe Tax Administration, whose realisation demands legal behaviour of45

Annual report of the Ministry of Finance of Montenegro / 2007employees in this Body.Realisation of that level of behaviour,demands conduction of all activities determinedby the Action Plan for conduction ofthe Programme on Fight Against Corruptionand Organised Crime.Tax Administration has realised in thecurrent period all assigned activities and hasmade its work transparent.Ethic code for employees and servantsemployed in the Tax Administration, ishanded to all employees, published on thewebsite and on notice boards of all organisationalparts.Tax payers and citizens can report allirregularities in work of tax payers and taxservants by free call on telephone number9707, 24 hours a day, and at the websitethere is a “pulsing banner” with invitation forreporting of corruption. By now, accordingto this number there were in total 777 calls,but none of them referred to corruptivebehaviour of employees. Periodical reportson calls according to this number and typeof report are published at the website.Especial mode of publicity of work ofthis Body is reflected also in solving of casesfor free access to information, pursuant theLaw on Free Access to Information, and 54of these were submitted and all were legallysolved, and no complaints were stated.Guidelines for free access to informationowned by the Tax Administration, with necessaryamendments and supplements, takinginto account the change of the legalregulations and personnel changes in TaxAdministration, is available for public atwebsite.Beside mentioned activities, Tax Administration,aiming realisation and protectionof rights of citizens, has published at thewebsite two “Notifications to Citizens”, flyer“Corruption” and Warrant of the Director forconsistent conduction of control-surveillanceactivities of employees, which wasdetermined by the Rule Book on InternalOrganisation and Systematisation of TaxAdministration. A special kind of control wasestablished both on horizontal and verticallevel. Namely, in regional units system ofcontrol-surveillance activity is establishedwith monitoring of the work of employeesby their superiors, and work of inspectorsis controlled by controllers of quality,supervisors, and then by the Departmentfor Monitoring of Implementation of TaxRegulations, inspection monitoring andadministrative procedure, Main Tax Inspector,and all to the level of the Director of theTax Administration. Until now, no case ofcorruption was noticed.Department for Internal Control, inaccordance with the Rule Book on InternalOrganisation and Systematisation andthe Rule Book on Work of Internal Control,Tax Administrationhas made the Analysis of the Report onWork of the Tax Administration for periodJanuary-September 2007, and has given thepositive evaluation, which is also publishedat the website. This Department has notalso determined nor identified activities ofemployees with elements of corruption.Cooperation with other governmentalbodies, within the Law and signed Agreementson Cooperation continues at thevery good level. Therefore, as an example,only in the last quarter the Administrationfor Prevention of Money Laundering hassubmitted 64 claims for control, or submittingof data, and the agreement with theCustoms Administration on monthly electronicsubmitting of customs data for usagein procedures of inspection surveillance isalso being successfully realised.Beside participation of employees of TaxAdministration in seminars organised by theHuman Resources Management Authority,the one-day presentation was organisedby the consultant company CAFAO, whichwas called “Prevention of Corruption”, andattendants were 20 managing and authorisedemployees. In the same organisationand under the same name, three-day trainingwas organised for 14 tax inspectors andemployees in the Department for InternalControl.Opinion of tax payers and citizens onwork of Tax Administration, obeying oflegality and ethic code of employees towork obligations, is the important indicatorof the adequate implementation of theAction Plan. Therefore, the Administrationhas conducted three polls at its websiteas “questions of the week” and to 16 questionswhich were asked by now, citizensgave positive answers regarding work andtaken measures of Tax Administration infight against corruption.DireCtorMirjana Pešalj46

Annual report of the Ministry of Finance of Montenegro / 2007Activities of theReal - EestateAdministration in 2007Mićo OrlandićSummarising the results of the Real EstateAdministration in 2007, we can state that theAdministration has realised good results, havingin mind all complicity and volume of tasksdetermined by the Law on State Survey andReal Estate Cadastre and other supportingbylaws which are implemented in the RealEstate Administration.Especially characteristic for 2007 is theincrease of the number of cases in the workof this Administration for 20% and increase ofnumber of claims of governmental bodies andlocal self-government bodies for drafting andusage of our data.In 2007, the Real Estate Administration hasprocessed 56.639 cases in the administrativeprocedure, adopted and implemented 48.464enforceable solutions and issued 196.564deeds of land and 50.127 certificates, and thenumber of issued deeds of land is increasedfor 40%.Real Estate Administration has had manyindependent activities and activities in cooperationwith professors at the Study programme-Geodesy and in accordance withthe Law on State Survey and Real EstateCadastre. It has suggested the Medium-termProgramme of Works on Survey and Design ofthe Real Estate Cadastre for period 2008-2013,and the Main Project of Establishment of theReal Estate Cadastre at the territory of municipalitiesPodgorica, Bijelo Polje, Andrijevica andBerane for the total surface of 52.141 ha andAnnual Plan of Works on Survey and Design ofReal Estate Cadastre for 2008. The Administrationis also working intensively on the realisationof the Programme of digital maps 1:25000in cooperation with the Government of Japan,and drafting of projects is in the final phase,such as: Main Project of Basic works; MainProject on Establishment of the Real EstateCadastre for municipalities Cetinje and Nikšićin total 88.208 ha (at the track of the Adriatic-Ionian road; Main project on Establishment ofCadastre of Pipelines for towns Bar and Pljevlja;Main project of making of the state map1:5000 for area of Herceg Novi, Tivat, Kotor,Budva, Bar and Ulcinj; Main project of survey ofthe state boarder; and drafting of bylaws andmodernisation of information system, whichall together represents the basis for organisedand planned way in the next 2008 in theAdministration.We think that we should emphasise theassistance of the Ministry of Finance and theGovernment of Montenegro which have withthe timely adoption of these documents andproviding of extra funds through the revisionof the Budget for 2007, made possible for theAdministration to prepare and realise a part ofworks from the Medium-term Programme ofWorks and Resolutions of the Government fordetermined priorities, such as construction offoundations for high ways.Activities of the Real Estate Administrationon drafting of the real estate cadastre on areaof municipalities Podgorica, Bijelo Polje, Andrijevicaand Berane, have caused very goodreaction from citizens and governmental bodiesi.e. from all holders of right, which willenable higher quality of realisation of the Mainproject.Increase of volume of works in the Administrationwas not followed by the increase ofthe number of executors and all these worksand work tasks were realised with the samenumber of executors as in 2006, which meansin total 350 employees, which is a very smallnumber of employees for this part of recentassignments and planned part of works forperiod 2008-2013, therefore there is an ongoingmaking of new systematisation with whichwe will suggest at least 420 executors for2008, so we can realise determined prioritiesof the Government and Annual Plan of Worksfor 2008.For 2007, is also specific the adoption andimplementation of the Law on State Surveyand Real Estate Cadastre which entered intoforce on 02.06.2007. Reasons for adoption ofthis Law ere contained in the need for removalof some problems and shortcomings whichwere noticed in the application of the recentLaw which applied for only five years, andin the meanwhile many changes happened,demands of economy and of citizens increasedfor more efficient public sector and future programmesand projects in the sphere of modernisationof the cadastral system in Montenegro.The Law is harmonised with legislation ofEuropean Union and with it, the upgrading ofthe existing and creation of new environmentwas realised, and also the creating of workingconditions for enterprises and entrepreneurship(of private geodetic organisations) anddevelopment of the economic and marketcompetition in operations of the state survey;creation of conditions for improvement andupgrading of existing and use of new informationtechnologies in data collecting; controlof processes of drafting and maintenance ofstate survey and quality of services provided tousers of cadastral data; drafting of the cadastreof pipelines or users of underground structuralsystems; introduction of register of housenumbers, streets and squares; making of thestate map; maintenance of the state boarderand harmonisation with other laws in the legalsystem of Montenegro.In the recent application of the Law wehave noticed several weaknesses in the givenlegal solutions and Administration will on timemake the Proposal to the Ministry of Financefor removal of noticed flaws.Real Estate Administration, in accordancewith the Law on State Survey and Real EstateCadastre, has also prepared the Medium-TermProgramme of Works on Survey and Designof the Real Estate Cadastre for period 2008.47

Annual report of the Ministry of Finance of Montenegro / 2007– 2013, which was made in 2007, by the Real Estate Administration, adoptedby the Government with the Resolution No. 03-5982 from 27.07.2007,which represents at the same time the strategy and the programme whichis directing the development of the state survey and real estate cadastrefor Montenegro in the next five years, and which determined the type andscope of programme works, and funds and sources for their realisation.area of 20.372ha, or in total surface of 52.141ha.Finished survey;Planned survey;UnsurveyedThe Programme was made, above all, pursuant provisions of the Lawon State Survey and Real Estate Cadastre (“Official gazette of Republic ofMontenegro”, No. 29/07), and respects totally applicable relative regulationsin which there is a obligation of the Real Estate Administration regardingrealisation of some works from the sphere of state survey and real estatecadastres, and obeys obligations and assignments which stem from alreadyadopted strategic development documents of the State, claims of the largenumber of users of cadastral data formed and sent to the Real Estate Administrationduring the drafting of the Programme, and recommendations fromforeign documents and regulations for this sphere.Objectives of the Programme are defined in accordance with the newfunctional solutions from the Law on State Survey and Real Estate Cadastreand its financial statement amounts 52.969,127,00 € in next five years.Medium Term Programme is realised through the Annual Plan of Workadopted by the Ministry of Finance and contains detailed specification ofworks and way, methods and funds for its realisation.Real Estate Administration has initiated realisation of the MediumtermProgramme of Works on Survey and Preparation and Design of theReal Estate Cadastre for period 2008. – 2013, by drafting the Project ofDesign of Real Estate Cadastre on Areas of Municipalities of Podgorica,Bijelo Polje, Andrijevica and Berane, and has successfully conducted thecampaign on animation of all holders of rights at the territory of thesemunicipalities.Project is made in accordance with priorities determined based onclaims, which stem from the Strategy for Development of the Traffic ofMontenegro in the part referring to the construction of the high-wayPodgorica – Andrijevica, Berane – Bijelo Polje, and claims for providingof data as the basis for implementation of the expropriation for constructionof the high-way and at the same time for construction of thedigital cadastral plans with altitude presentation of the terrain as thebasic geometric foundation for drafting of the technical documentationfor construction of High-way (conceptual and main project). Project wasadopted by the Ministry of Finance by the Enactment No. 07-6971/1from 27.09.2007, and the Commission for Audit of the Project had noobjections on the project.The Project determines the foundation of the real estate cadastreat the planned track of the highway in 17 cadastral municipalities of theterritory of municipality Bijelo Polje at the area of 26.397ha, 3 cadastralmunicipalities of the municipality Berane at the area of 3.177ha, 3 cadastralmunicipalities of municipality Andrijevica at the area of 2.195ha and 14cadastral municipalities of the territory of municipality Podgorica at theWorks on design of the real estate cadastre by this Project are underwayand the total realisation of the Project will be finished on 31.12.2008.Work on the Project enabled timely submitting of the necessary geodeticfoundations to the Traffic Directorate on 19.12.2007. Works on designof the real estate cadastre on unsurveyed parts of municipalities: Podgorica,Bijelo Polje, Andrijevica and Berane, will be performed by experts ofthe Real Estate Administration, and of experts outside the Administrationon works of control of the technical documentation and supervision ofthe contracting.These works are one of the most complicated in this area and experiencesin their realisation will be used also on realisation of similar workson the remaining part of Montenegro, pursuant the Medium-term programme.Their realisation in the planned deadline will bring significantsavings of funds planned for this purpose.Real Estate Administration, pursuant the provision of the Article 4,item 3 of the Law on State Survey and Real Estate Cadastre (“Officialgazette of the Republic of Montenegro”, No.29/07) has prepared andsubmitted to the Ministry of Finance Annual Plan of Works on Surveyand Design of the Real Estate Cadastre for 2008, for adoption, whoserealisation will primarily depend on approved financial assets, becausethe Medium-Term Programme of Works on State Survey and Design ofthe Real Estate Cadastre for period 2008-2013, provided funds to theamount of 16.339.540,00 €.Main project of design of the cadastre of real estates for territory ofmunicipalities Cetinje and Nikšić encompasses in total 88.208 ha (at thetrack of Adriatic-Ionian road).48

Annual report of the Ministry of Finance of Montenegro / 2007Within the international activity of the Administration it is necessary to emphasise a very good cooperation with the German Organisation GTZ andcommon work and help in the realisation of some projects of the Administration; beginning of cooperation with the German Administration of the regionBrandenburg, than established cooperation with the World Bank and common work on many projects whose realisation is expected in 2009. It is especiallyimportant that the Real Estate Administration has become the fulltime member of EuroGeographics at the congress held in Dubrovnik in period 19-24.10.2007. EuroGeographics is the organisation which gathers representatives from our profession from 54 countries.In order to additionally grasp the volume of works and work tasks of the Administration, we give also the overview of most important users and datawhich were prepared for them and submitted by the Real Estate Administration in the past year.OVERVIEW OF USERS AND SUBMITTED DATAGovernmental bodyWork descriptionCABINET OF THE PRESIDENT OFMONTENEGROMINISTRY OF FINANCEMINISTRY FOR ECONOMICDEVELOPMENTMINISTRY OF TOURISM ANDENVIRONMENTAL PROTECTION• Statement from the digital plan (C.M. Njeguši, C.O. Kotor)• Orto-photo Lovćen• Statement from the digital plan for C.M. Šas and municipality Ulcinj• Owners structure for the area Valdanos• Filming of the road Rvaši Dodoši and Rvaši-karuč in the total length of 13.1 km• From data from digital plan in analog and digital form following data were issued: intake Velika plaža, C.M.Buljarica, area Ada Bojana and area Valdanos, and the larger part of the CM of municipality Cetinje• From orto photo data the following data were issued: Ulcinj for intake of Velika plaža, Buljarica, area Ada Bojanaand area Valdanos.• Owners structure for intake Velika plaža, area Ada Bojana and area Valdanos• From data of the digital plan in analog and digital form following data were issued: intake Velika plaža, C.M.Buljarica, area Ada Bojana and area Valdanos, and the larger part of the CM of municipality Cetinje• From orto photo data the following data were issued: Ulcinj for intake of Velika plaža, Buljarica, area Ada Bojanaand area Valdanos• Owners structure for intake Velika plaža, area Ada Bojana and area ValdanosMINISTRY OF DEFENCE• Statement from the digital plan for municipality Danilovgrad (dwg)• Orto-photo for area GUP Danilovgrad• Geodetic filming of the army complex in Golubovci, Danilovgrad and Tivat in the total surface of P=101 ha.MINISTRY OF INTERNALAFFAIRS• Geodetic filming of the Police Academy in Danilovgrad in the total surface of P=3 haTRAFFIC DIRECTORATEDIREKCIJA JAVNIH RADOVATENDERSKA KOMISIJA VLADEZAVOD ZA STATISTIKU• Statement from the digital plan and following data were issued: road Žabljak – Šavnik, road municipality BijeloPolje, road municipality Kolašin and part of the CM Šavnik• Scanned analog plans for needs: road municipality Bijelo Polje, road municipality Kolašin and part of the CMŠavnik• Preparation of the terrain for the aerophotogrametrical filming of the road Podgorica – Veruša - length 36 ha• Determining of the control points and upgrading of the contents of the geodetic situation on the roadPodgorica - Veruša - P = 2.880 ha• Expropriation of the road – Bečići – Rafailovići and road - Dragalj Polje - Grahovo – in the total length of P=8.6ha• Statement from digital plan for municipality Mojkovac• Owners data for area CM Buljarica, Velika plaža, Ada Bojana and Valdanos• Data on total surface by chategories of the land in municipality Kolašin49

Annual report of the Ministry of Finance of Montenegro / 2007MunicipalityPODGORICAULCINJWork description• Statement from the digital plan of the intake GUP Tuzi• Orto-photo intake of the GUP Tuzi• Geodetic situation of the Aluminium Plant• Preparation of the survey of expropriation for the following locations: South Boulevard, Street Piperska, StreetMilonja Pavlovića, Street v Proleterske Street Orjenska Street IX Crnogorske and Street 13 jul to the total length of5.5 km• Preparation and filming of the terrain for drafting of the following DUP : South Boulevard, Stari aerodrom, Staravaroš, Nova varoš, Morača (barrack), Zagorič III and IV, Momišići zone A, Administration of revenues, Zlatica B, Blok14 Kasarna Zagorič, Mirtovina- Ibričevina in the total surface of P=627.85 ha• Statement from the digital plan for the following areas Pinješ, Ulcinjsko Polje• Orto-photo plan for mentioned intake of areas Pinješ, Ulcinjsko Polje• Owners structure for CM Ulcinj and CM Ulcinjsko Polje• Preparation and filming of the terrain for drafting of the following DUP: Pinješ, Port Milena in the total surface ofP= 80 ha• Geodetic situation of the boulevard Ulcinj- Donji in the total length of 1.1 kmBAR• Preparation and filming of the terrain for drafting of DUP: Bar and Sutomore to the total surface of P=214 ha• Geodetic filming of intake of the line DUP Valdanos in the total length of 6.8 kmBUDVA • Making of filming of urbanicstic parcels and taking of data of control on buildings to the total amount of 3buildings and 3 parcelsKOTORHERCEG NOVIBIJELO POLJETIVATCETINJEŽABLJAK• Statement from the digital plan for larger part of the CM• Owners structure for mentioned CM• Statements from the digital plan, following data were issued: Bajer, Bijela, Srbina, Topla, Meljine, Đenovići andNjivice• Statement from the digital plan for larger part of cadastral municipalities, CM Majstorovina, CM Njegnjevo, CMPotkrajci and CM Rasovo)• Statement from the digital plan for area of municipality Tivat• Orto-photo for the area of municipality Tivat• Statement from the digital plan for area of municipality Cetinje• Orto-photo for area of municipality Cetinje• Statement from the digital plan the following data were issued: CM Motički Gaj, CM Borje and CM ŽabljakDANILOVGRADMOJKOVACBERANEPLAV• Statement from the digital plan for CM Kujava and CM Slap• Orto-photo for CM Kujava and Slap• Owners structure for CM Kujava and Slap• Statements from the digital plan for CM Tutići• Geodetic filming of changes at the terrain• Statement from the digital plan CM Berane• Statement from the digital plan CM Plav and CM GusinjeReal Estate Administration has drafted projects of digital geodetic plans and maps, ortophoto plans and digital models of terrain from data of aerophotogrametricfilming for:NaME OF THE PROJECT1. Bar 1: 25 0002. Bar 1:10 0003. Ulcinj 1:25 0004. Ulcinj 1:5 000TYPE OF WORKAltitude presentation of the terrainIntake: Political municipality Bar – 50 500 haAltitude presentation of the terrain, ortophotoIntake: Political municipality Bar- 50500 haAltitude presentation of the terrainIntake: Political municipality Ulcinj- 25900 haOrtophoto-state 2007 for needs of the urbanism.Intake: 5700 ha50

Annual report of the Ministry of Finance of Montenegro / 20075. Bjelasica 1:10 0006. Cetinje –DUPAltitude presentation of the terrain and ortophoto R 1:10 00014 deeds were made of proportion 1:10000.Intake: 45000 ha *finished 18000 haOrtophoto and vertical presentation of the terrain 1:1000Intake: city Cetinje-DUP Obod 120 ha7. Bar 1:1 000-DUPAltitude presentation of the terrain and ortophoto- for needs of the municipality Bar – for drafting of the plandocumentation (DUPs). Horizontal presentation of the terrain- recording of changes when compared to theexisting digital cadastral plansIntake :Parts of cadastral municipalities Dobre Vode – 180 ha, Pečurice – 340 ha, Kunje – 480 ha (Total: 1000 ha)8. Montenegro 1:25 000*in cooperation with JICA,agency of the Governmentof Japan for internationalcooperation9. Survey 200711. High waySmokovac-Uvač 1:1 00012. Žabljak 1:2 50013. Cetinje 1:5000Project of drafting of the digital TM 1:25000-Model of data was defined-Topographic key was established for proportion 1:25000-Adopted new reference system UTM 34 in accordance with standards-Acquiring of experience in the individual making of maps with proportion 1:25000-Transfer of technologies for making of topographic maps and GIS data.Project in work.Intake: territory of Montenegro -13 812 km².Establishment of the real estate cadastreStart of realisation of the project of survey for parts of political municipalities Podgorica, Andrijevica, Berane andBijelo Polje.Intake: 52000 haMaking of situation geodetic grounds in proportion 1:1000.Intake: 3000 haAltitude presentation of the terrain P 1:2500Intake: CM Borje II, CM Njegovuđa, CM KrsAltitude and horizontal representation of the terrain 1:5000Intake: parts of CM Kobilji Do,Trešnjevo,Prentin Do,Bata and Grab -2000 haBeside that, the Real Estate Administration has issued data for needs of other users:Users of servicesPublic Enterprise Railways ofMontenegroPublic Enterprise RegionalWater Supply System BudvaPublic Enterprise National ParksTourism Organisation of ŽabljakFaculty of ArchitectureWork description• Statement from digital plan for cadastral municipalities to territory of Municipalities Podgorica, Nikšić,Danilovgrad, Mojkovac, Kolašin, Bar Bijelo Polje• Statement from digital data for CM territory of municipality Podgorica, Bar, Budva and Ulcinj• Owners structure for intake in coastal municipalitiesStatement from digital plan for area of Skadar LakeOrto-photo plan of the area of Žabljak in analog form• Statement from digital plan (CM Žabljak Crnojevića, CM Vranjina and CM Godinje)• Orto-photo for stated areaReal Estate Administration has also realised cooperation with other public and court bodies and has acted in accordance with their requests accuratelyand pursuant the Law.DIRECTOR,Mićo Orlandić51

Annual report of the Ministry of Finance of Montenegro / 2007Results of Administrationfor the Prevention ofMoney Laundering in 2007Administration for Prevention of MoneyLaundering (USPN), at the beginning ofDecember, has successfully defended theReport on progress in this area in front ofthe Committee of Council of Europe incharge for strengthening of the preventionof money laundering and of financing ofterrorism- MONEYVAL- whose membershipthe Agency acquired in June 2007.The Administration is organised accordingto the positive legal regulations as anadministrative type of the financial-intelligenceservice, which means that it isin its exclusive competence to forwardcases (in which there is a reasonable doubtthat a criminal act of money laundering offinancing of terrorism was performed) tocompetent public authorities (police andProsecutor’s office).During this year, the Administration hasforwarded to competent bodies 42 caseswhich contained reasonable doubt thatthe criminal act of money laundering wasperformed and 5 cases with the reasonabledoubt for performing of some othercriminal act. Temporarily, 17.581.000 EURhas been blockedParliament of Montenegro, has adoptedthe new text of the Law on Prevention ofMoney Laundering and Financing of Terrorism,on 29 th November 2007. That legal actis harmonised with international standardscontained, among others, in the DirectiveIII of EU and EU Convention against corruption.The new Law provides important news,and most important of these are:- complete analysis and tracking ofclients,- making of risk analysis for certain categoriesof clients and types of transactions,- identification of the real owner ofthe legal person (person which has 25%PREDRAG MITROVIĆof the ownership or influence in the legalpersons),- special tracking of politically exposedpersons,- prohibition of business with “quasi”banks or banks which do business withthem,- constant tracking of accounts of riskyclients in the certain time period and continuousreporting on that matter,- complete identification of clients inestablishment of business relations, and theoccasional innovation,- monitoring of some persons obligedto apply the Law, which did not have bynow the public administration body whichwould be competent for monitoring oftheir legal business activities (real-estateagencies).Also, within the normative activities,harmonisation of bylaws with new Law wasinitiated.Earlier, in March this year, set of newindicators for dubious transactions was supplemented.That enactment regulates thesphere of recognition of dubious transactionsmore completely, which was the reasonfor authorised persons and deputies ofpersons obliged by the Law to learn and betrained for using of the supplemented listof indicators and things they should payspecial attention to. In relation with this,the Administration has organised two-daycourse in Igalo, in cooperation with theoffice of UNDP in Montenegro.During 2007, special attention was givento the strengthening of the internationalcooperation. In that sense the agreementson cooperation were signed with Portugal,Russia and Poland (8 agreements of cooperationwere previously signed). Beside thisway, Administration daily cooperates withover a hundred financial-intelligence services(members of EGOMONT group) throughthe EGOMONT safety web.DirectorPredrag Mitrović52

Annual report of the Ministry of Finance of Montenegro / 2007Realised ActivitiesOf Directorate ForAnti-corruptionInitiative In 2007Directorate for Anti-Corruption Initiativehas performed its activities until November2007, in accordance with the competencesdetermined by the Decree on Organisationand Way of Work of Public Administration(“Official gazette of the Republic of Montenegro”,No. 54/04, 78/04, 06/05), which stipulatesthat the Directorate for Anti-Corruption Initiativeperforms operations of administrationwhich refer to: advertising-preventive actingaiming prevention of corruption; proposing tothe Government, signing and implementingEuropean and other international standardsand instruments from the sphere of anti-corruptioninitiative; promotion of transparencyof business operations; performing of otheractivities which stem from the membershipin the Stability Pact for South-East Europe andother international organisations and institutions,and also the other operations within itscompetence.The Government of Montenegro hasadopted the Amendment to the stated Decreein the Article 25, at the end of November 2007,and now it reads “Directorate for Anti-Corruptionperforms operations of administrationwhich refer to: advertising-preventive acting,such as raising of the level of public awarenesson the problem of corruption and conductingof researches on scope, phenomenal manifestation,causes and mechanisms of formationof corruption, Cooperation with competentbodies aiming drafting and implementation oflegislative and programme documents whichare important for prevention and fight againstccorruption; cooperation with non governmentand private sector aiming prevention ofcorruption; cooperation with public authoritiesin the procedure by reports of corruptionwhich Directorate receives from citizens andother subjects; proposing to the Government,signing and implementation of European andother anti-corruption international standardsand instruments; monitoring of implementationof recommendations of the Group ofStates of the Council of Europe Against theCorruption (GRECO); coordination of activitieswhich stem from application of Convention ofUnited Nations against corruption, performingof other works which stem from membershipin the Stability Pact for South-East Europeand in other international organisations andinstitutions, but also the other activities whichare assigned to its competence«.In 2007, the Directorate for Anti-CorruptionInitiative, within the realisation of its obligation,has put an emphasis not only at theAgenda of the Government of Montenegro,but also at the Action Plan for Implementationof the Programme of Fight Against Corruptionand Organised Crime, Action plan forimplementation of recommendations fromEuropean Partnership for Montenegro, andreport of GRECO.1. Advertising – PreventiveActivitiesVesna RatkovićPursuant the Agenda for 2007, the Governmenthas adopted the Report on realisationof the project »Strengthening of InstitutionalCapacities of the Directorate for Anti-CorruptionInitiative, for procedure on reporting ofcriminal acts of corruption« in July 2007. Withinthis project, telephone line has been openedfor reporting of corruption, and they were alsoengaged in the distribution of brochures andposters, and in setting of billboards, with basicinformation significant for prevention and fightagainst the corruption. During 2007, the Directoratehas received through this telephone line40 reports of corruptive criminal acts. The Directoratehas continued publishing of announcementsin daily newspapers, through which the53

Annual report of the Ministry of Finance of Montenegro / 2007citizens were invited to report corruption andactively participate in its prevention, and alsohas continued with other types of anti-corruptioncampaign.In cooperation with the Ministry of Educationand Science, during May and June2007, four educative sessions were held atthe University »Mediteran«, University of Montenegro,Faculty of Philosophy, and Faculty ofAdministrative and European Studies. On thatoccasion, a research was carried out on opinionsof student population when it comesto recognising of corruption and ways for itsprevention. Results were also made of thisresearch and they are available at the websiteof Directorate. Also, posters were placed andinformants were provided at places where thedocuments are submitted for access to thepupils and students houses (Podgorica, Cetinje,Nikšić, Kotor, Plužine, Bar). Furthermore,Directorate for Anti-Corruption Initiative hassigned Memorandum on Cooperation withUniversity »Mediteran«, on future joint activitieson prevention of corruption. During newacademic year, lectures were continued inthe faculties on fight against corruption: University»Mediteran« - Faculty of Law, Facultyfor Business Management in Bar and PoliceAcademy in Danilovgrad. In cooperation withthe Commission for Determining of Conflictof Interest, representatives of the Directoratein 2007, have held eight lectures which werededicated to public officials, representatives ofmedia and civil sector.On the occasion of 9 th December, Worldday of Fight Against Corruption, Directoratefor Anti-Corruption Initiative, in cooperationwith the office of the United Nations DevelopmentProject (UNDP) Organisation for Safetyand Cooperation in Europe (OSCE), Missionin Montenegro, has organised a press conference,to emphasize the importance ofworld day of FAC. Within the preventive acting,Directorate for Anti-Corruption Initiative,in cooperation with the UNDP and NansenDialog Centre, has organised lectures on (10 thDecember 2007) „Corruption in Legal System“.This lecture is first of many which will be realisedbefore the planned researches on causes,manifestations and consequences of corruptionin the area of legal system, educationand local self-government. Within the publiccampaign, Directorate in cooperation with theUNDP, has prepared the brochure “On corruption-anti-corruption measures and activities”and the adequate poster.Having in mind the need for the phenomenonof corruption, its manifestationsand spheres in which it occurs to be carefullystudied, Directorate for Anti-CorruptionInitiative has been in charge by Agenda ofGovernment for 2007 for conducting of theresearch on corruption. In cooperation withthe UNDP and Ministry of Finance, three areaswere determined which will be covered byresearch (administration of justice, local selfgovernmentand education). Expert supportin realisation of research will be given by theUN Office for fight against the drugs andcriminal (UNODC). Results of research, whosebeginning is expected in 2008, will be presentedto the public.2. Internal Organisation ofDirectorateIn 2007, Agency has performed the auditof existing organisation and systematisedwork places. In accordance with obligationswhich stem from Action Plan for Fight AgainstCorruption and Organised Crime and otherdocuments, the Government of Montenegrohas determined the new Rule book on InternalOrganisation and Systematisation of theDirectorate, which increased the number ofsystematised work places from six to ten, andtwo new officers have also been employed.Aiming strengthening of capacities ofAdministration regarding public relations,draft project was prepared and submitted tothe Embassy of Holland in Belgrade. Projecthas been approved in November 2007 andwill be realised in cooperation with the Missionof OSCE in Montenegro, and this way theDirectorate will be able to organise training foremployees from the area of public relations.In relation with the work of National commissionfor monitoring of application of theaction plan for fight against corruption andorganised crime, the Directorate has openedon its website a special segment- NationalCommission, which contains all documentswhich refer to the work of National Commission,in our and English language.3. Regional and InternationalCooperationRegarding the documents of CoE on fightagainst corruption, Directorate for Anti-CorruptionInitiative has prepared in cooperation withthe Ministry of Justice the Draft Law on Confirmationof Additional Protocol with the CriminalConvention on Corruption, which was adoptedin the Parliament of Montenegro in November2007. In cooperation with the Ministry ofFinance, the Directorate has prepared the DraftLaw on Confirmation of the Civil-legal Conventionon Corruption, adopted by the Parliamentof Montenegro in December 2007.Harmonisation of the national legislationwith the UN Convention Against Corruptionis the obligation determined by the ActionPlan for implementation of the European Partnershipfor Montenegro and Action plan forimplementation of the Programme of FightAgainst Corruption and Organised Crime. Inrealisation of this obligation, the Directoratehas asked for support of the United NationsDevelopment Programme (UNDP) and Officeagainst drugs and criminal (UNODC). Financialsupport is provided by the UNDP, withinthe project »Capacity Building of local NGOsto Participate in Anti-Corruption Initiative inMontenegro«, and experts’ by the UNODC.Within the existing project the Directorate hasprovided experts’ analysis on harmonisationof four legal texts with the UN Convention:Penal Codex and Code on criminal proceedings,the Law on Public Procurement and Lawon Conflict of Interests. Opinions of expertshave been presented to the professional publicat the Conference held on 11 th and 12 th ofOctober this year in Podgorica. Agency hassubmitted to the Government of Montenegrothe information on conducted activities,which was adopted at the session on 22 ndNovember this year. In accordance with theconclusion of this session, Directorate has submittedthe stated information to the NationalCommission for Monitoring of the Applicationof Action Plan for fight against the corruptionand organised crime.In June 2007, the Directorate for Anti-CorruptionInitiative has realised the obligation ofMontenegro which stems from the Memorandumon Cooperation between governmentsof members of SPAI in the fight againstthe corruption in the South-East Europe andtransferred the amount of 24,000.00 € designatedfor work of the Regional Secretariat SPAIin Sarajevo. These funds were provided fromthe budget of the Directorate for 2007.Montenegro was the host of the XI meetingof the Head Group of Stability Pact Anti-Corruption Initiative of the for South-EastEurope (SPAI), in October 2007, which wasdedicated to the future of the Anti-Corruptiveinitiative, especially to competences ofthe Regional Office in Sarajevo, and stepswhich should be taken in accordance withsigning and application of the Memorandumon Cooperation in fight against corruption,signed by countries members in April 2007.Also, on this meeting Strategy and Action Planof SPAI for 2008 and 2009 were adopted andthe future structure and management of theRegional Centre in Sarajevo, and it was decidedthat Montenegro will preside over this initiativefor next two years. At the same time, anew name of the Initiative was adopted – RAI– Regional Anti-Corruption Initiative, which isthe successor of the recent SPAI.DirectorVesna Ratković54

Annual report of the Ministry of Finance of Montenegro / 2007Work of PublicProcurement Directoratein 2007MERSAD MUJEVIĆLaw on Public Procurement (“Officialgazette of the Republic of Montenegro”,No.46/06), determines the activities of thepublic procurement system and establishesthe place and the role of the newadministration body- Public ProcurementDirectorate. In that system, it is stipulatedby the Law that the Directorate independentlyperforms the following activities:• to participate in the preparation oflaws, subsidiary legislation and other regulationsconcerning public procurement;• to design appropriate standard formsneeded for the application of this Law;• to monitor and review the implementationof the public procurement system,from the aspect of compliance withEU legislation, and propose measures toensure such compliance of procedures;• to give prior approval to contractingauthorities for the choice of procedure inthe cases envisaged by this Law;• to offer advisory and consultingservices in the field of public procurementto contracting authorities, whenasked so;• to participate and cooperate inorganizing staff training in public procurementactivities;• to publish invitations to tenderand decisions on contract award on theresponsible administrative authority’swebsite in the cases foreseen by thisLaw;• to enhance the system of keepingcontracting authorities and tenderersinformed about public procurementregulations and publish and distributeappropriate technical literature;• to prepare sample tender documentsand contracts, for typical publicprocurement contracts;• to initiate and encourage the developmentof electronic procurement andcommunication practices in the field ofpublic procurement;• to pursue international cooperationwith institutions and specialists in thefield of public procurement;• to notify the Supreme Auditing Institutionand file reports to other competentauthorities on cases of violation ofpublic procurement procedures that ithas become aware of in the conduct ofits tasks and duties;• to collect information from contractingauthorities and maintain appropriaterecords;• to prepare, publish and update a listof covered parties under this Law on itswebsite;• to prepare uniform bases for establishingrecords and official lists of tenderers,on the basis of data on undertakenand executed public contracts;• to monitor the public procurementprocedures and ensure that they meetthe needs of general interest;• to issue public procurement bulletins;• to submit to the Government AnnualReports on the public procurement carriedout in the State;Stated authorisations of the Directorateare more precisely determined bythe area of work defined by the DecreeAmending and Supplementing theDecree on Organisation and Way of Workof the State Administration (provisionsof the Article 42 a of the Decree “Officialgazette of the Republic of Montenegro”,No. 72/06 from 24. 11. 2006).Director of the Directorate has beenappointed on 31 st May 2007. Rule book onInternal Organisation and Systematisationof the Public Procurement Directoratewas established by the Government ofthe Republic of Montenegro, at the sessionheld on 26 th July 2007, so that theDirectorate has started with its operationswith only two civil servants taken overfrom the Administration for Joint Servicesof Governmental Bodies, which up to thatday worked in the field of public procurement.In fact, the Directorate has startedwith work on 1 st August 2007.The Rule book on Internal Organisationand Systematisation of the Directoratedetermines 15 positions for employ-55

Annual report of the Ministry of Finance of Montenegro / 2007ees and servants on positions: 1 directorof the Directorate, 1 deputy director and13 state employees and civil servants, outof which 12 positions are occupied bynow, and there are still 3 vacancies.In the Public Procurement Department,with the deputy director 7 executorswere systemised with positions fromthe basic scheme, and other positionsrepresent the supporting civil servantsactivities organised within the Service forCommon Affairs and Finances.During August and September 2007,in addition to competency area, Directorate,at the same time had to conducta number of activities which represent amaterial and technical basis for functioning,which refer to providing of the placefor accommodation, equipping of roomswith necessary technical equipment andemployment of necessary number of civilservants.Since one of the main activities of theDirectorate is publishing of invitations totender for conduction of public procurementprocedures at the website of thePublic Procurement Directorate, it wasnecessary first to establish the website,which was done in September 2007, butit still demands further upgrade and creationregarding new technical possibilitiesand modern technical solutions. In relationwith that, this is practically everydayactivity and encompasses constant monitoring,directing and publishing invitationsto tender. In 2008, depending onprovided funds, establishment of the newsoftware solution was planned for theseand other activities of the Directorate.Every day, a great number of coveredparties under this Law are referring tothe Directorate regarding the approvalfor conduction of the negotiation proceduresstipulated by the Article 23 of theLaw. On that occasion the Directoratehas found that the criteria were met andobliged claimants, in case of meeting ofthese conditions, are to provide realisationof principles of transparency, competitionand equality as basically proclaimedprinciples of public procurement. By now,Directorate has acted approximately inover 300 claims of claimants and hasrefused in average every fourth claim.The most common mistakes noticed insubmitted claims refer to the insufficientknowledge of public procurement systemand insufficient training of claimantsand servants for public procurementin that system, which is to be expectedsince the procedures demanded bythe modern public procurement systemare very complicated. The Directoratenoticed these problems immediately, andhas contacted the experts from internationalorganisations and institutions suchas SIGMA/OECD and European Agencyfor Reconstruction, which expressed theirwillingness to make their contribution tothe upgrading of knowledge on publicprocurement system, by application ofthe Public Procurement Law in Montenegro,in the sense of the EU legislation andits recommendations, opinions and directives.In that context, beside the meetingswith the employees in the Directorate,a seminar was held in the offices of theHuman Resources Management Authorityin November 2007 in coordination withthe Directorate and stated institutions.The seminar was dedicated to training ofemployees who monitor the public procurementprocesses in Governmental andother public institutions, and it encompassedover 50 participants. Continuationof these activities is planned duringJanuary and February 20008, and in thatperiod a next seminar is scheduled. Systemof regional cooperation has beenestablished, and regional conference wasplanned regarding public procurementand pursue of cooperation with relevantinstitutions from Brussels.Within the framework of other activities,we continuously acted on requestsfor shortening of the deadline in the publicprocurement procedures from 26 to 15days, but the opinion of the Directoratein these cases was very rigorous and onlyin strictly stipulated cases of emergencyit was allowed, and not in cases of publicprocurement of goods, activities andservices covered on the wide market oftenderers, when the emergency is notstipulated by the Law.Furthermore, Manual for Free Accessto Information of the Directorate wasdrafted and published, containing contacttelephone numbers, fax number ande-mail address, which subjects can usefor realisation of their rights and obligations.List of covered parties under thePublic Procurement Law was published(over 950 persons) and there is an ongoingdata collecting on officers in chargeof public procurement in covered partiesunder the Law.Meetings were regularly held, onwhich the advisory and counselling serviceswere given regarding application ofthe Public Procurement Law (in personin offices of the Directorate over 50)and every day over the telephone, whichmade the work of employees significantlyslower and more complicated. For thisreason a more adequate and appropriatesolution should be found in the nextperiod.In only several months over 50 writtenopinions or suggestions were given,regarding the application of some specificdeterminations of the Public ProcurementLaw and bylaws adopted based onthat Law.Which are the activities of highpriority for Directorate in the followingyear?Action plan for Strengthening ofAdministrative Capacities for implementationof Stabilisation and AssociationAgreement, envisages the further developmentof administrative capacitiesof Montenegro in the sphere of publicadministration, and the special emphasiswas given to the strengthening of administrativecapacities in the area of publicprocurement. Montenegro is obligedpursuant this document to prove that itis capable for implementation of obligationswhich refer to public procurement,or that the Public Procurement Directoratehas provided all preconditions fornormal operations and that it functionswith adequate human resources.New system solutions strictly separateactivities of Public Procurement Directorateand Commission for Control of PublicProcurement Procedures, which is onlya second instance body in the decisionmaking process on complaints of tendererson public procurement proceduresand questions application of the Law onwhich grounds suggests taking of measuresand determines principal opinionsfor unique application of the Law. Otheroperations of the public procurementsystem are within the competence of thePublic Procurement Directorate, whichrepresents the great news when comparedto resolutions until the adoption ofthe new Law on Public Procurement.Also, working document of the EuropeanCommission for 2006 in the partregarding the fight against the corruptionand the place and role of the PublicProcurement Directorate, strictly determinesthat the further essential changes56

Annual report of the Ministry of Finance of Montenegro / 2007in the sphere of public procurement willbe demanded in order to harmonise thesystem with the EU standards. Emphasis isagain given to the fact, that it is necessaryto strengthen administrative capacitiesand the system for monitoring and controlof activities (including also the financialmanagement and independent functionof the control and audit outside thepublic procurement system) and especiallyto strengthen the Public ProcurementDirectorate and to provide funds forits performing of activities of control andcoordination. In that sense, training forpublic procurement operations for businessmenand public entities in accordancewith the Public Procurement Lawshould be of utmost importance.Starting from that and from evaluationof the European Commission thatthe Public Procurement Law of Montenegrois mostly in compliance with theDirectives of the EU legislation, in the nextperiod we should focus on the activitiestowards the most consistent applicationof the Law, and in that sense, the highestpossible education of personnel whichwork on the public procurement, and onthe better access of information on conductedprocurement procedures. Basicand priority assignment of the Directoratefor 2008, beside the regular activities ofcontinuous monitoring and publishing ofinvitations to tender for public procurement-including drafting and keepingof relevant records, will be the furtherimprovement of education of subjects incharge for the public procurement systemand specially of public procurementservants for application of solutions of theLaw, and in that sense more active andfrequent organisation of seminars andother forms of education. In the plan offuture activities is, also, creating, preparationand publishing of editions, magazines,brochures and other professionalliterature, and for that the Directorate willneed also the adequate professional supportof international subjects, includingalso experiences from the countries in theregion and from domestic experts.Important activity will be aimedtowards creation of the adequate solution,which will cover monitoring of alloperations and activities of the Directorate,even though this type of solutionimplies allocation of significant amountof funds, so that in this direction we alsoexpect the significant help of representativesubjects.Establishment of the new softwaresolution will enable the work on developmentof electronic public procurementsystem, which will promote the publicprocurement system in Montenegro andconnect it to the European system. Asignificant support of the Directorate isexpected in the realisation of that liabilitywithin IPA programme of support of EU,which is possible to realise more specificallyonly in 2008 and 2009.Other priority activities will beimposed by the application of the PublicProcurement Law and the specificactivities of the Directorate in its everydayapplication, and in the context of furtherrecommendations and trends of processesfrom the European partnership.Which are by now the most frequentlynoticed problems in operationsof Directorate?The beginning of implementation ofthe Public Procurement Law, due to itsmassiveness, complexity of public procurementprocedure and voluminousdocumentation with required reportingsystem on conducted procedures, representsby itself the biggest difficultyfor free functioning and development ofactivities of the Public Procurement Directorate.Because of that, basic task of theDirectorate for the next period also willbe directing of all participants in the processto the more adequate application ofthe Public Procurement Law and relativebylaws. One of the forthcoming activitieswill be aimed at the problems regardingsub-criteria for evaluation in the procedureof choosing of the most favourableoffer for contract award on public procurement,and which were pointed atby the certain contracting authorities, sothat the problems in work on applicationof the Law in coordination of the Directoratewith the relevant experts and representativesof competitive ministries andadministration bodies will be the subjectof the special consideration within theactivities on eventual amendments andsupplements of bylaws, in case these areevaluated as justified.Support of experts from internationalinstitutions, would also cover some lackof personal experience in the actual andeveryday activities and dealing with permanentproblems in operations, so thatthe Directorate in the following periodwill start adequate initiatives for presenceof these experts in realisation of everydayactivities of this institution.Problem is also the insufficient technicalequipment of the Directorate, butappropriate initiatives will be takenregarding that with the relevant subjectsin the country and abroad.It is possible that the system for controlof public procurement procedureestablished by the Law will also causedifficulties, since the Directorate, aboveall, has the preventive role and is providingtransparency in the conductingof the public procurement proceduresand prevention of possible cases of corruptionthrough the proper applicationof the Law, but not also the possibilityto act repressively in cases of eventualmisdemeanours and criminal acts. Theseacts are processed by other state bodies,like State Auditors Institution, Public Prosecutor,Tax Administration, Directorate forAnti Corruption Initiative, Administrationfor Prevention of Money Laundering andother bodies to which the Directorate, incase of reported doubt, can only initiatethe proper procedure in front of thesebodies.DIRECTORMersad Mujević57

Annual report of the Ministry of Finance of Montenegro / 2007Activities of theMinister of Finance - 2007December 27 th 2007: Statement of theMinister of Finance Igor Lukšić after theSession of the Government of Montenegroon the occasion of determination of theDraft Law on State Property and Adoptionof the Report on the Operative Team forPrevention of Illegal Trade in Cigarettes foreleven months 2007- …The Government of Montenegro hasdefined a Draft Law on State Property, harmonisedwith the new Constitution, whichimplies that on the Parliament makes decisionon use of the most valuable resources. “…Withthe Law, we are making a distinction betweengoods of common interest and other stateproperty. Pursuant the Law, goods of commoninterest are natural goods and goods incommon use which cannot be in the privateproperty while other can. Natural goods, likeminerals, oil, gas, thermal and mineral waters,sea coast and water course important for thecountry, and goods in common usage, whichencompasses roads, airports, air space, harbours,moles or railway infrastructure, are managedby the Government on behalf of the stateor municipality and can give them to concessionairesor in the long-term lease. Othergoods of common interest can be also in theprivate property. It is provided by the Law thatParliament will manage the state property, onsuggestion of the Government, for the propertywith value more than 300 millions. The Governmenthas also considered the work of theOperative Team for Prevention of the IllegalTrade in Cigarettes by December, concludingthat the grey market was reduced to about10 percent. “…Budgetary revenues, includingValue Added Tax, customs and excises at thelevel of about 18 millions EUR, and that is theestimation until the end of the year, which,having in mind the degree of consumption ofthese products in Montenegro, corresponds tothe share of the grey market of around 10 %”.December 20 th 2007: The statement ofthe Minister of Finance, Mr Igor Luksic, afterthe session of the Government of Montenegroon the occasion of establishing the Lawon Property and Legal Relations as well asadoption of the Regulation on Harmonizationof the Tariff Nomenclature for 2008- „... Draft Law on Property and LegalRelations will be used to codify this area forthe first time and to give non-residents a possibilityto become real estate owners. Thus,the conditions have been met for the establishmentof the Draft Law on Public Propertyand Law Amending and Supplementing theLaw on Expropriation at the following sessionthat will lead to fulfilment of the obligationsfrom the Constitutional Law. The Lawon Property and Legal Relations introducesnew solutions of the mortgage law and apossibility of putting the mortgage on buildingsthat are being built. This is a step up thatwill ensure the further dynamic development,primarily of the civil engineering sector. Withthis Law, the Government has strived to enablenon-residents to become real estate ownersin Montenegro and to change public propertyrights into the proprietary rights, as manycountries in the region have already done.Rights of management, use and permanentuse grow into the property right, thus, we willsummon up and make the cadastral registersclear, especially from the privatisation angle.It will be possible to converse the proprietaryright for real estates that was included in balancesheet, through appropriate administrativeprocedure. For the rest, those that use them inbusiness purpose will be able to use the firstright of renting or purchase. The Government,despite the different opinions regarding thisissue, has chosen solution from the Agreementon Stabilization and Association the EU andthus, enabled non-residents and non-residentialcompanies to acquire property rights, thesame as the residents. We have kept the provisionin which it is stated that other Law may, insome extreme cases, determine certain areaswhere acquirement of the property right isn’tpossible, but we have estimated that, takinginto the consideration the new constitutionalsolutions, that are also the old ones as well asthe Agreement on Stabilization and Association,we cannot introduce any barriers when itcomes to the real estate trade, since it wouldlead to the limitation of property rights of allour citizens...“. Regulation on Harmonizationof the Tariff Nomenclature for the followingyear, which is the first condition for implementationof trade stipulations of the Agreementon stabilization from January 1 st . „...There’s nochanges of rates, only the harmonization ofthe nomenclature with introducing of the elementsfrom the Agreement on Stabilizationand Association, but it is a necessary conditionfor its implementation...“December 19 th 2007: The Statementof Minister of Finance, Mr Igor Lukšić, atthe Round Table on Economy Freedomsand Development of Montenegro, held inMontenegrin Academy of Science and Arts(CANU)- ...“ The essence of the economy freedoms’concept is to support entrepreneurship andeconomic development, thus creating favourableconditions for those individuals that areliving on margins of the society. Countries thathave the fastest development are applying theconcept of individuals that are free to managetheir income and property, to choose theirprofession and the essence of the state is toprotect those rights and not make it all so difficultwith exceeding administration. The stateshould help and enable individuals to accomplishtheir property right...“. Regarding the levelof economy liberties, Montenegro is on the 60 thplace out of 140 countries … »December 18 th 2007: The Statement ofMinister of Finance at the Closing Conferenceof the EU Project of Support to theMonstat- ...“ Statistic system presents one of thefundamental basics for leading of economicpolicy as well as the essential condition forserious and fact-based communication withthe surrounding. Only statistic system thatgenerates valid data enables decision makingthat is correct and on time. In addition, only thestatistic system that is based on internationalstandards and internationally adopted methodologyenables comparing with other system,which leads to the complete integrationinto surrounding. Therefore, strengthening ofstatistic system and its reform is, in my opinion,one of the most significant challenges ahead58

Annual report of the Ministry of Finance of Montenegro / 2007of us. Efficient statistic system is based, aboveall, on a very precise, timely and standardizedcommunication between the institutions ofthe system. Monstat’s leadership and coordinationis certainly necessary and irreplaceable.However, it can only lead to desired results onlyif it’s based on coordinated work, dedicationand synergy of all constituents of our statisticsystem.December 11 th 2007: The statement ofMinister of Finance Mr Igor Lukšić after thesession of the Government of Montenegroregarding the establishment of the DraftLaw on Financing Pre-election Campaignsfor the Election of the President of Montenegro,Mayors and presidents of Municipalities;Draft Law on Financing PoliticalParties; Draft Law on Amending and Supplementingthe Law on Financing LocalSelf-Governments and Draft Law Amendingand Supplementing the Law on CapitalTurnover Tax- ... Draft Law on Financing Pre-electionCampaigns for the Election of the Presidentof Montenegro, Mayors and presidents ofMunicipalities: „For financing campaign forthe election of the President of Montenegro,the amount from 0,05 to 0,1 percent of thebudget or from 330 to 650 thousands euros isintended. For covering part of the expenses forfinancing the campaign, resources will be providedfrom the current budget. In accordancewith this proposition, the money will be distributedlinearly, 10% each, after the ascertainmentof the candidates’ list, 40% will be assigned tothe candidates that win more than 10% and50% to the candidate that won the majority ofvotes. For financing campaign, individuals maymake the payment of up to 2000 euros andcompanies up to 10000 euros. This segmentof the proposition in question is in accordancewith the recommendations of the Council ofEurope. This should further enhance the transparencyof budget expenditures for financingelection campaign. This also stands for the Lawon Financing Political Parties. This Law, thatis also in accordance with the recommendationsof Council of Europe, foresees designationof 0,2 to 0,4 % of the current budget’smeans. This Law also enables collection ofmeans for financing work of political parties– payments up to 2000 euros from individualsand up to 10000 euros from companies a year.According to the regulations referring to theelection campaign, 0,15% of the current budgetis used for financing campaign for ordinaryelections. 20% is linearly distributed and 80%in accordance with won mandates. There’s anoption to appoint additional 0,05% of the currentbudget when we have ordinary elections.Those are linked budget means, under the conditionof provision of doubled amount fromprivate resources. These drafts of the Law wereadopted in accelerated procedure, since weconsider that Parliament as well should adoptthem in accelerated procedure in the followingtwo weeks, due to the urgency of the matter. Inthe middle of January, scheduling of electionsfor the president of the country is expecting.That’s why it is necessary to establish the financialframework for financing this campaign. Inthe Amendments and Supplements of theLaw on Financing Local Self-Governments,the so-called redesign of the Equalisation fund.In accordance with the new version, 11% of theincome tax goes to this fund, instead of previous10. 20% of the tax on real estate turnoverwill also go to this fund. Those Municipalitiesthat have less power will be able to count onsignificant means from the Equalisation fund.Law amending and suplementing on CapitalTurnover Tax without any changes hasbeen adopted by Government again, after theParliament’s refusal to adopt it. In the Draft, thistax is increased to 3% and Government wantsto try once more to pass this Draft …”December 4 th 2007: Minister of Financemet newly appointed director and regionalcoordinator of the World Bank (WB) forcountries from South-East Europe JaneArmitage, director and regional coordinatorof WB for the countries from CentralEurope and Baltic Region Orsalia Kalantzopoulosand representative of World Bank inMontenegro Jan-Peter Olters- ...During the meeting, opinions wereexchanged on realization of mutual projectsso far as well as on the upcoming projectsincluded in the agreed four year strategy ofWorld Bank for Montenegro. Representativesof World Bank had expressed their readinessto further invest in development of sectors oftourism and environment protection, agricultureas well as improvement of social policyand efficiency increase of the energy sector.In addition, collocutors estimated that furtherinvestments were needed into local infrastructure,with necessary draft of spatial plans inorder to valorise potentials of certain areas.Minister Lukšić announced the adoption of theLaw on Banks as well as the Law on Work thatwill significantly improve and make more flexiblethe job market. Opinions were exchangedon key privatization processes in Montenegro,with the emphasise on financial sector thatwill be almost completely finalized after theprivatization of insurance companies. MinisterLukšić thanked Mrs Kalantzopoulos on cooperationso far and her support to developmentpolicy of Montenegro and at the same, time hewished welcome to newly appointed directorMrs Jane Armitage.November 16 th 2007: Minister of FinancePhD Igor Lukšić met charge d’affaires ofEuropean Commission delegation in MontenegroClive Rumbold- ...During the discussion, opinions wereexchanged on political and economic situationin Montenegro, with an emphasis on recentadoption of Constitution as well as on signingand ratification of the Agreement on stabilizationand joining. Mr Rumbold assessed thatMontenegro is taking a good course regardingthe economic growth and system sustainabilityand at the same time, he expressed readinessto assist on implementation of the standardsin the process of fulfilling obligations fromthe Agreement. Minister Lukšić informed hiscollocutor on current situation in the processof adjustment of the legislation in accordancewith European Union regulations and pointedout the importance of the upcoming adoptionof set of property Laws. From legislative aspect,said Minister Lukšić, the next few years will berather dynamic and there’ll be a demand forintense communication with the EuropeanCommission and its experts so that Montenegrocould as efficiently as possible approach itscandidature for the membership...November 16 th 2007: Bilateral Agreementwas signed by the Government ofMontenegro and Government of the FRGermany in the context of Paris Club of thecreditors59

Annual report of the Ministry of Finance of Montenegro / 2007- Minister of Finance of Montenegro PhDIgor Lukšić and Ambassador of FR GermanyTomas Schmidt, have signed today the Agreementbetween the Government of FR Germanyand the Government of Montenegro regardingthe Agreement on taking over the Agreementon taking over, reduce and reprogramming ofthe external debt that was signed on March15 th 2002 by the Government of FR Germanyand Government of FR Yugoslavia and on itsmodification.The document in question is bilateralAgreement with FR Germany, in the contextof Paris Club of creditors. The bilateral Agreementbetween the Government of FR Germanyand the Government of Montenegro regulatesthe taking over of the debt of Montenegro,established by the Agreement between Governmentof FR Germany and Government ofFR Yugoslavia, which was signed on March 15 th2002. Only some of the provisions of the newAgreement are modified, compared to theprevious one while the most important provisions,such as those that define interest rate,repayment period, date of instalments remainthe same as in the Agreement from 2002. Withthe aim of this Agreement realization, twotechnical Agreements with German creditorshave been signed as well as with KfW bankand German Insurance company Euler Hermes.Germany is the biggest creditor of Montenegroin the context of Paris Club, with the totaldebt amount of around 44,7 million euros.Based on the provisions of the CoordinatedProtocol with the countries from Paris Club,regarding the consolidation of external debtof former FRY that was signed on December28 th in Paris, the Agreement provides that ODA(Official Development Aid) claims, in accordanceto the Agreement between FR Germanyand Montenegro, may be the subject of debtconversion that can be used for projects onenvironment protection and preservation, povertyrepression and education improvement. InGermany, ODA credits amount to around 13,2million euros, are in the portfolio of the KfWbank and that amount maybe the subject ofdebt conversion. Agreement with FR Germanyis the third bilateral agreement that Montenegrosigned with the members of Paris Club,since its independence proclamation, after theAgreement with Italy and Austria.November 9 th 2007: Minister of FinancePhD Igor and Head of Office of the EuropeanBank for Reconstruction and Development(EBRD) Marek Lorinc have signed todayin Podgorica the Surety Contract regardingthe Project «MONTENEGRIN REGIONALWATER SUPPLY COMPANY». This project, that was developedthrough close cooperation with World Bank,will provide long-term sustainable solutionfor water supply of the coastal towns and itwill make a good foundation for improvementof Montenegrin tourism potentials.. EuropeanBank for Reconstruction and Development willfinance the rehabilitation of the north sectionof the system that will provide water supplyfor Budva, Tivat, Kotor and Herceg Novi, whilethe World Bank will finance extraction of water,its processing and building of the main, continentaland south section of the network thatwill provide water supply for Bar and Ulcinj.EBRD credit program has a guarantee fromMontenegrin Government, as well. It is dividedinto two loans for a two year period, in orderto adjust to the profile of investment needs ofthe country.Minister Lukšić: „...It’s hard to enclose thesignificance of the project «Regional water supply»for Montenegro, because it presents veryimportant postulate for its future economicdevelopment...“. Since the tourism is the leadinggrowing sector in Montenegro, insuranceof reliable and incessant water supply in thecoastal area is of strategic importance for thecountry, therefore it’s of the highest importancefor the Government. Marek Lorinc: “...With this project, the Bank gives its support tothe main infrastructural needs of the country,which gives good prospect for continuousgrowth in sector of tourism in a way that willenable high class tourism ...”.November 8 th 2007: The statement ofMinister of Finance Igor Lukšić after thesession of the Government of Montenegroregarding the establishment of the Draft ofthe Budget Law for 2008, Draft of the Lawon Banks and Draft of the Law on Amendmentsand Supplements of the Law on PublicServants and Employees’ Salaries- “… The Budget for 2008 is almost 1,2thousand million euros. We expect a mildsurplus in the next year’s Budget, around 6,5million euros and consolidated public expenditure’ssurplus will be higher, around 18 millioneuros. Budget’s foundations are several macroeconomicindicators, that were consideredrelevant for its preparation in the followingthree years period. We estimate that the averagerealistic economy growth will be around6,2% a year and the anticipated annual levelof inflation is 3,5% on an average. The averagenominal growth of the gross domestic product(GDP) in the next three years should be around9,7%. We anticipate that surplus of the publicexpenditure in the following three years willnot be lower than 0,9 % of GDP on an averagea year. Capital Budget’s rate of growth shouldbe 1% of GDP on annual basis. According tothe plan, next year GDP should be 2,53 thousandmillion euros, in 2009 GDP should be 2,77thousand million euros and in 2010 it couldreach 3 thousand million euros. For the firsttime, the Budget for the following year incorporatesreceipts from state’s funds – pensionand disability insurance fund, Health insurancefund, restitution fund, development fund andfund for employment agency. The estimatedexpenditure resulting from the above mentionedfunds is 456 million euros. Draft of theBudget Law for the following year will be ina couple of days send to the Parliament, andits decision upon the Draft should be reacheduntil the end of December. The Governmentalso adopted Law Amending and Supplementingthe Law on Salaries of Public Servantsand State Employees that provides forthe increase of their salaries for 30%. This Lawrevoked regulations on supplements for specialworking conditions and provided variablepart of the salary that will be used for stimulationof the employees, primarily for the activitiesregarding the pro-European agenda. Atthe session today, the Government has alsoadopted Draft Law on Banks, whose aim is tointroduce new standards in banking supervision.In addition, it’s a response to suggestionof International Monetary Fund and WorldBank that this kind of Law should be adoptedas soon as possible in order to regulate thisarea in an up-to-date manner. Due to thecredit expansion and annunciation of newsignificant investments, this sector should besupervised in accordance with the most up-todatestandards...”October 26 th 2007: Minister of FinancePhD Igor Lukšić and Head of Office of theEuropean Bank for Reconstruction andDevelopment Marek Lorinc have signedtoday the Surety Contract regarding theProject of urgent improvement of the railwayinfrastructure– European Bank for Reconstruction andDevelopment provided 15 million euros forthe Railway Company of Montenegro for infrastructureimprovement in order to support theimplementation of the Program for necessaryrehabilitation and improve the efficiency ofthe railway system. The railway is a key regionalconnection that provides the shortest way60

Annual report of the Ministry of Finance of Montenegro / 2007from Serbia to the Adriatic Sea and it’s alsothe cheapest overland transport that connectsthe Albania with the rest of European railwaynetwork. Montenegrin Government had guaranteedfor this credit.Credit will be realized in the followingthree year period. First instalment that amountsto 6 million euros will be realized in 2007, instalmentfor 2008 will be 5 million euros and in2009 will be 4 million euros. Therefore, the limitsfor annual debit won’t be overdraft.October 23 rd 2007: Minister of Financeof Montenegro PhD Igor Lukšić spoke atthe UN General Assembly, within the frameworkof the Conference on developmentfinancing and implementation of Montereyconsensus- “…Montenegro’s step forward toward theaccomplishment of the internationally agreedMillennium developmental goals was verypositive, taking in consideration fact that itwas completely in accordance with Europeanprocesses of integration. On 15 th October 2007,Montenegro had signed the Agreement onstabilization and joining and thus entered thenew chapter of its history, not just in a politicalsense, but also in a sense of economic, marketand fiscal development. This kind of the legislativeframework will enable us to promotesustainable development and implement strategiesfor poverty decrease. Montenegro hasachieved macroeconomic stability and rapidgrowth. In the last three year period, the anticipatedreal growth of the gross domestic productis 7%, the inflation rate is low, 2 to 3% andprojected level of public debt is 35% of theGDP. In addition, during the last two years, realizedsurplus of the Budget of Montenegro was4% of the GDP and there have been a significantforeign direct investments inflow.The inflow of foreign direct investmentspresent an important base for the successfulexchange of knowledge, skills and technologiesas well as poverty decrease, which wasalso emphasized in the Secretary General’sReport. Montenegro is aware of the fact thatthe biggest challenge of developing countriesis to attract foreign direct investments that willgreatly contribute to a long-term development,but it has realized sequence of activitiesin order to provide the sustainability of theeconomic development. Montenegro recognizesthat its most important task is developmentof adequate administrative capacities,creating and implementation of developmentstrategy, setting priorities and time frames fortheir implementation, We understand that theissues of usage of domestic resources and foreigninvestments at the same time, in the lastphase of transition, are of great importance forMontenegro, as a small Mediterranean country…”October 21 st 2007: Minister of FinancePhD Igor Lukšić participates at the annualmeetings of World Bank and MMF- Minister of Finance PhD Igor Lukšić metMr. Murilo Portugal, Deputy of the ExecutiveDirector of IMF, Mr. Ahe Baker, Executive Directorof the Holland Constituency of IMF, Mr.Shgeg Katsu, Vice-President of the World Bank,Mrs. Orsalija Kalancopulos, Regional Directorand with Mr. Herman Vajfels, Executive Directorof the Holland Constituency in World Bank.Topic of their meeting was the state of publicfinances in Montenegro, regarding the recentMission of MMF and the plans of Montenegro’sGovernment in the area of structural reformof job market, continuance of privatizationand further improvement of business environment.Collocutors also discussed structure ofthe next year’s Budget as well as the policyof Central Bank of Montenegro regarding therapid credit growth. During the meeting withthe representatives of MMF technical assistancein the field of statistics, market of capitaland insurance was agreed. Representatives ofWorld Bank expressed willingness to continuefinancing developmental projects in Montenegroin accordance with the recently adoptedstrategy of cooperation for the following fouryears period.October 9 th 2007: The speech of theMinister of Finance PhD Igor Lukšić at theopening of the XI meeting of the ManagementGroup of the Stability Pact AnticorruptionInitiative for South-East Europe(SPAI)...Issues that will be considered at thismeeting are of the greatest importance forAnticorruption Initiative, especially the newStrategy of SPAI and its implementation inthe Region, as well as the future structure andmanagement of Regional Secretariat in Sarajevo.This will be a special opportunity for theSPAI members to choose the new Chairmanthat will for the first time be a person candidateby the respectable members. Further, we willadopt Action Plan for 2008 and 2009 that willbe a sketch of anticorruption measures andactivities of the member countries, thus representingnational and regional priorities in fightingagainst corruption and organized criminal.When it comes to priorities of Montenegroin the following period, the most importantis accomplishment of full implementation ofthe Action Plan for conducting the Programfor fighting against corruption and organizedcriminal. On a prevention level, it should beemphasized; a research on phenomenon ofcorruption, its occurrences and consequencesis expected to be conducted by the end ofthe year.September 20 th 2007: Statement of theMinister of Finance Igor Lukšić, after theSession of the Government of the Republicof Montenegro regarding adoption ofInformation on tranche redemption of consolidationloan of the International Bank forReconstruction and Development (IBRD)«The Government of Montenegro will inthe following two weeks come to an agreementwith World Bank on all issues regardingthe technique of premature redemption of oneor two instalments of credit tranche and in thefollowing period, of debt repayment to Japan,Great Britain, Sweden, Denmark and Norway.The Government has adopted Information ontranche redemption of consolidation loan ofthe International Bank for Reconstruction andDevelopment (IBRD), which approximatelyamounts to 19 million EUR. That consolidationloan was paid on Monday. The Government,after analyzing the structure of external debtand parallel budgetary savings, has decided toprematurely repay one tranche of consolidationloan to the IBRD. In 2001, then the FederalRepublic of Yugoslavia, on the occasionof regulating the membership in World Bank,signed six consolidation loans, out of whichthree refer to Montenegro. Tranches for thecredits amount to 19,1 million EUR, 46,5 millioneuros and 21,6 million EUR. With this prema-61

Annual report of the Ministry of Finance of Montenegro / 2007ture repayment, the amount saved in budgetwould be from 24,3 to 28,1 million EUR, until2031. The premature debt repayment to Japanthat amount to 300 thousands EUR, conditionswould be created for complete harmonizationof the relations with that country and eventually,favourable credit arrangements could bepossible in the following period of time...».September 13 th 2007: Statement ofMinister of Finance, Mr. Igor Lukšić PhD,after the Session of the Government ofthe Republic of Montenegro regarding theascertainment of the Draft Law Amendingand Supplementing Budget Law of theRepublic of Montenegro for 2007 and DraftLaw Amending and Supplementing the Lawon Non-Governmental Organisations„Law Amending and Supplementingthe Budget Law envisages the increase ofthe current budget, so instead of 617 millionEUR, it will amount 749 million EUR. Accordingto estimations, this year revenues will amountto 750 million EUR, out of which 740 millionEUR are direct revenues and the rest of it areproject loans and credits. It is estimated thatcurrent expenses will increase for 30 millionEUR, 20 million EUR are provided for gross earningsand material and services expenses areincreased for approximately 7 million EUR. Oneof planned significant increases is the increaseof the transfer for social protection becauseit is necessary to start the implementation ofthe Programme of partial subsidy support forelectricity bills to the most vulnerable households.Repayment of two debt instalments tothe World Bank (each instalment amounts to20 million EUR) is planned by the end of theyear. We are considering the option to increasethe tranche that we intend to pay out of thisamount, which would further reduce the publicdebt… «« …At the session, the Government hasadopted the Law Amending and Supplementingthe Law on Non-GovernmentalOrganizations, due to the general notionthat some of them are avoiding tax paymentby practising economic activities that they’renot supposed to practise. In cooperation withnon-governmental organization it was agreedthat they can continue with practising economicactivities, but if their annual income ismore than four thousands EUR or 20% of therealized income of the previous year, they haveto register the enterprise. The aim is to haveNGOs that truly fulfil the mission they assignedfor instead of registering a NGO as coverage fortax evasion …«.September 7 th 2007: Minister of theFinance, PhD Igor Lukšić, held talks withthe director of the Russian FIS (FinanceIntelligence Service), Mr. Viktor Zubkov andthe director of the Administration for thePrevention of Money Laundering, M.A. PredragMitrović’Interlocutors have expressed their satisfactionregarding the signing of the Memorandumof Understanding between the MontenegrinAdministration for the prevention ofmoney laundering and Russian FIS, that willprecisely govern the issues concerning withentire cooperation between two financial intelligenceservices and establish efficient informationexchange. During the discussion, opinionson implemented economic reforms in Montenegrowere exchanged as well as on overalltrends in Montenegrin economy. The directorof the Russian FIS, Mr. Zubkov, said the he hadbeen informed in detail on the activities ofthe Montenegrin Administration for preventionof money laundering and support thathas been given by the Ministry of Finance tothe Administration in question. He also statedthat the cooperation and communication withthe Republic of Montenegro has been verysuccessful, so far. The experience exchangebetween two Governments contributes tothe goal that is governed by this Memorandumof Understanding – improved and moreefficient methodology of processing complexcases, emphasized Mr. Zubkov. In addition, theagreement between Administration for Preventionof Money Laundering and Russian FISon organizing the official visit of Montenegrinanalysts to Moscow and Russian FIS analyststo Montenegro, for achievement of mutualimprovement of those specialized services, hasbeen favourably judged...’September 5 th 2007: Signing of the contractwith commercial banks, aiming at realizationof the Project «250 housing credits»‘Representatives of the Government ofMontenegro and five Montenegrin bankssigned the Contract on realization of theproject called “250 housing credits” that refersto employees in public administration andHealth sector. This project provides for offering200 housing credits to persons employedin public administration and 50 to thoseemployed in Health sector.The Contract has been signed by Ministerof the Finance, Mr Igor Lukšić, chairman of theHousing Commission of the Governmental,Mr Suad Numanović and managing directorsof the following banks: Crnogorska komercijalna,Societe Generale (Podgorička), HypoAlpe Adria and Prva banka, Mrs Milka Ljumović,Mr Mladen Rabrenović, Mr Christian Toeltl, MrVelimir Bogdanović, as well as by the representativeof NLB Montenegrobanka, Mr DinoRedžepagić.The Government officials have explicatedthat this is the continuation of the last yearproject during which, one thousand housingcredits was assigned. Maximum amount ofthe credit has been increased from last yearamount of 30 thousands EUR to 50 thousandsEUR and the repayment period has beenextended from 20 to 30 years. Interest rate willbe seven percent, and the Republic will paythree percent. Minister Lukšić: “…In my estimation,the Government’s subvention will reachthe amount of 360 thousands EUR in total, ifthe credits are realized to the full extent. It’svery important to us to continue implementationof this project in cooperation with commercialbanks, in order to extend the possibilitiesof solving the housing issue, which we atthe Government regard as one of the crucialobjectives aiming at living standard improvement...”.Managing director of Hypo Alpe Adriabank, Mr Christian Toeltl, made a statementon behalf of all commercial banks, in whichhe said that they are honoured and it is theirpleasure to participate in such project, which,in his opinion «has a social aspect, beside thebusiness one». «We are certain that this projecthas a future», said Mr Toeltl. Conditions forapplying in this year project are: the lengthof service, lack of housing space and numberof household members. The Ministries andadministrative authorities are supposed to signa Contract with the credit beneficiary that willoblige the beneficiary to stay for the certainperiod of time in that institution in order to62

Annual report of the Ministry of Finance of Montenegro / 2007keep beneficiaries from quitting their job afterthe solving of housing issue …’August 28 th 2007: Signing of the Contracton financing Montenegrin SustainableTourism Development Project (MSTDP)and the Contract on financing the Project»Energy community of South-East EuropeAPL 3 – Project for Montenegro’’The Contracts were signed by Minister ofFinance, Mr Igor Lukšić and permanent representativeof World Bank (WB) for Montenegro,Mr Jan-Peter Olters, As well as the Mayor ofUlcinj, Mr Gzim Hajdinaga and executive directorof the Regional water supply company-Montenegrin coast, Mr Zoran Bošnjak. Thecredit assigned for the support to the tourismsustainable development is worth ten millionUSD, and it will be used for financing theproject of improvement in the spatial usageplanning and protection of delta of the riverBojana-Buna. This contract also provides for theinvestments into water transfer from SkadarLake to water supply system for municipalitiesBar and Ulcinj and touristic zones Velika plažaand Valdanos. Energy transfer system, implementationof the power energy market liberalizationprogramme and joining the regionalmarket in accordance with the Agreementon forming the energy community of South-East Europe will be financed with nine millionUSD, which WB approved to Montenegro atthe beginning of July. Montenegro has theopportunity to start with repayment of thesecredits in 10 years and the repayment periodis twenty years. Minister Lukšić: “…World Bankwill finance the construction of the southernextension of the regional water supply systemthat in accordance with Government’s Programmeshould be finalized in 2010. The EuropeanInvestment Bank will approve the creditfor the construction of the northern extension.Arrangement regarding the energy area providesfor the extremely important investmentsinto the transfer system and improvement ofthe power-supply quality in some areas, as wellas the fulfilling the needed conditions for theimplementation of the Agreement on energyindustry and acquisition of the equipment foradditional improvements of the Hydro-electricpower plant Perućica. Mr Olters said that theseprojects were the result of a close and constantcooperation between World Bank andMontenegro. “The main challenge in creatingeconomic policy is to provide such surroundingthat will stimulate and enable productivityincrease as well as the sustainable rate of theeconomic growth in a medium and long term.Montenegro has a significant potential andall necessary factors needed for the upkeep ofthe dynamic growth rate and insured theimprovement of living standard. There’s a hugepotential in Montenegrin tourism that can beutilized well only if the existing infrastructureimproves and if characteristics of Montenegro,that make it attractive to the tourists, arepreserved. World Bank intends to support theGovernment in successful making and implementationof the joint approach to the managementof coastal areas in order to decreasedegradation of the area and to support thedevelopment of the highly sustainable tourismin accordance with environment protectionprinciples at the same time. Adequate amountof electricity power is the second factor neededfor the insurance of dynamic and sustainablegrowth rate …”July 26 th 2007: The statement of theMinister Igor Lukšić after the session of theGovernment on ascertainment of Draft LawAmending and Supplementing Budget Law,Draft Law on Contributions for MandatorySocial Insurance, Draft Law Amending andSupplementing the Law on Capital TransferTax, Draft Law Amending and SupplementingLaw on Value Added Tax and Report onthe work of Operative team for preventionof illegal trade in cigarettes„...Montenegrin Government has adoptedtoday the Law Amending and Supplementingthe Law on Capital Transfer Tax,according to which the rate of that tax will beincreased from two to three percent, from nextyear. Minister Lukšić stated that Law Amendingand Supplementing the Law on Financingof Local Self-Governments will be preparedsoon and the structure of division ofthe revenues from capital transfer tax will bechanged. »From the part that was designatedfor the budget, the 20% will be directed to theEqualisation fund. Therefore, the proportionwill be 30 to 70% from now on, i.e. the largerpart of revenues will be directed to Municipalities.According to the estimations, the budgetincomes will be increased for five million euros,after the beginning of the implementationof the higher rate of the capital transfer tax.“The Government also adopted Law Amendingand Supplementing the Law on ValueAdded Tax (VAT), and from now on, the lowerrate (7%) will be also implemented in the areaof services in marinas and for the computerequipment, in order to stimulate the developmentof nautical tourism and informationsociety. »The lower rate of VAT has been implementedin the area of marina services due tothe estimation that Montenegro could be oneof the most competitive destination for thedevelopment of nautical tourism. Togetherwith Law on Yachts, this is a good way forMontenegro to attract people interested in thedevelopment of nautical tourism. Lower VATrate will be in effect until the joining of Montenegroto Europe Union, unless it is agreeddifferently with European Commission. Othersignificant amendment of the Law on ValueAdded Tax (VAT) is creation of the legal groundfor implementation of so called fiscal terminals,i.e. GPS connection between the catering andretail establishments with tax cash register andTax administration, starting from next year...“. „...In accordance with the adopted Draft Law onContributions for Mandatory Social Insurance,the conditions are created from nextyear, to gradually decrease the contributionsrate, until 2010. Therefore, in 2010, one EURof earnings will be charged with 51,52 centsof taxes and contributions. This will rank Montenegroamong the most competitive countriesin the region and wider, when it comesto this issue. Combined rate of contributionspayable by the employer and employee willbe, as he further explained, 30%; out of which20% will be pension and disability insurance,9% will be health insurance and 1% will goto the Employment bureau. For taxi drivers,green market sellers, whose annual turnoveris less than 18 thousand EUR, the contributionrate will be calculated by taking 60% of theaverage income for the calculation base. Thus,their tax obligations will be around 70 EUR amonth, which is much more favourable than itis now. “In addition, the Government adoptedDraft Law Amending and Supplementing theBudget Law that creates condition for mergingtwo Laws, which have existed simultaneouslyso far. »...The Law on public sector debt accumulation,in its most important provisions willbecome a part of the Budget Law, from nowon. The significant change is that conditionsfor the consolidation of the budget next year63

Annual report of the Ministry of Finance of Montenegro / 2007are being created; therefore, the Parliamentwill verify the entire public spending, exceptthe municipal one. In the following phase,they all be connected to the consolidatedaccount, when the needed conditions aremet, all five Republic funds will be connectedto consolidated account, so instead of placingorders to the banks, they’ll be placing orderto the Treasury and all payments will be donefrom one place...“. At the session, the Governmentalso adopted Report on the work ofOperative Team for the prevention of illegalcigarettes trade for the first six months. TheReport shows great effects that are above theexpectation, according to the implementationof the Action plan for the prevention of illegalcigarettes trade. »...Financial effect, comparedto the last year, is enlarged four times; revenuesfrom the excises were less than one million EURlast year and during the first six months of thisyear, they have been around four million EUR.Revenues from the excises, together with VATand customs duties amount to 5,7 million EUR.Registered legal turnover is 524,5 tons, and itwas 274,5 last year. The registered legal turnoverof the export cigarettes is tripled this year,compared to the last one. We are very satisfiedwith these effects, since they indicate that totalrevenues until the end of year could exceedthe 15 million euros budgetary, and when wecompare this with the spending estimation, itturns out that grey economy could be under15 percent...’July 23 th 2007: Minister of Finance IgorLukšić had a meeting with the Director andRegional Coordinator of the World Bank forcountries in South-East Europe, Mrs OrsaliaKalantzopoulos- The interlocutors stated that investmentsare needed into local infrastructure, with necessaryproduction of space plans in orderto valorize potentials of certain areas. MinisterLukšić emphasized that policy of rationalbudgetary spending, together with economicdevelopment, followed by strong investmentboom, results in surplus that is being used foradditional reduction of taxes, with the aim ofachieving long-term competitiveness of economicsystem. In Mrs Kalantzopoulos’s opinion,the overall economic results and indicators inMontenegro are very positive; therefore, sheexpressed the readiness of World Bank, withinthe Strategy of cooperation from 2007 until2010, to assist Montenegro in efficient realizationof the capital project and aims. The mutualsatisfaction was expressed regarding the forthcomingjoint activities on improvement ofeconomic growth. This will be accomplishedthrough strengthening of the private sectorrole and further development of institutionsand legislation, that will be in accordance withinternational standards.July 12 th 2007: Statement of Minister ofFinance Igor Lukšić after the session of theGovernment of Montenegro, regarding theadoption of the Report on Account of PublicDebt of the Republic of Montenegro, onJune 30 th 2007.- At the end of June, the public debt ofMontenegro amounted 768 million EUR or 35,6percent of the gross domestic product (GDP),and the Government expects its decrease bythe end of the year. At the end of March, thepublic debt amounted 870,7 million EUR or40,4 percent of GDP. The 75,3 million EUR of thedebts of public enterprises were also includedin that amount. Minister Lukšić : « …Externaldebt of Montenegro is 510,1 million EUR or23,7 percent of GDP, and the internal is 257,9million EUR or 12 percent. The 85 percentsof the external debt are inherited ones, fromthe past period and the biggest part of theinternal debt are liabilities resulting from theold savings and restitution, that have grown,compared to the data at the end of the lastyear. Liabilities for restitution amounted 99,5million EUR, in the middle of the last year. Weshould take into consideration that the totalof the issued bonds is much higher, around130 million EUR, but the part of it was closedthrough privatisation, because they were usedat the market; therefore, net level of the obligationsis around 96 million EUR. The debt oflocal self-governments has significantly grown,although some of the municipalities with highdebt amount used the better realisation of thebudget for repayment of the liabilities. Debtservicing at the end of the year will indicate thereduction of the liabilities on this ground … ».« … The outstanding budgetary liabilities thatin 2003 exceeded 100 million EUR, decreasedat the end of the June to 3,2 million EUR. Weexpect the additional reduction of the publicdebt, due to the current new tranche of therepayment of old savings, premature repaymentof the debt to the World Bank and furtherdecrease of the other debit entries… ».June 28th 2007: Statement of the Ministerof Finance Igor Lukšić, after the Sessionof the Government of the Republic ofMontenegro regarding Draft Law on Bankruptcyand Winding up of the InsuranceCompany and Information on Buyout of theconsolidation loan of International Bank forReconstruction and Development (IBRD)... Government of the Republic of Montenegrohas decided in August, before theexpiration of the planned deadline, to payoff a part of the debt to International Bankfor Reconstruction and Development (IBRD),of around 20 million EUR, which will reducepublic debt for about one percent of grossdomestic product (GDP). “…The Governmentdecided to make early repayment of the partof the debt for solvency of the budget of thisyear. Montenegro at the moment owes to theWorld Bank, whose part is IBRD, about 261million EUR. An Agreement on Reschedulingof Debt of SRY was signed with IBRD six yearsago, and Montenegro has taken about 270million EUR of liabilities….” “…Government willonce again this year consider matter of debtsto The World Bank, having in mind the fact thata regular instalment for repayment of certainliabilities towards that institution becomes duein December. If the solvency trends continue,we will consider perhaps repaying one moreout of three tranches. In all states which act inthis manner this represents a sign of encouragingeconomic policy, system stability and goodfiscal policy. This is a very good sign for investorsinterested in investments in Montenegro…”. The Government has also adopted DraftLaw on Bankruptcy and Winding up of theInsurance Companies, thus completing legalinfrastructure in this area “…With the Draft Lawwe tried to encompass all specifities of theeventual Bankruptcy or winding-up procedureof insurance companies. I expect that the Parliamentwill soon elect Council of the Agencyfor insurance monitoring, in order to start draftingof the by-laws. …”.June 22th 2007: Mr Igor Lukšić PhD,Minister of Finance elected Vice-Presidentof the Board of Governors of EBRD- …President of the European Bank forRelief and development, (EBRD), Mr Jean Lemierresent a letter to Mr Igor Luksic PhD, Ministerof Finance, informing him and congratulatinghim for the election for Vice-president of theBoard of Governors of EBRD for 2007. The Presidentof EBRD stated in the letter that by electingof Minister Lukšić to this position, EBRDemphasised the significance which the governorsof this bank give to recent independenceof Montenegro and its accession intoEBRD. Board of Governors of EBRD has, at thesession held on 25 th October 2006, confirmed64

Annual report of the Ministry of Finance of Montenegro / 2007that the Republic of Montenegro has fulfilledconditions for membership in this bank, afterwhat the Secretary General of EBRD has issueda certificate on reception of Montenegro intoEBRD. At the annual meeting of EBRD, held inKazan (Russian Federation), from 19 th to 22 ndMay 2007, Minister Lukšić met the Presidentof EBRD, Mr Lemierr, and they discussed aboutfuture relations between the Bank and Montenegro…June 11th 2007: Mr Igor Lukšić, Ministerof Finance held talks with the DeputyPrime Minister of the Kingdom of HollandWouter Bos- Economic reforms of Montenegro, afterthe regaining of independence were reallyimpressive, but the institutional frame is stilla challenge, stated Mr Wouter Bos, Minister ofFinance of Holland. Holland represents interestsof Montenegro and other 12 countriesin the World Bank and International MonetaryFund. “…As representatives of Holland,we have special responsibility to help thesecountries and support their reforms…”. Ministerof Finance, Mr Igor Lukšic expects the visitof the representative of Holland at the bilaterallevel and within IMF, to help Montenegro in thefinal and most difficult stage of transition, withforthcoming reform of the labour market, pensionsystem and electric power sector.“…Regardles of fact that Montenegro hasrecently decided not to conclude a formalarrangement with the IMF, opinions of theseinstitutions and the Government are the same.The fact that we have not entered the formalarrangement will not endanger our relationswith IMF, on the contrary …”. “…Montenegrohas time after the signing of Stabilisation andAssociation Agreement to European Union, toonce more consider signing of formal arrangementwith the IMF. IMF was, is and will be hereto help us with the great experience to overcomethis final part of transition …”.May 30th 2007: Press conference of MrIgor Lukšić, Minister of Finance – Activitiesof the Operative Team in prevention of illegaltrade in cigarettesInitial, (present) results of the OperativeTeam are very positive. In the period January-May, when compared to the same period lastyear, high growth of trade in cigarettes in legalchannels was realised. Growth of turnover ofcigarettes in the stated period was, namely,increased from 263,5 t to 485,7 t i.e. for 84,3%.On the domestic market of cigarettes havemore and more imported brands, and that is asign that foreign producers, also, change theiropinion regarding our market. Due to increaseof the legal trade in cigarettes, budgetary revenuesbased on excises, customs and VAT aresignificantly increased. During first five monthsof 2007, total revenues from excises amounted2.283.935,53 €, while in comparative periodlast year revenues were 822.435.93 €. All bodieshave in the recent period conducted greatnumber of controls and large number of punishmentswas dispensed…”.May 24th 2007: Statement of Mr IgorLukšić, Minister of Finance after the Sessionof the Government of Montenegro, regardingdetermining of the Draft Law on AnnualAccount of the Budget of Montenegro for2006...“…Government of the Republic of Montenegrohas adopted Draft Annual Accountof the Budget for previous year, accordingto which a surplus of over 85 million EUR wasrealised. Budgetary surplus was 4,4 percentof GDP, and was used for repayment of debtbased on loans, credits, old foreign currencysavings and liabilities from the previous periods.Surplus was also used for repayment ofnet amounts of debt on the base of foreigncredits. Total budgetary receipts amounted587,4 million EUR, and expenditures 580 millionEUR…”. “…Annual account included notonly detailed explanation of the receipts andexpenditures of the budget, but also extrabudgetaryfunds, municipal spending, whichis included with, in my opinion, 100% accuracy…”. “…Gross domestic product of Montenegrolast year, according to latest estimations basedon official data of Monstat, amounted 1,9 billionEUR. Consolidated budgetary spending, whichincluded funds and municipalities, amounted45,78 % of GDP, a little higher than the Governmenthad planned, primarily because spendingin local self-governments, i.e. municipalitieswas increased for two to three percent. Therefore,without them spending is significantlylower, even below 40% if GDP …”.May 23th 2007: Mr Igor Lukšić, Ministerof Finance participated in the AnnualAssembly of the European Bank for ReconstructionandDevelopment in Kazan- …Minister of Finance, Igor Lukšić PhD,with associates, participated in the AnnualAssembly of the European Bank for Reconstructionand Development, held on 20 th and21 st May in Kazan (Russia). At the meeting ofthe Board of Governors, Minister Lukšić asGovernor of Montenegro in EBRD has presentedactual political and economic processesin Montenegro, and the plan of futurecooperation with EBRD. He emphasised theimportance of further cooperation of Montenegrowith EBRD, especially regarding furtherdevelopment of infrastructure and he hasstated that the profit from the Bank should beused for better technical aid, aiming making ofproject documentation and studies, which isparticularly interesting for small countries. Duringhis talk with the Deputy President of EBRD,Mr Varel Freman and his associates, MinisterLukšić thanked for the recent cooperation andexpressed his expectance that EBRD will alsoduring the following period help Montenegroin making of studies, plans and programmesin the form of technical support and expertise,as a precondition for further investments intoinfrastructural projects. During the meeting theProtocol on three-year cooperation betweenMontenegro and EBRD, which defined financialsupport of EBRD for projects on construction ofRegional water-supply system and reconstructionof the railway infrastructure, in the totalamount of 30 million EUR, for following threeyearperiodMay 4th 2007: Minister of Finance, IgorLukšić PhD at the meeting of representativesof the Government and the SyndicateUnion of Montenegro -…Minister of Finance Mr Igor Lukšićexplained that the new Law on Labour shoulddefine some solutions like introducing of lowestsalary or hourly wage. He added that at thismoment high electricity bills for January theGovernment cannot connect to the minimallabour cost.. “…Labour cost will this year beenlarged for almost ten percents and we cancontinue this for the next year, but holding forone parameter is not real, because it wouldcomplicate social dialogue and we would notbe able to find suitable solutions fast and simple.…”.April 15th 2007: Minister of FinanceIgor Lukšić on the Spring Meetings of theWorld Bank and IMF- On the meeting with the Vice Presidentof World Bank Shigeo Katsu and Directorfor Southeast Europe- Orsalio Kalantzopoulos,realisation of current project implemented withsupport of World Bank was considered. Specialattention was paid to new four-year frameworkof cooperation (Country Partnership Strategy)which will define projects supported by WorldBank in the forthcoming period to the amountof 40 mill dollars. Projects will be primarily befocused on: continuation of current cooperationin construction of regional water supplysystem, development of energy sector throughprojects of promotion of energy efficiency,65

Annual report of the Ministry of Finance of Montenegro / 2007strengthening of capacities for preparationof Montenegro for membership in EuropeanUnion and other.On the meeting with Mr Michael Deppler,assistant to executive director of the InternationalMonetary Fund and Mr Graham Justice,Head of the Mission of International MonetaryFund for Montenegro, possibility for definingand content of possible future programwas considered. The main part of conversationreferred to area of public finances, structuralreform, especially in the sphere of labourmarket and support to privatisation process.Minister Lukšić also had talks with Mr HermanWijffels, executive director in World Bankfrom Dutch Constituency which representsinterests of Montenegro. On that occasionthey discussed current political and economicsituation in Montenegro, and further forms ofcooperation between Montenegro and WorldBank and International Monetary Fund…March 27th 2007: Press conference ofIgor Lukšić PhD, Minister of Finance, onthe occasion of Decision of Credit agency“Standard and Poors” to promote credit ratingof Montenegro– Credit agency Standard & Poor’sincreased credit rating of Montenegro fromcurrent BB positive to BB plus (BB+). “…That isstrong swing of investment activity, improvementin public finances, and their evaluationthat we have exceeded real growth ofgross domestic product (GDP) in the last year,i.e., that it is above eight percent…”. “…Theyexpect that planned reform of social security,continuation of privatisation process, foreigndirect investments and investments in infrastructurewill influence that in forthcomingshort-term period GDP growth is averagelyaround 6% …”. Minister Lukšić has stated that“analysts from that agency emphasised thatrecent initial of the Agreement on Stabilisationand Association in Partnership for Peace ingeneral influence improvement of investmentenvironment in Montenegro. As important factorthey also evaluate strong inflow of foreigndirect investments which influence cover oftrade imbalance. Increase of credit rating isonly a step below investment ranging, whichwe believe that we will reach, with continuationof this politic…”.March 15th 2007: Igor Lukšić Ministerof Finance held talks with Paul Acda,Acting DSRSG, Head of the EU Pillar ofUNMIK, Fayez Risheg, Representative ofUNMIK Head of the office of UNMIK- PilarIV in Belgrade and Naim Hurgulica, DirectorRevenue Operations of Kosovo.…During talks views were exchanged onmodalities of further strengthening of bondsbetween Kosovo and Montenegro in thesphere of economic cooperation, Europeanintegration, control of borders and other issuesrelated to mutual, overall progress. MinisterLukšić emphasized the importance of regionaleconomic cooperation, especially in the sphereof customs politics, having in mind greatimportance of that area in elimination of greyeconomy, securing of revenues of the Budgetof the State and securing of different safetymechanisms. He informed his interlocutors onoverall results in that plan and shown readinessof the Government of Montenegro forpromotion of cooperation with neighbouringcountries within fight against illegal trade andcriminal on the boarder crossings. Aiming furtherstrengthening of economic cooperationbetween Kosovo and Montenegro, interlocutorshave arranged more intensive exchangeof information and all data regarding all discussedquestions, with emphasis on possibilityof defining of Protocol on Cooperation withCustoms Authority and Tax Authority.March 5th 2007: Statement for the pressof the Operative Team for Fight Against IllegalTrade in Cigarettes of the Government– Operative Team for Fight Against IllegalTrade in Cigarettes has been formed, and it ismanaged by the Minister of Finance. Membersof the Team are head officials of: CustomsOffice, Police Directorate, Tax Authority, Agencyfor Tobacco, Market Inspection and CommunalPolice of the Capital City. Each of stated bodiesis obliged to take stronger measures andactivities from its competence continuously,until market of cigarettes is organised. In orderto have the content of measures overall andintegrated on all levels, in this action all localself-governments will be included.March 2th 2007: Montenegro has officiallybecome member of the Dutch Constituencyin the Group of World Bank andInternational Monetary Fund- Igor Lukšić PhD, Minister of Finance hasreceived a greeting letter from Mr Gerrit Zalm,Minister of Finance of Holland and Mr NouldWellink, Governor of Central Bank of Holland,which made Montenegro officially part ofDutch Constituency in the Group of WorldBank and International Monetary Fund. Likeit is stated in the letter, executive directors ofthe Dutch Constituency have shown willingnessto represent interests of Montenegro onthe occasion of creation of politics of cooperationwith the Bank and the Fund, theyare assured that Montenegro will enrich thestructure of the Constituency with its presenceand will promote regional cooperation, havingin mind that Bosnia and Herzegovina, Croatiaand Republic of Macedonia are also members.Beside neighbouring countries, membersof the Dutch Constituency are also Bulgaria,Cyprus, Israel, Romania, Ukraine, Moldova…Delegation of the Ministry of Finance will participatein the next session of Dutch Constituencywhich is to be held at the beginning ofMay in Moldova.6. February 2007: Igor Lukšić, Ministerof Finance held talks with Mr Ron van Dartel,Ambassador of Holland- Minister Lukšić pointed out that for severalyears there has been macroeconomicstability in Montenegro, reduction of publicdebt and public spending, budgetary surplusin the last year, reduction of tax rates and veryfavourable fiscal balance. He emphasized thatit should be continued with actions aimingreduction of public debt and public spending,building of mechanisms for implementation66

Annual report of the Ministry of Finance of Montenegro / 2007of pension and health reforms, it should beinvested in infrastructure, raise quality of servicesin tourism and continue the privatisationprocess. Ambassador Dartel stated that forMontenegro European integration process isvery significant in the forthcoming period, connectingwith countries from the region, andattraction of foreign investments.Within the talks on recent reception ofMontenegro into IMF and World Bank, andin the context of membership in World Bankwithin Dutch Constituency, possibility for furtherpromotion of bilateral cooperation, organisationof meetings and more intensive communicationwith the Ministry of Holland wasconsidered.2. February 2007: Igor Lukšić, Ministerof Finance held talks with Keith Simmons,USAID Mission Director for Montenegroand Serbia and with Joseph Taggart, headof USAID Officer-in-Charge in Montenegro– During talks, views were exchanged onrecent projects in Montenegro, with emphasison cooperation with BearingPoint within theprogram of economic reforms, which, accordingto opinion of both parties is being realisedsuccessfully by common coordinationof activities. In that sense, Mr Keith Simmons,USAID Mission Director expressed interest inpriority programs of the Ministry of Financefor year 2007, and in current activities andprojects, especially in part of realisation ofexperts’ assistance in the Treasury and BudgetSector. Representatives of the USAID havealso congratulated Montenegro membershipin International Monetary Fund and WorldBank, estimating that integration process inthe system of international economic relationsis confirmation of macroeconomic stability andrealisation of development priorities of Montenegro,and additional possibility for fasterand more efficient realisation of goals in thefollowing period. Mr Simmons and Mr Taggarthave expressed their readiness to continue toprovide financial and expert support, aimingfurther strengthening of partnership betweenUSAID and the Government of the Republic ofMontenegro. Minister Lukšić stated that USAIDis one of key partners of the Government of theRepublic of Montenegro, especially in the planof implementation of economic program, andexpressed his belief that in the following period,on the occasion of solving and residing ofcertain number of remaining questions importantfor legislative area, like area of insuranceand restitution, help and support of USAID willbe very valuable.31. January 2007: Mr Igor Lukšić, Ministerof Finance held talks with OrsaliaKalantzopoulos, National Director andRegional Coordinator of World Bank forcountries of countries of South-East Europeand West Balkan, Robert Jauncey, Head ofthe Department for Montenegro in the Sectorfor South East Europe and West Balkanand Silvia Mauri, permanent representativeof World Bank in Montenegro.During talks, views were exchanged onrecent realisation of common projects, andon possibilities for cooperation within settingof four-year strategy of World Bank forMontenegro. Minister Lukšić has informed hisinterlocutors on overall activities of the Governmentof Montenegro with emphasis onprocess of drafting of revised Agenda of economicreforms, which could be accepted asAgenda of development for period until 2010,regarding encompassing and coordination ofStrategy of many segments, like administrativereform, education and other. He indicated thatthe Government of Montenegro is in the finalphase of consideration of financing model ofkey projects like Regional Water Supply systemand energy efficiency, and stated that continuationof process of further reform in areaof education and health is also among priorities.Beside financial help, and help regardingresearches which have been provided to theGovernment of Montenegro by IDA and IBRD,World Bank Group will continue through IFCand MIGA the support aiming improvementof investments in the private sector in Montenegro.World Bank Strategy, will most likelybe focused on providing of support to Montenegroon its way to membership in EuropeanUnion, promotion of development and openingon new vacancies, through investments inthe tourism infrastructure, in accordance withthe principles of sustainable development andenvironment protection.24. January 2007: Igor Lukšić PhD, Ministerof Finance had talks with Mr ClaudioViezzoli, EBRD Director for the WesternBalkans and with Mr Marek Lorinc, newlyappointed Head of EBRD Office for Montenegro- EBRD representatives have first expressedtheir content regarding regulating of Membershipof Montenegro in EBRD in October lastyear and appointment of Minister Lukšić forthe Governor in that institution, and pointedout the interest of the Bank for intensifyingof cooperation, for considering of priorities ofthe Government of Montenegro and definingof two-year strategy at the level of the State.Mr Viezzoli emphasised that EBRD wishes tointensifies its presence in Montenegro, primarilythrough evaluation of situation in differentareas, like tourism, energy sector, infrastructure,water supply and others, and he pointed outthat the Bank is especially focused on cooperationwith private sector, having in mind verysignificant recent results in realisation of thatkind of support and projects in other smallercountries in the region. Minister Lukšić evaluatedas successful realisation of recent projectswith EBRD, like reconstruction of Airports ofMontenegro and renovation of part of roadinfrastructure and he said that it is in the interestof Montenegro, after realisation of membershipin EBRD, to intensifies the process ofdefining of key projects, which could primarilyrefer to the Regional water supply system andrailway infrastructure. Newly appointed Headof EBRD Office for Montenegro Marek Lorincsaid that it is in the interest of EBRD to improveinvestments in 2007, and reminded that 40 millEUR was invested by now, and expressed intentionof the Bank to act in the wide range inthe following period, which implies opennessfor all suggestions anent drafting of two-yearstrategy.www.ministarstvo-finansija.vlada.cg.yuPR OFFICESpokespersonAna MiljanićAssistant SpokespersonBiljana Bataković67

Annual report of the Ministry of Finance of Montenegro / 2007Legislative Activitiesof the Ministry of Financein 2007“Taking into account previousdynamics concerning adoption ofnew laws, as well as the fact that 2007Agenda of the Government of Montenegrowas mainly focused on adoptionof system laws under the competenceof the Ministry of Finance,achievement of a more favourableand stabile economic ambient in thenext year is realistically expected. “IntroductionFrom 1 January to 31 December 2007,in addition to drafting one of the key Governmentdocuments, i.e. 2008 State Budget,many important legal projects have alsobeen prepared with a view to achievingfurther macroeconomic stability, improvingand ensuring more efficient functioningof the fiscal system of Montenegro, as wellas harmonizing entire legislation with EUacquis communitarie. In order to ensurefurther development of the tax and customspolicy, reform of the banking sector,capital market and property-legal relationsand provide even more stabile frameworkfor attraction of foreign investment, theMinistry of Finance has also drafted manyby-laws, analytic studies and reports, thusfulfilling major tasks set forth in the GovernmentAgenda for 2007.Taking into account previous dynamicsconcerning adoption of new laws, aswell as the fact that 2007 Agenda of theGovernment of Montenegro was mainlyfocused on adoption of system laws underthe competence of the Ministry of Finance,achievement of a more favourable and stabileeconomic ambient in the next year isrealistically expected.From 1 January to 31 December, thefollowing laws were prepared by theMinistry of Finance sectors:< Budget Sector prepared the followinglaws in 2007: Law Amending the 2007Budget Law, Amendments to the BudgetLaw and 2008 Budget of Montenegro.Law Amending the 2007 Budget Lawwas adopted in the Parliament of Montenegroin October 2007 due to: change instructure and received receipts because ofalteration of the macroeconomic framework;change in structure of salaries dueto minimum labour cost applying; cominginto force of the Law on Salaries and OtherCompensations for Judiciary and ConstitutionalCourt Officials; coming into force ofthe Amendments to the Branch CollectiveAgreement in the field of education; cominginto force of the Amendments to theBranch Collective Agreement in the field ofculture; coming into force of the Branch CollectiveAgreement in the health and socialaffairs; increase of funds for current expenditures;increase of funds for transfers forsocial security; increase of funds for transfersfor institutions, individuals, NGOs and publicsector; increase of funds for capital expenditures;increase of funds for loans and credits;increase of funds for debt repayment; andincrease of funds for reserves.Amendments to the Budget Lawwhich were adopted by the Parliament ofMontenegro in November 2007, shall govern:adoption of budget, records and budgetmanagement; budget preparation andplanning; execution of State Budget andLocal Budgets; loans and guarantees; internalcontrol; budget accounting; state treasury;budget operations; and internal audit.The Law also defines a new institutionalposition of extra-budgetary funds whichhas now been renamed into state funds.Documents relating to public debt havebeen fully incorporated in the Law, whileLaw on Debt Contracting and Public DebtManagement is to be abolished.Law on Budget of Montenegro for2008, defining total budgetary funds for2008, was adopted by the Parliament ofMontenegro in December 2007. 2008Budget totals almost €1,2 billion. It willhave a slight surplus of about €6,5 million,while the consolidated public spendingwill have even more surplus of about€18 million. The Budget making startedfrom several macroeconomic indicators thatwere considered relevant for its preparationin the next three-year period of time.We estimate that an average real economicgrowth will be about 6,2 % annually, whileexpected annual inflation rate will be 3,5%averagely. An average nominal growth ofGDP in the next three years is assumed tobe about 9,7%. It is expected that publicspending surplus will be no less than 0,9%of GDP averagely per annum. Capital budgetis assumed to increase at the rate of 1%of GDP. GDP for the next year is planned tobe €2,53 billion, €2,77 billion in 2009, whilein 2010, GDP could reach €3 billion. Consolidatedpublic expenditures for 2008 willamount 48,23% of GDP, while consolidatedpublic spending, excluding capital expenditures,will be 41,8%. Decision on increasein salaries caused significant increase inpublic spending, i.e. consolidated publicexpenditures. This fact, together with regularadjustments of pensions with salaries,accounts for about €100 million for publicspending in 2008. 2008 Budget also incorporatesexpected changes in tax policy, i.e.,reduction of social security contributionsand increase in the property tax rate. 2008Budget expenditures amount about €663million, which is €33 million more as comparedwith 2007. Capital budget for 2008is planned to be about €67,4 million, while2007 capital budget amounted less than68

Annual report of the Ministry of Finance of Montenegro / 2007€35 million.Total sum of the Budget incorporatedfor the first time receipts of the state funds– Pension and Disability Insurance Fund,Health Insurance Fund, Restitution Fund,Development Fund and Employment Agency-the spending of which is estimated to be€ 456 million.< State Treasury Sector prepared andsubmitted to the Government in mid-May2007, a Draft Law on Annual Accounts ofthe 2006 Budget of Montenegro, whichwas approved by the Government on 25May and adopted by the Parliament inDecember 2007.In 2007, the representatives of the StateTreasury Sector participated in preparationof the Draft Law Amending the BudgetLaw, which was passed by the Parliamentof Montenegro in late November 2007. TheLaw included extra-budgetary funds into theconsolidated account of the Treasury, definingthem as state funds that are now treatedas spending units of the State Budget, whiletheir competences for budget making aredelegated to the Parliament. The Law takesprecedence over the Law on Debt Contractingand Public Debt Management, whileloans and guarantees are defined under theseparate section of the Law, whereby thisfield is regulated by one piece of legislation,excluding the need to make amendmentsto the Law on Debt Contracting and PublicDebt Management as it was planned in theGovernment Agenda for 2007.During 2007, State Treasury Sectoractively participated in the drafting processconcerning the Law Amending the Lawon Salaries of Civil Servants and StateEmployees, which was adopted by theParliament of Montenegro in December2007. The Law puts forward increase in fixedsalary ratio by 30% for civil servants andstate employees, bonuses for high-skilledemployees, equal valorization of jobs ofthe same complexity, accountability, importanceand working conditions, and normativeregulation of salaries by a single regulation(abolishing decrees defining extrapayments to the salaries, which are mainlyincorporated in the Draft Law).< Tax and Customs System Sectorprepared the following legislation:Law on Tax Advisors (“Official Gazetteof RM”, no.26/07).The Law establishes a tax advisor as anew independent and autonomous profession,who shall advise taxpayers andcustoms payers concerning the tax andcustoms legislation issues. Tax advisors areauthorized to submit tax returns on behalfof the taxpayers (VAT tax return, income taxreturn, personal income tax return etc), andrepresent taxpayers before administrativeand court authoritiesLaw Amending the Customs TariffLaw (“Official Gazette of RM”, no.17/07)The Law harmonizes current Law onCustoms Tariff with the International Conventionon the Harmonized CommodityDescription and Coding System that becameeffective as of 1 January 2007 (HS 2007) andEU Combined Nomenclature, which is oneof preconditions for the accession of ourcountry to the World Trade Organization.Customs tariff (Revised text) was publishedin the “Official Gazette of RM”, no.56/07.Law on Contributions for CompulsorySocial InsuranceThe proposed Law governs the compulsorysocial insurance funding system ina single manner that would encompass allthree types of contributions (for pensionand disability insurance, health insuranceand unemployment insurance), makingbasic solutions equal with regard to contributionpayers and basis for calculation andpayment of such contributions.The proposed Law reduces the pensionand disability insurance contributionrate and health insurance contribution rate,though such reduction is to be implementedgradually so that by 2010 the contributionsshould amount 20% for pensionand disability insurance or 9% for healthinsurance. According to the said Law, fiscalburden on average gross earnings of theemployees in Montenegro would be about70% in 2008, about 60% in 2009 and about50% in 2010.Proposed legal solutions should havepositive effects on employers in the fieldof economy due to reduction of the pensionand disability insurance contributionrate and health insurance contribution rate,which are payable by employers, and areassumed to be 15,0 mil.€ in the next threeyearperiod of time. Reduction of the healthinsurance contribution rate – a portion payableby the employee, will lead to increasein net earnings of the employees. This rate isto be reduced by 46,6% as of 2010, i.e. fromcurrent 7,5% to 4,0 %.Law Amending the VAT LawThis Law puts forward reduction of theVAT rate for certain products that are vitalfor living standards of citizens (meat, flour,livestock) from 17% to 7%. Applying zerorate to bread delivery is advised until endMay 2008.With a view to encouraging developmentof nautical tourism and applying informationtechnologies, it is advised to applylower VAT rate of 7% to marine and computerequipment repair services. Such ratewould be applied until accession of Montenegroto the European Union. The Lawalso harmonized several current solutionswith the EU Directive (Directive 112/06/ECof 28 November 2006 on Common systemof value added tax ).Law Amending the Law on Financingof Local Self-GovernmentMajor amendments to the currentLaw on Local Self-Government Financingare related to the criteria for allocation offunds of the Equalization Fund and amountof resources to be allocated to the Fund.Namely, according to proposed solutions,the Equalization Fund would be establishedfrom the revenues received from personalincome tax to the amount of 11% of totalrevenues collected from such tax (10% hasbeen allocated to date) and from revenuesreceived from capital transfer tax to theamount of 20% of total revenues collectedfrom such tax. Receipts from the capitaltransfer tax are new receipts for the EqualizationFund, which are significant innovationthat will contribute to more than50% increase in receipts of the EqualizationFund as compared with existing solutions.Basic criteria for allocation of resources ofthe Equalization Fund are: fiscal capabilityof a municipality (90% of Fund’s resourceswould be allocated on the basis of this criterion)and budgetary needs of the municipalitythat would account for 10% of Fund’sresources. Eligibility for use of the Fund’sresources would be determined basedon evaluation of the municipality’s fiscalcapability as compared with average fiscalcapacity of each municipality in the yearthat precedes the year for which the equalizationis performed.Municipalities with average fiscalcapacity lower than average fiscal capabilityfor all municipalities would be entitledto fiscal equalization of allocated receiptsfrom national personal income tax up tothe average level for all municipalities. Asregards ceded receipts from national capitaltransfer tax and concession fees for use ofnatural resources, fiscal equalization wouldbe performed up to the average level ofmunicipalities that became entitled to useEqualization Fund resources. It is estimatedthat about 30% of Equalization Fundresources should be allocated for equalizationof ceded national taxes and fees, whileremaining portion of 70% would be usedfor equalization of local fiscal revenues (localtaxes, duties and fees) depending on estimatedfiscal capability of each municipality69

Annual report of the Ministry of Finance of Montenegro / 2007*Preparation of a Decree on Estimationof Value and Compensation for ExpropriatedProperty has been underway.Law on State Survey and Cadastre(“Official Gazette of RM”, no. 29/07)Implementation of the Law on the entireterritory of Montenegro shall, in a modernand high-quality manner, ensure the following:security of ownership and lease; protectionof the state interest; guarantees forcredit approving; basis for land and propertytaxation; land market monitoring; reductionof conflict of interest; improvement ofzoning plans and land policy managementthroughstatistical data system.In the framework of the Law, followingby-laws were adopted: Rulebook on Designand Keeping the Real Estate Cadastre andRulebook on Keeping the State Survey ofReal Estate (“Official Gazette of RM”, no.29/06 and 61/01).Law Amending the Law on Expropriation(defined by the Government ofMontenegro in December 2007)According to the Constitutional Lawfor the Implementation of Constitution, theLaw on Expropriation (“Official Gazette ofRM”, no. 55/00) shall be harmonized withnew Constitution, which is the main reasonfor adoption of the Law Amending theExpropriation Law in terms of replacing theword “market” with “equitable”.Article 5 of the Law Amending the Lawon Expropriation also defines a deadlineconcerning applying for de-expropriationof property, if user of expropriation failsto complete at least one third of plannedworks, which is estimated to be justified andrational solution for implementation of thisregulation.< Sector for Economy, Finances,International Co-operation and Gamesof Chance System prepared the followinglegislation:Law Amending the Law on Gamesof ChanceAccording to applicable Law on Gamesof Chance (»Official Gazette of RM«, no.52/04), the Ministry of Finance has managedthe field of games of chance. However,experience from the implementation of theLaw has pointed to the necessity of dividingthe competences between the Ministryof Finance and an Administrative authorityresponsible for games of chance with aview to ensuring more efficient, effectiveand rational operations in this field. It hasalso been concluded that it is necessary toincrease criteria for awarding concessionsfor organization of games of chance in casinos,by introduction of one-time fee to theamount of at least 1.000.000 €.Law on Compulsory Insurance in Traffic(»Official Gazette of RM«, no. 46/07)This Law shall govern compulsory insurancein traffic in accordance with EU Directivesand international Conventions in thefield of traffic. Setting compulsory insurancein traffic under a separate Law points toimportance of such insurance, and allowseasier implementation of this Law.Law Amending the Law on NGOsThis Law shall more specifically precisethe provisions concerning conditionsunder which an NGO may directly conductbusiness activity. It will also ensure amore efficient financial and administrativesupervision over the NGO’s business activities,given the frequent abuse of NGOs forconducting business activities. This Law isintended to eliminate situations that lead toobstruction of a fair play at the market andtax evasion, thus eroding the NGO’s reputationand integrity in society. In co-operationwith the NGOs, it has been agreed thatthey must be registered as a company iftheir annual income is more than 4000€per annum or 20% of income made in theprevious year.Law on Bankruptcy and Liquidationof Insurance CompanyThis Law shall govern the insurancecompany bankruptcy and liquidation proceedings.Given the specific characteristicsof the procedure of bankruptcy and liquidationimplementation, the following issueswill be resolved: opening of the bankruptcyproceedings; bankruptcy procedure; conditionsfor appointment of official receiver;reporting; inactivity of the proceedings;program of settlement out of bankruptcyestate, etc.Draft Law on Banks– In the ParliamentaryprocedureIn order to ensure harmonization anddevelopment of banking regulations incompliance with specific characteristics ofthe banking system and commercial andfinancial trends in Montenegro, this Lawshall: provide legal basis for expansion ofbanking market, through introduction ofbranches of foreign banks into the bankingsystem without natural person status;improve solutions contained under applicablelaw; and create legal basis for gradualtransition in compliance with internationalstandards (EU Directives and CAD III andBasel II Recommendations). New Law onBanks is very important and we intend toenter a new phase of development of bankingsector and implementation of so-calledBasel II Standard for Risk Management, BankAssets and Liabilities Management, etc.It is, primarily, the task of the CentralBank which is a crucial participant in thepreparation of the Law. Law on Banks providesgeneral framework, allowing the CentralBank to adopt by-laws on the basis ofwhich it could introduce certain standards.In the framework of the Ministry ofFinance Agenda, a Draft Law on Preventionof Money Laundering and Financing Terrorismhas also been prepared.Law on Prevention of Money Launderingand Terrorist FinancingReason for passing a new Law lies inthe need to precise and elaborate applicablelegal solutions, arising from practice inimplementation of the applicable Law andharmonize them with III Directive 2005/60/of the European Parliament and Councilof Europe of 26 October 2005. The saidDirective requires introduction of politicallyexposed person into the system of protectionagainst money laundering and terroristfinancing, as well as implementationof stronger control of all payers in certaincases.* * *Through intensive activities of all relevantinstitutions, adoption and implementationof laws, strategies and current programs,with the support of the internationalcommunity, development-related interesthas been defined in strategic areas and significantprogress has been made in establishingclear business rules. The reformscontinue in accordance with strong commitmentto develop new and improve existinginstitutions, together with promotingthe principle of transparency with a view toachieving more efficient system adjusted tothe needs of citizens, business and societyin general.After recent signing of the Stabilizationand Association Agreement and adoptionof the Constitution, set of adopted systemlaws certainly creates a stabile basis forfurther work and dealing with numerouschallenges in the process of harmonizationof our legislation with the EU legislation in2008 and years to come.SPOKESPERSON,Ana Miljanić71

Annual report of the Ministry of Finance of Montenegro / 2007State Debt- 31. December, 2007Trends of ForeignDebt in 2007State Debt at the end of 2007 amounts737,2 mil. EUR or 32,4% of the Gross DomesticProduct (GDP). Internal debt amounts 275,1mil. EUR or 12,1% of GDP, while the foreigndebt amounts 462,1 mil. EUR or 20,3% ofGDP.Foreign state debt was reduced during2007, both in nominal and proportionalamount when compared to the GDP, for 41,9mil. EUR or for 4,9% of GDP (in 2006 GDP was2003 mil. EUR). The reduction was caused bypremature repayment of three tranches ofthe consolidated loan of International Bankfor Reconstruction and Development (IBRD)to the total amount of around 59 mil. EUR,and by regular repayments of capital sumsto the amount of about 12 mil. EUR. Employmentof funds from existing credits haveincreased the account of debt for 27,6 mil.EUR, in International Development Agency(IDA), Credit Bank for Development (KfW),Hungarian and Polish Commodity, and thefirst drawing of funds from the credit withthe Societe Generale bank for procurementof IT equipment for schools.Premature credit repayments were realiseddue to the significantly higher realisationof budgetary revenues than planned duringthis year, and due to available deposits,which on 30. November 2007 amountedabout 220 million EUR. Taking into accountthe fact that the difference between interestson deposits and expenses of servicing oftranches in IBRD loans amounts, dependingon the trend of interest rates, to about 1,5%,savings based on redemption are significant,while for redeemed loans budgetary savingsbased on payments of interests amountin total about 35 mil. EUR by the end ofthe amortisation period in 2031. Ministry ofFinance has decided to buyout of tranchesof IBRD, because these are foreign creditswith highest servicing costs, the interest rateis 5,8%.In 2007, liability to Japanese creditorMETI from the Paris club was prematurelyrepaid to the amount of 300,000 EUR andpremature repayment to al creditors from theParis club is planned, whose claims are nowbelow 1 mil. SDR.Aiming formally legal deferring of liabilitiesbetween Serbia and Montenegro tocreditors from the Paris Club in 2007, bilateralagreements were signed with Austria,Germany and Japan, while the negotiationsare underway with France, Netherlands andSwitzerland. Agreement with Germany providespossibility of write-off of the debt toKfW, or replacement of debt with certainproject, to the amount of 13 mil. EUR, whilethe Agreement with Japan creates possibilityfor eventual use of low-interest JPY ODAcredits.In 2007 agreements are signed and thefirst drawings of credit funds are expected,regarding the realisation of the followingprojects: regional water-supply system withthe World Bank (IDA conditions) to theamount of 6.6 mil. Special Drawing Rights(SDR) or about 10 mil. dollars; energeticswith the World Bank to the amount of 6,3mil. SDR or about 9 mill dollars; energeticssubstationswith KfW to the amount of 5,472

Annual report of the Ministry of Finance of Montenegro / 2007mil. EUR; phase III waste waters for costalmunicipalities with KfW to the total amountof 28 mill EUR; railway infrastructure to theamount of 6 mill EUR with the European Bankfor Reconstruction and Development (EBRD);regional water-supply system with the EBRDto the amount of 8 mill EUR. Agreementfor the rehabilitation of the hydroelectricpower station Piva to the amount of 16mill EUR is harmonised and it is expectedto be signed. In the arrangement with theWorld Bank and KfW for the project on liquidwaste disposal Montenegro is a borrower,and the special contract will define relationbetween Montenegro and beneficiariesof funds, Electric Power Industry PublicEnterprise Regional Water-Supply System andMunicipality Ulcinj. In other arrangements ofthe Government of Montenegro is guarantorfor regular fulfilling of liabilities.Also, signing of agreements for projectsof EIB is expected from arrangements signedduring Serbia and Montenegro, which referredto projects of EIB in Montenegro. Namely, 13mill EUR were not drawn, for the projectsfor roads 4 mill EUR, for reconstruction ofairports 1 mill EUR, waste waters 5 mill EURand energetics 3 mill EUR., and these assetswill be employed by special contract duringthe next year.Aiming regulation of unresolved debtissues during 2007, negotiations were heldwith governments of Libya, Czech Republic,and Slovakia and the bank UBS, in whichportfolio there are API bonds (AlternativeParticipation Instruments) on bonds withinthe London’s Club of Creditors. Debt to thesefour countries, including Kuwait, Montenegroassumed based on un-allocated debt (5,88%of 38% for Serbia and Montenegro), andpursuant the Agreement on Issues ofSuccession from Vienna on 29. June 2001, isbeing solved by reconciled opinions withinthe Committee for division of financial assetsand liabilities of former SFRY. As for the APIbonds, they are trying to find the possibilityfor bilateral solution for this issue, becausethe creditor, UBS bank, until recently insistedon multilateral framework for solution. Totalamount of liability based on unresolveddebt issues will probably amount about1% GDP.Data presented in the Table 1. showthe gross state debt, while in claims, themost significant is the debt of the RussianFederation to Montenegro to the amountof 18 mill dollars, signed on 27 April of thisyear, and inflow of unblocked funds from thesuccession process of about 2,5 mill dollars.Also, on the occasion of calculation of amountof the net indebtedness of Montenegro, weshould take into account the deposits of theMinistry of Finance which on 15. December2007, amount about 150 mill EUR, includingTable 2. Amount and structure of the public debt of Montenegro in the period 2006-2010.December2006.38.477,689 ounces of gold, without depositsof state funds.Trend of Domestic Debtin 2007December2007.Domestic debt during this year, oppositeto the foreign debt, has been increased for 78mill EUR, primarily due to the growth of liabilitybased on restitution. When compared tothe end of last year share of domestic debtin the total debt was increased from 28,1%to 37,3% of GDP. Budgetary calls in arrearswere fully repaid and the Treasury Bills wereredeemed. As for the old foreign currencysavings the fourth instalment was repaidand the debt was reduced for 8,7 mill EUR,while the repayment of savings of citizensdeposited in foreign banks with headquartersoutside Montenegro started and 1,4 millEUR was repaid on this basis.Liability based on restitution wasincreased for 73,1 mill EUR in the last twelvemonths. Until present day absolute orderswere adopted to the total amount of 162,9mill EUR out of which 8,3 mill EUR waspaid in cash, and bonds were redeemed tothe amount of 29,2 mill EUR. Provisions ofthe Law Amending and Supplementing theLaw on Restitution of Expropriated PropertyRights and Compensation determine theupper limit of the total amount of liabilities tot 10% of GDP, and the annual payment basedon this liability to 0,5% of GDP. Account ofliabilities of municipalities is also updated,namely, budgetary calls in arrears were alsoincluded, so the account of debt when comparedto the end of 2006, was increased for32,3 mill EUR.State debt with public enterprises2008Projection2009Projectionamounts 855,8 mill EUR or 37,6% of GDP. In theprevious regulation, the Law on Borrowingand Debt Management of the Public Sectorreferred only to the debt of the public sector,which included not only the debt of thecentral government, of municipalities andstate funds, but also the debt of enterprisesin which the state is major shareholder, whilethe amended general Law on Budget definesthe term public debt in accordance withthe terminology of the European systemof integrated economic accounts, ESA-95.Namely, according to the terminology ESA-95, only the general government sector debtis observed, while the general governmentsector includes all units which produce forindividual and collective spending and aremostly financed from obligatory paymentsof other units, basically of those thatparticipate in the division of national income.Government sector, according to ESA-95 encompasses four sub sectors: centralGovernment, government of countries orregions (if they exist), local governments andsocial funds, and their debt is according todefinition considered to be the Governmentdebt. The Protocol from the Maastrichtcontract on European Union, 1992, definestotal debt of the government as gross debtaccount on nominal value at the end of thefiscal year, consolidated between sectors ofthe Government.Trends and Sustainabilityof the State Debt in theFollowing Period2010ProjectionInternal debt (inmill. €)197,1 275.1 433 424 414Internal debt (in% of the GDP)9,8 12.1 17.1 15.3 13,8Foreign debt (inmill €)504 462.1 504 521 513Foreign debt (in% of GDP)25,2 20.3 20 18,8 17,1Debt repayment(foreign andinternal in % of3 2.9 2.3 2.3 2.2GDP)Total debt (inmill €)701.1 737.2 937 945 927Total debt (in %of GDP)35,0 32.4 37.1 34,1 30,9remark: estimated GDP in 2006 is 2003 mill. EUR, and in 2007, 2278 mill. EUR. Source Ministry of FinanceProjections for the following three-yearperiod are based mostly on macro-fiscal73

Annual report of the Ministry of Finance of Montenegro / 2007trends for 2008-2010, and on estimationsof the new borrowing. Assumptions are:liabilities based on restitution will reachstatutory term of around 10% of GDP in 2008;liabilities based on foreign currency savingsin non-resident banks will amount around 20mill. EUR (until now the liability has reached22,4 mill. EUR and during next year precisedebt on this ground will be determined);liabilities of municipalities will remain on thepresent level; based on inclusion of statefunds into the system of the Treasury theinternal debt will increase for around 1% ofGDP. In estimation of internal debt liabilitybased on savings in private banks (Dafiment,Jugoskandik) was not included, because untilnow it was not decided to compensate to thedepositors on this ground, and estimation ofliabilities is around 9.5 mill. EUR.Also, it is assumed that the programmeof premature repurchase, which has startedthis year, will continue also in 2008 to theamount of additional 46 mill. EUR. New borrowingsand issued guarantees and transferloans are projected in accordance with theagreed framework of cooperation with internationaland bilateral creditors, and fundswill be used for project from the area ofwaste waters, regional water-supply, roadand railway infrastructure and electric-powerindustry.Trends of foreign debt in the followingperiod were designed by the assumptionof the ideal drawing of credit funds, i.e. inthe year of signing total available funds willbe drawn. Also, it is assumed that for thepart of the debt which was guaranteed theGovernment will assume the repayment, forexample in railway, and that agreements willbe signed with the Development Bank of theCouncil of Europe to the total amount of 9mill. EUR. In the table 2, for period from 2008to 2010, we assumed that the total liabilitybased on unsolved debts (Libya, CzechRepublic, Slovakia, Kuwait and API bonds)will amount around 25 mill. EUR.Analysis of the public debt sustainability,which is the integral part of the Draft Strategyon Debt Management in 2008-2010,tested the debt trend in case of multiple variables,trends of GDP, financial statement ofthe budget and interest rates, and the mainresult of the analysis is that the state debt, orby the new terminology the public debt, ispractically sustainable, and only in case of thenegative GDP trend and budgetary deficit inthe longer term certain problems can occur.Risks regarding the debt are mostly low. Afterthe adoption of the Strategy by the Governmentof Montenegro, the results of the SustainabilityAnalysis will be published.Currency and interest structure of thepublic debt is favourable. Total internal debtis in EUR, with the interest rate of 2% inliabilities based on restitution and old foreigncurrency savings. From the total amount ofthe foreign debt only the part of liabilitiesreferring to the Paris Club (26% of the debtin the USD, and 3% in the other currencies),debt to Anglo-Yugoslav bank (in USD) andIDA credits (in SDR) is not being serviced inEUR, so that 89% of the debt is in EUR. By fixedinterest rate about 77% of the foreign debt isbeing serviced and the interest rate is from2%, or even below 2% in commodity bilateralcredits, up to 5,80%. In “new” borrowings,interest rate is favourable, and is formedmostly with spread of 0,5% to 1% abovethe interests which are approved to foreigncreditors, and which with the rating AAAborrow at the international financial market.Beside the favourable currency and interestcredit structure, credits which enter thepublic debt, have the grace period and longmaturity period which amount more than12 years on average, so for instance in IBRDrepayment period is until 2031, until 2024, or2041 with creditors from the Paris Club, while“new” borrowings have the grace period of 2to 10 years and repayment of 10 to 20 years.Montenegro also, which is important for newborrowings, has access to concession credits,for example, in the last two years arrangementswere signed with the KfW, Governmentof Poland, Government of Austria, Governmentof Hungary- Education Programmeto the total amount of about 84 mill. €As for the trend of the public debt includingenterprises whose major shareholder isthe State, in 2008, debt of the public sectorwill reach 1,085.5 billion EUR, in 2009, 1,128.5billion EUR and in 2010,. 1,117.5 billion EUR,again with assumption of the ideal drawingof funds, which was not the case by now,mostly due to the nature of projects. Estimationof the trend of the public sector debtdoes not take into account the change ofthe indebtedness of enterprises in domesticsubjects.For comparison of the indebtednesslevel, share of debt in the GDP, we shouldmention that for example in 27 countries ofEuropean Union in 2006, that percentageamounted 61,7%, while for 13 countries ofEURO zone it is even 69%. It is interestingthat the new members (10 countries whichhave became EU members in 2004 Bulgariaand Romania) have, except for Poland, below30% of the share of debt in the GDP. BalticStates have by far the lower percentage share(Estonia even 4,4%), while on the other handItaly and Greece have over 100% of shareof state debt in GDP. It is also typical thatexcept for Malta and Cyprus all countriesmembers of EU have the share up to 30%,and that is from the point of sustainabilityof debt significant, because the smallersystems, especially without the possibilityof issuance of their own currencies, are lessflexible regarding servicing of liabilities basedon debt.Determining of the state debt level asunsustainable is problematic and dependson the country (level of industrialisation, ofdiversification of economy, fiscal flexibilityetc.). According to researches, in 55% ofcases, public debt in the year before the debtservicing was at the level lower than 40%.Average level of state debt in developingcountries, in the year before the terminationof the debt repayment (default), amountedabout 50% of GDP. However, debit crises wereoften from the beginning of the 19 th Centuryuntil the beginning of the World Word II,when in average even ten countries per yearannounced defaults, and for example in 30-ies and 40-ies of the last centuries during thegreat depression even over the 15 countriesper year. Since then follows a significant fallof debit crises, only couple of years per year,and only at the beginning of 90-ies defaultson bank credits are more frequent.In relation between the foreign andinternal debt developed countries have alsothe same share in the total debt, while indeveloping countries that ratio is about 3:1 forthe foreign debt, and the main reason is thelevel of development of the domestic capitalmarket. Besides, the idea of the domesticdebt is mostly related to the obligation ofservicing in the domestic currency, and inthat case the country has greater possibilitieson the occasion of servicing of these liabilities,mostly by issue of money or increase of taxrates. In Montenegro, the percentage of theinternal debt in the total debt is 37,3 %, andhas the tendency of growth due to liabilitiesbased on restitution, but due to the relativelylong maturity period and low interests, eventhough it is serviced in EURO is considered tobe sustainable.Coordinator of the Departmentfor StATE Debt Management,Indebtedness Analysis,Cash Managementand International RelationsNemanja Pavličić74

Annual report of the Ministry of Finance of Montenegro / 2007Estimation of ConsolidatedPublic Spending in Montenegrofor Period I - XII 2007Consolidated public spending in period January-December 2007, was estimated to the amount of 1.069,75 mil.€. Estimation was performed based onthe preliminary data on realisation of the Budget of Montenegro, Pension and Disability Insurance Fund and Employment Agency and data on realisationof the budgets of the Health Insurance Fund and local self-governments for nine months of 2007 and trends from the previous years. Estimated level ofpublic spending was financed from the taxes to the amount of 777,61 mill €, duties 39,79 mill.€, contributions 288,34 mill.€, compensations 88,66 mill. €and other receipts 68,82 mil.€. In the same period revenues from taxes were planned to the amount of 714,73 mill.€, revenues from duties 36,73 mill.€,revenues from contributions 249,89 mill.€, revenues from compensations 87,31 mill € and other receipts to the amount of 58,24 mill.€.Realised amounts when compared to planned amounts for period January-December 2007 show growth of 10,28 % ( current revenues) , taxrevenues 8,80 %, duties 8,33 %, compensations 1,54 %, contributions 5,54% , while other revenues are 18,2 % higher than the planned amount. Bettercollection of current revenues made possible debt repayment to domestic and international financial institutions to the amount of 121,30 mill €, whichis 31% higher than planned 92,60 mill €, while repayment of call in arrears from previous years is 46,97mill €, which is 76,4 % higher than planned 26,63mill €. All due liabilities are regularly serviced.DESCRIPTIONPlanJanuary-DecemberRealisationJanuary-December% ofrealisationCurrent revenues 1.145,77 1.263,54 110,28 55,47Taxes 714,73 777,61 108,80 34,14Personal income Tax 92,34 106,75 115,61 4,69Corporate tax 40,29 39,08 96,98 1,72Property tax 28,34 41,18 145,30 1,81Value Added Tax 369,71 393,17 106,35 17,26Excises 85,95 94,54 110,00 4,15Tax on international trade and transactions 63,88 68,50 107,23 3,01Local taxes 28,48 27,65 97,07 1,21Other revenues 5,75 6,74 117,23 0,30Contributions 249,89 288,34 115,38 12,66Contribution for Pension and Disability Insurance 135,38 173,49 128,15 7,62Contribution for health insurance 107,59 106,86 99,32 4,69Contribution for unemployment insurance 6,93 7,64 110,19 0,34Duties 36,73 39,79 108,33 1,75Administrative duties 11,77 11,04 93,77 0,48Court fees 8,87 10,53 118,72 0,46Residence taxes 1,88 1,76 93,44 0,08Local municipal taxes 10,51 11,12 0,00 0,49Other duties 1,91 3,47 181,47 0,15Compensations 87,31 88,66 101,54 3,89Fees for usage of goods of common interest 7,25 5,89 81,20 0,26Fees for usage of natural resources 5,67 6,79 119,79 0,30Ecological fees 5,27 5,26 99,85 0,23Games of chance fees 7,59 7,46 98,31 0,33Fees for usage of building land 8,09 9,03 111,72 0,40Fees for construction and maintenance of local roads 4,50 4,17 92,79 0,18Road fees 8,31 9,52 114,53 0,42Other compensations 37,72 37,47 99,33 1,64Other revenues 46,05 56,44 122,57 2,48Yields on capital 14,40 16,65 115,64 0,73Penalties and divested property benefits 11,56 11,39 98,54 0,50% ofGDP75

Annual report of the Ministry of Finance of Montenegro / 2007Revenues made by authorities and their activities 7,90 16,01 202,71 0,70Other revenues 12,19 12,38 104,21 0,54Receipts from credit repayments 11,06 12,70 114,87 0,56Receipts from repayments of credits given to other levels ofgovernment7,76 8,35 107,73 0,37Receipts from repayments of credits given to other institutions 3,30 4,34 131,66 0,19Expenditures 1.053,78 1.069,75 101,52 46,96Current public spending 887,56 908,24 102,33 39,87Current expenditures 528,92 520,13 98,34 22,83Gross salaries and contributions payable by employer 300,13 292,42 97,43 12,84Net salaries 170,49 167,60 98,30 7,36Income tax 34,44 33,13 96,20 1,45Contributions payable by employee 46,80 45,16 96,49 1,98Contributions payable by employer 44,19 42,45 96,08 1,86Municipal surtax 4,22 4,08 96,75 0,18Other personal income 32,67 32,52 99,54 1,43Material and service expenses 121,07 116,34 96,09 5,11Current maintenance 27,16 26,21 96,50 1,15Interests 20,73 26,58 128,21 1,17Rent 5,97 5,35 89,64 0,23Subsidies 13,85 13,63 98,42 0,60Other expenditures 7,34 7,09 96,53 0,31Transfers for social security 252,83 286,93 113,49 12,60Rights from the field of social security 40,11 39,47 98,39 1,73Funds for redundancies 10,31 11,27 109,35 0,49Other rights from field of health security 4,72 4,72 0,00 0,21Other rights from field of health insurance 2,92 2,92 100,00 0,13Transfers to institutions, individuals and non-government sector 78,32 77,24 98,62 3,39Transfers to public institutions 40,33 40,47 100,35 1,78Transfers to non-government institutions 10,72 10,27 95,87 0,45Transfers to individuals 18,55 18,40 99,19 0,81Transfers to public enterprises 8,73 8,10 92,78 0,36Capital expenditures 166,22 161,51 97,17 7,09Loans and credits 9,80 8,43 86,07 0,37Reserves 15,58 15,48 99,36 0,68Deficit/Surplus 91,99 193,79 210,65 8,51Financing -91,99 -193,79 210,65 -8,51Domestic financing -58,19 -79,66 136,90 -3,50Loans and credits from domestic sources 3,04 7,27 239,66 0,32Debt repayment 24,60 32,05 130,30 1,41Repayment of liabilities from previous period 26,63 46,97 176,40 2,06Repayment of old foreign currency savings 10,00 7,91 79,13 0,35Foreign financing -53,94 -82,24 152,47 -3,61Credits and securities -57,95 -83,35 143,83 -3,66Loans and credits from foreign sources 10,05 5,90 58,75 0,26Debt repayment to non-residents 68,00 89,25 131,26 3,92Donations 4,01 1,10 27,57 0,05Privatisation income or deposit 65,65 71,78 109,34 3,15Increase/reduction of deposit 45,51 103,66 227,77 4,55Estimated public spending in 2007, is 1.069,75 mill € or 46,96 % of GDP. Share of current public spending (consolidated public spending reducedfor total capital expenditures – Capital budget of Montenegro, capital expenditures in the current budget and capital expenditures of funds andmunicipalities) in 2007, is estimated to the amount of 908,24 mil € which makes 39,87 % of GDP for 2007.Current cash surplus of public spending for period January - December 2007 is planned to the amount of 91,99 mill.€, and the surplus was realised tothe amount of 193,79 mill.€ which makes 8,51 % of estimated GDP for 2007. Surplus is the largest in the Budget of Montenegro to the amount of 168,45mill. € while in the Pension and Disability Insurance Fund the surplus was realised to the amount of 2,41 mill.€. Employment Agency realised deficit of0,50 mil €, Health Insurance Fund realised surplus to the amount of 10,98 mill. € and the local self-government the surplus to the amount of 12,45 mill.€. Increase of deposit in 2007 was estimated to the amount of 97,98 mill €.76

Annual report of the Ministry of Finance of Montenegro / 20071. State BUDGETAccording to preliminary data, receipts of the Budget of Montenegro for period January - December 2007 amount 798,97 mill €. Direct revenuesof the Budget for period January - December 2007, amount 790,94 mill € and are 8.13% higher than planned. Consolidated expenses of the budgetfor (months of the current year amount 622,49 mill € and are 2,9% lower than planned.Tax revenues amount 708,02 mill € and are 8,32 % higher than planned. Higher realisation when compared to plan is evident in all types of taxesexcept for the corporate tax- 96,98% when compared to the plan and the highest collection is in capital transfer tax – 145,30% of planned.Revenues based on duties amount 18,38mill €, which is 4,94 % higher than planned amount; revenues based on compensations amount 22,90mill €, which is 5,58 % higher than the planned amount. Other revenues of the State amount 36,12 mill €, which is 6,05 % higher than plannedamount. Receipts from the credit repayment are realised to the amount of 5,5 mill € which is when compared to the plan higher for 20,70 %.In the following table a consolidated balance sheet of the Budget of Montenegro is given for 2007:DESCRIPTIONPlanJanuary-DecemberRealisationJanuary-December% ofrealisationCurrent revenues 731,45 790,94 108,13Taxes 653,61 708,02 108,32Personal income Tax 73,87 85,40 115,61Corporate income Tax 40,29 39,08 96,98Property tax 14,17 20,59 145,30Value Added Tax 369,71 393,17 106,35Excises 85,95 94,54 110,00Tax on international trade and transactions 63,88 68,50 107,23Other taxes of the State 5,75 6,74 117,23Duties 17,52 18,38 104,94Administrative duties 9,99 9,15 91,62Court fees 7,09 8,66 122,16Residence taxes 0,43 0,56 130,09Compensations 21,68 22,90 105,58Fees for usage of goods of common interest 4,33 2,99 68,92Fees for usage of natural resources 2,75 3,73 135,47Ecological fees 2,35 2,20 93,47Games of chance fees 4,67 4,40 94,14Road fees 5,40 6,46 119,68Other compensations 2,18 3,12 143,39Other revenues 34,06 36,12 106,05Yields on capital 13,96 15,07 0,00Penalties and divested property benefits 9,98 10,14 101,64Revenues made by authorities and their activities 3,57 3,86 108,21Other revenues 6,55 7,05 107,63Receipts from credit repayment 4,58 5,52 120,70Receipts from repayment of credits given to other levels ofgovernment4,58 5,52 120,70EXPENDITURES 641,59 622,49 97,02Current expenditures 363,23 354,87 97,70Gross salaries and contributions payable by employer 199,94 192,95 96,50Net salaries 113,39 110,70 97,62Personal income tax 21,58 20,74 96,0977

Annual report of the Ministry of Finance of Montenegro / 2007Contributions payable by employee 31,74 30,13 94,93Contributions payable by employer 30,31 28,58 94,28Municipal surtax 2,91 2,81 96,57Other personal income 17,50 17,24 98,53Material and service expenses 80,39 75,40 93,80Current maintenance 21,25 20,64 97,16Interests 19,68 25,14 127,78Rent 5,50 4,94 89,78Subsidies 13,27 13,07 98,48Other expenses 5,71 5,48 95,93Transfers for social security 46,43 44,75 96,38Rights from the sphere of social protection 39,81 39,19 98,43Funds for redundancies 6,62 5,56 84,04Transfers to institutions, individuals, non-government sector andpublic sector132,83 128,62 96,83Transfers to public institutions 30,50 30,80 100,99Transfers to non-government institutions 6,87 6,71 97,67Transfers to individuals 8,41 7,93 94,20Transfers to Pension and Disability Insurance Fund 64,34 61,16 95,06Transfers to the Health Insurance Fund 11,38 11,38 66,74Transfers to the Employment Agency 7,60 7,60 27,57Transfers to municipalities 2,50 2,09 38,34Transfers to public enterprises 1,24 0,96 6.266,59Capital expenditures 80,26 77,39 96,43Loans and credits 6,30 6,02 95,51Repayment of guarantees 2,11 0,00 0,00Reserves 10,43 10,84 103,98Deficit 89,86 168,45 187,46Financing -99,01 -168,45 170,13Domestic financing -44,50 -63,24 142,11Debt repayment to non-residents 14,00 15,33 109,53Debt repayment from previous period 20,50 39,99 195,08Repayment of old foreign currency savings 10,00 7,9179,13Foreign financing -56,65 -81,55 143,94Credits and securities -57,25 -81,62 142,55Borrowings and credits from foreign sources 5,75 2,54 44,14Debt repayment to non-residents 63,00 84,15 133,57Donations 0,60 0,07 11,49Privatisation revenues or deposits 6,72 5,43 80,81Increase/reduction of deposit -4,58 29,09 -635,71According to the preliminary data in 2007, a budgetary surplus was realised to the amount of 168,45 which is 87,46 % higher than planned in thebudget by the revision. Thanks to the better collection of direct revenues and high surplus, repayment of call in arrears and repayment of debts toresidents and non-residents were realised to the much higher amount than planned: Repayment of call in arrears was realised to the amount of 39,99and when compared to the planned 20,5 it is a growth of 95,08 %; repayment of debts to residents was realised to the amount of 15,33 which representsthe increase of 9,53% when compared to the plan; debt repayment to non-residents was realised to the amount of 84,15 mill € which represents theincrease of 33,57 % when compared to the plan. The increase of deposits at the end of 2007 amounted 29,09 mil €.78

Annual report of the Ministry of Finance of Montenegro / 20072. PENSION AND DISABILITY INSURANCE FUNDSpending of Pension and Disability Insurance Fund for period January-December 2007 was realised to the amount of 235,13 mil.€. Spending of theFund was financed from contributions to the amount of 173,84 mil.€, other revenues 2,54 mil.€ and transfers from the Budget of Montenegro 61,16 mil.€.Total level of current revenues is 2,41 mil.€ and is higher than the realised spending (surplus). Increase of deposit at the end of period is 14,85 mil €.OPISPlanJanuary-DecemberRealisationJanuary-December% ofrealisationCurrent revenues 136,38 176,39 129,34Contributions 135,38 173,84 128,41Contributions for pension and disability insurance 135,38 173,49 128,15Other contributions 0,00 0,35 0,00Other revenues 1,00 2,54 254,39Yields on capital 0,00 1,33 0,00Penalties and property divested rights 0,00 0,00 0,00Other revenues 1,00 1,21 121,37Expenditures 200,71 235,13 117,15Current expenditures 5,23 5,98 114,32Gross salaries and contributions payable by employer 2,27 2,05 90,37Net salaries 1,35 1,31 96,72Personal income tax 0,28 0,00 0,00Contributions payable by employee 0,32 0,38 118,82Contributions payable by employer 0,27 0,32 119,19Municipal surtax 0,04 0,04 85,94Other personal income 0,27 0,31 115,10Material and service expenses 2,00 2,69 134,52Current maintenance 0,16 0,18 111,08Interests 0,40 0,60 151,09Rent 0,05 0,05 92,87Other expenditures 0,08 0,10 122,42Transfers for social protection 194,76 228,55 117,35Rights from the sphere of pension and disability insurance 194,76 228,55 117,35Transfers to institutions, individuals non-government and publicsector0,30 0,36 121,44Transfers to NGOs 0,00 0,24 0,00Transfers to individuals 0,30 0,12 41,57Capital expenditures 0,10 0,14 144,43Loans and credits 0,17 0,08 44,12Repayment of call in arrears from the previous period 0,00 0,02 0,00Reserves 0,15 0,00 0,00Deficit 0,00 2,41 0,00Financing 0,00 -2,41 0,00Domestic financing 0,00 -0,01 0,00Loans and credits from domestic sources 0,00 2,00 0,00Debt repayment 0,00 2,01 0,00Foreign financing 0,00 0,00 0,00Privatisation revenues 7,20 12,46 173,00Transfers 64,34 61,16 95,06Increase/reduction of the deposit 7,20 14,85 206,23In this period revenues from contributions were planned to the amount of 135,38 mil.€, other revenues 1,00 mil.€ and transfers from the State Budget64,34 mil.€. Realised amounts when compared with the planned show that in this period, current revenues of the Pension and Disability Insurance Fundwere realised to the amount higher than planned for 29,34 %. Consolidated expenditures of the fund are realised with 117,15 % when compared to theplan, because of the payment of one more pension in December 2007.79

Annual report of the Ministry of Finance of Montenegro / 20073. HEALTH INSURANCE FUNDFunds paid for health protection, which is financed through the Health Insurance Fund, for period January- December 2007., according to thepreliminary projection of the Ministry of Finance, amount 115,92 mil.€. Health Insurance Fund did not submit to the Ministry of Finance preliminarydata for 2007, so the assumption was taken that the expenditures will be 100% realised. Based on realisation for first nine months of 2007, correctionsof salaries for health workers in the last quarter 2007, expenditures could be 5-10 mil.€ higher when compared to presented ones. After the acquiring offinal data from the Fund necessary corrections will be made. Spending of the Fund is financed from contributions to the amount of 106,86 mil.€, otherrevenues 8,62 mil.€, revenues from credit repayment 0,04 mil € and transfers from the Budget of Montenegro 11,38 mil €DESCRIPTIONPlanJanuary-DecemberRealisationJanuary-December% ofrealisationCurrent revenues 109,04 115,52 105,94Contributions 107,59 106,86 99,32Contributions for health insurance 107,59 106,86 99,32Other revenues 1,45 8,62 593,73Revenues made by authorities and their activities 1,45 8,62 593,73Receipts from credit repayments and funds transferred from previous year 0,00 0,04 0,00Receipts from repayments of credits given to other institutions 0,00 0,04 0,00Expenditures 115,92 115,92 100,00Current expenditures 99,18 99,18 100,00Gross salaries and contributions payable by employer 70,33 70,33 100,00Net salaries 40,47 40,47 100,00Income tax 9,05 9,05 100,00Contributions payable by employee 10,23 10,23 100,00Contributions payable by employer 9,80 9,80 100,00Municipal surtax 0,79 0,79 100,00Other personal income 9,75 9,75 100,00Costs for material and services 18,47 18,47 100,00Current maintenance 0,41 0,41 100,00Interests 0,21 0,21 100,00Transfers for social protections 7,65 7,65 100,00Other rights from field of health security 4,72 4,72 100,00Other rights from field of health insurance 2,92 2,92 100,00Transfers to institutions, individuals, non-government and public sector 5,40 5,40 100,00Transfers to public institutions 5,38 5,38 100,00Transfers to individuals 0,02 0,02 0,00Capital expenditures 3,69 3,69 0,00Deficit 4,50 10,98 244,07Financing -4,50 -10,98 244,07Domestic financing 0,00 1,48 0,00Loans and credits from domestic sources 0,00 2,88 0,00Debt repayment 0,00 1,40 0,00Revenues from privatisation 0,00 0,01 0,00Transfers 11,38 11,38 100,00Increase/reduction of deposit 4,50 12,47 277,19Current revenues of the Fund are when compared to the plan realised with 105,94 %, thanks to the revenues realised by their business activities.Estimation of the Ministry of Finance is that the Health Insurance Fund has realised for period January- December 2007 a surplus of 10,98 mil. € andincrease of deposits to the amount of 12,47 mil.€.4. EMPLOYMENT AGENCYConsolidated expenditures of the Employment Agency for period January-December 2007 amount 23,92 mil.€. Liabilities from the EmploymentAgency were financed from contributions to the amount of 7,64 mil.€, other revenues 0,42 mil.€, duties 3,47 mil € and transfers from the Budgetof Montenegro 7,60 mil.€. Total level of current revenues is for 0,50mil.€ lower than the realised spending, and the missing funds are financed fromdonations to the amount of 0,35 mil. € and revenues from contributions to the amount of 3,77 mil €.80

Annual report of the Ministry of Finance of Montenegro / 2007DESCRIPTIONPlanJanuary-DecemberRealisationJanuary-December% ofrealisationCurrent revenues 12,64 15,82 125,23Contributions 6,93 7,64 110,19Contribution for unemployment insurance 6,93 7,64 110,19Duties 1,91 3,47 181,47Other duties 1,91 3,47 181,47Other revenues 0,50 0,42 84,02Yields on capital 0,44 0,26 58,65Other revenues 0,06 0,16 286,99Receipts from credit repayment and funds transferred fromprevious year3,30 4,30 130,45Receipts from credits given to other institutions 3,30 4,30 130,45Expenditures 23,71 23,92 100,90Current expenditures 7,83 7,58 96,80Gross salaries and contributions payable by employer 3,56 3,46 97,38Net salaries 1,94 1,99 102,60Income tax 0,53 0,41 75,89Contributions payable by employee 0,53 0,54 100,94Contributions payable by employer 0,46 0,47 101,10Municipal surtax 0,09 0,06 71,45Other personal income 0,77 1,01 131,38Material and service expenses 2,93 2,62 89,64Interests 0,40 0,16 38,88Current maintenance 0,10 0,28 282,31Rent 0,06 0,03 48,15Other expenditures 0,02 0,01 86,17Transfers for social protection 3,66 5,68 155,27Funds for redundancies 3,66 5,68 155,27Transfers to institutions, individuals, non-government andpublic sector7,92 8,56 108,06Transfers to individuals 7,92 8,56 108,06Capital expenditures 1,60 0,34 21,33Loans and credits 2,70 1,76 65,30Deficit -3,47 -0,50 14,42Financing 3,47 0,50 14,42Domestic financing 0,00 0,00 0,00Foreign financing 0,00 0,35 0,00Donations 0,00 0,35 0,00Privatisation revenues 6,00 3,77 62,89Transfers 7,60 7,60 100,00Increase/reduction of deposit 2,53 3,62 143,32In this period revenues from contributions were planned to the amount of 7,64 mil.€, other revenues 42 mil €, duties 1,91 mil.€ and transfers fromthe State budget 7,60 mil.€. Realised amounts when compared to planned show that in 12 months of 2007, current revenues of the Employment Agencywere realised to the amount higher than planned for 25,23 %, while the realisation of the budget of the Agency was in accordance with the plan for2007.5. LOCAL SELF-GOVERNMENTEstimated consolidated expenditures of the local self-government for twelve months of 2007 amounted 155,19mil.€. Spending was financed fromtaxes to the amount of 69,59 mil.€, transfers 2,77 mil.€, duties 17,49 mil.€, compensations 65,77 mil € and other revenues 11,57 mil.€. Current revenuesamount 164,87 mil €. Consolidated balance shows surplus of 12,45 mil €.Realised amounts when compared to planned show that in 12 months of 2007 current revenues in the local self-government were realised to theamount higher than planned- 105,5% of the planned, while consolidated expenditures were realised with 97,97% when compared to the plan. Increaseof the deposit at the end of 2007 is estimated to amounts 43,63 mil.€ thanks to the revenues from privatisation.81

Annual report of the Ministry of Finance of Montenegro / 2007DESCRIPTIONPlan January- RealisationDecember January-Dec.% of realisationCurrent revenues 156,27 164,87 105,50Taxes 61,12 69,59 113,86Personal income tax 18,47 21,35 115,61Property tax 14,17 20,59 145,30Local taxes 28,48 27,65 97,07Duties 17,30 17,94 103,69Administrative taxes 1,78 1,89 105,82Residence taxes 1,45 1,20 82,47Local municipal taxes 10,51 11,12 105,82Compensations 65,63 65,77 100,21Fees for usage of goods of common interests 2,92 2,90 99,43Fees for usage of building land 8,09 9,03 111,72Fees for construction and maintenance of local roads 4,50 4,17 92,79Other compensations 35,54 34,34 96,63Other revenues 9,05 8,74 96,67Penalties and property divested rights 1,59 1,25 78,99Revenues made by bodies and their activities 2,88 3,53 122,67Other revenues 4,58 3,96 86,45Receipts from credit repayments 3,18 2,83 89,05Receipts from repayment of credits given to other levels of government 3,18 2,83 89,05Expenditures 158,41 155,19 97,97Current expenditures 53,45 52,53 98,28Gross salaries and contributions payable by employer 24,04 23,63 98,29Net salaries 13,34 13,14 98,52Income tax 2,99 2,94 98,19Contributions payable by the employee 3,97 3,87 97,53Contributions payable by the employer 3,35 3,29 98,32Municipal taxes 0,39 0,38 98,42Other personal income 4,38 4,20 95,97Material and service expenses 17,28 17,14 99,23Current maintenance 4,95 4,83 97,56Interests 0,34 0,34 98,42Rent 0,36 0,34 94,82Subsidies 0,58 0,56 97,05Other expenditures 1,54 1,50 97,56Transfers for social protection 0,33 0,31 92,55Rights from the sphere of social protection 0,30 0,28 93,11Funds for redundancies 0,03 0,03 86,83Transfers to institutions, individuals NGP and public sector 18,42 17,20 93,34Transfers to public institutions 4,45 4,29 96,43Transfers to NGOs 3,85 3,32 86,40Transfers to individuals 1,89 1,77 93,37Transfers to municipalities 0,74 0,68 91,23Transfers to public enterprises 7,50 7,14 95,27Capital expenditures 80,58 79,95 99,22Loans and credits 0,63 0,58 92,13Reserves 5,00 4,63 92,70Deficit 1,11 12,45 1.123,44Financing -1,11 -12,45 1.123,44Domestic financing -13,69 -17,89 130,67Loans and credits from domestic sources 3,04 2,39 78,80Debt repayment 10,60 13,30 125,51Repayment of liabilities from the previous period 6,13 6,98 113,89Foreign financing 2,71 -1,04 -38,48Credits and securities -0,69 -1,73 249,51Loans and credits from foreign sources 4,30 3,37 78,25Debt repayment 5,00 5,10 102,04Donations 3,41 0,69 20,20Privatisation revenues 45,73 50,11 109,58Transfers 3,24 2,77 85,47Increase/reduction of deposit 35,86 43,63 121,66Stanko Jeknić, Coordinator of Macroeconomic Analysis and International Cooperation Department,Vladislav Karadžić, Independent Advisor,Radovan Živković, Independent Advisor,Iva Vuković, Senior Advisor82