Public financial management is continuously in the spotlight within the European Union (EU) and across Eastern Europe – fiscal decentralization, modernization of the budget process, introduction of programme budgeting, revenue mobilization, modernizing revenue collection, accrual accounting and MTEF, absorption of structural and cohesion funds from the EU. Among the major challenges faced by post-communist economies is the need to adjust fiscal institutions to function in an increasingly global environment and within regional integration. Read the Case Study describes sequence of successful PFM reforms in Kosovo from 1999.
The Story of Kosovo
At the end of the civil war, which disintegrated socialist Yugoslavia into 7 independent states, the UN Administration in Kosovo (UNMIK) created the Central Fiscal Authority (CFA) as a full-function finance ministry responsible for the Kosovo Consolidated Budget and capable of operating in a market-based economy. CFA followed 3 guiding principles: transparency, robust standards of accountability and good governance.
With the physical infrastructure of Kosovo badly damaged, CFA needed urgently to set up a fiscal management system to manage the reconstruction effort and report to the World Bank, IMF, the European Union, USAID, and more than 100 other donor agencies. The system had to comply with multiple accounting and reporting requirements from donors, creditors, local rules and regulations and international best practices. IMF invited FreeBalance to bid for the provision of the FMIS.
The Kosovo environment was unique, but the fiscal management requirements were not. The CFA included a Treasury, Tax Administration, Budgeting, Revenue, Customs, Procurement and Regulatory Office. CFA needed a multi-language system (English, Albanian, and Serbian) to support the budget process and timely processing of government payroll for over 70 thousand civil servants.
In just 26 days, FreeBalance was able to set up the initial implementation of the the Kosovo Financial Management Information System (KFMIS). The project was launched on May 8 and demonstrated donors on June 3. Based on 6 months of year-to-date transactions data, the FreeBalance team configured the Chart of Accounts (COA), financial coding blocks, management rules, tested transactions, and printed live reports.
The FreeBalance Accountability Suite (formerly eFinancials) was successfully implemented to record, manage and report on all budget, commitment, expenditure and treasury management functions. The core system went live in June 2002, with localization in Serbian and Albanian completed by June 2003. The Revenues module was integrated and went live in January 2004. The project was subsequently expanded to include all of Kosovo’s government departments and 30 municipalities. All municipalities use KFMIS for their own financial management. Each municipality has the assistance of a UN international officer.
To assist in capacity building, FreeBalance provided extensive training and certification program in budget planning, execution and procurement processes for cabinet of ministers, the Provincial Assembly, CFA, line ministries, and municipal staff. A Help Desk was established to provide daily support and advise all users from all budget spending units.
The KFMIS was a critical component of Kosovo’s democratic development and economic liberalization program. Kosovo now has a comprehensive, uniform financial management system. All budget organizations and all major revenue agencies are now connected to the KFMIS. It now enables comparison of accounting data at all levels of government and between all institutions in real time.
A key lesson learned from Kosovo is that technology is an early building block in creating good governance and must be introduced in a phased implementation to allow absorption of key government reforms.
Additional Project Information:
Kosovo PFM Case Study