BUDGET OF THE REPUBLIC OF MONTENEGRO FOR 2006
- Macroeconomic framework and public expenditure
Economic policy of the Government of the Republic of Montenegro and objectives defined by the Agenda of Economic Reforms represented the starting point for preparation of the budget for 2006. Proceeding from the basic objectives of economic policy it is projected in 2006 to lower the deficit level, reduceits share as well as the total public expenditure share in GDP. The basic parameters of fiscal policy are adjusted to the frameworks and objectives agreed with the IMF and the World Bank and harmonized with the EU directives.
year / GDP in mil.€ / growth in % / Estimate of the IMF / Growth in %2003 / 1.375,00 / 1.375,00
2004 / 1.535,00 / 11,64 / 1.475,00 / 7,27
2005 / 1.644,00 / 7,10 / 1.580,00 / 7,12
2006 / 1.759,00 / 7,00 / 1.676,00 / 6,08
2007 / 1.873,30 / 6,50 / 1.759,80 / 5,00
Public expenditure in 2006 is projected in accordance with the trend of basic economic indicators, which represent the starting framework for estimation of fiscal potential from domestic funding sources. Consistent data about gross domestic product size presented in the Agenda of Economic Reforms in Montenegro as well as in the IMF papers, determined their usage in the analysis of macroeconomic trends and relative comparisons of the basic categories of public expenditure with GDP trends in the period from 2003-2007.According to the Agenda estimated size of GDP is higher than the IMF estimation, and average annual rates show stable economic growth trend in the period from 2003 to 2007. Starting estimates show that the gross domestic product in 2005 will amount to 1.644,00 mil.€and that annual nominal growth rate will amount to 7,10%. For 2006 the nominal growth rate is projected to amount to 7,00% and real 4,5%, with gross domestic product amounting to 1.759,00 mil.€[1].
MACROECONOMIC FRAMEWORK IN %DESCRIPTION / 2004-realization / 2005-plan / 2006-plan
Gross Domestic Product / 100,00 / 100,00 / 100,00
Public expenditure I- line of consolidation / 45,52 / 45,19 / 44,64
Public expenditure iI- line of consolidation konsolidacije / 43,45 / 43,20 / 42,78
Deficit / 2,82 / 3,15 / 2,20
Deficit reduced by the old foreign exchange saving / 2,54 / 2,62 / 1,71
Public expenditure level is to the greatest extent determined by the estimated Gross Domestic Product for 2006 as well as the data about flows of revenues in the previous period with the monthly decomposition of their realization for each year individually. Consolidated public expenditure and budget of the Republic of Montenegro are projected within the limits which provide for relative reduction of their share in the gross domestic product, as well as absoluteand relative deficit reduction.
MACROECONOMIC FRAMEWORK IN mil.€DESCRIPTION / 2004-realization / 2005-plan / 2006-plan
Gross Domestic Product / 1.535,00 / 1.644,00 / 1.759,00
Public expenditure I- line of consolidation / 698,66 / 742,86 / 785,26
Public expenditure Ii- line of consolidation / 667,00 / 710,13 / 752,50
Deficit / 43,36 / 51,81 / 38,77
Deficit reduced by the old foreign exchange saving / 39,05 / 43,11 / 30,07
It is planned that public expenditure reduces its share in GDP during 2005 and 2006. If we exempt project loans from 2005 and 2006 we can see that public expenditure in the Republic of Montenegro reduces its share in the Gross Domestic Product from 45,52 % in 2004 to 45,19 % in 2005 and that by the budget for 2006 further public expenditure share reduction to 44,19% is projected. After consolidation of contributions paid by employer, share of public expenditure in gross domestic product is significantly lower and amounts to 42,78 %. In accordance with the economic policy objectives and objectives defined by the Agenda of Economic Reforms the proposed budget will provide for further public expenditure balancing in 2006 along with relative reduction of deficit share in GDP.
Projected absolute and relative reduction of consolidated deficit shows that Montenegro creates conditions for a stable concept of financing public expenditure, what along with regular fulfilment of obligations in relation to foreign debts provides for a quality cooperation with the international financial institutions. Thus, direct international community support continuation is provided for reforms in public finances, education and health system, as well as infrastructure funding through project loans.
Deficit financing in the next year will be provided from the budget of the Republic, and in that way will be created necessary conditions for regular fulfilment of obligations which come within the domain of extra-budgetary funds – pensions, health protection and compensations for unemployed persons. Namely, transfers to the extent which will provide for a stable system of social and health protection determined by law are projected by the budget, and funds which are necessary for possible military pensions financing and health protection of military persons are also put asside.
DESCRIPTION / Gross Domestic Product / Consolidated deficit / % share in Gross Domcestic Product2004 / 1.535.000.000,00 / -39.055.794,15 / -2,54
2005 / 1.644.000.000,00 / -43.115.160,13 / -2,62
2006 / 1.759.000.000,00 / -30.074.204,80 / -1,71
Consolidated deficit of public expenditure for 2006 is projected at the level of 30,07 mil. €, what is 13,04 mil. € less in relation to 2005. It is planned that deficit share is 1,71 % in Gross Domestic Product in 2006, what means relative decrease in its share by 1 index point. Apart from deficit for 2006 debts repayment is projected to the amount of 31,39 mil. €, so that funds for deficit funding and debt repayment amount to 61,39 mil.€. Funding sources are provided from credits to the amount of 9,18 mil. €, donations 5,50 mil.€, project loans 12,00 mil. €, privatizationproceeds 29,28 mil. € and deposit funds 5,51 mil. €.
MACROECONOMIC FRAMEWORK %share
DESCRIPTION / 2004 / 2005 / 2006Gross Domestic Product / 100,00 / 100,00 / 100,00
State budget of Montenegro / 23,82 / 24,06 / 24,05
Pension and Disability Insurance Fund / 9,88 / 9,31 / 9,39
Health Care Fund / 6,15 / 6,64 / 6,37
Employment Bureau / 0,73 / 1,16 / 0,92
Local self-governance / 4,93 / 4,02 / 3,91
PUBLIC EXPENDITURES / 45,51 / 45,18 / 44,64
State budget expenditure after exemption of transfers is projected to the level of 423,10 mil.€ with share of 24,05 % in the gross domestic product in 2006, Pension and Disability Fund Insuranceto the amount of 165,13 mil. € with share of 9,39 % in the gross domestic product, Health Fund to the amount of 112,09 mil. € with share of 6,37 % in the gross domestic productand Employment Bureau to the amount of 16,23 mil. € with share of 0,92 % in the gross domestic product. At the local governance level the expenditure is estimated to the amount of 68,71 mil.€ or 3,91 % of the gross domestic product.
CONSOLIDATED PUBLIC EXPENDITURE
DESCRIPTION / 2004-EXECUTION- / 2005
- REBALANCE- / 2006
-PLAN- / 2007
-PLAN-
1. / Current revenues / 655,297,979.38 / 711,042,983.27 / 758,485,454.38 / 794,347,893.81
1.1 / Taxes / 378,278,178.40 / 423,633,885.46 / 462,656,383.09 / 475,092,660.48
1.2 / Contributions / 195,252,865.74 / 199,110,000.00 / 203,987,000.00 / 215,800,000.00
1.3 / Duties / 14,299,429.25 / 14,041,540.92 / 18,341,040.30 / 18,697,829.98
1.4 / Compensations / 22,995,208.87 / 23,087,424.13 / 28,203,397.86 / 25,359,543.57
1.5 / Other revenues / 38,073,927.13 / 47,308,061.42 / 40,365,078.93 / 52,132,926.19
1.6 / Receipts from credit payments and transferred funds / 6,398,369.99 / 3,862,071.34 / 4,932,554.20 / 7,264,933.59
2. / Expenses / 698,663,773.53 / 762,858,143.40 / 797,259,659.18 / 804,194,786.75
2.1 /
Current expenses
/ 365,057,476.39 / 369,604,688.52 / 371,204,840.43 / 378,138,314.552.2 / Social protection transfers / 227,370,206.02 / 235,548,206.32 / 254,750,446.29 / 253,922,746.81
2.3 / Transfers to institutions, individuals, non-governmental and public sector / 29,319,711.48 / 35,164,887.55 / 45,696,200.09 / 31,740,472.43
2.4 / Capital expenses / 30,472,311.69 / 86,984,612.18 / 73,788,035.82 / 84,164,252.96
2.5 / Lending and credits / 8,809,620.38 / 11,460,000.00 / 9,320,000.00 / 11,529,000.00
2.6 / Guarantee repayment / 10,613,149.42 / 4,000,000.00 / 2,000,000.00 / 1,500,000.00
2.7 / Repayment of obligations from the previous period / 10,332,469.73 / 9,100,000.00 / 24,471,042.98 / 28,700,000.00
2.8 / Reserves / 16,688,828.42 / 10,995,748.83 / 16,029,093.57 / 14,500,000.00
3. / Deficit / -43,365,794.15 / -51,815,160.13 / -38,774,204.80 / -9,846,892.94
3.1 / Deficit reduced by old foreign exchange savings / -39.055.794,15 / -43115.160,13 / -30.074.204,80
4. / Financing / 43,365,794.15 / 51,815,160.13 / 38,774,204.80 / 9,846,892.94
4.1 / Domestic financing / 10,122,745.84 / -29,819,698.63 / -11,607,343.84 / -6,838,600.88
4.2 / Foreign financing / 19,425,936.33 / 38,743,385.39 / 15,578,759.00 / 16,870,000.00
4.3 / Privatization proceeds or deposits / 11,049,836.95 / 135,266,001.23 / 29,287,204.10 / 6,548,656.24
5. / Increase/decrease of deficit / 2,767,275.03 / -92,374,527.86 / 5,515,585.54 / -6,733,162.42
Public expenditure funding sources in 2006 will be provided from taxes at the level of 462,66 mil.€, contributions 203,99 mil.€, duties 18,34 mil.€, compensations 28,20 mil.€, other revenues 40,36 mil.€ and deposit funds to the amount of 4,93 mil.€. In that process tax revenues show significantly faster dynamics of growth of contributions, duties, compensations and other revenues.
MACROECONOMIC FRAMEWORK in mil.€DESCRIPTION / 2004 / 2005 / 2006
Gross Domestic Product / 1.535,00 / 1.644,00 / 1.759,00
Taxes / 378,28 / 423,63 / 462,66
Contributions / 195,25 / 199,11 / 203,99
Duties / 14,30 / 14,04 / 18,34
Compensations / 23,00 / 23,09 / 28,20
Other revenues / 38,07 / 47,31 / 40,37
Funds tranferred from the previous year / 6,40 / 3,86 / 4,93
MACROECONOMIC FRAMEWORK %-shares
DESCRIPTION / 2004 / 2005 / 2006
Gross Domestic Product / 100,00 / 100,00 / 100,00
Taxes / 24,64 / 25,77 / 26,30
Contributions / 12,72 / 12,11 / 11,60
Duties / 0,93 / 0,85 / 1,04
Compensations / 1,50 / 1,40 / 1,60
Other revenues / 2,48 / 2,88 / 2,29
Funds tranferred from the previous year godine / 0,42 / 0,23 / 0,28
Taxesare projected at the level of 462,66 mil.€ and revenues will be provided mostly from the Value AddedTax to the amount of 215,11 mil. €. During 2004 value added tax collection was by 7,84 % higher than projected, while in comparison to 2003 revenues on this basis were higher by 15,21 %. In addition, in 2005 revenues realization on this basis was estimated at the level of 195,00 mil.€, while the planned level was 188,89 mil.€. Next year a bit more moderatedynamics of revenues growth from value added tax with 10% rate at the annual level is projected, having in mind that fiscal effects of growth were the highest during the first three years and that we can not expect high rates in the next year as in the previous period. Physical Persons Income Tax is projected at the level of 88,03 mil.€ out of which 70,38 mil.€ is intended for funding the budget of the Republic of Montenegro and 17,65 mil.€ to finance the local governance needs. It should be pointed out that reduction of rates for the Physical Persons Income Tax calculation by 10% did not bring about reduction inflow on this basis. However, revenues growth dynamics is a bit more moderate so that the total revenue on this basis is estimated at the level of the gross domestic product growth. In addition, as regards collection of Physical persons income tax positive fiscal effects are expected with application of the Law on unified registration and system of reporting about calculation and collection of taxes and contributions in 2006. Revenues from Legal persons profit tax are projected at the level of16,04 mil. € and they are lower than projected in 2005, what is consequence of profit tax rate reduction from 17,00 % to 9,00 %, which will be applied in 2006. Excises are projected at the level of 77,54 mil.€ and are higher than planned for 2005. Higher collection is determined by revenues from excises which are collected in the course of import, what corresponds to Value Added Tax collection. International trade and transactions tax is planned at the level of 39,71 mil. € what is at the level of the plan for 2005. Lower dynamics of revenues growth on this basis is consequence of import of goods from the Republic of Serbia, as well as due to concluding several agreements on free trade with the sorrounding countries, for which reduced tariff rates are determined.
Duties, compensations and other revenuesin 2006 are projected at the level of 86,90 mil. €. Duties are projected at the level of 18,34 mil .€ and the biggest part is related to the taxes which belong to the budget of the Republic 10,54 mil. €, while duties intended for the Employment Bureau amount to 1,40 mil.€, and for local governments needs funding 6,40 mil.€. Compensations are projected at the level of 28,20 mil. € out of which for the Republic budget funding is planned 10,83 mil. € and for local governments funding 17,37 mil. €. Other revenues for the next year are projected to the amount of 40,36 mil. € and the biggest part is related to the budget of the Republic of Montenegro 34,12 mil. €, out of which the biggest part is planned on the basis of fines and arreartax claims collection.
Contributionsin 2006 are planned at the level of 203,98 mil. € out of which 122,00 mil.€ is related to pension and disability insurance contributions, contributions for health insurance 76,69 mil. € and contributions for unemployment insurance 5,30 mil.€
Foreign funding for 2006 is projected to the amount of 10,07 mil.€, i.e. with projected withdrawal of funds on the basis of project loans 12,00 mil. €,foreign funding amounts to 22,07 mil. €.Donations are projected to the amount of 5,50 mil. €, out of which 4,50 mil. € is related to the EU Macro-financial assistance, 0,10 mil. € to Integralmanagement of the Skadar lake ecosystem – Ministry of Environmental Protection, 0,90 mil.€ to construction of the Penitentiary Institute facilities and 0,004 mil.€ for financing the shelter in the framework of the program of the National coordinator for fight against human trafficking. Foreign credits are projected to the amount of 5,11mil. € and are related to the specific –purpose IDA credits (Pension System Promotion Project 1,50 mil.€, Health System Promotion Project 2,50 mil.€ andEducation System Promotion Project 1,11 mil.€.
Policy of expenses in 2006 is based upon the deficit reduction conceptand reduction of current expenses share, gross income and other personal income in the gross domestic product.
MACROECONOMIC FRAMEWORK in mil.€DESCRIPTION / 2004 / 2005 / 2006
Gross Domestic Product / 1.535,00 / 1.644,00 / 1.759,00
Gross incomes and other personal incomes / 210,50 / 212,36 / 219,90
Current expenses / 169,33 / 160,08 / 170,36
Transfers / 288,35 / 303,44 / 333,20
Capital expenses / 30,47 / 66,98 / 61,79
Deficit / 43,36 / 51,81 / 38,77
PUBLIC EXPENDITURE / 698,66 / 742,86 / 785,26
MACROECONOMIC FRAMEWORK %-share
DESCRIPTION / 2004 / 2005 / 2006
Gross Domestic Product / 100,00 / 100,00 / 100,00
Gross incomes and other personal incomes / 13,71 / 12,92 / 12,50
Current expenses / 11,03 / 9,74 / 9,69
Transfers / 18,79 / 18,46 / 18,94
Capital expenses / 1,99 / 4,07 / 3,51
Deficit / 2,82 / 3,15 / 2,20
PUBLIC EXPENDITURE / 45,52 / 45,19 / 44,64
Gross income, other personal income and current expensesin 2006 are projected at the level of 390,26 mil.€. Gross income and other personal income share in the gross domestic product projected to 12,50 % is lower in comparison to the plan for 2005 which amounted to 12,92 %. Controlled growth of income fund and relative decrease of its share in the gross domestic product represent the basic presumption for realization of stable public expenditure financing concept and bringing down the budget deficit. During 2004and 2005the level of funds determined for financing income and other personal income in the absolute amount remained unchanged, so in that period their participation in the gross domestic product was reduced by almost one percentage point. The planned funds for income in 2006 increased, but their relatively lower share in the gross domestic product is maintained. The increase is the result of implementation of reforms which required the new spending units constituting, implementation of reforms laws in the part of increase of the range between coefficients, as well as increase of the minimum wage, which did not increase in the last years. Current expenses during 2005 are significantly lower in comparison to 2004. The amount of 170,36 mil.€ is projected for 2006 and in that way returned to the level from 2004. The reason for this increase is intention to settle, in 2006, outstanding liabilities of the state from the previous period regarding uncollected tax claims. If the funds intended for compensation of accrued liabilities are exempted then the current expenses are at the level lower than planned for 2005.
Transfersare projected at the level of 333,20 mil.€ and intended for financing the rights in the field of social protection, as well as transfer for the non-govrenmental organizations, institutions and individuals. Funds for social rights protection are mostly determined for the pension insurance rights 159,13 mil.€, health protection 58,16 mil.€ and realization of social program of the Republican budget 31,60 mil.€, while 5,85 mil.€ is determined for redundancies. Increase in transfers for social protection mostly appeared due to reserving funds which could be used for military pensions payment in 2006, as well as for financing the military insurance holders health protection.
Capital expenses are planned to the amount of 61,79 mil. € and the share in the gross domestic product for the next year is 3,51 %. Capital expenses which will be realized from the Republican budget are planned to the amount of 35,08 mil.€ and they are intended for financing the infrastrucutre of general importance, local infrastructure, construction facilities and equipment procurement. Expenses for infrastructure of general significance are planned to the amount of 7,22 mil. € and participate with 20,70 % in the total planned funds for capital expenses. Out of total planned funds 4,00 mil.€ is determined for construction of road Podgorica - Kolašin, for public works programs 2,45 mil. € i.e.for reconstruction of the street Partizanski Put in Nikšić, border crossing Virpazar, road Risan – Dragulji and bridge Rasovo – Municipality of Bijelo Polje and 0,72 mil. € for regulation of water course in the Administartion for Water. Funds for local infrastructure are planned to the amount of 4,00 mil. €, and they are related to the reconstruction of the road for the settlement “Swedish houses” in Cetinje, reconstruction of road and promenade in Zabljak, reconstruction of the town street in Bijelo Polje, reconstruction of the town roads in Niksic, Kotor, Berane, Danilovgrad and Mojkovac and local waterworks reconstruction.Expenses for construction facilities are planned to the amount of 10,07 mil. € and participate with 1,94 % in the total planned budget funds in 2006. Capital expenses of the Health fund are planned to the amount of 2,76 mil. € and the biggest part will be directed for information system procurement. It is estimated that expenditure at the local governance levelfor these purposes would amount to 23,43 mil.€ and would mostly be intended for construction and arrangement of local infrastructure.
2. Budget of the Republic o f Montenegro for 2006
Expenses of the budget for 2006 are projected to the amount of 518,91 mil. € and they are balanced with the funding sources. Funding sources – receipts in the part of current revenues are projected to the amount of 480,10 mil. €, receipts from property selling to the amount of 7,00 mil. €, donations 5,50 mil. €, funds transfered from the previous year – deposits which will be used 21,20 mil. € and lendings and credits from foreign sources 5,10 mil. €. Projected deficit for 2006 amounts to 38,77 mil. € including project loans to the amount of 12,00 mil. € .
BUDGET OF THE REPUBLICDESCRIPTION / 2004
-EXECUTION - / 2005
-REBALANCE- / 2006
-PLAN- / 2007
-PLAN-
1. / Current revenues / 375,310,112.22 / 435,447,631.79 / 480,104,880.45 / 496,607,161.89
1.1 / Taxes / 337,513,045.78 / 384,733,219.88 / 424,597,690.89 / 433,769,984.07
1.3 / Duties / 7,147,286.37 / 6,697,502.12 / 10,548,639.96 / 11,126,150.62
1.4 / Compensations / 3,527,510.43 / 5,616,685.88 / 10,832,463.53 / 6,554,040.91
1.5 / Other revenues / 24,595,695.56 / 38,400,223.91 / 34,126,086.07 / 45,156,986.29
1.6 /
Receipts from credit repayment and funds transfered from the previous year
/ 2,526,574.08 / 0.00 / 0.00 / 0.002. / Expenses / 407,533,588.42 / 489,807,631.79 / 518,879,085.25 / 520,901,640.45
2.1 / Current expenses / 246,758,316.37 / 259,296,612.52 / 266,178,055.48 / 267,241,640.45
2.2 / Transfers for social protection / 39,850,626.28 / 38,768,206.32 / 34,609,750.06 / 38,500,000.00
2.3 / Transfers to institutions, individuals , non-governmental and public sector / 63,450,175.96 / 99,536,949.26 / 122,192,518.01 / 108,460,000.00
2.4 / Capital expenses / 12,650,227.86 / 60,290,114.86 / 47,078,625.15 / 56,000,000.00
2.5 / Lending and credits / 7,189,794.38 / 7,820,000.00 / 6,320,000.00 / 6,000,000.00
2.6 / Guarantee repayment / 10,613,149.42 / 4,000,000.00 / 2,000,000.00 / 1,500,000.00
2.7 / Repayment of debts from the previous period / 10,332,469.73 / 9,100,000.00 / 24,471,042.98 / 28,700,000.00
2.8 / Reserves / 16,688,828.42 / 10,995,748.83 / 16,029,093.57 / 14,500,000.00
3. / Deficit / -32,223,476.20 / -54,360,000.00 / -38,774,204.80 / -24,294,478.56
4. / Financing / 32,223,476.20 / 54,360,000.00 / 38,774,204.80 / 24,294,478.56
4.1 / Domestic funding / 9,418,932.09 / -23,466,483.39 / -5,000,000.00 / 0.00
4.1.1 / Lending and credits from domestic sources / 38,874,899.00 / 10,133,516.61 / 0.00 / 0.00
4.1.2 / Debt repayment / 29,455,966.91 / 33,600,000.00 / 5,000,000.00 / 0.00
4.2 / Iforeign funding / 19,263,488.34 / 38,266,483.39 / 15,578,759.00 / 16,870,000.00
4.2.1 / Credits and securities / 12,316,807.39 / 14,575,146.19 / -1,924,866.00 / -1,130,000.00
4.2.1.1 / Lending and credits from foreign sources / 14,085,085.15 / 14,575,146.19 / 5,108,234.00 / 8,870,000.00
4.2.1.2 / Debts repayment / 1,768,277.76 / 0.00 / 7,033,100.00 / 10,000,000.00
4.2.2 / Donations / 6,946,680.95 / 3,691,337.20 / 5,503,625.00 / 3,000,000.00
4.2.3 / Project loans / 0.00 / 20,000,000.00 / 12,000,000.00 / 15,000,000.00
4.3 / Privatization recepts / 3,541,055.85 / 111,182,151.13 / 7,000,000.00 / 0.00
5. / Deposits increase/decrease / -0.08 / -71,622,151.13 / 21,195,445.80 / 7,424,478.56
Projection of the Republic budget revenues for 2006 is performed on the basis of revenues realized in the previous years and in the first eight months in 2005, estimated GDP growth, retail prices as well as the projected fiscal impact of the new regulations which will be applied in 2006. On the basis of the given parameters budget current revenues of the Republic (without privatization proceeds, donations and lending and credits) in 2006 are projected to the amount of 480,10 mil. €, what is an increase of 10,25 % in comparison to the budget rebalance in 2005.Planned increase in current budget revenues is based on positive collection trends as regards VAT, corporate profit tax, excises which are paid in production and revenues which will be provided by the spending units through their own activity. In addition, net fiscal impact of new regulations application will provide for additional revenues to the amount of 5,81 mil. €. The biggest positive effect is expected regarding PhysicalPersons Income Tax revenues due to the application of the Law on Unified Registration and System of Reporting on Calculation and Collection of Taxes and Contributions (3,5 mil. €), as well as the Law on Amendments to the Lawon Excises (1,00 mil. €).