FYR of Macedonia : Public Expenditure and Institutional Review

Abstract

The review was undertaken, and completed
 against a background of substantial political economic
 disruption: the Kosovo crisis of 1999 threatened to
 undermine the country's accomplishments in building
 macroeconomic, and fiscal stability; and, the security
 crisis of 2001, tested once again Macedonia's
 political, and economic integrity. Both instances were
 successfully surpassed, showing significant steps towards
 becoming a market oriented state within the European
 context, and, in its willingness to accept, and ratify the
 Peace Agreement of November 2001. But, expenditure pressures
 rose, leading to additional spending, while revenues
 declined owing to economic weakness, and decreased tax
 enforcement; clearly, fiscal stability stands on the
 balance. Not surprising, the quality of expenditures became
 an important issue, for although acceptable aggregate
 targets were being achieved, the budget's economic
 composition was not suited for promoting economic growth.
 Institutional aspects show that budget preparation, and
 processes provide no link between policy commitments, and
 available resources, aggravated by unfounded credibility on
 the budget, as an instrument for policy formation.
 Recommendations call for improved resource allocation within
 fiscal constraints, i.e., reducing public resources, and,
 laying the foundation for a budget process legal framework.
 In addition, reforms should be institutionalized through
 accountability, and capacity building.