Strengthening Line Ministries’ Capacities to Assess Fiscal Implications of Structural Reforms
Immediately before and after regaining independence (in 2006), Montenegro undertook numerous reforms to its fiscal, monetary, social, trade-related, and business enabling frameworks that have allowed its economy to grow more quickly and raised living standards. Nevertheless, many challenges remain, in particular with regard to fiscal policy and efforts to address the informal economy; research, development, and innovation, and digital economy; the labour market; education; and social protection and inclusion. In addition, some of the reforms were not unambiguously positive in their impacts, but rather introduced incentives that have hurt prosperity more than aiding long-term growth and development. For good intentions to have equally good results, structural reforms must be appropriately designed and implemented. Assessing fiscal impact is a key aspect of designing and pursuing structural reforms. Unless duly costed, structural reforms can remain a dead letter, as there will be insufficient resources to implement them, or they may incur unsustainable long-term commitments. The design and implementation of Montenegro’s allowance for mothers of three or more children caused much controversy, both over its political and social aspects and in connection with its fiscal impact. This case study assesses the implementation of this policy and its poor costing.
Montenegro’s economy, prior and post-independence in 2006, has undergone many structural reforms aimed to contribute to long-term economic prosperity and significant improvement in wellbeing of Montenegrin citizens. However, many challenges yet remain in terms of policy actions as well as policy design. One of them is proper planning and costing of structural reforms. There are examples of proper structural reform planning, including fiscal impact assessment, however, the capacities to plan and assess impact of structural reforms, and especially fiscal impact, yet have to be developed. The process of drafting Economic Reform Program in Montenegro, started in 2014, has to some extent contributed to raise awareness on the necessity of the challenges of the structural reforms planning; however, the effects on building capacities in line ministries for planning are limited. Key purpose of this paper is to present regulatory framework for costing structural reform, identify weaknesses and present examples. Key source of data used in this exercise are law and regulation applicable in Montenegro, policy documents, especially ERP for Montenegro as well as author personal experience in designing and managing structural reforms in Montenegro.