Summary report World Bank - Urban Partnership Program Technical Workshop on Municipal Finance for participants from Bosnia and Herzegovina, Montenegro and Serbia September 24-26, 2018 Sarajevo, Bosnia and Herzegovina Table of contents 1. Main outcomes and messages from the workshop .............................................................................. 2 2. Summary of workshop sessions ............................................................................................................ 2 3. Outlook, recommendations and next steps ........................................................................................ 10 4. Annex 1: Workshop agenda ................................................................................................................ 11 5. Annex 2: List of participants ................................................................................................................ 14 1. Main outcomes and messages from the workshop The UPP has been furthering financial management and supporting capacity building with a network of local experts in the region through the Municipal Finance Self-Assessment and related tools. In the latest UPP survey (June 2018), 67% of respondents said that the MFSA helped improve the financial management of municipalities and 73% that the UPP helped access funding to finance local, national or regional urban projects. The success of the Program, which has involved more than 80 municipalities and 500 practitioners and decision makers, is mainly due to regular interactive technical workshops and learning events where experts have the opportunity to exchange best practices, challenges, and discuss solutions regarding the most important issues concerning local finances and development, in a trusting and familiar context. The MFSA workshop in Sarajevo aimed to showcase the new MFSA V2.0 web based application to participants before its official launch. It also served to exchange information on common challenges related to financial management, such as how to design capital investment plans, systems of debt management related to fiscal decentralization (% of VAT received by municipalities), legalization processes for objects and properties, and how to ensure successful models and implementation of Public Private Partnerships. The participants were also inspired by approaches such as budget transparency measures and citizen engagement in decision making (participatory budgeting), the PEFA methodology on which the MFSA was partly based, as well as the model of the Iller Bank in Turkey and its Sustainable Cities Project. 2. Summary of workshop sessions Day 1 – Tuesday, October 25th ➢ Session 1: Welcome remarks Tamara Nikolić, Task Team Leader of the Program opened the workshop by welcoming participants and introducing the agenda of the two-day event. The agenda was demand driven and reflected requests from municipalities to address a number of different topics, including: financing of capital investments, debt management, PPPs, issues of legalization of illegal objects, and citizen engagement in decision making. Sessions were led by the respective finance experts from Bosnia and Herzegovina, Croatia, Montenegro and Serbia as well as international experts and World Bank colleagues. Solène Dengler, analyst for the UPP, briefly presented the outcomes from the UPP survey filled in by over 100 participants from 65 different municipalities/cities earlier this year. Participants were presented the main results related to MFSA and were informed that all other results are available upon request by country and municipality. What would you consider the most important tool(s) of the UPP? (% from total responses) Municipal finance self-assessment 13% 28% Urban audit 10% Integrity Building/Anti-corruption approach 15% Social Sustainability/Citizen Engagement approach 18% 16% E-learning Networking events "Has the MFSA helped to "Have the UPP tools helped you "Has the UPP influenced in any improve the financial to access funding to finance way municipal service delivery to management of your your local, national or regional citizens and their quality?" municipality?" urban projects?" 100% 80% 80% 73% 82% 67% 80% 60% 60% 60% 40% 40% 40% 22% 25% 20% 20% 15% 20% 0% 0% 0% Yes No Yes No Yes No ➢ Session 2: MFSA – Introduction to revised V2.0 The session was an introduction to the improved MFSA online platform (MFSA V2.0). Nataša Obradović, Finance Expert from Montenegro, said that the MFSA makes an important city’s analytical tool and that further improvements have been made in order to make the MFSA more user- friendly. She also highlighted the significance of key ratios in the MFSA tool which provide for the benchmarking and ensure detailed assessment of the municipal finances, which serve for better communication with management and other stakeholders. All experts pointed out that the tool supports local government’s decision making considerably, through readily visible financial management trends, possible interventions, and through benchmarking. Liljana Brdarević and Goran Rakić, finance experts from Serbia and Bosnia and Herzegovina RS, said that the tool can be used for capital investment planning, debt management and presenting results overall and by sections to potential donors, but that it also provides arguments for discussions with the ministries of finance on issues of fiscal decentralization . Results can also be exported for reporting purposes. Brankica Lenić from Bosnia and Herzegovina Federation highlighted that to maximize the use of the tool, all sections should be filled in, even with potentially imperfect data that could be revised later. A high number of municipalities expressed their interest in the new version of MFSA tool. The application is currently being tested with users, revised and customized before being fully released on the website and disseminated. ➢ Session 3: Citizen engagement in decision making – “Opportunities for a participatory MFSA”; Budget Transparency Measures & Participatory Approaches The session focused on showing the advantages and methods of citizen involvement for improved development results. Sandra Kdolsky, Social consultant at the World Bank, described ideal citizen engagement as a two-way process with “empowerment” and presented best practices from Canada, Turkey, Serbia and Croatia, including citizen report cards and interactive budgetary games The session then focused on the participatory budgeting process, defined as the negotiation with citizens on the allocation of (at least parts of) the budget, accompanied by budget literacy and public debates, with proven advantages such as financial services and maintenance of quality infrastructure. Sanja Ilić, Head of the Finance Secretariat of the City of Pancevo in Serbia then presented Pancevo’s experience. Participatory budgeting was initiated in ten municipalities in Serbia. Citizens are involved in Pancevo in the allocation of money through selecting and voting on projects, discussing results and monitoring financial management The ensuing group work helped workshop participants understand the difficulties of effectively engaging and educating citizens, but also all the advantages from it. ➢ Session 4: Capital Budget Financing Sources: Identification of sources of capital expenditures financing within the capital budget The fourth session focused on capital investment plans. Liljana Brdarević identified several challenges in developing them: 1) projects that are ready to be financed, 2) have sufficient funds in the budget, 3) selection of adequate sources of financing (i.e. budgetary financing vs. market model criticized for putting “future generations into debt”). The five ideal basic steps to plan capital investment were outlined, for which the MFSA tool could help with conservative estimates. Representatives from Banja Luka in Bosnia and Herzegovina Republic of Srpska (Božana Šljivar, Head of Finance) and Subotica in Serbia (Dubravka Rodić, Head of Finance) presented their experience. Božana described the process that led to the development of a project for a multi-functional conference hall as a smart city project with citizen engagement, although she mentioned that the methodology would have to be improved. Dubravka outlined the process to develop investment plans that is highly dependent on the interaction with the national level. ➢ Session 5: Project Finance and the setup of Capital Budgeting (group exercise) In this session participants split up in groups and were asked to create an implementation plan for 6 selected capital projects for designated municipalities in the exercise by defining: 1) adequate sources of funding for each project individually, bearing in mind the financial cost-effectiveness of the project and the net effect of each project on the budget of the Municipality; and 2) the dynamics of project financing by years, depending on the available sources of financing of capital projects in the next 5 years. All groups successfully completed the exercise demonstrating a different level of readiness to diversify external sources of funding for capital projects. The representatives from Montenegro mostly focused on loan financing projects. The Serbian participants planned to finance the projects from loans and PPPs, taking into account the balance of municipal finances. The representatives from Bosnia and Herzegovina showed willingness to diversify the sources of financing, using PPPs wherever applicable, . (translator remark: simply delete this last part, it is not necessary in the sentence) Table: Plan for financing the implementation of one project Table: Capital Investment Projects Financing with Municipal Financial Snapshot ➢ Session 6: Local expenditure review The PEFA (Public Expenditure and Financial Accountability) methodology was presented by Anto Bajo (Finance Expert) from Croatia and Holy-Tiana Rame, Senior Public Finance Specialist, PEFA Secretariat, World Bank. Very few participants were familiar with PEFA, a public good, internationally recognized and so far, used in 150 countries. It is the basis for part of the financial management under MFSA. Holy-Tiana Rame and Anto Bajo described the PEFA methodology. The PEFA framework assesses and reports on the strengths and weaknesses of PFM using 31 quantitative indicators to measure performance. PEFA is designed to provide a snapshot of PFM performance at specific points in time using a methodology that can be replicated in successive assessments, giving a summary of changes over time. The PEFA report also assesses the implications for overall system performance and desirable public financial management outcomes: aggregate fiscal discipline, strategic allocation of resources and efficient service delivery. It provides a foundation for reform planning, dialogue on strategy and priorities, and progress monitoring. Holy-Tiana Rame highlighted the fact that PEFA can and has been implemented by local governments: out of 513 PEFA reports, 203 cover subnational levels of government across 43 countries. Additional guidance is provided for applying the PEFA methodology at the subnational level to better suit the characteristics of subnational governments. The methodology also contains an additional indicator to be applied in the case of transfers or earmarked grants from higher-level to subnational governments. Anto Bajo described the impact of PEFA, illustrated by the cases of Croatia, Serbia and Macedonia. Day 2 – Wednesday, October 26th ➢ Session 7: Introduction to Sustainable Cities Project (SCP), Iller Bank, Turkey Birol Kayranli, Head of Department; Şevket Altuğ Taxdemir and Hasan Fehmi Tigli, Finance Experts of Ilbank presented the bank’s model, the World Bank Sustainable Cities Project (SCP) in Turkey and its results. Ilbank is an investment and development bank that is state-owned and supports mainly municipalities through sub-loan agreements. It has been very successful in supporting municipalities with funding and technical assistance and has never experienced any defaults. The SCP is a project with the World Bank that has three components including municipal investment, sustainable city planning and management systems and project management. The team wishes to encourage municipalities in Turkey to use the MFSA for capital investment plans and to improve analysis, decision making and overall financial management. ➢ Session 8: Debt management The panel discussed different debt management systems in the two entities of Bosnia and Herzegovina as well as showcased experiences from other countries/cities. Goran Rakic and Brankica Lenic described the situation in RS BiH and FBiH where the LGUs actually pay part of the external debt of higher levels of government because, due to the current legislation, the external debt is being deducted before revenues from indirect taxes are allocated to municipalities. Goran Rakic pointed out the success in RSBiH of the Association of cities and municipalities that achieved a redistribution of 24% of VAT to municipalities compared to only 8% in FBiH. Suada Isakovćc, Head of the Economic Affairs Department, spoke about experience of the City of Tuzla; Ranka Perić spoke about the excellent experience of the City of Belgrade using the BeoSAP application for debt management while Petar Odžić, Head of Finance, of City of Budva, spoke about the wrong decisions in the city by taking a loan for wastewater management, and how they overcame the over- indebtedness crisis in two years despite municipalities receiving no revenue from VAT. He highlighted that speaking honestly about mistakes in the region is essential to learning from those mistakes and sharing solutions. ➢ Session 9: Public Private Partnerships The panel discussed best practices for Public Private Partnerships and compared the alternative (leasing, concessions) vs. the traditional model of procurement (provision of service). Anto Bajo, Finance Expert from Croatia, explained that major factors to take into account for alternative models / PPPs is value for money and risk sharing between the private and public sector and possibility of combined financing. The Mayor of Koprivnica, Honorable Mišel Jakšić, and the Head of the planning department, Jasna Golubić, presented the case study in their city, the 18 biggest and among the 10 most developed cities in Croatia. The project of building a high school in their city is a first one in Croatia, but has not yet led to government measures to promote PPPs due to public debt concerns and unsuccessful experiences in building sports halls. Ms. Golubić described the success of the school that has been in operation for 11 years, has received awards, and has lower operating costs than in the traditional model. A main factor of success was the excellent quality of the consultants and the precisely detailed maintenance clauses in the 25-year lease contract. Liljana Brdarević described the public regulation situation in Serbia for PPPs that has stalled since 2013, even if the committee has approved 81 proposals. Ms. Brdarević advised municipalities not to wait for a perfect environment given the many potential advantages of PPPs. ➢ Session 10: Legalization - Experience from Montenegro and Bosnia and Herzegovina The panel exchanged information on the process of legalization from central and local government perspectives. Illegal construction is a widespread challenge in the region that was accentuated shortly after the war. In Belgrade, Serbia there are 20.000 illegal objects and there is the largest illegal neighborhood in the Western Balkans (Kaluđerica). Jelena Pavlović, Advisor for Investments from the Department of Transport in Banja Luka, presented on how they have cost-efficiently legalized around 9.500 buildings since 2008, which resulted in a 10 million (translator remark: 10 million what, EUR, KM? It’s fine as it is, but it would be more stylish if a currencz was added) surplus for the budget and included the buildings into the structure of the city. Marko Čanović, Director General for Housing Development from the Ministry of Sustainable Development and Tourism in Montenegro, introduced the new law which covers legalization of illegal objects and shared the implementation results to date, as well highlighted the goal of the Vienna declaration signed in 2002 that alternative housing should always be provided, and that the 3D ortophotographic mapping supported them in legalization by resolving issues concerning data. Illegal construction is a major challenge for urban management and the provision of public services and the coastal area is particularly endangered in Montenegro. Honorable Dušan Raičević, Mayor of Bar, Montenegro, spoke about the municipal perspective for legalization as challenging process which, once implemented, will ensure significant additional revenues in the municipal budgets. He addressed the high number of illegal constructions in the municipality and how important it will be to include them in the legal system. 3. Outlook, recommendations and next steps The workshop successfully promoted the existing and new MFSA tools and focused on problem-solving in areas of project finance and capital investment through group work sessions. Proposals developed during the workshop will be further discussed with experts to promote concrete action plans in the municipalities and possibly lead towards CIPs. Participants were encouraged to make the next step and test the on-line MFSA platform in each of the cities, with the support of the Finance Experts; take upon the recommendations of the Social expert and strengthen the citizen engagement in financial decision making that could be supported through UPP as well as to participate in the City to City Dialogue planned for April 2019. The City to City dialogue will serve as the platform for further exchange of results and challenges of testing the MFSA 2.0 tool, promote the Handbook for local governments, present the progress of the Western Balkans Urbanization Review and provide space for cities and city leaders to discuss their accomplishments and challenges in areas of finance, decentralization and local development. 4. Annex 1: Workshop agenda WB-Austria Urban Partnership Program Technical Workshop on Municipal Finance for participants from Bosnia and Herzegovina, Montenegro and Serbia September 24-26,2018 Sarajevo, BiH Date/Time Topics Key issues Lead/ speakers/ panelists Day 0 (Monday 24.09) Arrival to Sarajevo in the afternoon/evening Accommodation/Venue: Hotel Europa, Vladislava Skarića 5, 71000 Sarajevo, BiH http://www.hoteleurope.ba/bs_index.html Welcome dinner in Restaurant Vinoteka, Skenderija 12 at 19.30h Day 1 (Tuesday 25.09) Session 1 Welcome remarks Agenda Tamara Nikolic, Operations Officer, introduction & World Bank, GSURR 09:30 – 09:40 Survey Solene Dengler, Analyst, UPP, overview GSURR Session 2 MFSA – Introduction to revised V2.0 Introduction to Lead: Ljiljana Brdarevic, Brankica improved Lenic, Natasa Obradovic, Goran 09:40 – 10:40 MFSA on line Rakic, Finance experts platform Coffee break 10:40-11:00 Session 3 Citizen Engagement in Decision Lead: Sandra Kdolsky, World Bank Making - “Opportunities for a Social Development Consultant 11:00– 12:00 participatory MFSA” Sanja Ilic, Head of the Finance Budget Transparency Measures & Secretariat of the City of Pancevo, Participatory Approaches Serbia Session 4 Capital Budget Financing Sources: Lead: Ljiljana Brdarevic, Finance Identification of sources of capital Expert, Serbia 12:00 – 13:00 expenditures financing within the capital budget Dubravka Rodic, Head of Finance, City of Subotica, Serbia Bozana Sljivar, Head of Finance, City of Banja Luka, Bosnia and Herzegovina Lunch 13:00 – 14:00 Session 5 Project Finance and the setup of Lead: Ljiljana Brdarevic Capital Budgeting 14:00 – 15:00 Facilitated by all finance experts Group work Coffee break 15:00 – 15:15 Session 6 Local expenditure review Lead: Holy-Tiana Rame, Senior Finance Specialist, PEFA Secretariat, 15:15 – 16:15 Public Expenditure & Financial World Bank Accountability (PEFA) Anto Bajo, Finance Expert, Croatia Sharing experience on PEFA from Croatia, Macedonia and Serbia Dinner 19:30 Restaurant 4 Sobe gospodje Safije (bus transport at 19:10) http://www.restoransarajevo.com/ Day 2 (Wednesday 26.09) Session 7 Introduction to Sustainable Cities Presenters: Birol Kayranli, Head of Project (SCP), Iller Bank, Turkey Department 9:00 – 9:20 Şevket Altuğ Taxdemir, Hasan Fehmi Tigli, Finance Experts Session 8 Debt Management Lead: Brankica Lenic/Goran Rakic, Finance Experts, BiH 9:20 – 10:20 Panel, exchange of experiences: Suada Isakovic, Head of Finance, City of Tuzla, Bosnia and Herzegovina Ranka Peric, Dept Management, City of Belgrade, Serbia Petar Odžić, Head of Finance, City of Budva, Montenegro Session 9 Public Private Partnerships Lead: Anto Bajo, Finance Expert, Introduction to Public Privat Croatia 10:20– 11:15 Partnership Honorable Misel Jaksic, Mayor of Koprivnica, Croatia Experience from Croatia Jasna Golubic, Head of the planning department, Koprivnica, Croatia Discussant: Ljijana Brdarevic, Reflections from Serbia Finance Expert, Serbia Coffee break 11:15-11:30 Session 10 Legalization - Experience from Lead: Natasa Obradovic, Finance Montenegro and Bosnia and Expert, Montenegro 11:30– 12:30 Herzegovina Honorable Dusan Raicevic, Mayor of Bar, Montenegro and Marko Čanović, Director General for Housing Development, Ministry of Sustainable Development and Tourism, Montenegro Jelena Pavlovic, Advisor for Investments, Department of Transport, Banja Luka, Bosnia and Herzegovina 12:30 Closing Tamara Nikolic, Operations Officer, World Bank/UPP Lunch 12:30 – 13:30 Participants departure in the afternoon 5. Annex 2: List of participants Country/Description Name Surname Municipality Municipal staff Žepče Bosnia and Herzegovina Sanja Ilić Tuzla Bosnia and Herzegovina Maida Hadžimehmedović Tuzla Bosnia and Herzegovina Suada Isakovic Bosnia and Herzegovina Dževad Selimović Zenica Bosnia and Herzegovina Nikola Benkovic Orasje Bosnia and Herzegovina Nihada Bećirbašić Odžak Bosnia and Herzegovina Radinka Dujak Odžak Bosnia and Herzegovina Bozana Sljivar City of Banja Luka Bosnia and Herzegovina Dejan Vujic City of Banja Luka Bosnia and Herzegovina Nevenka Lucar City of Prijedor Bosnia and Herzegovina Mirjana Davidovic Foca Bosnia and Herzegovina Dragan Ivanović Foca Bosnia and Herzegovina Jelena Pavlovic Banja Luka Bosnia and Herzegovina Njegoš Tanacković Višegrad Bosnia and Herzegovina Siniša Moravski Prnjavor Montenegro Srdjana Milićević Budva Montenegro Petar Odžić Budva Montenegro Alida Nuhodžić Bijelo Polje Montenegro Petar Smolovic Bijelo Polje Montenegro Rajka Jovićević Tivat Montenegro Marija Zekovic Zizic Tivat Montenegro Rajka Tomović Mojkovac Montenegro Nevenka Plantak Bar Montenegro Dušan Raičević Bar Montenegro Emina Salihović Pljevlja Montenegro Ivan Perunović Niksic Montenegro Nada Vuckovic Kotor Montenegro Stevo Latkovic Kotor Serbia Dubravka Rodić City of Subotica Serbia Marija Ušumović Davčik City of Subotica Serbia Ranka Perić Begrade Serbia Gordana Kukrkić Begrade Serbia Sanja Ilić Pancevo Serbia Danijela Spasović Nis Ministry Ministry of Sustainable Marko Čanović Development and Tourism Montenegro Montenegro Snezana Mugosa Ministry of Finance Montenegro Gordana Radović Ministry of Finance Local experts Bosnia and Herzegovina Goran Rakić Local Expert Bosnia and Herzegovina Brankica Lenić Local Expert Croatia Anto Bajo Local Expert Montenegro Natasa Obradović Local Expert Serbia Ljiljana Brdarević Local Expert LGA BiH Vesna Travljanin SOGFBiH BiH Gregor Jurisic SOGFBiH Serbia Dunja Naic SKGO Montenegro Zana Djukic UOM Guests Macedonia Ljupka Simonoska Skopje Croatia Misel Jaksic Koprivnica Croatia Jasna Golubic Koprivnica Guests Turkey Birol KAYRANLI Ilbank Turkey Şevket Altuğ TAŞDEMİR Ilbank Turkey Hasan Fehmi TIĞLI Ilbank World Bank Serbia Tamara Nikolić World Bank Austria Sandra Kdolsky World Bank Austria Solene Dengler World Bank DC Holy Tiana Rame World Bank Austria Ivana Hasanagić World Bank