29/10/2018
DRAFT FOR DISCUSSION
Finance Law of Bosnia and Herzegovina
Chapter I. General Provisions
Article 1
Scope of Application
This Law regulates the preparation, enactment, execution and supervision of the Budget of the Institutions of Bosnia and Herzegovina, the establishment and authority of the Treasury on the level of Bosnia and Herzegovina, the Treasury Single Account on the level of Bosnia and Herzegovina and the investment of Public Funds.
Article 2
Definitions
In the sense of this Law, the terms used have the following meaning:
a)Budget: represents an act of the Parliamentary Assembly of Bosnia and Herzegovina that provides a plan of financial activities of the Budget Institutions, which includes a projection of the amount of Revenues and Expenditures for a period of one fiscal year as well as the upper limit of the total debt of Bosnia and Herzegovina, which itself includes the existing debt and the projection of the new debt for that budget year.
b)Budget Institutions: are all institutions of Bosnia and Herzegovina including Ministries and other bodies of administration that are financed from the Budget.
c)Revenues: include obligatory transfers from the Entities pursuant to the Constitution of Bosnia and Herzegovina, tax and non-tax revenues and other revenues as determined by law.
d)Public Funds: include all monetary assets including without limitations Revenues, fees, compensations and other own-source revenues from providing public services and activities, credits and grants that must be deposited in and disbursed from the Treasury Single Account.
e)Treasury Single Account (hereinafter TSA): represents the system that consists of all bank accounts held in the name of the Ministry of Finance and Treasury of Bosnia and Herzegovina within one or more commercial banks, in which all operations regarding funds of the Budget are executed and recorded. The purpose of the TSA is to centralize control of all Public Funds.
f)Treasury: represents the basic organizational unit within the Ministry of Finance and Treasury of Bosnia and Herzegovina. The Treasury shall carry out the activities as determined by this Law and other appropriate activities as decided by the Ministry of Finance and Treasury of Bosnia and Herzegovina.
g)Expenditures: represent expenses of Budget Institutions and earmarking on the level of Bosnia and Herzegovina for particular purposes:
expenses of Budget Institutions are: current expenses (salaries and employee compensations, expenses for material and services, expenses for insurance and banking services and contracted services), current grants, capital expenses and special purpose programs;
earmarking on the level of Bosnia and Herzegovina for particular purposes are expenditures for external debt servicing, grants to other levels of government, subsidies, donations and investments.
h)Apportionment: refers to Ministry of Finance and Treasury‘s authorization to allocate approved budget amounts among the Budget Institutions. An apportionment of funds must be approved before the funds have been committed or spent. Approved apportionments are the basis for controlling the execution of the approved Budget through the accounting system.
i)Regulators: refer to each independent regulatory body established at the State level with the status of a legal person under the laws of Bosnia and Herzegovina and which is self-funded.
j)Cash basis of Accounting: means that flows are recorded when cash is received or disbursed.
k)Commitment basis of Accounting: means that flows are recorded when a Budget Institution has committed itself to a transaction. Such basis applies only to purchase of assets, goods and services, including compensation of employees. The time of recording generally is when the Budget Institution issues a purchase order.
Article 3
Ministry of Finance and Treasury
Pursuant to the Law on Ministries and other Bodies of Administration of Bosnia and Herzegovina (Official Gazette of Bosnia and Herzegovina 5/03), the Ministry of Finance and Treasury of Bosnia and Herzegovina (hereinafter: the Ministry of Finance and Treasury) shall be responsible for the preparation of the Budget, the execution of the Budget and taking care of financing of Budget Institutions, the co-ordination of activities to secure budgetary funds and investment of Public Funds, and executes other activities in the area of financing the Budget Institutions in accordance to the Constitution and Law.
The Ministry of Finance and Treasury is also responsible for all debt management . The Ministry of Finance and Treasury is obliged to participate, along with any other Ministries or appropriate officials, in all negotiations regarding the issuance of new debt for the Budget Institutions and shall be responsible for preparation of all documents and official information, and maintaining original documentation for all new debt issuance. The Ministry of Finance and Treasury is solely responsible for the issuance and management of all debt, external and domestic. No other Budget Institution has the authority to independently incur any debt or to represent the Institutions of Bosnia and Herzegovina in making agreements regarding the issuance of new debt or giving any guarantees on behalf of the Institutions of Bosnia and Herzegovina.
The Treasury is authorized to carry out the following activities: cash management and maintaining the TSA, planning and control of the execution of the Budget, Budget execution reports, internal auditing, debt repayment, accounting control, investment of Public Funds.
Chapter II. Budget
Section I. Introduction
Article 4
Finance and Internal Control Officer
Each Budget Institution shall appoint at least one finance officer who may not be the Minister or Deputy Minister responsible of such Budget Institution. Each finance officer shall be directly subordinate to the responsible Minister. The finance officer of independent administrative organization, as defined in the above mentioned Law on Ministries and Other Bodies of Administration of Bosnia and Herzegovina, shall be directly subordinate to the Council of Ministers.
The finance officer shall be responsible for the Budget Institution’s financial planning, budget preparation and budget execution. Additionally, the finance officer shall be responsible for the establishment and maintenance of adequate systems of management over the budget resources and assets of the Budget Institution.
Each Budget Institution shall also appoint an internal control officer, who shall be responsible for the internal financial control and accountability over the budget resources and assets of the Budget Institution. The Ministry of Finance and Treasury shall establish guidelines for the establishment and maintenance of systems of effective internal financial control. The internal control officer shall report to the Head of the Budget Institution. The internal control officer must be a person different than the finance officer. If the finance officer is the responsible Minister, the internal control officer shall report to the Council of Ministers.
Article 5
Accounting Methodology
The Ministry of Finance and Treasury shall promulgate a rulebook regarding the budget classification of Revenues and Expenditures and the chart of accounts.
The Ministry of Finance and Treasury shall regulate the bases of accounting. Until such time as international accounting standards are adopted, the Ministry of Finance and Treasury shall record budget Expenditures using the Commitment basis of Accounting and shall record budget Revenues using the Cash basis of Accounting, as defined in Article 2 of this Law.
Article 6
Confidential Operating Budgets
Where secrecy is imperative, the Parliamentary Assembly of Bosnia and Herzegovina may, in exceptional instances, make authorization of expenditures to be effected under confidential operating budgets. Legislative procedures for granting such authorization and corresponding legislative oversight over the use of such authorizations shall be exercised through a confidential committee of the Budget and Finance Commission. Budget administration of confidential operating budgets shall be the responsibility of the Ministry of Finance and Treasury.
Section II. Budget Preparation
Article 7
Formulation of the Budget
Formulation of the Budget shall be based on a medium-term financial plan prepared by the Ministry of Finance and Treasury covering at a minimum the budget year plus one following fiscal year. The financial plan shall consider the macroeconomic and revenue outlook for the years covered by the financial plan and establish a program policy framework for allocating resources of the budget year. The financial plan shall also consider the debt forecast which represents an estimated amount of total debt over the next fiscal year plus one following fiscal year and includes the schedules for repayment of existing debt and the total amount of debt projected to be issued during the next fiscal year plus one following fiscal year.The calendar for consideration and approval of the financial plan shall be established by the Council of Ministers.
With respect to the preparation of the financial plan, the Ministry of Finance and Treasury may establish a financial planning advisory council . Such advisory council shall be chaired by the Minister of the Ministry of Finance and Treasury and be composed of at least one representative of the Minister of finance for each Entity. The advisory council shall meet at the call of the chair and establish its own rules of procedures. The consultation with the advisory council shall not delay the budget process itself.
The Ministry of Finance and Treasury is obliged to forward a circular to the Budget Institutions regarding the manner and elements for formulating the medium-term financial plan and annual Budget that shall contain the following:
a)instructions regarding the preparation of requests for allocating funds from the Budget;
b)deadlines for submitting requests for allocating funds and
c)limits in spending.
The Ministry of Finance and Treasury shall coordinate during the preparation of the Budget with the Ministries of finance of the Federation of Bosnia and Herzegovina and Republika Srpska with the aim of determining the amount of liabilities of the Entities according to this Budget, and to forward to these Ministries of finance a circular regarding the funds needed for financing the Budget Institutions and for servicing all debt.
Budget estimates and requests for future authorizations for capital expenditure projects shall be supported by suitable cost-benefit analyses or other appropriate justifications. Construction projects shall be also supported by time phased project management plans, and cost estimates. In the case of other multi-year projects and measures, requests for future authorizations must be supported in the initial request and updated in subsequent budgets by estimates of total costs over all years.
The Ministry of Finance and Treasury shall review the projected Revenues and the proposals of the requests of the Budget Institutions, as well as recommend the allocation of funds for each Budget Institution.
The Ministry of Finance and Treasury shall submit a draft Budget to the Council of Ministers by October 1st of the current year for the following year.
Article 8
Content of the Budget
The draft Budget must contain a detailed breakdown of the Revenues by sources and Expenditures by classes, including capital expenditures, according to the budget classification and chart of accounts adopted by the Ministry of Finance and Treasury.
The draft Budget shall also include:
a)a summary of Revenues, Expenditures, and authorizations for future commitments;
b)a proposal of funding for each Budget Institution, including
estimated Revenues, and proposed Expenditures for all Budget Institutions;
c)explanatory material relating to draft Budget, including:
-the influence of the economy of Bosnia and Herzegovina as a whole on the Budget,
-current state of public finance,
-medium-term financial plan and program policy framework,
-data on current and long-term external debt liabilities of Bosnia and Herzegovina including principal repayment, interest payments, estimated amounts related to foreign exchange rate differences, and other debt servicing liabilities,
-data on domestic debt liabilities of Bosnia and Herzegovina including outstanding principal repayment, interest payments, proposed amounts to be issued during the year and purposes of issuance,
-Expenditures, especially those for grants to non-profit organizations and capital expenditures.
d) a current reserve that cannot exceed 3% of the budget funds, excluding sums for debt servicing and repayment.
e) the following annexes:
-A description of Expenditures and authorizations for future commitments arranged by economic classification,
-A description of Expenditures and authorizations for future commitments grouped by Budget Institutions and arranged with a breakdown grouping by economic classification,
-A description of Expenditures and authorizations for future commitments arranged by functional classification,
-,
-A summary of number of officials and employees grouped by Budget Institutions and arranged by civil service classification of positions,
-Summary information and highlights of auditor’s report and opinion rendered on latest financial statements of each Budget Institution, and
-If applicable, exchange of correspondence between each Regulator and the Ministry of Finance and Treasury.
The draft Budget shall specify the level to which the Ministry of Finance and Treasury shall be permitted to borrow funds:
a)In order to cover Expenditures, and
b)To effect proper cash management, provided such borrowing may be repaid within the fiscal year.
Granting of sureties, guarantees or any other warranties that may give rise to future expenditures shall require authorization in definite amount by the draft Budget.
Article 9
Budget of the Regulators
Each Regulator shall submit its budget (hereinafter: the Regulator’s budget) to the Ministry of Finance and Treasury by September 1st of the current year for the following year.
Any alteration of the Regulator’s budget by the Ministry of Finance and Treasury shall be duly documented and the Regulator shall be given the possibility to reply before the draft Budget is submitted to the Council of Ministers.
In absence of agreement on the Regulator’s budget between the Regulator and the Ministry of Finance and Treasury, the exchange of correspondence between the Regulator and the Treasury shall be annexed to the draft Budget pursuant to Article 8 of this Law.
The Council of Ministers shall not reduce the Regulator’s budget by more than 20%.
Any reduction of the Regulator’s budget shall automatically become a contingent appropriation authority on behalf of the respective Regulator. The approved budget funds of the Regulator and the funds allocated to the contingent appropriation authority shall not be higher than the Regulator’s budget submitted according to paragraph 1 of this Article..
The use of the funds allocated to the contingent appropriation authority by the Regulator is subject to a special procedure described in Article 20 of this Law.
SECTION III. Budget Enactment
Article 10
Proposed and Adopted Budget
The Council of Ministers is obliged to submit a draft Budget for the following year to the Presidency of Bosnia and Herzegovina no later than October 30th of the current year.
Pursuant to its own rules of procedure, the Presidency of Bosnia and Herzegovina is obliged to submit a proposed Budget to the Parliamentary Assembly of Bosnia and Herzegovina by November 15th of the current year for the following year. The proposed Budget that is submitted to the Parliamentary Assembly of Bosnia and Herzegovina must have explanations of needed budget financial funds for the implementation of that law. The proposed Budget, which establishes extra budgetary or off-budget funds requires the consent of the Minister of Finance and Treasury.
The Parliamentary Assembly of Bosnia and Herzegovina shall examine the proposed Budget submitted by the Presidency of Bosnia and Herzegovina, and under its own rules of procedures adopt a Budget Law by December 31st of the current year.
The adopted annual Budget Law may contain only such provisions as apply to Budget Institutions Revenues and Expenditures, and to the period for which it is being enacted.
Funds that have not been approved in the Budget Law can not be used.
Budget commitments for following years, stemming from current budget year contractual obligations for capital investment and other multi year projects, are authorized only to the extent that such future commitments are approved in the annual Budget.
SECTION IV. Temporary Financing
Article 11
Temporary Financing
If the Parliamentary Assembly of Bosnia and Herzegovina does not adopt a Budget Law before the beginning of the budget year, the financing will be temporary until such law comes into force.
Temporary financing, in order to maintain statutory Budget Institutions and to implement statutory measures and to meet international financial obligations of Bosnia and Herzegovina, is done in proportion to the funds spent in the same periods of the Budget for the previous year.
New or expanded programs and activities may not be started until approved in the Budget Law. The exception is for the repayment of external debt that is paid as liabilities come due.
To continue building projects, procurements, and other services, or to continue to disburse funds for these purposes is permissible under terms of temporary financing, provided multi-year financing or authorization for future commitments has been approved by previous year budgets.
The Ministry of Finance and Treasury may borrow funds on a short-term basis from the Entities or banking sources to carry out temporary financing up to a maximum of one quarter of the amount of the budget estimate for the preceding financial year and to the extent consistent with the principles of sound cash management and the requirement to repay during the fiscal year. However no new debt, either domestic or external, may be incurred until the Budget is adopted except as provided in this paragraph.
The Council of Ministers of Bosnia and Herzegovina enacts the decision on temporary financing.
SECTION IV. BUDGET EXECUTION
Article 12
Operating Budgets and Requests for Payments
After enactment of the Budget, the Ministry of Finance and Treasury is obliged to inform the Budget Institutions about the approved budget funds and approved apportionments by time periods. The Ministry of Finance and Treasury shall give quarterly or other time period appropriations.