PFM Reforms After the Global Crisis in Georgia

7/30/2019 PFM Reforms After the Global Crisis in Georgia

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PFM REFORMS

AFTER THE GLOBAL CRISIS IN GEORGIANino Tchelishvili

May, 2013


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CONTENT

Global Crisis in Numbers Immediate Remedial Actions

PFM Strategy for 2009-2013

Strategic Planning and Program Budgeting, E-Budgeting Electronic Treasury and Integrated Public Financial

Management Information Systems

Implementation of International Public Sector

Accounting Standards (IPSAS)


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PRECONDITIONS TO CRISIS

Economic growth at its historical maximum inGeorgia 2007;

Eurobonds Issued 500 mln USD, April 2008;

Sovereign Wealth Funds Established ;

First Signs of Crisis in Banking Sector Q2, 2008,

than in real sector.

Situation Deteriorated by the Conflict, August2008

Treasury PFM Reforms


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GDP DYNAMICS

5.5

11.15.9

9.6 9.412.3

2.3

-3.8

6.3 7.2 6.1

-20.0

0.0

20.0

40.0

60.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

GDP Growth Dynamics (%)

2002-2012

GDP Mining Transport Agriculture Finance

10.7

13.0 13.7 11.79.9 7.9

-5.0-0.8

-4.8-9.0

-1.5 0.03.7

8.3 6.7 6.1

-40.0

-20.0

0.0

20.0

40.0

I-07 II-07 III-07 IV-07 I--08 II-08 III-08 IV-08 I-09 II-09 III-09 IV-09 I--10 II-10 III-10 IV-10

GDP Growth Quarterly Dynamics (%)

Q 1, 2007 - Q 4, 2010

GDP Mining Transport Agriculture Finance


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EXTERNAL DEBT AND DEFICIT

1,540,587

2,226,387

2,694,395

3,283,6013,607,828

3,997,301 3,971,849

1,017,6151,195,114

1,637,442

2,200,7092,424,155

2,693,567 2,676,025

522,972 531,273 556,953 582,892 618,923738,984 731,074

500,000 500,000 500,000 564,750 564,750 564,750

14.4%

19.5%

25.3%

28.1%24.8% 25.1%

22.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2007 2008 2009 2010 2011 2012 01.03.2013

Government foreign debt(thousands of USD)

Total Multilateral Donors Bylateral Loans Eurobonds Government foreign debt, as percent of GDP

percentage

-10.0%

0.0%

10.0%

2003 2004 2005

2006 2007 2008 2009 2010 2011 2012 2013

Fiscal Deficit 2003-2013

deficit


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IMMEDIATE REMEDIAL ACTIONS

AFTER THE CRISIS

Joint Needs assessment and Brussels donorsconference.

Financial Assistance pledged for:

Relocation, resettlement and return of IDPs

Targeted social protection for newly poor

Health insurance for poor

Restore infrastructure in education field Restore transport infrastructure

Restoration of agriculture (irrigation systems,

Technology and Equipment)


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IMMEDIATE REMEDIAL ACTIONS

Repatriate Funds from the Sovereign WealthFunds;

Tighten the Belts Policy

Lend from the IMF

Strengthen Fiscal Discipline;

Ensure Resource allocation in strategic fields;



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The Governments program of fiscal consolidation has advanced so that the deficit is continuously declining reaching some3.5% of GDP

Government spending is more heavily weighted towards capital expenditure than among peers, with future positive multiplier

effects

The Government is exceptionally prudent and conservative in managing recurrent and social costs, with growth-enhancing

capital expenditures being the only contributor to the deficit formation. Fiscal consolidation thus does not pose any political or

social challenges

The Public debt stock peaked in 2010 at a comfortable 42% of GDP and is declining in 2013. The Public debt ratio decreased by

5 percentage points to 37.0% of nominal GDP in 2011.

The Public debt stock is prevailingly on concessional terms - the weighted average interest rate on the public external debt

stock being a mere 2%. Interest payments/revenues ratio is very low relative to peers. Refinancing risk is inexistent.

The modest government debt stock and the low and largely fixed interest rates help to reduce external vulnerabilities

GENERAL CHARACTERISTICS OF

POST-CRISIS FISCAL POLICY

CAPITAL VS. CURRENT EXPENDITURES (high ratio of capex)


99.8%92.2% 88.8% 85.6%

73.4%84.9% 83.2% 82.4% 82.0% 84.3%

0.2%7.8% 11.2%

14.4%26.6%

15.1% 16.8% 17.6% 18.0% 15.7%

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Current Expenditures

Capital Expenditures


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PFM STRATEGY FOR 2009-2013

PFM Strategy for 2009-2013 (Approved in Feb,2009) defined Medium Term PFM Policy

Objectives:

Maintain Macro Stability, Improve MacroeconomicForecasting; Strengthen Fiscal Discipline;

Enhance Strategic Planning, Implement program

budgeting;

Develop electronic PFM systems;

Implement International Accounting Standards;

Improve monitoring and oversight on Public

ExpenditureTreasury PFM Reforms


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PFM STRATEGY FOR 2009-2013

New budget Code enacted in 2009. New rules and procedures for strategic planning and

Medium term Expenditure Framework; Basic Data and

Direction Document; Requirements to ensure Budget transparency and

accountability;

Ministry of Finance committed to implement accounting

standards;

Local Self Governments grants Equalization formula

defined;



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STRATEGIC PLANNING AND PROGRAM

BUDGETING

Identify Strategic Priorities; Develop Macro-FiscalProjections; Prepare Basic Data and Direction Document;

Allocate Sources to strategic priorities and set the

ceilings;

Fiscal forecasts and budget prepared T+3 period, on arolling basis;

Result oriented and Performance based Budgeting

introduction of program budgeting and performance

indicators;

Electronic budget planning and management system

launched in 2012.



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STRATEGIC PLANNING AND PROGRAM

BUDGETING

Improvements be visible on several levels: On a state level to ensure an overall fiscal discipline which is

the basis of the Macroeconomic stability

medium term expenditure framework helps to achieve sustainability of

current programs and the public debt policy;

On the inter-sectoral level ensuring an efficient inter-sectoral

allocation of resources

MTEF, BDD and top down budgeting are the basic institutional solutions

and tools used to reinforce the strategic allocation of resources;

On the program/management level coordinate budgetaryauthorizations and operative effectiveness

it is necessary to strike the right balance between flexibility during the

execution phase of the budget and budgetary restraint



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PFMS BENEFITS

Public Financial Management System (PFMS)is an information system designed to

Provide support for all public finance operations;

Reduce financial transaction cots;

Collect accurate, timely, complete, reliable and consistent

information on all financial events;

Provide adequate management reporting;

Support government-wide and agency policy decisions;

Provide complete audit trail / auditable financial statements.


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INTEGRATED PUBLIC FINANCIAL MANAGEMENT

INFORMATION SYSTEMS (PFMS)


PFMS project started in 2007 aiming at implementingcommercial off-the-shelf software package;

Lower risks involved;

Modules of the same vendor integrated;

Functionality tested in several cases and proved to be best practice;

PFMS project plan to be up and running by 2013:

Preparation of Functional and Technical Design

Acquisition of the System through International Competitive Bidding

(ICB);

Customization of the off the shelf software;

Integration;

Implementation;


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Decision changed towards in-house development in 2009 forseveral reasons:

ICB turned extremely lengthy process;

Demonstration of proposed solutions revealed several weaknesses

and drawbacks;

IT capacity of the MoF substantially enhanced;

Existing Treasury Information System made it possible to

easily redesign it as a web based Electronic Payment System

in a short period of time, which then turned to be the

groundwork for the PFMS


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E-TREASURY

ELECTRONIC PAYMENT SYSTEM


2010 ELECTRONIC SERVICE SYSTEM INTRODUCED

PAPER BASED DOCUMENTS FLOW CANCELLED

REGIONAL TREASURIES ABOLISHED

JANUARY-FEBRUARY

REQUIREMENTSAND DESIGN

MARCH-JUNE

SOFTWARE

JULY-SEPTEMBER

500 USERS

SEPTEMBER-DECEMBER

440 ORGANIZATIONS

2500 USERS

2010


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E-TREASURY


CONTEMPORARY, SIMPLE AND CONVENIENT FORM OFUNDERTAKING PAYMENTS FROM THE BUDGET, WHICH

PROVIDES ELECTRONIC PERFORMANCE OF ALL PAYMENTS

RELATED PROCESSES

BUDGET ORGANIZATIONS CAN

SUBMIT TO THE TREASURY ALL

DOCUMENTS ELECTRONICALLY

RECEIVE INFORMATION ON APPROVED

AND SETTLED TRANSACTION ANDAVAILABLE RESOURCES IN REAL TIME

REGIME



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E-TREASURY


SAVING OF HUMAN ANDMATERIAL RESOURCES

Regional services of the Treasury

were abolished and staff was

downsized in the central treasury as

well.

Budget organizations are

economizing with substantial

administrative costs (i.e. stationary,

transport etc);

Rough estimates prove some 10 mln

GEL are economized annually;

SIMPLIFIED AND FASTEROPERATIONS, NEW SERVICES

Individual transfer principle (so-

called package transfer) for

salaries and travel money (including

travel reports)

Principle of the green corridor,

which implies automatic processing

of payment documents by the TIS

and settling with the Bank in real

time regime



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E-TREASURY


REDUCTION OF OPERATIONALRISKS

Maximum validations are set up in

the Treasury informational system;

TIS integrated with the Public and

Civil Registry and Tax databases;

Structural model of bank accounts

defined;

Acceptable combination of Budget

economic codes and CPV codes

defined;

GREATER TRANSPARENCY ANDACCOUNTABILITY OF BUDGET

USERS

System contains full information on

salaries paid to each employee andtaxes paid by them;

Detailed information submitted on

business trip expenses;

Detailed information required for all

procurements of goods and assets;



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PFMS EXPECTED RESULTS

IMPLEMENT THE PUBLIC FINANCIAL MANAGEMENTINFORMATION SYSTEM (PFMS) will ensure:

Exchange of PFM information via web;

Integration of budget Cash transactions and BOs accrual

accounting Data in the Single Information System; Generate Double Entry Based Treasury General Ledger;

PFMSBUDGET

PLANNING ANDMANAGEMENT

PUBLICPROCUREMENT

BUDGETEXECUTION

DEBT AND AIDSMANAGEMENT

HUMANRESOURCEMANAGEMENT

ACCOUNTINGAND

REPORTING


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STATE TREASURY OF GEORGIA

PFMS MODEL

NBG

DEBT

MANAGEMENT

BUDGET

MANAGEMENT

STATE TREASURY BUDGET ORGANIZATION

THE GENERAL

LEDGER

REPORTING

THE FUNCTIONAL

PROCESS

THE INITIAL

DOCUMENTS

THE FUNCTIONAL

PROCESS

CONFIRMATION OF

AGREEMENTS /

COMMITMENTS

CONFIRMATION OFINVOICES

/PAYMENT ORDERS

REVENUESACCPUNTING /

REFUNDS

PROCUREMENT /

COMMITMENTS

DEBTORS /CREDITORS /PAYMENTS

NON-MONETARYOPERATIONS, EXCEPT

ASSETS AND

INVENTORY

ASSET ANDINVENTORY

MANAGEMENTMODULE

HR MANAGEMENT PERSONNEL PAYROLL

BUDGET

/

APPROP

RIATION

S ELECTRO

NICTENDER

SYSTEM

CONTRACT

DECREES, OTHER

DOCUMENTS

INVOICE

NON-MONETARY

EVENTS

REPORTING

DEBT

TAXES

TREASURYGENERALLEDGER

$

$

$

FORE

IGN

INTER

NAL

RTGS

CIVILREGISTRY

AGENC

Y

REVENUE

SERVIC

E

AUDIT

PROCUREMENT

AGENC

Y

AUDIT


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The level of integration achieved so far: TIS is integrated with the Budget Planning and Appropriation Management

System - budget appropriation is available for spending once the budget

department approves the amount;

TIS use procurement/contract information from the Public Procurement

Agency database. BOs do not input contract information in the TIS, but simply

download it from the PPA database;

TIS exchanges data with the Revenue Service via electronic service, which

gives a real- time access to the Revenue Service on the data on Taxes

deposited on the Treasury Single Account;

TIS is linked with the Public Registry and Civil Registry databases, which

enables users to validate the information on individuals (Civil Registry) or legalentities (Public Registry) involved in the Budget process;

TIS is linked with the National Bank of Georgia through Real Time Gross

Settlement system (RTGS) for the GEL transactions and through SWIFT for the

Foreign Exchange operations; Payment documents and bank statements are

exchanged electronically in a real-time;


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IMPLEMENTATION OF INTERNATIONAL PUBLIC

SECTOR ACCOUNTING STANDARDS (IPSAS)

Current Basis for accounting: Georgian government budget and GFS reporting

on cash basis;

Government Treasury Single Account records cash

based; All central and sub-national government BudgetOrganizations accrual Based;

All Government Business Enterprises (GBEs)accrual based;

The Government of Georgia has committed tomove to modified cash at a first stage and than tofull accrual accounting of IPSAS;


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IMPLEMENTATION OF INTERNATIONAL PUBLIC

SECTOR ACCOUNTING STANDARDS (IPSAS)

Achieved so far: Accounting Reforms Strategy is designed and approved in 2009 and

involves period of 2010-2020 for the full compliance with IPSAS;

Implement the modified cash IPSAS in the Central Government Budget

Organizations Financial Reporting for the FY 2012;

Ongoing training and certification course is designed and trainerresources prepared;

Accountants and CFOs of the Central Government Budget

Organizations trained in modified cash;

Analytical work started to identify gaps between accounting and

treatment of non-financial assets in the existing regulations and those

in IPSAS in order to define detailed action plan to implement non-

financial assets related IPSASs;

Publish Georgian official translation of IPSAS in 2013;


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TREASURY PFM REFORMS

Thank you for your attention!

www.mof.ge

www.treasury.gov.ge
http://www.mof.ge/http://www.treasury.gov.ge/http://www.treasury.gov.ge/http://www.mof.ge/

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PFM Reforms After the Global Crisis in Georgia