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;
Treasury PFM Reforms
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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)
Treasury PFM Reforms
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;
Treasury PFM Reforms
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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
Treasury PFM Reforms
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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)
Treasury PFM Reforms
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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INTEGRATED PUBLIC FINANCIAL MANAGEMENT
INFORMATION SYSTEMS (PFMS)
Treasury PFM Reforms
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
Treasury PFM Reforms
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
ELECTRONIC PAYMENT SYSTEM
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
Treasury PFM Reforms
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E-TREASURY
ELECTRONIC PAYMENT SYSTEM
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
Treasury PFM Reforms
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E-TREASURY
ELECTRONIC PAYMENT SYSTEM
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;
Treasury PFM Reforms
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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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INTEGRATED PUBLIC FINANCIAL MANAGEMENT
INFORMATION SYSTEMS (PFMS)
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/