PFM REFORMS AFTER THE GLOBAL CRISIS IN GEORGIA
PFM REFORMS AFTER THE GLOBAL CRISIS IN GEORGIA Nino Tchelishvili May, 2013
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)
PRECONDITIONS TO CRISIS • Economic growth at its historical maximum in Georgia – 2007; • Eurobonds Issued – 500 mln USD, April 2008; • Sovereign Wealth Funds Established ; • First Signs of Crisis in Banking Sector Q 2, 2008, than in real sector. • Situation Deteriorated by the Conflict, August 2008 Treasury PFM Reforms
GDP DYNAMICS GDP Growth Dynamics (%) 2002 -2012 60. 0 50. 0 40. 0 30. 0 20. 0 11. 1 5. 5 9. 6 5. 9 12. 3 9. 4 2. 3 2002 2003 -20. 0 2004 2005 GDP 6. 1 2007 2008 Transport 2009 2010 2011 2012* Agriculture Finance GDP Growth Quarterly Dynamics (%) Q 1, 2007 - Q 4, 2010 30. 0 10. 7 13. 0 13. 7 11. 7 9. 9 10. 0 7. 9 -5. 0 0. 0 -10. 0 2006 Mining 40. 0 20. 0 7. 2 -3. 8 0. 0 -10. 0 6. 3 I-07 III-07 IV-07 I--08 III-08 -0. 8 -4. 8 IV-08 I-09 -9. 0 II-09 -1. 5 0. 0 III-09 IV-09 3. 7 I--10 8. 3 6. 7 6. 1 II-10 IV-10 -20. 0 -30. 0 GDP Mining Transport Agriculture Finance
EXTERNAL DEBT AND DEFICIT Government foreign debt percentage (thousands of USD) 28. 1% 4, 500, 000 25. 3% 4, 000 3, 500, 000 3, 000 2, 500, 000 19. 5% 2, 000 1, 540, 587 1, 500, 000 1, 017, 615 1, 000 522, 972 3, 283, 601 2, 694, 395 2, 226, 387 14. 4% 24. 8% 3, 607, 828 2, 424, 155 2, 200, 709 3, 971, 849 3, 997, 301 25. 1% 22. 7% 2, 693, 567 2, 676, 025 1, 195, 114 531, 273 556, 953 582, 892 618, 923 738, 984 500, 000 564, 750 2008 2009 2010 2011 2012 01. 03. 2013 731, 074 Total Multilateral Donors Bylateral Loans Eurobonds Government foreign debt, as percent of GDP Fiscal Deficit 2003 -2013 5. 0% 0. 0% -5. 0% 2003 2004 -10. 0% deficit 2005 2006 2007 20. 0% 2008 2009 2010 10. 0% 5. 0% 500, 000 2007 25. 0% 15. 0% 1, 637, 442 - 30. 0% 2011 2012 2013 0. 0%
IMMEDIATE REMEDIAL ACTIONS AFTER THE CRISIS • Joint Needs assessment and Brussels donors conference. • 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)
IMMEDIATE REMEDIAL ACTIONS • Repatriate Funds from the Sovereign Wealth Funds; • “Tighten the Belts” Policy • Lend from the IMF • Strengthen Fiscal Discipline; • Ensure Resource allocation in strategic fields; Treasury PFM Reforms
GENERAL CHARACTERISTICS OF POST-CRISIS FISCAL POLICY ü The Government’s program of fiscal consolidation has advanced so that the deficit is continuously declining reaching some 3. 5% of GDP ü Government spending is more heavily weighted towards capital expenditure than among peers, with future positive multiplier effects ü 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 ü 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. ü 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. ü The modest government debt stock and the low and largely fixed interest rates help to reduce external vulnerabilities CAPITAL VS. CURRENT EXPENDITURES (high ratio of capex) 100% 80% 99. 8% 60% 92. 2% 40% 20% 0% 0. 2% 2003 Treasury PFM Reforms 88. 8% 85. 6% 7. 8% 11. 2% 14. 4% 2004 2005 2006 73. 4% 26. 6% 2007 84. 9% 83. 2% 82. 4% 82. 0% 84. 3% 15. 1% 16. 8% 17. 6% 18. 0% 15. 7% 2008 2009 2010 2011 2012 Current Expenditures Capital Expenditures
PFM STRATEGY FOR 2009 -2013 • PFM Strategy for 2009 -2013 (Approved in Feb, 2009) defined Medium Term PFM Policy Objectives: – Maintain Macro Stability, Improve Macroeconomic Forecasting; Strengthen Fiscal Discipline; – Enhance Strategic Planning, Implement program budgeting; – Develop electronic PFM systems; – Implement International Accounting Standards; – Improve monitoring and oversight on Public Expenditure Treasury PFM Reforms
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
STRATEGIC PLANNING AND PROGRAM BUDGETING • Identify Strategic Priorities; Develop Macro-Fiscal Projections; Prepare Basic Data and Direction Document; • Allocate Sources to strategic priorities and set the ceilings; • Fiscal forecasts and budget prepared T+3 period, on a rolling basis; • Result oriented and Performance based Budgeting – introduction of program budgeting and performance indicators; • Electronic budget planning and management system launched in 2012. Treasury PFM Reforms
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 budgetary authorizations 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
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.
INTEGRATED PUBLIC FINANCIAL MANAGEMENT INFORMATION SYSTEMS (PFMS) • PFMS project started in 2007 aiming at implementing commercial 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; Treasury PFM Reforms
INTEGRATED PUBLIC FINANCIAL MANAGEMENT INFORMATION SYSTEMS (PFMS) • Decision changed towards in-house development in 2009 for several reasons: – ICB turned extremely lengthy process; – Demonstration of proposed solutions revealed several weaknesses and drawbacks; – IT capacity of the Mo. F 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 Treasury PFM Reforms
E-TREASURY ELECTRONIC PAYMENT SYSTEM • 2010 • ELECTRONIC SERVICE SYSTEM INTRODUCED • PAPER BASED DOCUMENTS FLOW CANCELLED • REGIONAL TREASURIES ABOLISHED JANUARY-FEBRUARY JULY-SEPTEMBER • REQUIREMENTS AND DESIGN 500 USERS 2010 Treasury PFM Reforms MARCH-JUNE SEPTEMBER-DECEMBER • SOFTWARE • 440 ORGANIZATIONS • 2500 USERS
E-TREASURY ELECTRONIC PAYMENT SYSTEM • CONTEMPORARY, SIMPLE AND CONVENIENT FORM OF UNDERTAKING PAYMENTS FROM THE BUDGET, WHICH PROVIDES ELECTRONIC PERFORMANCE OF ALL PAYMENTS RELATED PROCESSES BUDGET ORGANIZATIONS CAN Treasury PFM Reforms • SUBMIT TO THE TREASURY ALL DOCUMENTS ELECTRONICALLY • RECEIVE INFORMATION ON APPROVED AND SETTLED TRANSACTION AND AVAILABLE RESOURCES IN REAL TIME REGIME
E-TREASURY ELECTRONIC PAYMENT SYSTEM SAVING OF HUMAN AND MATERIAL RESOURCES SIMPLIFIED AND FASTER OPERATIONS, NEW SERVICES • Regional services of the Treasury were abolished and staff was downsized in the central treasury as well. • Individual transfer principle (socalled “package transfer”) for salaries and travel money (including travel reports) • Budget organizations are economizing with substantial administrative costs (i. e. stationary, transport etc); • Principle of the “green corridor”, which implies automatic processing of payment documents by the TIS and settling with the Bank in real time regime • Rough estimates prove some 10 mln GEL are economized annually; Treasury PFM Reforms
E-TREASURY ELECTRONIC PAYMENT SYSTEM REDUCTION OF OPERATIONAL RISKS • 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; Treasury PFM Reforms GREATER TRANSPARENCY AND ACCOUNTABILITY OF BUDGET USERS • System contains full information on salaries paid to each employee and taxes paid by them; • Detailed information submitted on business trip expenses; • Detailed information required for all procurements of goods and assets;
PFMS – EXPECTED RESULTS IMPLEMENT THE PUBLIC FINANCIAL MANAGEMENT INFORMATION 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; BUDGET EXECUTION DEBT AND AIDS MANAGEMENT HUMAN RESOURCE MANAGEMENT PUBLIC PROCUREMENT BUDGET PLANNING AND MANAGEMENT PFMS ACCOUNTING AND REPORTING
BUDGET / APPROP RIATION S THE INITIAL DOCUMENTS REPORTING CONFIRMATION OF AGREEMENTS / COMMITMENTS CONFIRMATION OF INVOICES /PAYMENT ORDERS REVENUES ACCPUNTING / REFUNDS PROCUREMENT / COMMITMENTS DEBTORS / CREDITORS / PAYMENTS NON-MONETARY OPERATIONS, EXCEPT ASSETS AND INVENTORY CONTRACT DECREES, OTHER DOCUMENTS $ INVOICE $ NON-MONETARY EVENTS $ ELECTRO NIC TENDER SYSTEM TAXES ASSET AND INVENTORY MANAGEMENT MODULE INTERNAL DEBT FOREIGN PROCUREMENT AGENCY THE FUNCTIONAL PROCESS AUDIT TREASURY GENERAL LEDGER RTGS THE FUNCTIONAL PROCESS AUDIT THE GENERAL LEDGER REPORTING BUDGET ORGANIZATION REVENUE SERVICE STATE TREASURY CIVIL REGISTRY AGENCY BUDGET MANAGEMENT DEBT MANAGEMENT NBG STATE TREASURY OF GEORGIA PFMS MODEL HR MANAGEMENT PERSONNEL PAYROLL
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 legal entities (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;
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 Budget Organizations accrual Based; – All Government Business Enterprises (GBEs) accrual based; – The Government of Georgia has committed to move to modified cash at a first stage and than to full accrual accounting of IPSAS;
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 trainer resources 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 nonfinancial assets related IPSASs; – Publish Georgian official translation of IPSAS in 2013;
TREASURY PFM REFORMS Thank you for your attention! www. mof. ge www. treasury. gov. ge
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