1 Public Finance Management Reform The Georgian Experience 2008 ICGFM Winter Conference December, 2008

2 Introductions  Speakers Papuna Petriashvili, Deputy Minister Papuna Petriashvili, Deputy Minister Budget Department Georgian Ministry of Finance Liana Skhirtladze Liana Skhirtladze MTEF Advisor Georgian Minister of Finance  Moderator Tim Grewe, Resident Advisor Tim Grewe, Resident Advisor US Department of Treasury Office of Technical Assistance

3 Presentation Overview  History of Public Financial Reforms (PFR)  Objectives of PFR  Primary Elements  Public Financial Management Vision Strategy  Medium Term Expenditure Framework

4 Reasons PFMR Initiated in Georgia  Develop Government Strategic Directions, make priorities more sophisticated  Make a reasonable forecast on the bases of good macroeconomic parameters  Develop united e-Treasury system  Tax reform  Improve revenue planning  Local budget system reform  Develop Integrated Information System

5 Reasons PFMR Initiated in Georgia  Anticorruption activities to improve State Finance Management and increase transparency  Conformance to International Standards  Donor coordination and using the international financial assistance money more effectively and efficiently  Implement Neighbor policy and NATO entry conditions (international liabilities)  Improve public finances and services

6 PFM System Goals  Maintain fiscal discipline, macro-economic stability and budget predictability.  Promote a strategic approach in allocating resources to priorities.  Ensure the effective and efficient use of resources.  Accountability in the use of public resources.

7 PFRM Components National Priorities Government Strategy Basic Data & Direction Medium Term Expenditure Framework Annual Budget Sector Strategies

8 Budget Planning Reform  Establish program budgeting system.  Improve budgeting and reporting for PLE’s.  Improve capital budgeting  Extend reforms on local government level  Improved public involvement and information

9 Resource Management Reforms  Continued Treasury Reforms E-treasury functional Design prepared E-treasury functional Design prepared E-treasury System technical specification prepared E-treasury System technical specification prepared Financial Module and Software Licenses Procured Financial Module and Software Licenses Procured Financial Module customized Financial Module customized Security system designed and implemented Security system designed and implemented Pilot phase launched Pilot phase launched

10 Resource Management Reforms  Consolidating and further improving revenue management : Complete on-going reforms including simplification of customs and tax codes. Complete on-going reforms including simplification of customs and tax codes. Strengthen tax and customs administration. Strengthen tax and customs administration. Improve management of tax arrears Improve management of tax arrears Implement risk based system for audit identification Implement risk based system for audit identification  Improve oversight of MOF budget execution  Improve capital asset management

11 Macroeconomic Indicators

12 Strategic Budgeting Reform Actions  Budget reform goals Improve budget and reflect comments of Independent Public Expenditure Financial Accounting (PEFA) Assessment Improve budget and reflect comments of Independent Public Expenditure Financial Accounting (PEFA) Assessment Simplify the budget process Simplify the budget process Increase linkage between budget documents Increase linkage between budget documents Strengthen management and improve expenditure policy Strengthen management and improve expenditure policy Improve budget process coordination Improve budget process coordination Increase transparency and availability to the public Increase transparency and availability to the public

13 Strategic Budgeting Reform Actions  Improve legislation base  Integrarte MTEF into Budget process and institutionalize it Introduce medium term thinking and medium term action plan on the state and local level Introduce medium term thinking and medium term action plan on the state and local level Link state policy, planning and budget processes in the medium term Link state policy, planning and budget processes in the medium term Reallocate resources to meet government priorities Reallocate resources to meet government priorities  Basic Data and Direction Document (BDD)  State Budget Forms  State Budget Format

14 MTEF approach in annual budgeting Forecast Budget Forecast Budget T T +1 T +2 T+1 T +2 T +3T +4T +5 MTEF and Annual Budget MTEF should be closely linked to the technical and institutional processes of the budget preparation

15 Budget Process Reforms  Adoption of the regulation by the Govenment of Georgia  Complete involvement of spending agencies on all levels  Medium term action plan – a bases for developing the BDD document  Fully integrate MTEF into budget process and format.  Improve linkages to BDD and sector priorities Comprehensive goals Comprehensive goals Performance indicators Performance indicators  GFS 2001 at all levels  Revised budget legislation  Improved intergovernmental finance systems (Formula)

16 Budget Planning Reforms  Improved and simplified budget systems: Circular Circular Execution Execution  Strengthen capacity of Parliament to review budget proposals.  Improve capital investment project planning and budgeting.

17 Lessons Learned  PFRM is an ongoing, multi-year process  Multi-year systems provide stability Political transition Political transition Economic swings Economic swings Conflicts Conflicts  Quality of systems improve over time  Political and Executive support required for success  Danger of “over-committing” to reforms

18 What’s Next for PFRM  Update plan based upon : Post conflict needs Post conflict needs PEFA Report PEFA Report  Focus for next three year: PFMIS Implementation PFMIS Implementation Improved budget system law Improved budget system law Improved annual budget law Improved annual budget law Implement MTF in local governments Implement MTF in local governments Program budgeting system Program budgeting system Capital budgeting systems Capital budgeting systems

19 Questions and Comments