Public Expenditure Management Conference Presentation by Ministry of Finance of Georgia Warsaw February 7-9, 2005

Budget Systems Law - BSL (effective since January 2004) Introduction of detailed and optimal budget schedule Clear Outline of Competencies of Budget Organizations and the Ministry of Finance in the Budget Process Establishment of the equality of all budget items, abolishment of so-called protected terms Establishment of a unified Budget Process, where Key Priorities are relating to the Resource Envelope by Abolishment of “targeted programs” Accumulation of all budget inflows on a single treasury account

MTEF –next step to implement BSL Problems Lack of strategic, long term thinking Absence of a mechanisms for translation of strategic priorities into financially justified plans of actions Prerequisites BSL Requirements to shift towards Medium Term Planning for the consecutive two years by developing: Medium Term Macroeconomic Forecast, Medium Term Fiscal Projections Basic Directions for Budget and Tax Policy 2005 Budget Instructions require Spending Agencies to submit information abut their activities/programs, including description of objectives and performance indicators MTEF is to facilitate and to provide reform direction for strengthening the link between planning and budgeting

Basic Approach to MTEF The focus is on bottom-up and top-down approach covering 3 areas: (i) improvement of macro-economic and fiscal forecasting; (ii) analysis of cross-cutting expenditure issues; (iii) development of sector strategies and expenditure plans.

MTEF and EDPRP

Budget Users Two levels of engagement in developing the sector analysis: Tier 1 agencies prepare sector expenditure strategies. These would comprise those ministries (Pilot Ministries – Education, Health, Agriculture) that are strongly submitted to the MTEF exercise and which have technical assistance to support the development sector expenditure strategies. Tier 2 agencies comprising the remaining ministries for which more rudimentary costings and prioritisation would be undertaken.

Pilot Ministries - Improvement of Budget Submissions Tier 1 spending agencies, have to prepare Sector Strategy Expenditure Matrices. These involves (i) identifying the key programmes areas that together make up the overall expenditure plan for the sector; (ii) analysis of each of these program areas in terms of major issues, specific objectives, reform actions necessary to achieve the objectives, and implications for the sector budget. These spending agencies will proceed with costing of programs, including the identification of performance indicators. Depending on the quality of the Strategic Matrices and the capacities in the spending agencies, one or more programmatic areas will be selected to be analysed and costed in detail.

Other Sectors Tier 2 spending agencies will be phased in, using the experience of the implementation process of the Tier 1 ministries. Meanwhile by means of simple matrix format they will: Provide a basis for the analysis of inter-sectoral priorities that the MoF would need to undertake in determining sector recourse ceilings for the MTEF Highlight the most important expenditures reform issues and requirements in each sector