According to the assessment by the State Audit Office government’s report on the “Annual execution the 2016 state budget” complies to the existing law; however, in this report the main issues are highlighted that should be taken into account to improve budget planning/execution process and support the improvement of public finance management system:
- VAT and dividends lagged behind the annual plan – revenues accumulated during 2016 by VAT was lagged behind the planned amount by 516 million GEL. As regard to dividends, according to the state budget law, annual plan of dividends, which should be paid by the State Owned Enterprises (SOEs), was 2.5 million GEL. However, During the year only 30 SOEs paid dividends, which amounted to the 717.1 thousand GEL and is 28.7% of annual plan. Besides, “Commission created for reviewing and approving proposals regarding the distribution and utilization of net profits gained by SOEs” did not meet during 2016, and the decisions made during the past meetings are not yet fully executed;
- The tendency of increased spending of state expenditure at the end of the fiscal year persists - the amount of state budget expenditures spent in December is 151.7% of the average monthly rate of 11 months’ expenditures for 2016. This is a result of the fact that at the end of the fiscal year, public agencies financed activities and purchased goods/services in the form of advance payments (sometimes as a result of changes in the procurement plan), the funding of which was not a necessity faced by them at that moment. As the experience from the past years show, increased spending of unused budgetary funds at the end of the fiscal year creates the risk of inefficient and unreasonable spending of resources;
- Budgetary funds spent from the article - “Compensation of Employees” incompletely depicts total amount of resources used for this purpose – the article does not provide the full picture of compensation of the permanent employees in the public sector during the year. In particular, remuneration expenses are spent not only from the article “Compensation of Employees”, but also from the articles “Subsidies” and “Other expense”, from where the total expense incurred for this purpose amounted 53,026 thousand GEL;
- The specific deadline for submitting new Optimization Plans of the state vehicle fleet by the agencies has not been determined yet that results in prolonged optimization process – only 5 line ministries have approved Optimization Plan. Consequently, the Optimization Plan has not approved and the limits set by the Government’s Resolution N121 do not apply to most of the line ministries;
- Some systemic deficiencies have been identified at procurement process – the following refer to the existing deficiencies: frequent and large-scale changes in the approved plans of the state procurement; large number of suspended and cancelled tenders ; announcing tenders on those type of goods/ services, which are not needed; communication deficiencies between structural unites of budgetary organizations in the procurement process; deficiencies of defining technical and qualitative characteristics of the goods/services, etc.;
- There is a practice of financing systematic/annual events from the Reserve Fund of the Government - According to the Budget Code, Reserve funds of the Government of Georgia are allocated to finance unforeseen expenditures; however, in many circumstances funds are allocated to finance systematic/annual events, while those could have been considered in the budget planning stage if planned appropriately;
- Regarding foreign credits, it is noteworthy that spending on certain projects financed by foreign credit resources, and consequently, the implementation of projects, was carried out by impediments. As a result, the additional expenditures related to the loan service were made from the budget on the undisbursed part of the loan, as commitment fee. In addition, debt obligations of state owned enterprises are not accounted in the state debt portfolio. The above-mentioned is noteworthy as the part of debt of state owned enterprises are covered from the state budget;
- There are deficiencies in program budgeting - 41% of programs and sub-programs, presented in the annex of the program budget, do not have an aim specified; all the possible results that can be achieved as a consequence of the program implementation are not identified; in number of cases, the information about the activities undertaken by the spending agencies and the results attained are aggregated and presented at the program level and are not further disaggregated at the subprogram level; the execution report does not present the complete information on each program presented in the program budget annex of the Budget Law; in certain cases, achieved results are not presented in relation to predefined assessment indicators; in case of some programs/sub-programs final and medium performance indicators can’t evaluate the results attained, etc.
