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Reforms to the Financial and Budgetary System in Georgia (2009)

With the help of international technical assistance the Georgian financial system has improved its operation significantly since 2004. It now produces a comprehensive and timely annual budget and a less detailed four year budget in the form of an annually updated ‘Basic Data and Directions’ document. It has gradually adopted international standards in budgeting and financial management, centralized treasury accounts and started to implement the appropriate information technology for revenue and expenditure management.

Improvements in budgetary planning are reflected in the assessment of the Open Budget Initiative (OBI). With a score of 53% (against an average of 39%) Georgia is in the top third of the 85 countries reviewed by the OBI. It has also been classified the second greatest improver since 2006, increasing its score in that time by 20%. Amongst the improvements the OBI particularly notes the introduction of multi-year budgeting, the publication of a citizens’ budget and the elimination of extra-budgetary funds.

Each of these reforms have been facilitated with help and under some pressure from International Organizations and Civil Society. The Medium Term Expenditure framework has been developed with the help of a consortium of donors, under the organization of the World Bank and the elimination of extra budgetary funds occurred after wide civil society, political and IO pressure.

Part of the motivation for reform is clearly the desire to appease the demands of the international community, with NATO, the European Union and international donors in mind. This has become even more important recently. Following the August war, a donor’s conference in October pledged a USD 4.5 billion package of loans and aid. This has created considerable interest in aid monitoring and, in addition to the donor organizations who are monitoring their own disbursements, a Georgian NGO coalition has been formed to keep track of aid use.

However, tracking disbursement is only part of the problem. A fair proportion of the aid money is being disbursed in the form of direct budgetary support so is paid directly into the treasury account. The oversight placed on the use of that money is provided by the budgetary mechanisms of the government. It therefore seems timely to assess the effectiveness of the reforms to budgetary mechanisms in facilitating long-term planning and oversight.

This paper looks at the main two, internationally financed, reform projects that target budgetary planning and oversight. It also asks whether the Medium Term Expenditure Framework (MTEF) has succeeded in encouraging longer term policy-planning and whether the reforms to the Chamber of Control has succeeded in providing oversight.

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