2007-2010 State Budget Circular Deadlines: Budgetary organizations should submit their budget requests no later than August 15. General overview In accordance with Article 13 of the Law of Georgia on the Budget System, the Ministry of Finance has prepared the budget circular (instruction). The purpose of this document is to provide instructions to develop the proposed 2007-2010 budget. The document contains important information regarding the following issues: 1. Overview of budget-fiscal situation 2. Governmental priorities for the years 2007-2010 3. Basis for determination of expenditure ceilings and staff limits for the years 2007-2010 4. Innovations and changes in the budgetary process 5. Main requirements 6. Instructions for completing the 2007 budget request forms The 2007-2010 State Budget Circular is a continuation of reforms started in 2006 with regard to budget planning and introduction of the medium term expenditure framework concept, which is targeted towards improvement of budgetary processes, strengthening of better allocation of budgetary resources, and the development of strategic planning. 1. Overview of budget-fiscal situation The budget and fiscal strategy of the Government for the period 2007-2010 is based on macroeconomic estimates and medium term forecasts of revenues and expenditures. According to macroeconomic plan of the Government of Georgia, during the forecast years the economy shall grow at a medium pace and annual growth of real GDP on average shall be 6-7%. Also, in the period 2007-2010 inflation is expected to remain at a low level with annual single-digit increases. According to the medium-term forecast, during 2007 aggregate budget tax proceeds and expenditures shall increase at an average pace and by 2010 will be 24.2% of GDP. Aggregate budget revenue and grant increases are expected at a medium pace during the same period. 2. Governmental priorities for the years 2007-2010 During the period 2007-2010 the state budget of Georgia shall reflect priorities outlined by the Government. All budgetary organizations have to take into consideration these priorities
while elaborating their draft budgets in order to ensure compliance of their budgets with the overall policy, concept, and strategy of the Government. The priorities shall be the following: Restoration of territorial integrity through peaceful efforts and attaining civil unity; Sustainable economic growth and promotion of employment; Formation of flexible, accountable and effective management; and Ensure compliance to preconditions, necessary for accession to NATO. 3. Basis for determination of expenditure ceilings and staff limits for 2007-2010 Taking into consideration the budget-fiscal situation and priorities outlined by the Government for the period 2007-2010, resolution No. 109 of the Government of Georgia (June 10, 2006) established limits for appropriations and staff, including a 5% inflation adjustment. All budgetary organizations should prepare their 2007-2010 budget requests in accordance with: 1) instructions provided in this circular; 2) resolution No109 of the Government of Georgia on Approval of limits for staff and expenditures for budgetary organizations, dated June 10, 2006; and 3) Basic data and directions for 2007-2010. Budget requests must be within the budget expenditure ceilings. Only those budget requests within the ceilings will be considered. 4. Innovations and changes in the budget process Introduction of new functional budget classification in compliance with international standards. (GFS 2001) o The major difference between the previous functional classification and the new GFS 2001 functional classification is that the previous expenditure classification contained 14 main groups at the first level and 65 sub-groups at the second level, while the new classification has 10 groups at the first level and 69 sub-groups at the second level. Legislative changes in 2006: o In accordance with amendments made to the law on Civil service the following allowances and bonuses have been abolished: long service bonus, allowance provided for residents of high mountainous regions, allowance for working in hazardous conditions, bonus for leave and mandatory allowances for military personnel. In this circular certain budget request forms have been amended and new forms introduced: o Sequence of forms 2 and 3 was changed Form 2 is the budget request at lowest organizational (program) level and Form 3 is the aggregate budget request. o Form 2a was added for budget request for the years 2008-2010. - 2 -
o Form 4, regarding the number of vehicles listed on the balance sheet of the budget organizations and expenditures related to their maintenance, was modified. o Form 7, Application of spending units according to sources of funding, was abolished. This information is now included in Form 3. o Form 8 was added to collect information on obtained, planned and prospective grants of budgetary organizations. o Form 9 was added, which is not mandatory and should be filled in at the discretion of organizations. The objective of this form is to collect information from spending units (ministries) on request of additional funding above the budget ceilings. 5. Main requirements Budget organizations should submit completely filled in budget request forms. Requests that do not contain all relevant information will not be considered. Written justification and explanation should be provided for all forms that are not completed. Budget requests should be submitted in electronic and hardcopy format. Each form should be signed by the chief of economic (financial) service. The spending units (ministries) should ensure that the budget request complies with the priorities outlined by the Government. In the event of non-compliance, spending units should provide relevant justifications. If you have questions related the forms please contact the relevant Ministry of Finance, Budget Department employee (analyst). 6. Instructions for completing the 2007 budget request forms This circular contains 8 mandatory forms and 1 optional form. The electronic versions of the forms are formatted so that data will be automatically aggregated. In each form, except for forms 1, 2a, 8 and 9 data should be entered only in the yellow cells. Mandatory Forms Form No. 1 Information on strategies and objectives of budget organizations for 2007-2010 and execution of budget for the period 2005-2006 In this form spending organizations should provide brief information on strategic directions for previous, current, and planned years, as well as information on budget execution and expected outcomes within the budget expenditure ceilings. The information provided in this form will be shown in the budget law. Consequently, it is extremely important that information provided by budget organizations is precise, relevant, and contains all necessary explanation and justification. - 3 -
The strategies and objectives identified by the spending institution should be in compliance with those outlined in the Basic Data and Directions Document. If the strategic directions presented in the budget request differ from the strategies outlined in the Basic Data and Directions Document for the spending institution relevant explanation should be provided. The form should contain a list of programs and activities targeted to achieve a set of objectives and a description of expected outcomes. See page 12, containing example of the Ministry of Economic Development Form No. 2 Budget request at lowest organizational (program) level This form together with Form 3 (summary) represents the main part of the budget request. The purpose of Form 2 is to collect budget data at the lowest level of organization/program and economic classification. The data should be entered for 2005-2007 according to relevant economic classification (sources of funding and expenditures) as identified in columns I and II. Form No. 2a Forecasts for the year 2008-2010 are entered at the second level of organization classification (see sample shown in Form 2a). Form No. 3 Budget request summary Form 3 aggregates the data reflected in Form 2 and is designed for analytical purposes. Each spending unit should provide a complete Form 3 to aggregate budget data provided in Form 2. Like Form 2, in Form 3 data should be filled in for the years 2005-2007 according to relevant economic classification (sources of funding and expenditures) as identified in columns I and II. Form No. 4 Information on number of vehicles listed on the balance sheet of budget organizations and expenditures related to their maintenance. The purpose of this form is to collect information on capital investment, specifically the purchase and maintenance of vehicles and other equipment. Form 4 should be submitted by spending units and should include all subordinated budgetary organizations and spending targeted towards the purchase and maintenance of vehicles and equipment. For the period 2006-2010, information related to planned procurement of vehicles and equipment and the total cost and expenditures for maintenance and repairing of vehicles and equipment should be submitted as of the beginning of the year. Justification of procurement of fixed capital should be presented along with the completed form. Information on amounts and costs should also be provided in those cases where vehicles and equipment are not listed on the balance sheet of the organization. Form No. 5 Information on number of civil servants and remuneration - 4 -
Spending units should use this form to provide information regarding the number of civil servants, their positions, and remuneration for 2006-2007. The above referred information should be presented by ministries, subordinated entities, and territorial offices. Form No. 6 Statement of expenditures and revenues of public law entities subordinated to supervision and control of state supervisory authority. The purpose of this form is to collect information regarding 2005-2010 expenditures and revenues of public law entities that are subordinated to the supervision and control of state supervisory authority. To complete Form 6 budget organizations should cooperate closely with the public law entities subordinated to their supervision and authority. Spending units should submit a separate Form 6 for each public law entity and indicate the legal authority on the basis of which the organization is implementing its activities. Form No. 7 Budget request by functional classification To ensure that the state budget complies with IMF requirements, spending units should submit 2005-2010 budget data according to the functional classification in Form 7. Budget data for 2005 and 2006 should be provided consistent with the new GFS 2001 functional classification. Please note that the number and type of functions have changed from the previous classification that was used for the 2006 budget. The current functional classification of expenditures contains 14 main groups at the first level and 65 sub-groups at the second level, while with the new classification there are 10 main groups at the first level and 69 sub-groups at the second level. To ensure proper completion of Form 7 for the period of 2005-2006 spending units should link (group) information submitted according to the previous functional classification with the new GFS 2001 functional classification. More specifically, total expenditures, credits, and capital expenditures should be grouped in accordance with GFS 2001. Form No. 8 Information on grants and technical assistance, received by spending units in 2005-2010 The purpose of this form is to identify the number, volume, and purpose of grants received and planned to be received by spending units (on the first organizational level). The total volume of grants identified by budget organizations in Form 8 should be consistent with the total volume of grants identified in Form 3. Optional form: Form No. 9 Additional budget resources requested above the budget ceilings In this form spending institutions may request budget resources in excess of the established ceilings. The information submitted in this form shall be used for planning purposes and only if additional budget resources become available. - 5 -
It is extremely important that funding requested in Form 9 is not reflected in Form 2 or Form 3. Spending unit should fill in Form 9 separately for each program and activity for which additional resources are requested. For additional information see Form 9. - 6 -