GEO

The Ministry of Finance leaves question posed by TI Georgia unanswered

26 March, 2015

 

Yesterday, March 19th, Transparency International Georgia published a study, according to which the MoF’s official 2014 budget deficit was inaccurate. In the study, we also noted the incorrect official information on underspent budgetary funds. Yesterday, the Ministry of Finance responded to our statement.

We believe that the Ministry’s response aims to mislead the public and leaves our previous questions unanswered. We reaffirm that:

The Ministry of Finance ineffectively planned and managed public finances, which is exemplified by the GEL 82 million in the revenue reserve subaccount (tax refund subaccount).

The fact that the Finance Ministry acknowledges that the GEL 82 million was put in the revenue reserve subaccount only confirms the veracity of our statement.

This raises the question why GEL 82 million was put on the tax refund subaccount, when the balance in the account has averaged GEL 5 million over the years and transfers to the account have always been made at regular intervals, rather than in large sums at a single time, as all taxpayers who overpaid their taxes are not going to claim what they overpaid at the same time.  

A Deputy Minister of Finance, who contacted us after our statement had been published, confirmed that as of now there is more than GEL 70 million sitting in the account. This fact again indicates that it was not necessary to have GEL 82 million in the tax refund sub-account at the end of December, raises the question why should there be more than GEL 70 million in the subaccount, and confirms our claim in regards to the need for improvement of the management of state finances. Also, it is unclear why the Ministry of Finance cannot see the connection between the budget’s revenues and expenditures. The fact that the government could not manage to correct the budget and that GEL 82 million consequently was not allocated to projects indicates a problem with budgetary planning. Therefore, we believe the government failed to put more than GEL 150 million to any use before the end of the 2014.

The Ministry’s official webpage indicates that the Ministry has problems with planning financial and economic indicators. On the Ministry’s official webpage, the 2014 forecasts for the main financial and economic indicators differ significantly from the actual data. The budget deficit was forecasted as 3.7% of GDP, which is 0.75 percentage points higher than the actual indicator, 2.95%. This difference is significant and indicates a serious problem with planning.

Considering the above, Transparency International Georgia would again like to call on the Ministry of Finance to responsibly develop government finance statistics and present information, which, to the greatest extent possible, clears away suspicions that there is a place for the manipulation of official statistics for short term political gains.

2. The methodology for calculating the deficit is flawed

We are glad that the Ministry of Finance took into consideration our comments and posted a correct budget deficit chart on its website. Nonetheless, it is not clear why the Ministry denies this fact. Below is a screenshot which shows that on the Ministry of Finance’s website the budget deficit was 3.2% until the time of our publication (From the beginning of 2015 until March 19th).

Yesterday, at the same time our report was published, this figure changed to 3%, which appears on the Ministry’s web page on the chart below.

It is unclear how the budget deficit indicator changed at the same time as our report was published, when the method for calculating the deficit remains the same.

It is also unclear to us why the Ministry did not account for the GEL 82 million while calculating the deficit, when according to the method for calculating the deficit, the revenue reserve (tax refund) subaccount should be included in the calculations. Initially, this was what raised our suspicions regarding these funds.

The articles of the budget and tax codes, which the Ministry of Finance brought up, are entirely irrelevant, because they do not stipulate the amount of funds to be put in the revenue reserve (tax refund) subaccount.

Transparency International Georgia is ready to cooperate with the Ministry of Finance regarding professional ethics, without bringing into question its employees’ competence and qualification.