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Financial Reform for Sustainable Growth

Ministry of Finance's comprehensive plan to establish financial order, reduce poverty, and achieve stable economic growth through structural reforms in six key areas of fiscal policy. Progress includes macro-economic performance, revenue increase, expenditure prioritization, and general government balance improvement. Ongoing initiatives aim to enhance fiscal transparency, tax collection, customs, and financial policing.

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Financial Reform for Sustainable Growth

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  1. Donor’s Conference 16-17 June 2004Ministry of Finance Establishment of financial order and Action Plan in the fiscal area

  2. Macro-economic performance 2003 The 2003 performance shows mixed picture: • Growth of GDP: 8.6% (in real terms) • Inflation increased to 7% • Balance of Payments deficit deteriorated by 2% • US$ 51 million arrears accumulated

  3. Medium-term macro-economic policy Focus on: • Strong financial and monetary adjustment • Agreement with IMF on new 3-year program: 4 June 2004 • Debt-rescheduling: Paris Club meeting scheduled for July

  4. Macro-economic outlook Our macro-economic policy is projected to result in: • Forecast growth of real GDP: 6% in 2004, 5% in 2005-2008 • Likely realization of GDP growth: 10% • Inflation kept at the level of 5%

  5. Government Revenues: planned 2004 Budget: • Increase of tax revenues by 25% (i.e. 2.0% of GDP), reaching 16.3% of GDP • Due to: • Economic growth • Financial policy measures in 2004 • Ongoing reforms in tax/customs, anti-corruption • Normalization situation in Adjara Planned 2005-2008: • Sustainable increase of government tax revenues by 1% in each consecutive year

  6. Government Revenues: realised • First 5 months 2004 revenues: • 14% higher than planned in 2004 Budget • 35% higher than in comparable period in 2003 • Better performance due to: • Improved administration • Legalisation of imports • Expectation whole year 2005: • Increase of revenues by another 1.2%, reaching 17.5% of GDP

  7. Government Expenditures: 2004 • Government expenditures will increase by 43%, to 20.6% of GDP • Priorities for 2004: • Social sector • Rehabilitation of energy sector • Reduction of domestic arrears

  8. General Government Balance • Fiscal deficit: • Planned reduction to 1.6% of GDP • Expected reduction to 1.0% GDP • Clearance of arrears: • Planned reduction with 30% • Expected reduction with 45%

  9. Structural reforms in fiscal area Mission Statement Ministry of Finance • Establishment of financial order, creation of a foundation for stable economic growth, and the reduction of poverty • In order to fulfil Mission Statement: 6 areas of structural reform have been identified: Treasury, budget system, financial policy, tax department, customs Department, and financial police

  10. Structural reforms: treasury • Achieved already: • Commitment Control System established • Single Treasury Account created • Tax Refund procedures developed • Remaining agenda: • Completion Single Treasury Account • Introduction International Accountants Standards

  11. Structural reforms: budget system • Already achieved: • 1 January 2004: new Budget System Law effective • Remaining agenda: • Improvement budget transparency • Institutionalization of MTEF

  12. Structural reforms: financial policy • Already achieved: • Abolishment Tax for Economic Activities and Road User Tax • New Tax Code and new Tax Administration code have been prepared • New Customs Code has been prepared • Remaining agenda: • New Tax Code, effective 01.01.2005 • New Customs Code, effective 01.01.2005

  13. Structural Reforms: Tax Department • Already achieved: • Large Tax-payers Inspectorate strengthened • Excise Taxpayer’s Inspection was established • Optimalization of the number of Inspections • From June 2004 Adjara has been integrated into the national tax administration structure • Attestation of staff started • Downsizing of staff (156 employees)

  14. Structural Reforms: Customs Department • Already achieved: • Re-organisation: now only 4 Regional Customs Divisions • Reduction of customs posts on the borders with Azerbaijan and Russia has started • The status of Tbilisi Airport and Poti Port customs posts has been upgraded and 24-hours regime introduced • Escort of transit non-excise goods has been abolished • Downsizing of staff with 25%

  15. Structural reforms: Financial Police • Already achieved: • Creation of Financial Police under Ministry of Finance (March 2004) • Investigative functions fiscal and economic crime in one single ministry • Target 510 staff; presently 60% • 3 months operational: successful, a.o. in reduction smuggling • Remaining agenda: • Improvement organization • Training and equipping of staff

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