Georgian State Treasury Hosts Workshop on Treasury and External Financing Reforms
Posted by Ion Chicu, World Bank, and David Tsekvava, Deputy Head of State Treasury, Ministry of Finance, Georgia
A three-day PEMPAL  Treasury Community of Practice (TCOP) workshop was held in Tbilisi, Georgia on February 27-29, 2012 on public finance reform progress related to Treasury systems and external financing. Fifty participants from ten countries attended (Albania, Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan and Ukraine). Experts from the World Bank provided information on regional and international developments and technical support to the discussions. The meeting was hosted by the State Treasury of the Ministry of Finance of Georgia who proved to be warm and wonderful hosts.
The meeting followed from an earlier meeting in Astana, Kazakhstan on September 27-29, 2011 whereby more than 80 participants from 17 countries from the Bank’s Europe and Central Asia (ECA) region met to discuss progress in implementing integrated financial management information systems across the region. Many TCOP member countries are the recipients of external financing in various forms and a need was identified for a smaller group meeting to address the issues associated with the effective management of external financing. The practical problems faced in the process of integrating external financing into national budget systems are widely known. In many cases the challenges are related to the fiduciary requirements of the donor organizations. National systems do not always fully fit those requirements, which leads to the use of parallel mechanisms, such as those often established to implement donor-funded investment projects. Within the framework of public financial management (PFM) reforms, and consistent with the principles espoused by the Paris Declaration of Aid Effectiveness, PEMPAL member countries have been pursuing the objective of integrating external financing into all stages of the budget process.
Issues presented and discussed at the workshop included:
- Methodological issues of reflecting external financing in the budget execution reports;
- Approaches for solving technical difficulties in the process of integrating external financing into the treasury single account (e.g., the need to separately identify donor resources, multiple currencies);
- Examples of servicing donor funded projects through the treasury; and
- Specifics of accounting and financial reporting as part of project management.
The first day of the workshop was devoted to the presentation of the experience of the hosting country, Georgia.  Georgia has achieved impressive results and is currently modernizing its treasury system. Centralization of treasury services accompanied by the abolition of regional treasury offices and the introduction of internet based services for clients has been effectively implemented within a relatively short time period. Georgia’s progress with their reforms was cited as a role model for other countries. In particular, the following interesting aspects of the reforms undertaken by Georgia were noted as being of interest to other PEMPAL members:
Use of a multi-currency account.
Removing all paper documentation from treasury business processes.
Full elimination of cash transactions from the treasury operations.
Use of a single treasury bank account with integrated sub-accounts.
In-house development of a treasury information system, which was decided as being the best way to proceed based on the findings and conclusions of an independent assessment. This system is supported by an in-house support function called the Financial Analytical Service;
Integration of the treasury information system with other IT modules, such as procurement, payroll, etc.
Georgia’s experience of external debt management, including replacement of external debt with internal debt through issuance of treasury bonds with relatively long maturity.
Connection to the SWIFT system.
Proper accounting of arrears.
The second day of the workshop was devoted to integration of external financing into the national treasury operations in PEMPAL countries. Presentations were delivered by World Bank financial management specialists followed by presentations by Moldova, Ukraine, and Kazakhstan. Following these presentations, small group discussions took place around the following issues identified by the Leadership Group of TCOP to be of interest to the members:
1. Advantages and challenges of channeling donor funding through the national treasury system.
2. Difficulties faced by countries in meeting donor fiduciary requirements.
3. Technical difficulties associated with operations in foreign currencies and possible solutions.
The reports on the work of the small groups were presented at the beginning of the third day, with the following conclusions on the advantages and challenges of channeling donor funding through the national treasury systems being noted:
• Strengthening the integrity of domestic public finance systems;
• Transparency of use of donor funding;
• Possibility for real time monitoring of the movement of funds and operational control over their use;
• Timely and reliable reporting to relevant stakeholders and users;
• Lower costs of financial operations;
• Improved quality of foreign currency forecasts in some countries;
• Signal of trust of donors with respect to the PFM system; and
• Stimulus for modernizing treasury systems based on international standards.
• A need to modernize treasury system to assure compliance with the donor requirements;
• A need for legislative changes;
• A need to align procurement procedures with the donor requirements;
• Accounting challenges;
• Lack of necessary software;
• Technical difficulties of maintaining multiple sub-accounts in the treasury system (in cases of weak information systems);
• Lack of access to the SWIFT system;
• Difficulties associated with the use of multiple currencies/ exchange rate differences;
• A need to address the issue of roll-over of end-year balances;
• Lack of qualified personnel and need for training;
• Work required to convince donors of improvements in treasury systems to attract them to use them; and
• Resistance from project implementation units in some countries.
The following challenges of meeting the donor fiduciary requirements were mentioned:
• Balancing the speed of processing payments with the required internal procedures;
• Lack of adequate software;
• Problems of incorporating direct payments in reporting (donors impose strict requirements for direct payments);
• A need for maintaining parallel reporting in various currencies and formats;
• Technical difficulties with calculating and reimbursing taxes for consultants;
• Variance in donor requirements (lack of harmonization); and
• Lack of English skills in some countries to understand donor procurement requirements.
The working groups also mentioned the following technical difficulties related to multiple currency operations and possible solutions:
- The necessity to undertake operations in multiple currencies presents significant difficulties for many treasuries. Possible solution, discussed by participants based on Georgia’s experience – creation of a multi-currency account, and also connection to the SWIFT system;
- Technical difficulties are also associated with the need for conversion and resulting exchange rate differentials. A practical solution used in several countries – conducting respective operations within a single operational day.
The third day of the workshop concluded with the visit to the Customs Service Center, where participants had an opportunity to get familiar with the customs clearance procedures used in Georgia, as an example of modernization of public services with the use of information technology.
More detailed information on the workshop, presentations and participants’ reports can be found on the official website of the PEMPAL program.
 The Public Expenditure Management Peer Assisted Learning (PEMPAL) program has up to 21 member countries from the Europe and Central Asia (ECA) region and is financially supported by the Swiss State Secretariat for Economic Affairs (SECO) and the Ministry of Finance of the Russian Federation with in-kind contributions by the World Bank and OECD/Sigma. Participants regularly meet in ‘communities of practice' to discuss reform issues in the areas of budget, treasury and internal audit as part of implementing member-driven action plans addressing priority PFM reform areas.
 Workshop participants were informed about the overall progress and future of reforms including the experience of Georgia in cash and debt management and modernizing tax and non-tax refund system. A live demonstration of the information system of the treasury of Georgia was also displayed.
 The Leadership Group comprises public finance officials from 10 member countries of TCOP who serve as an executive body who represent the needs and priorities of TCOP members. This group is instrumental in developing and implementing the TCOP Action Plan with support from a World Bank provided ‘Resource Team.’ The chair of the Leadership Group is also a member of the PEMPAL Steering Committee which has donor representation in addition to representation of the chairs of the other COPs (i.e., budget and internal audit). This Committee provides strategic oversight to PEMPAL and ensures the network’s ongoing effectiveness and sustainability.
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