28.Oct .2019 13:50

IMF - Lessons from Fiscal Reforms in Georgia

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Georgia has undertaken major reforms to enhance the effectiveness of fiscal policy by strengthening fiscal institutions, reducing corruption, and improving the business climate. These reforms led to significant improvements in fiscal outcomes.

Since 2003, Georgia has enacted significant reforms of the public sector and fiscal institutions. The government undertook measures to fight corruption, including by improving fiscal institutions. 1 These consisted of adopting a new budget law, which strengthened the medium-term fiscal framework by consolidating budget legislation, unifying central and local budgets, accelerating the budget approval and execution processes, and introducing program budgeting; adopting numerical fiscal rules (debt, budget balance, and expenditure rules) in 2011 and enhancing them in 2018;2  streamlining tax policy and strengthening tax administration with the introduction of e-government taxpayer services and procurement; and improving the coverage, analysis, and reporting of fiscal risks.

Stronger fiscal institutions have helped deliver better fiscal outcomes. Fiscal transparency, measured by the Open Budget Index, has improved markedly. Tax revenues rose and the efficiency of revenue collection has been higher than among peers. The government streamlined the types of taxes from 21 to 6, vastly improved taxpayer services, and restructured Georgia’s Revenue Service. The adoption of flexible fiscal rules helped foster fiscal discipline, limited the rise in public debt, and reduced the volatility of government expenditure. The IMF supported Georgia in these reforms through financing arrangements and intensive capacity development.

Going forward, there is still scope for further reforms of fiscal institutions. Efficiency of spending could be enhanced, and a more binding medium-term budget framework would help enforce medium-term spending priorities. The government could improve the oversight and management of public investment and state-owned enterprises in line with the Public Investment Management Assessment recommendations. Further modernization of tax policy and revenue administration would help ensure sustainable revenues and could be achieved by a medium-term revenue strategy for comprehensive tax system reform.

Source - IMF