https://doi.org/10.52340/eab.2024.16.01.10

Effective management of the state budget is an important factor of the country's financial stabilization and correct forecasting, its basis is the introduction of modern management principles of the budget system, the formation of an institutional and legal base corresponding to European standards. The article discusses the role of the budget system in the unified process of managing the economy of Georgia and certain features of its functioning, the issues of optimization of vertical budget segmentation and proper coordination.
On the basis of the Law on Budgetary Systems, government reserve funds have been created within the state budget of Georgia since 2005 to cover unforeseen expenses. The operation of this fund is one of the important issues of the state budget, as, along with the fiscal burden, the Reserve Fund plays a significant role in financial support for the main priorities of the state’s social policy.
Despite the compliance of the budget system of Georgia with the European standards, the issue of reserve funds still involves a certain problem. The issues of structuring and targeting of reserve funds, its legal and institutional provision require special attention. The problems of formation and effective management of reserve funds are discussed in the presented report.
The foundation for the formation of Georgia’s modern budget system was placed by the public financial management reform (2004), which was based on the principles of the Open Government Partnership (OGP) and on the international standards of GFSM-2001. The compliance of the legal norms of the budget system of Georgia with European standards was ensured by the Organic Law “On Economic Freedom” (2011). An important legal basis for the effective administration of the budget structure and public finance management was created by the government decree - “Public Administration Reform” (2019).
The legal basis for the process of harmonizing the functions of budgets at individual levels in Georgia is made up by the following regulations: Organic laws “On Local Self-Government and Management” (1997) and “On Local Self-Government” (2007), Laws “On the Budget of Local Self-Government Units” (2006), “On local government bodies “On Property” (2006) and others.
According to the budget transparency, which was published in 2021, Georgia was on the first place from 120 countries in the whole world [20]. According to the future forecasts, this success will be further consolidated by the implementation of 85% of the legislative obligations provided for the agreement on a deep and comprehensive free trade zone with the European Union in 2024, in addition to it, all the obligations in the field of public procurement will be fully implemented, as well, as on customs and technical barriers to trade.
In accordance with the IMF, the fiscal system of Georgia today is normal and its indicators do not exceed the threshold level of sustainability. The international standards of fiscal security are also observed, while it has identified a number of problems, which are necessary to be considered for the stability of the financial sector and the effective functioning of fiscal mechanisms for regulating the economy. Here is the list of the following problems, such as:
• Long-term provision of financial stability
• Effective use of reserve funds
• Financial management of state-owned enterprises.
The IMF has given priority for assessing long-term factors of fiscal sustainability, which are reflected in the international regulatory document - “Multi-year Indicative Program - MTP” (2020). This document about the delegation of powers between government and fiscal institutions, provides the formation of the optimal economic ties, which is only possible while using the conditions of an effective policy of decentralization of public administration.
The reserve fund of the Georgian government is subordinate to the executive branch and its volume. According to the state budget for 2024, is set at 80 million laris (an increase of 33.4%). The fund's expense structure contains:
• Unforeseen expenses – 28%
• Carrying out events of national importance – 26%
• Uninterrupted functioning of budgetary organizations – 13%
• Social expenses - 7%
• Electoral process services – 3%
• Financing of European integration events and political parties -2% and others.
According to the Georgian legislation, money from the government's reserve is only allocated to finance expenses. But, not provided for the budget, so, in our days , there is a high risk of inefficient use of funds and instability caused by multiple changes in the distribution of the reserve’s fund, which prevents propering the budget planning and effective control of its execution.
The process of managing reserve funds of the state budget, is especially problematic. Similar as to justify the intended purpose of expenses; therefore , it is necessary to develop a unified standard, which helps us to control the fund funds instead of unforeseen expenses . In addition to it, it is only recommend to use it in a force majeure situation and finances such an emergency expenses that could not be predicted in advance, this will significantly increase the responsibility of spending organizations for taking into account all the expected expenses when drawing up the budget, which will eliminate the bad practice of requesting additional funds from the reserve fund during the year. Also, in emergency situations, it will be allowed to finance from the reserve fund such unplanned expenses when leaving them without financial support from the state could cause irreparable damage to the country’s international reputation or its propert.
The issue of targeting transfers transferred from the reserve fund to local government also requires legal revision, since in some cases, they do not correspond to the purpose of the targeted, capital or special transfers which are existing today. To summarize, strictly formulated targeting system will help departments to plan the budget correctly and determine the exact size of the reserve fund itself, which is an important condition for the sustainability of Georgia’s budget system.

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All electronic sources were last viewed on February 15, 2024

Keywords: Fiscal security; budget reserve fund; budget decentralization; budget expenditures; budget governance standards.
JEL Codes: E62, H60, H61, O23