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Republic of Armenia Public Financial Management Reform Priorities Public Disclosure Authorized

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Republic of Armenia Public Financial Management Reform Priorities Public Disclosure Authorized Republic of Armenia Public Financial Management Reform Priorities Public Disclosure Authorized October, 2010 Public Disclosure Authorized THE WORLD BANK Public Disclosure Authorized Poverty Reduction and Economic Management Europe and Central Asia Public Disclosure Authorized Republic of Armenia Public Financial Management Reform Priorities October, 2010 THE WORLD BANK Poverty Reduction and Economic Management Europe and Central Asia Public Financial Management Reform Priorities 2 Table of Content 1. Introduction..................................................................................................................................................7 2. Budget formulation ....................................................................................................................................12 2.1 Government objectives ......................................................................................................................12 2.2 Analysis of Present Situation ...........................................................................................................12 2.2.1 The Legal Framework .........................................................................................................12 2.2.2 The Medium Term Expenditure Framework .....................................................................13 2.2.3 The Budget Preparation Process .........................................................................................18 2.2.4 Appropriation Structure ......................................................................................................20 2.3 Ongoing Reform Initiatives ...............................................................................................................21 2.4 Recommendations .............................................................................................................................25 3. Budget Execution .......................................................................................................................................26 3.1 Government objectives ......................................................................................................................26 3.2 Analysis of present situation and ongoing reform initiatives ............................................................26 3.2.1 Legal framework ...........................................................................................................26 3.2.2 Budget authority management, payment processing and cash management ...............26 3.2.3 Accounting and financial reporting ..............................................................................29 3.2.5 Establishment of non commercial organizations (NCOs) ............................................33 3.2.6 Public internal financial control (PIFC) ........................................................................35 3.2.7 Internal auditing ...........................................................................................................36 3.3 Implications of Program based budgeting Reforms on Budget Execution .......................................37 3.4 Recommendations .............................................................................................................................38 4. Cross cutting challenges ............................................................................................................................39 4.1 Integrated Government Financial Management Information System ...............................................39 4.1.1 Government objectives .................................................................................................39 4.1.2 Characteristics of the current treasury system ..............................................................39 4.1.3 Costs of a commercial off-the-shelf GFMIS ................................................................40 4.1.4 Alternatives to commercial-off-the-shelf software .......................................................41 4.1.5 Interim software architecture and software development strategy in advance of GFMIS ......................................................................................42 4.1.6 Prerequisites for successful GFMIS Implementation ...................................................44 4.2 Capacity .............................................................................................................................................45 4.3 Recommendations .............................................................................................................................45 5. Reform scenarios, strategy and funding ..................................................................................................46 5.1 Reform scenarios ..............................................................................................................................46 5.1.1 Scenario 1 – Comprehensive ICT enabled business process reengineering .................46 5.1.2 Scenario 2 – Intermediate ICT enabled business process reengineering ......................46 5.1.3 Scenario 3 – Deepening select reform activities ...........................................................47 5.2 Strategy .............................................................................................................................................47 5.2.1 Reform Approach .........................................................................................................47 5.2.2 Reform management .....................................................................................................48 5.2.3 Motivation and change management ............................................................................49 5.3 Funding ..............................................................................................................................................49 5.4 Recommendations .............................................................................................................................50 Annex 1. Organization of the Ministry of Finance ...........................................................................................51 Annex 2. Detailed GFMIS cost projections by Corporate Solutions ...............................................................52 3 Public Financial Management Reform Priorities Tables Table 1. Budget Formulation Process ..................................................................................................................13 Table 2. Summary of recommendations on budget formulation ..........................................................................25 Table 3. Summary of recommendations on budget execution .............................................................................38 Table 4. Overview of current ICT systems supporting financial managemen .....................................................39 Table 5. Summary of recommendations on crosscutting issues ...........................................................................45 Figures Figure 1. Public Spending, 2004-2009 ....................................................................................................................7 Figure 2. Public External Debt, 2004-2009 .............................................................................................................7 Figure 3. GDP and inflation, 2004-2009 ..................................................................................................................7 Figure 4. Poverty Rate, 1996-2008 ..........................................................................................................................7 Figure 5. Comparing Aggregate Expenditure Estimates .......................................................................................14 Boxes Box 1. Summary of the PEFA self-assessment findings ......................................................................................8 Box 2. Government targets in the areas of forecasting main macro economic and budgetary indicators and strategic planning, medium-term expenditure frameworks and the national budge ........................12 Box 3. New Zealand’s approach to Fiscal Risk Disclosure and Management ...................................................15 Box 4. Linking the Poverty Reduction Strategy Paper, Medium Term Expenditure Framework and Budget Proc .....................................................................................................................................16 Box 5. Typical Functional Specifications of GFMIS Budget Modules ............................................................18 Box 6. Budget Transparency in Armenia and OECD Best Practice Guidelines ................................................19 Box 7. The Multiple Uses of Program Structures ..............................................................................................21 Box 8. Program budgeting in the health sector ..................................................................................................22 Box 9. Lessons from introduction of program budgeting in South Africa.........................................................24 Box 10. Government target in the area of treasury syste .....................................................................................26 Box 11. Government targets in the areas of the public sector accounting and auditin ........................................29 Box 12. Real time on-line access to budget execution
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