Managing Expenditure Pressures for Sustainability and Growth
aim of implementing such improvements would be to move towards a system that passes project proposals through finer and finer filters in order to arrive at those that are most suitable to receive budget funding, i.e., those aligned with government objectives, representing good value for money, and consistent with available resources. In a well designed system, many projects can be filtered out before detailed planning and analysis begins, thus avoiding the need for elaborate studies too early in the process.
The need to strengthen capital budgeting systems in Georgia will become increasingly pressing as dependency on donor assistance declines and selections between competing infrastructure priorities become more nuanced. In recent years, Georgia has been addressing an array of obvious infrastructure deficits in the transport, energy, and utility sectors, thus mitigating the urgency of developing rigorous systems of project identification and screening. Furthermore, the public investment program has been financed in large part through donor assistance, accompanied by a ready assortment of appraisal techniques. As the fiscal landscape shifts considerably in the years ahead, the current capital budgeting system will become unsustainable. Donor assistance will almost inevitably fall as Georgia moves out of the post-conflict phase. Furthermore, infrastructure investment priorities will need to be identified through increasingly systematic demand forecasting44, rather than through the more obvious signs of excess demand, e.g., electricity blackouts or brown-outs, or water rationing.
4.3.3 Reform Options to Strengthen Georgia’s Capital Budgeting System Based on the preceding assessment, this section describes a sequenced set of medium-term reform options to strengthen Georgia’s broader capital budgeting system. The first set of options in the sequence relate to (i) developing a systematic project identification and preliminary screening process; and (ii) developing uniform methodological guidance on cost-benefit analysis. The second set of options in the sequence relate to strengthening strategic guidance and systematization of the overall capital budgeting system.
Introduction of a Systematic Project Identification and Preliminary Screening Process A systematic project identification process involving a “simple and light” preliminary assessment step can have significant impact in effectively screening a growing pool of infrastructure project needs within the fiscal envelope. When applied seriously, such a systematic project identification process can help in ensuring that only affordable projects with the potential to offer good value for money and in line with strategic policy objectives enter the project pipeline and proceed to more detailed preparation (and thus to budgeting). A suggested format for a preliminary assessment for major45 projects is presented in Box 3. This form is intended to assist budget organizations decide whether to proceed to detailed project preparation (feasibility study) and appraisal. This preliminary assessment tool is best used as a basis for dialogue between spending ministries and the Ministry of Finance, rather than a control tool, although failing to complete a project identification form would still be a reason for denying budget funds for project preparation. Project identification is recommended as a short-term priority because the sooner it is introduced, the sooner it can impact the quality of the forward 44 At least in the energy sector, long-term demand forecasting and power planning is not currently being undertaken. The situation appears to be similar in the water and sanitation sector.
45 To avoid unnecessary bureaucracy and economize on limited analytical skills, the formal project identification process should probably be confined to major capital projects (as defined by the government).
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Chapter 4. Capital Budgeting Systems