The budget of Georgia incorporates contingency funds, the purpose of which is to cover any unforeseen expenses emerging throughout the year. Similarly, to the State Budget, contingency funds are incorporated in the Municipal Budgets.
According to the law of Georgia on Budgets of Municipalities, the contingency fund is determined by the Municipal Budget to be allocated on an unforeseen, emergency or other expenses of local importance. Therefore, the purpose of the contingency fund is to cover annual expenses that were objectively impossible to anticipate during the budget planning process, such as natural disasters, epidemics, ecological or other forms of catastrophes. The volume of the contingency fund should not exceed 2% of the total volume of allocations considered by the annual budget.
IDFI studied the practice of allocation of municipal contingency funds throughout 2018 and presents a short summary of the results.
Main findings:
- Rules of management and allocation of contingency funds are not currently regulated by the legislation. This leads to risks of irrational spending and misuse of public funds.
- In 2018, a total of 8,949,777 GEL was spent from contingency funds of 60 municipalities, out of which, the largest amount was spent by Tbilisi City Hall - 2,747,100 GEL.
- The expenditures of the top 10 municipalities represent 76% of total expenditures from the contingency funds of all 60 municipalities.
- In 2018, the largest portion of expenditures from municipal contingency funds was allocated for financial aid, and it amounted to 2,653,706 GEL (30%).
- After financial aid, the largest portion from contingency funds (2,212,756 GEL) was spent on mitigating damage from natural disasters and other accidents.
- The purpose of the allocation is unknown for 15% of the total expenditures. More precisely, seven municipalities (Kutaisi, Borjomi, Kobuleti, Marneuli, Lentekhi, Tsageri, Lanchkhuti) refused to disclose information regarding 1,367,811 GEL of expenditures from the contingency funds.
- In 2018, several municipalities financed capital projects from their contingency funds, the necessity for which is not sufficiently substantiated. Also, justifications of the expenses do not provide enough evidence why these projects could not be considered when planning the annual budget. For example, Tbilisi City Hall allocated 155,360 GEL for carving stone around the 300-year-old olive tree located on Rose Square.
- In certain cases, contingency funds are used to finance cultural, sports and educational activities. For example, Ozurgeti Municipality purchased 2,157 GEL worth of tickets for prominent people from the Black Sea Arena concert hall.
- The effective planning of municipal contingency funds is problematic in both cases: when the spent amount exceeds the planned volume and also when it is not fully allocated. For example, throughout 2018, the municipalities of Gori, Kaspi, Kazbegi, Tsalka, and Sighnaghi did not allocate any resources from their contingency funds, which altogether amounted to 280 thousand GEL.
Conclusion
Rules of management and allocation of contingency funds are not currently regulated by the legislation. This leads to risks of irrational spending and misuse of public funds. Furthermore, the Law of Georgia on Public Procurement, as an exception, does not apply to public procurement performed through the funds from the contingency fund of Tbilisi City Hall. Therefore, procurements related to the contingency funds of Tbilisi City Hall are performed without ensuring appropriate competitive conditions and transparency.
The Association Agreement between Georgia and the EU envisions harmonization of Georgia’s procurement legislation with the EU regulations. Therefore, the Georgian Government committed to conceptually harmonize the Georgian public procurement legislation with the EU directives on Public Procurement and reduce the number of signed contracts excluded from the scope of the Law on Public Procurement.
The research showed that the practice of contingency fund formation and allocation varies significantly across the municipalities. The necessity to use resources from contingency fund to cover particular municipal expenses is questionable in some cases. For example, capital expenditures, cultural events, etc. Meanwhile, some municipalities are not able to allocate any resources from their contingency funds. In this regard, the case of Gori Municipality is especially notable, as a large number of internally displaced people are residing there.
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