Qatar's new financial management systems enhance on-target spending

In keeping with the IMF’s recommendations, Qatar has moved to introduce a medium-term focus to its budget process, which is expected to help protect government spending from revenue volatility. These reforms have become especially pertinent, as oil prices plunged by 50% between June 2014 and early 2015. With the state now moving to plan its budget in three-year increments, planning to utilise the IMF-recommended Government Finance Statistics Manual 2001 (GFSM) as the foundation of its budget forecasting, with plans to roll out an interactive Government Finance Management Information System (GFMIS), reforms to fiscal planning and record-keeping are expected to help the state reduce its persistent excess spending, stabilise budget planning and ease spending programmes prone to global volatility.

IMPROVING CONTROL: A number of governments in the Middle East suffer from the absence of clear, consistent methods to determine the level of funds needed to properly perform duties and complete planned projects. Ministries often take a “wish-list” approach, exaggerating funding needs and ensuring every dollar is spent to avoid future budget cuts. In dynamic GCC economies especially, budget estimates are prone to under- or overestimation of actual spending requirements, leading to volatility in the budgeting process. For Qatar, which has witnessed annual average GDP growth of 13.46% between 2004 and 2013, reforms to the fiscal framework will be critical for successful management of projects, funding and expenditure: Reuters reported in July 2014 that the state’s actual government spending has consistently overshot what was budgeted in recent years, although spending excess in 2013/14 dropped to 11%, compared to nearly 25% on average in the previous four years. Adoption of internationally-benchmarked financial management systems will improve on-target spending, offering the benefits of enhanced transparency and accountability, tightened fiscal control, balanced budgets, improved credit ratings and cost savings.

NEW FRAMEWORK: In its most recent Article IV Consultation for Qatar, published in May 2014, the IMF praised Qatar for beginning the process of introducing a medium-term budget framework (MTBF) to its budget planning process. The state’s budget circular for the 2014/15 fiscal year requires that ministries and agencies provide indicative budget estimates until the 2016/17 fiscal year. “Once fully effective, the MTBF will help ensure that government spending is shielded from revenue volatility and expenditure targets are not exceeded, while providing a platform for assessing the quality of spending,” read the report, with the IMF predicting spending overruns can be eliminated from the current budget cycle with the introduction of these measures. GFSM 2001 is an IMF-supported statistical reporting framework that provides a solid basis for fiscal analysis, and can play a key role in strengthening surveillance of fund-supported programmes. The system provides a comprehensive framework for phased implementation of accrual accounting, while also supporting improvements to the compilation of cash-based fiscal statistics for world governments.

“Implementing GFSM 2001 can help member countries strengthen their capacity to formulate fiscal policy and monitor fiscal developments. Equally important, the framework forms an integral part of the effort to promote international standards for transparency in fiscal reporting,” a 2005 report published by the IMF’s Statistics and Fiscal Affairs departments states. Under a 2007 decision by the Council of Ministers, the Ministry of Finance (MoF) was given the mandate to introduce the GFSM 2001 system, which was completed in 2008. Further statistics reforms were then implemented when the government carried out collection of additional breakdowns of cash and noncash data in 2009, with this data used to improve the state’s Classifications of the Functions of Government (COFOG) system, which comprises part of the GFSM 2001. “Depending on progress with the new systems … introduction of several elements of accrual accounting, including valuation of non-financial assets, would be possible for the period after 2012 and 2013,” wrote the IMF in its 2013 Government Finance Statistics Yearbook.

AN INTERACTIVE PLANNING SYSTEM: Underpinning expansion of new data-tracking initiatives is the state’s planned GFMIS, which will facilitate compilation of Qatar’s GFSM 2001 budget data. A GFMIS is a standardised, automated system for managing government revenues and expenditures, consisting of hardware, software modules and processes. Whereas the GFSM focuses on statistical reporting and data analysis, GFMIS is a dynamic interactive planning system which allows finance ministers and other decision-makers to improve government performance, automating each step of the fiscal management cycle, and integrating all steps with one another.

Establishment of a comprehensive GFMIS will enable automated communication between the MoF and other government entities and spending units, standardise processes across the cycle, and allow up-todate visibility of government expenditures and receipts.

As detailed in a 2010 report published by Strategy&, finance ministers in developed countries have sought to improve fiscal oversight via the introduction of a GFMIS system, with robust systems offering standardised, automated, and efficient processes for managing government revenues and expenditures, offering the knock-on benefits of cost reduction and the ability to attract better borrowing terms. The Swiss government, for example, was able to realise $160m in savings during its first year of a new fiscal reform programme, which centralised all government budgetary accounts under a single treasury-managed account, at a cost of $70m. Strategy& reported that Britain has saved $40.5bn annually as a result of its GFMIS-centred reforms.

HYDROCARBONS VOLATILITY: With Qatar slated to adopt its own GFMIS system, the government has won accolades from the IMF for introduction of structural budget reforms, although the bank stressed that Qatar’s MTBF should be accompanied by credible annual budgets based on realistic hydrocarbons price assumptions. While the IMF was referring at the time to Qatar’s projected oil price of $65 a barrel (Brent crude prices hovered at approximately $115 per barrel in June 2014), Qatar and other major hydrocarbons producers are now facing a situation in which they may need to reduce their projected oil prices, following a price free-fall that saw Brent crude trading at less than $70 per barrel in early December and at around $60 in March 2015.

Indeed, plummeting global oil prices have led to significant volatility in a number of GCC budgets, and while Qatar, with its sizeable foreign exchange reserves and budget surpluses, is better insulated from the oil market’s current downward spiral, the state still has much to gain from stable, long-term budget outlooks.

The IMF has noted that Qatar’s fiscal policy stance remains consistent with intergenerational equity, reporting that the government is saving sufficiently for future generations, but does not over-save.

The fund mentioned, however, that if oil prices fell, additional measures to curb current expenditures and prioritise capital spending would require consideration. The implementation of a comprehensive GFM system, including both GFSM and GFIMS components, will help underpin any future budgetary reform efforts.

A NEW MACRO-FISCAL UNIT: Qatar has proposed introducing legislation to regulate financial activities of the government and public sector organisations. This law aims to help Qatar develop a long-term investment strategy through the establishment of a macroeconomic unit within the MoF.

The IMF has reported that, in line with its advice, the new macro-fiscal unit was expected to be established in the near-term, with the bank offering its assistance in the new unit’s creation, should it be required. In November 2014 the IMF put out a call for macro-fiscal advisors for the new unit, indicating that the establishment of this unit could be imminent.

There is still room for improvement, however, with the IMF reporting that ongoing efforts to improve macroeconomic statistics are necessary.

To this end, the Ministry of Development Planning and Statistics is finalising its Foreign Investment Survey, which should substantially improve its balance of payments and index of industrial production statistics, and began establishing quarterly GDP-by-expenditure reports in June 2014. However, gaps still exist in real estate statistics, while household and corporate balance sheet data will help support development of a Qatar Central Bank early warning system, which would prevent currency crises. The IMF has also called for a more detailed, multi-year expenditure framework to be integrated into the MTBF, supported by a consistent macroeconomic forecast, and closer collaboration with the Statistical Centre for the GCC, a UN agency that was created in June 2012 to serve as a common official pool of statistics for the GCC region.