Offbudget Activities in Turkey

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Off-budget Activitiesin Turkey

• Ministry of Finance
• Turkey
• February 20, 2003
• Vienna

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Agenda

• -Minimizing extra-budgetary funds,
• -Transparency of privatization receipts,
• -Reporting QFAs, contingent liabilities and tax
  expenditures,
• -Controlling local off-budget activities.

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Minimizing Extra-Budget Activities

• Extra-budget activities were very common until
  2001,
• There were almost 80 extra-budgetary funds
• managed by related administrations,
• not under parliamentary control,
• using different accounting and reporting
  systems,
• using different expense procedures than
  governmental expense procedures.

4
Continued

• Extra Budgetary Funds(EBFs) had most of their
  own revenues from related sources, but some were
  receiving transfers from the general budget (a
  kind of earmarked revenue),
• Their activities were not being reported for
  public, but were audited by High Audit Board and
  Ministry of Finance,
• All extra-budgetary funds were abolished, except
  6.
• There were 2600 revolving funds in different line
  ministries. They have separate budgets and
  different expenditure procedures. In 2001 and
  2002, the number of the revolving funds were
  reduced to 1463.

5
Transparency of Privatization Receipts

• Privatization Administration(PA) was established
  in 1994 with Law number 4046.
• The privatization receipts are managed under the
  Privatization Fund administered by PA.
• Cash surplus of Privatization Fund is transferred
  to the treasury accounts for treasury payments.
• The proceeds of privatization are mainly used to
  increase capital in companies in privatization
  portfolio, transfer to companies, transfer to
  treasury, credit to companies and payment of
  loans and early retirement payments.
• The privatization revenues are not allowed to be
  transferred to public administrations,
  organizations and to the local administrations
  during privatization, unless necessary for the
  sake of national security and\or the best
  interest of the public.

6
Continued

• Total income from organizations on the
  privatization program during the 1985-2001 was
  US10 billion. In the same period, total
  privatization expense was US9.7 billion.
• Privatization revenues are mainly being used for
  privatization purposes especially for preparing
  the companies to be privatized in the
  privatization portfolio.
• PA has its own accounts.
• Privatization activities, receipts and
  expenditures are reported on the web-page of the
  PA(www.oib.gov.tr), separately from government
  accounts.
• The activities of PA are audited by State Audit
  Board, not regularly.

7
Reporting QFAs, Contingent Liabilities and Tax
Expenditures

• QFAs
• Central bank is classified separately from the
  general government. Therefore, Central Bank
  activities such as credit subsidies, support of
  financial institutions, foreign exchange
  subsidies, foreign exchange revaluations are
  reported in the Central Bank accounts.
• Payments to the public financial institutions as
  duty losses are reported in the Consolidated
  Budget Accounts.
• Transfers to non-financial public institutions
  are also reported in the Consolidated Budget
  Accounts.

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Contingent Liabilities

• Treasury guarantees are not recorded in the
  government accounting system, but reported on the
  Treasury web-page.
• Commitments are not recorded and reported in the
  government accounting system.
• Social Security Liabilities
• Future social security payments are not measured
  and reported. There are three social security
  institutions. They have their own annual budgets.
  The deficits of social security institutions are
  financed from the national budget. These
  transfers are reported in the consolidated budget
  accounts.

9
Tax Expenditures

• Tax expenditures are not measured and reported in
  the government accounts.

10
Controlling Local Off-budget Activity

• There are 3250 municipalities and 81 provincial
  administrations in Turkey.
• Each municipality and provincial administration
  has its own budget.
• Some municipalities have also annexed budgets for
  their city transportation and water businesses.
  These are not classified as off-budget
  activities.
• There were two off-budget funds serving local
  administrations Municipalities Fund and Local
  Administrations Fund. These funds were being
  managed by central government but were abolished
  in 2001.
• There are no off-budget activities in local
  administrations. Except non-financial
  corporations established by local
  administrations all local revenues and expenses
  are included in local administration budgets.

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Current Studies

• A- Moving Accrual Based Government Accounting
  and Reporting
• 1-All governmental units in the general
  government sector will use the same
  internationally accepted government accounting
  and reporting standards and framework chart of
  accounts.
• 2-IMFs GFSM 2001 budget classifications are
  being adopted all governmental units will use
  the same revenue and expense classifications.
• 3-Ministry of Finance will be the single
  authority to determine accounting and reporting
  standards and produce and disseminate general
  government data in predetermined periods.

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Continued

• 4- All contingent liabilities and QFAs in the
  general government sector will be accounted and
  reported in the government accounting system.
• 5- Financial tables such as Balance Sheet,
  Statement of Operations and Statement of Cash
  Flows will be produced and made public for each
  sub-sector and general government sector.
• 6-Budget activities will be recorded and
  reported on cash basis government activities
  will be reported on accrual basis.
• 7- GFS and ESA95 tables related to general
  government sector will be produced directly from
  accounting system by transforming accounting
  data.

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B-Reform on Financial Management and Control
System

• A new law on public financial management and
  control system is drafted.
• Roles and responsibilities of Ministry of Finance
  and line ministries are defined clearly in the
  budget preparation and implementation process.
• Responsibilities and authorities related to
  financial management will be delegated to
  spending agencies.
• Ministry of Finance will be a central
  governmental unit in setting standards and
  monitoring implementation in general government.
• All financial transactions will be included in
  related budgets.
• Tax expenditures will be reported.
• Accountability and transparency will be main
  values in public financial management system.
• All financial activities will be subjected to
  external and parliamentary control.

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Thank you