The Court of Accounts published today the audit data on the Government report on state budget execution for 2015 and the audit report on the public sector debt, state guarantees and state loans for 2015. The picture is far from perfect. According to the report, the state budget revenues diminish while the costs increase. The inflation level also increased, consumer price index and public sector debt (internal and external), as well as imports and exports decreased, while the national currency depreciated significantly in report to major currencies. In addition, the external indebtedness of the country and dependence on external financing is increasing.

            General conclusions

State budget indicators, performed in 2015, were less than expected, as it was shown in the report. Revenues were executed in the amount of 28.054 bln. Lei (95.5%), expenses– amounting 30.101 bln. lei (91%) and the budget deficit – amounting 2,046 bln. lei (55.5%). At the same time, the internal state debt exceeded the ceiling set by 7% while the foreign state debt was performed below the established level.

It is worth mentionning that last year the state budget was approved with significant delay. Thus, macroeconomic indicators used in the preparation of the draft budget are different from the actual situation. According to the report, because of modification operated to the Law on State Budget, revenues have been decreased by 1.186 billion. lei (-3.9%) and the expenditure – by 1590 bln. lei (-4.6%) while the budget deficit increased by 404.2 mil. lei (+ 10.2%).

The audit also reveals that the growth rate of the external debt (+30.9 mln. USA dollars/ + 2.4%) exceeded the growth rate of foreign exchange reserves (-399 million. USA dollars / -18, 5%), coefficient of coverage decreasing from 1.65 in 2014 to 1.31 in 2015. In the circumstances of insufficient liquidity for the needs of the state budget, there have been undertaken the sale of state securities, beyond the approved limits, with 205.1 mil. lei. In addition, funds had been raised as loans, namely:  432.2 million lei from foreign-financed projects and 170 million lei from public self-financing institutions.

The press release of the Court of Accounts shows that the growth rate of government revenues (NPB) and of revenues of the State Budget (SB) slows down significantly, and in Moldova was recorded the lowest level of execution of state budget revenues in 2015.

            Findings regarding the execution of state budget revenues

Regarding the execution of the State Budget income, the audit revealed several irregularities, including the application of some provisions that were declared unconstitutional since 1999.

NPB revenues were influenced by the significant increase in tax and customs facilities.

Accounts payable to suppliers of works and services increased. The amount of payment orders not executed because of shortage / lack of budget resources constituted 850.4 million lei, while the level of debts to the state budget was maintained high and the level of budget revenues decreased.

State budget expenditures increased by 2.6% compared to 2014.

            Findings regarding the execution of state budget expenditures

budjet-moldova.jpgAt the chapter of execution of costs, the audit revealed that the level of their execution is lower than the level established by international practices (-5%) and in 2015 was recorded the lowest level in over three years. This has been caused by the income of not the forecasted level (- 1.318 billion lei), including external grants, as well as by partial disbursement of foreign loans, included in the budget (- 1.617 bln. Lei);

According to the Court of Accounts, the budget estimates of the budget spending institutions have to be improved significantly, requiring the implementation of major constraints so that in the requests of institutions using the public money the needs are strictly correlated with the available level of state resources.

Farming subsidy fund was not fully funded, which is caused by insufficient financial resources and the payment of enforceable titles. During the meeting, the Finance Minister said that the arrears to farmers would be paid in the nearest time.

The audit repeatedly outlined the problems found in previous years at the compartment debts to payment of dues to international organizations where Moldova is a member. The membership fees of the country in the capital of four international organizations have not been restored.

The expenses for the payment of enforceable documents have also increased, Thus, compared to 2014, in 2015 85.8 mln. lei were paid for cases lost in courts, the respective damage being paid from the state budget. Due to the lack of policies debt’s record keeping, the total amount of cases submitted to be paid from the state budget, as well as potential risks with impact on subsequent budgets are not known.

For the first time in recent years, the volume of funds of the Government Reserve Fund is decreasing, compared to the volume of state budget expenditures, which is growing.

            Due to insufficient resources in the state budget, the execution level of transfers to the social security budget constituted 93.7% (-278.9 million Lei), the mandatory health insurance fund – 94.7% (-121.8 million lei), the budgets of administrative-territorial units (BATU) – 93.3% (-527 million lei).

The state budget in 2015 was achieved with a deficit of 2.046 bln. lei, which is below the forecasted level. Domestic sources worth 240.7 mil. lei net, as well as foreign sources worth 1.806 billion lei net have been attracted over the year in order to cover the budget deficit.            

             A more pronounced dependence on external funding

Today the Court of Accounts also examined the Audit Report of the public sector debt, state guarantees and state loans for 2015.

According to the Report, there are tendencies to increase the level of indebtedness of the state and reduce the level of coverage of public sector debt with foreign exchange assets, which may lead to the solvency risk.

The balance of the state debt recorded an increase due to major use of external funding sources. At the end of 2015, the state debt amounted to 33.509 bln. lei, increasing by 6.038 billion compared to 2014. Increase of the share of external state debt within the total state debt by 4.2% and accounted for 78.4%, characterizes the growing external indebtedness and the dependence on external funding.

In 2015, the indicators characterizing the state debt had the highest values in the last 4 years being influenced largely by the impact of fluctuations in exchange rates and interest rates on the state debt and the state debt service.

The balance of the external debt, according to the Court of Accounts, continues to record a trend of continuous increase, while capitalization of external sources remains at a low level. In 2015, the external debt balance increased by 30.9 million USA dollars, constituting 1.337 bln. USA dollars (+2.4%).

            The internal state debt also increased

As for the domestic state debt, its balance exceeded the ceiling set by the State Budget Law for 2015, registering a continuous growth trend. At the end of 2015, the balance of the domestic debt amounted to 7.225 bln. lei, exceeding the ceiling set for 2015 by 243.2 mln. lei.

Commercial banks do not hurry to repay the emergency loans granted by NBM.

The audit revealed that the internal balance of the state guarantee, issued by the Ministry of Finance (MoF) in favor of the National Bank of Moldova (NBM) for emergency loans offered to commercial banks in order to ensure the financial stability has been repaid insignificantly. In 2015, state guarantees for emergency loans granted by NBM to the banking system amounted to 14.222 mln. lei. During the year three commercial banks reimbursed only 532.5 mln. lei, the balance at the end of 2015 constituting 13.689 billion lei.

In addition, according to the published data, the burden on the state budget caused by state guarantees value, constitutes about 57.6% of tax revenues of the state budget and 45.2% of state budget expenditures. This can affect the whole sustainability of public finances caused by failure to enforce payment obligations derived from state guarantees granted to NBM to guarantee emergency loans to financial institutions (13.6 billion lei). So, the domestic state debt will increase significantly, which will burden the budgets for the coming years. As a share of the GDP, the domestic state debt, estimated for 2016, will increase by approximately (+9,8 p.p.).

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