Budget execution in Hungary Zsolt Tavaszi, Tamás Pál Török Budapest 6 June 2019 PEMPAL TCOP Meeting

Budget Act 1. § of the Budget Act Total amount of incomes Operating 60,375 billion EUR Total amount of incomes 63,454 billion EUR Total amount of expenditures 3,078 billion EUR Amount of the deficit Operating Accumulation EU development

Budget appropriations Level Content 1st Annex of the Budget Act Appropriations (for operating and accumulation – only budgetary items) Budgetary expenditures (K1-K8) Budgetary incomes (B1-B7) Detailed budgets Line items (budgetary and financing items) Budgetary expenditures (K11-K89) Budgetary incomes (B11-B75) Financing expenditures (K91-K94) Financing incomes (B81-B84) Annual report (Transactional level) ERA (unified line item identifier) – More detailed identification structure K1101 - Wages 1K1101 – Wages 2K1101 – Refund of wages K504 – Refundable subsidies for operation 1K50401 - … for central budgetary institutions 2K50401 – Refund of.. for central budgetary institutions 1K50402 , 2K50402– centrally managed app.

Budget Appropriations

Detailed budgets – 1.789 in 2019 Serial number Denomination Cover 01. K1-K8. Budgetary expenditures 95 lines 02. B1-B8. Budgetary incomes 68 lines 03. K9. Financing expenditure 30 lines 04. B8. Financing incomes 08. Data supply on the composition of manpower and wages 105 lines 09. Repartition of manpower according to functions 71 lines 10. Data supply on appropriations and fulfilment figures related to subsidies coming from social security funds 43 lines

Annual report in the central subsystem Serial number Denomination Cover 01. Annual report K1-K8. Budgetary expenditures 266 lines 02. Annual report B1-B8. Budgetary incomes 282 lines 03. Annual report K9. Financing expenditure 40 lines 04. Annual report B8. Financing incomes 32 lines 05. Fulfilled expenditures by government function 308 lines 06. Fulfilled incomes by government function 315 lines 07. Statement of residuals 18 lines 08. Data supply on the composition of manpower and wages 105 lines 09. Repartition of manpower according to functions 71 lines 10. Data supply on appropriations and fulfilment figures related to subsidies coming from social security funds 43 lines

Annual report in the central subsystem Serial number Denomination 12. Balance sheet 250 lines 13. Income statement 44 lines 15. Statement on immaterial assets, material assets, assets given to concession 26 lines 16. Statement on depreciation of assets 11 lines 17/a. Informative data 80 lines 17/b. Turnover between social security funds and other funds, SPUs 31 lines 17/c. Subsidies for (national) minority local governments in the current year 3 lines 17/d. Subsidies for (national) minority local governments in the former year

Annual report in the central subsystem The Treasury is responsible for collecting data on detailed budgets, annual reports, annual interim reports… (KGR-K11)

The role of the Treasury in the control of public expenditures Spending Units Treasury Planning Detailed budget Register of appropriations based on data supply Management Based on the detailed budget Treasury Commitment Financial countersign Completion certificate Validation Remittance Payment Treasury Budget Supervisor: Preliminary opinion in case of commitments Opinion on internal regulations and actions related to financial management Proposition of restructuring management processes Suspension measures Bookkeeping, reporting General ledger accounting in local IT systems Preparing of annual and interim financial statements, reports, balance sheets Reporting towards the Treasury Control and summary of annual and interim financial statements, reports, balance sheets Reporting and data service towards national and international organizations

Modification of appropriations Reason of the modification Residuals (Central Residual Settlement Fund) Re-structuring of functions Mid-year estimates modifications Range of Scope: Parliament, Government, minister responsible for state budget Chapter governing body Budgetary body/chapter (in its discretion)

Modification of appropriations Appropriations of incomes may be increased if they are overfulfilled, and have to be decreased if the fulfillment figures are lower than planned Minister of finance can increase the appropriations of central budgetary institutions and chapter managed appropriations if its residuals cover it. (Centrally managed appropriations do not have residuals, its remaining appropriations are deleted at the end of the year.) Central budgetary institutions can increase its appropriations of incomes and expenditures in case they receive new missions to accomplish during the fiscal year Some appropriations of expenditures may be exceeded without modification EU funds related expenditures Certain subsidies Expenditures related to law-suits, compensations, collaterals, guaranties Expenditures related to investments Expenditures related to foreign exchange rates, debt service, prime interest rate

Release of funds YTD/Year-to-date allotment Operating budget of governmental bodies. Performance proportioned allotment Accumulation budget of governmental bodies, chapter-managed estimates. Modification of schedule Institutions with temporary liquidity problems, chapter-managed estimates. with different time-frame replacement with non-different time-frame replacement Appropriations increases without amendment Exceeded appropriations

TSA – Accounts managed by the Treasury HUF accounts 10.000 accounts 2.198 clients Foreign exchange accounts 1.300 accounts 316 clients Treasury Single Account

Payments Submission of transfer orders Paper-based Electronic Prior notification of big lump sum payments Transfers in excess of HUF 1,000 million to be announced at least 3 days in advance Double cover test Liquidity coverage test Appropriation line item test Identification of performance Single Column headings established under the order number (ERA) and government ID are used to identify the transfer lines. Net financing

Banking arrangements Treasury Single Account (TSA) at Central Bank of Hungary provision of funds for operations (performance or monthly basis): gross expenditure – own income = net expenditure (budgetary contribution) liquidity management via TSA (central government) municipalities can hold bank accounts at commercial banks rolling cash-flow plan (T+2 months) data exchange to prepare overnight operations new Accounts Management System (from 2020) other related fields

Cash forecasting Daily forecasts for three months Sources: a large amount announcements Bottom-up information: institutional reports, commitments, financing plans Top-down information: planning on basis of last years and main information Liquidity Board (Delegates of MoF and HST)

Cash forecasting Others: Problems: Continuous information exchange with Central Bank, MoF, Tax Authority and other large entities Problems: Large fluctuation of cash balance within a month Lot of disbursements at the beginning of month (wages, family allowance, pension, disbursement of VAT, etc. Incomes: in the second half of month Difficult to plan some types of incomes (e.g.: payments from European Commission

IFMIS project The main objective of the project is the improvement of information processes in public finances, the rationalization of public data and information flow, the development of a data warehouse and the development of decision support functions supporting modern budget implementation tasks and the increase of transparency. This project is part of a large, strategic-level program plan, other elements of which are the development of a Treasury Data Warehouse, the creation of a central master data management system and the development of a new account management - banking system.

Present system

Components of the IFMIS Budget Module: Budget Management, Commitment Management, Payments and Revenue Management, Liquidity Management, Budget Monitoring. Integrated Accounting Application: Accounting application for centrally managed appropriations. Institutional accounting system: new accounting system for spending units.  

Main systems in cooperation Budgetary Planning: Ministry of Finance (Not part of the IFMIS) Budget implementation: Account management system Data Warehouse MDM Payroll and HR (KIRA) Public purchase Reporting KGR-K11 will not be replaced

Systems’ transformation Pensions Wages Family subsidies K11 IFMIS Bank accounts management system TSA Spending units

Planned technological background Central Module and Integrated Accounting Application: SAP Platform Data Warehouse: SAP HANA Supply Systems, EER Project: SAP Platform Institutional accounting system: not SAP New Account Management System: Not SAP

Scheduling of the IFMIS project Preparatory phase from 2016 Public purchasing processes: 2018-2019Q1 Detailed Design: Starts in 2019Q2 First phase of implementation: Functional design of the central module without integration points, establishment of institutional frontends, development of MDM integration. Deadline: 31 December 2019 Phase 2: Integration with the new Account Management System, Integration with the Integrated Accounting Application and Institutional Accounting System. Deadline: 30 June 2020 Testing, migration, go-live: 01 January 2021 

Thank you for your attention!