Public Debt Audit in Hungary International Conference WROCLAW 19 May 2006 Emil Kemény
Characteristics of Public Debt in Hungary Hungarian public debt is the total payment obligation of the sub-systems of public finances based on debt: total of credits total of issued government securities
Characteristics of Public Debt in Hungary The sub-systems of public finances: central budget, social security funds, separated government funds, local governments.
Characteristics of Public Debt in Hungary From these four sub-systems debt may arise only in the central budget and at local governments, because the debt of the social security funds and of the separated government funds if there is any, is listed within the central budget. Basically the central budget and the deficit of social security funds affect the increase of the present debt. Furthermore the established debt is influenced by exchange-rate fluctuations, the trend of the money stock of the state, the change of equalisation reserves of the National Bank of Hungary, and privatisation revenues.
Legal Provisions Concerning the Trend and Management of Public Debt The definition of public debt and the framework of its management are regulated by law. The concerned Act determines the organisation responsible for registering and managing debt in the case of the central budget; however in case of the sub-system of local governments every local government (approx. 3200) is responsible severally for registering and managing debt. The trend of public debt has to be presented annually to the National Assembly, broken down to sub-systems, during the submission of the final accounts. The presentation is the responsibility of the Government.
Auditing Fields of the Trend and Management of Public Debt According the Act the State Audit Office (SAO) (may) audit the credits and debts of both the central budget and the local governments. The comprehensive audit of the debt of the central budget and the management thereof and the audit of the debt of local governments are carried out every 4-5 years. The audit of the activity and debt of related organisations in every 4-5- years serves the transparency of processes and the exploration of tendencies. The financial audit on the data fixed in the Act on Final Accounts and submitted to the Parliament, thus on interest expenditures and capital transactions is carried out annually since 2003.
Methods of Audit Primarily the official documents signed by the auditees form the basis of the audit (e.g. contracts, documents on the issue of securities, reports, extract of ledgers, certifications containing analytical data). Secondly information is gained from discussions and consultations with the audited organisations, but the audit findings have to be supported by documents also in these cases. In the framework of audits the SAO cross-checks the data submitted by different organisations (related ministries, organisations designated to manage debt, authorities registering data).
Audit Criteria Comply with legal provisions Is the process of registering and managing debt regulated appropriately from the point of view of legality, efficiency and expediency? Are the responsible organisations determined definitely? Do the sharing of tasks among the organisations promote the transparency of debt management? Do the organisations participating in debt management involve resources regularly?
Audit Criteria Performance indicators: In Hungary in order to reduce debt burden an indicator system is in force, which is reviewed annually concerning the debt of the central budget. The activity of the debt management organisations is classified by: the holding of interest rates under the planned level the calculability of the market value of public debt the concentration of foreign debt, the trend of foreign exchange rates the composition of fixed and variable interests and the duration of public debt. The role of pre-repayment in cost saving is examined particularly
Audit Criteria Performance indicators: Liquidity management activity of the organisation including: the observance of provisions concerning the treasury account the balance fluctuation the sufficiency of information available for the management organisation. The role of factors influencing the change of debt amount including: the difference between planned and actual deficit of the budget/social security funds the justification of assuming credits by the central budget the trend of investment expenditures within the factors playing role in the emergence of deficit
Audit Criteria Answering these questions helps to decide whether the activity of organisations participating in debt management met the requirements of the state/government.
Utilizing the Reports In Hungary SAO makes recommendations to the auditees and the organisations supervising them, and finally to the Government and the Parliament. The SAO cannot force the addressees of the proposals to implement them, because it does not have the right to impose sanctions. The audits being repeated regularly reveal also the fulfilment of proposals made by the previous audits. In case the proposals are not implemented, the SAO raise the attention again to the necessity of the implementation.
Utilizing the Reports In case of suspicions of violating the law or committing crime SAO is obliged to take actions. Such actions have not been taken so far in relation to the audit of the public debt management. The findings and proposals are subject to frequent consultations. The SAO carries out discussions and consultations with the organisations managing the debt of the central budget, with the concerned ministries (Ministry of Finance, Prime Minister s Office), with the Treasury, which manages state funds and keeps the state s account, and also with the National Bank of Hungary.
Utilizing the Reports Following the consultations the audit report containing findings and proposals is published by the SAO according to the Act on the SAO. Report is sent to the MPs, to the highest dignitaries, and it is available for the public at SAO s website.
Main Findings of the Report finalised in March 2006 The debt of public finances has a significant rising tendency 14000 12000 10000 8000 6000 4000 2000 0 7834,2 6964,3 7327,8 112,5% 100,0% 105,2% 10808,5 9415,7 155,2% 135,2% 12998,6 250% 11867,7 170,4% 186,6% 200% 150% 100% 50% 77,9 101,6 114,7 191,5 220,8 275,3 283,7 0% 1999. 2000. 2001. 2002. 2003. 2004. 2005. CENTRAL BUDGET LOCAL GOVERMENTS DEBT OF CENTRAL BUDGET COMPARE TO 1999. YEAR
Main Findings of the Report finalised in March 2006 The debt of social security funds 500 Bill HUF 423,9 468,8 400 300 310,0 349,0 343,7 375,3 200 100 0-100 17,8 81,4 100,9 86,7 93,5 80,2 63,6 28,8 30,3 39,0 14,2-1,5 2000. 2001. 2002. 2003. 2004. 2005. Balance of Pention Funds Balance of Health Funds Total debt of Social Security Funds
Main Findings of the Report finalised in March 2006 The interest expenditures related to the debt raise the deficit, which narrows the room for manoeuvre of the budget. Bill HUF 1600 1469,6 1400 1200 1000 800 788,0 715,1 728,8 732,4 802,3 910,3 875,5 903,3 DEBT 600 400 367,8 402,9 545,0 GROSS INTEREST 200 0 2000. 2001. 2002. 2003. 2004. 2005.
Main Findings of the Report finalised in March 2006 Other factors of debt increase: Effect of foreign exchange rates (+ or -) Payments of privatisation ( - ) This means that privatisation revenues did not serve for the redemption of the present debt, but less resources had to be involved. Increasing the reserves of the National Bank ( +) Advancement from EU Emoga ( + )
Main Points of the Report finalised in March 2006 The debt of local governments is also rising, but it takes only 2-3% of the public debt. Billion HUF 300 272,8 283,7 250 200 191,8 217,6 150 100 50 102,0 115,1 0 2000. 2001. 2002. 2003. 2004. 2005 years
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