More than half of the capital’s municipal funds come from the central government’s equalization transfer, which is set to decrease by GEL 49.9 million in 2014. The GoG gives formula-based equalization transfers to most of the local governments on an annual basis.

The MoF changed the equalization formula on September 27, 2013 to decrease the status coefficients of Tbilisi and Batumi from 3.8 to 2.8 and introduce a status of mountainous regions, the latter designed to provide more support to the country’s highlands. The Ministry of Finance has thus exercised its legitimate right to revise appropriations. Although the law does not obligate the MoF to explain the rationale behind any revision of appropriations, when the MoF does explain its rationale, the explanation, we believe, should not be as far-fetched as the one that was released on October 3, 2013. The MoF statement claims that the “Tbilisi government has delays in spending its appropriation, the balance in its accounts GEL 189.7 million. The balance in the Tbilisi government accounts at the beginning of 2014 will be in excess of GEL 100 million, which is GEL 63 million more than that at the beginning of 2013, while the equalization tranfer decreased by a mere GEL 49.9 million.”

The statement, as well as the 2014 draft state budget, makes it clear that not only is the cut in the capital’s 2014 equalization transfer unwarranted, but the MoF’s approach to appropriation revision is clearly selective:

• Revision of equalization tranfer based on the balance in a spender’s account is an unprecedented approach in the international budgetary practice.

• Even if a balance-based revision of equalization tranfers did make sense:

Under the current cash-based budgeting, it is impossible to forecast any year-end balance at the end of Q3, i.e. three months in advance (The MoF does not have a system for monitoring accounts payable in place). Therefore, the MoF is not in a position to forecast with any reasonable margin of error how much of its Q3 balance of GEL 189.7 million the Tbilisi government will have spent by the end of 2013. Even if Tbilisi government has a large balance in its accounts by the end of 2013, it does not mean they will have a comparable balance by the end of 2014. Therefore, revising Tbilisi’s 2014 equalization tranfer downwards at the end of Q3 based on how much of a balance Tbilisi’s government will have in its accounts at the end of 2013, is completely unwarranted by the applicable procedures for appropriation revision/formula and, clearly, a selective approach to reward certain spenders and punish others.