˝e Treasury of the Republic of Latvia Public Report for · Landeswehr oversaw the Treasury. After...

Public Report for

of the Republic of Latvia

�e Treasury

The Treasury

Public Report for

2007of the Republic of Latvia

Abbreviations used in the Report

CSB CentralStatisticalBureau

ECB EuropeanCentralBank

EIB EuropeanInvestmentBank

eKase Electronicsettlementsystemofthegovernmentbudget

ECDB CouncilofEuropeanDevelopmentBank

EBRD EuropeanBankforReconstructionandDevelopment

EU EuropeanUnion

EUROSTAT EuropeanUnionStatisticalBureau

GDP GrossDomesticProduct

Phare ThemaininstrumentoffinancialandtechnicalcollaborationoftheEuropeanUnionwith theCentralandEasternEuropeancountries

POS terminal Electronicdeviceautomaticallyreadingdatafromthemagneticstriporthesmartcard, sendsrequestforauthorisationtothetransactionprocessingcentre,receivesan authorisationreplyandstoresthedataoftransactions.

PPP Public-Privatepartnership

SAP Governmentbudgetplanningandexecutioninformationsystem

SAPARD EuropeanUnionpre-accessionfinancialinstrument,providedasSpecialActionProgramme forAgricultureandRuralDevelopmentinCentralandEasternEuropeancountries

Strategy OperationalStrategyoftheTreasuryfor2007-2009(updatedfor2008-2010)

IMF InternationalMonetaryFund

TARGET 2 Trans-EuropeanAutomatedReal-timeGrosssettlementExpressTransferSystem

SRS StateRevenueService

SSIA StateSocialInsuranceAgency

NIB NordicInvestmentBank

©ReferencetotheTreasurydatacompulsorywhenreproduced.

Thedataincludedinthispublicationmaybeclarifiedinsubsequentpublications.TheTreasurybearsnoresponsibilityforlossesincurredasaresultofusingthispublication.Thisdocumentmaynotbecopied,distributedforanycommercialpurposesorpublishedinanyotherwaywithouttheconsentoftheTreasury.

ISBN978-9984-9987-1-8

Contents

TheTreasurer’sStatement4RetrospectoftheTreasury’sHistory5OperationalStrategyoftheTreasury6LegalstatusandstructureoftheTreasury8TheTreasury’sOperationin2007:

1. Central government budget execution10 1.1. Organizingofcentralgovernmentbudgetexecutionfor200710 1.2. Accountingandreporting11 1.3. Electronicservicesdevelopment13 1.4. ConceptofdevelopmentofservicesprovidedbytheTreasury’ssettlementcentres142. Central government debt, cash and budget loan management15 2.1. CentralGovernmentDebtManagementStrategy16 2.2. Changesincentralgovernmentdebtin200716 2.3. Centralgovernmentdomesticdebt18 2.4. Centralgovernmentforeigndebt18 2.5. Managementofgovernmentborrowing18 2.6. Centralgovernmentdebtportfoliomanagement19 2.7. Centralgovernmentloans19 2.8. Stateguarantees20 2.9. Liquiditymanagement20 2.10. Facilitatingpublic-privatepartnership213. Implementation of the functions of the Paying and Certifying Authority for the European Union policy instruments22 3.1. FunctionofthePayingAuthority22 3.2. FunctionoftheCertificationAuthorityduringtheplanningperiodfrom2007to2013244. State-funded pension scheme asset management255. Corporate governance of the Treasury as a public administration institution26 5.1. TheTreasury’sfinancinganditsspending26 5.2. Personnelandpersonnelmanagement30 5.3. Qualityandriskmanagement31 5.4. Internalcontrolsystem32 5.5. Informationtechnologydevelopment32Publiccommunication33Treasury’sdevelopmentprioritiesfor200834

� the Treasury 2007

2007wasasignificantyearfortheTreasurywithmanyessentialandrelevantevents.

TheTreasury’sactivitiesstillcomplywiththebestmanagementprinciplesandareattestedbytheexternalsupervisoryauditperformedintheTreasury,whichconfirmedthattheTreasurymaintainsitsmanagementsysteminaccordancewiththerequirementsofISO9001:2000Qualitymanagementsystemandimplementsspecifiedpoliciesandgoals,andbyaconfessionletterreceivedwithintheframeworkoftheAnnual Efficient Management Prize 2007.TakingintoaccounttheprinciplesofunitaryoperationoftheinstitutionspecifiedwithintheStrategyandtheprinciplesofcollaborationdefinedwithintheClientServiceManual,anatmospherehasbeencreatedintheTreasurythatfacilitatesworkandcollaboration.

Fortheconvenienceofourclientsandcooperationpartners,weimplementever-newservicesandsolutionsintheexecutionofentrustedfunctions.Wehavecollaboratedwith“Hansabanka”ASsince2007toprovideservicingofcreditcardsattachedtotheTreasury’saccountsforgovernmentbudgetinstitutionsand,attheendofyear,implementedthedirectparticipationoftheTreasuryintheTrans-EuropeanAutomatedReal-timeGrosssettlementExpressTransfersystem,TARGET2.

TheTreasury’sactivitiesweresignificantlyinfluencedbysharpchangesinthelocalandinternationalfinancialmarket.EmphasisshouldbemainlyputuponthedevelopmentaltendenciesofthemacroeconomicsituationinLatvia,whichwerepaidspecialattentionnotonlybycreditratingagencies,butalsobyforeigninvestors.Asaresult,the

Treasuryneededtochangetheloanmeasuresithadplanned–toreducesalesofdomesticloansecuritiesandtemporarilytransferplannedEurobondissuances.

Inordertoimprovethemanagementofthetemporarilyavailablefinancialresourcesfromthegovernment’sbudget,wehaveprovidedpreparatorymeasureswithintheframeworkoftheCashManagementStrategyforsecuritytransactionsandhaveexpandedthecircleofourbusinesspartnersbyattractingbothlocalandforeigninstitutionsoperatinginfinancialassetinvestments.WehavecommencedimplementationofthemarketvalueriskassessmentmodelValue-at-Risk,providingtheopportunitytodeterminepotentiallossesfromaspecificsecurityportfolio,andwhichisoneoftheanalysistoolsusedtomakedecisionsregardingthepurchaseofarespectivesecurityataspecificmomentintime.

Inordertoexpandtherangeoffinancialinstrumentswithintheframeworkofcentralgovernmentdebtmanagementandcashmanagement,wecommencedimplementationofoptionaldealopportunities:in2007,optionassessmentcalculatorsweredevelopedinwhosecalculationsitispossibletoapplymethodstodeterminethepricefluctuationsofvariousfinancialinstruments.

Forthe2007-2013planningperiod,webegantheexecutionoffunctionsofEUpolicyinstrumentcertifyingbodiesandpayingauthoritiesforthefollowingEUpolicyinstruments:theEuropeanRegionalDevelopmentFund,theEuropeanSocialFundandtheCohesionFund.Weareresponsiblefortheperformanceoftheabove-mentionedpolicyinstrumentsinaccordancewiththeinterestsofthe

EuropeanCommunity,ensuringeffectivemanagementandsupervisionoftheinstrumentsincompliancewithEUDirectivesandguidelines.

In2007,oneofthemostsignificantperiodswithinthehistoryofoperationoftheinstitutioncametoaconclusion–themanagementoftheTreasury’s2ndpensionlevelinvestmentplan;sinceOctober,theplanhasbeeninthehandsofprivatemanagementinstitutions.TheefficiencyoftheTreasury’sactionsduringtheadministrationofthisplanisattestedbythefactthat,in2007,uponcompletingitsoperation,theplanhadthesecondbestresultsinceitsgoingintoeffect,incomparisontootherconservativepensionplans.

2008willalsobeindicativeofseveralsignificanteventsintheTreasury’sactivities:incompliancewithpre-approvedgovernmentloanplans,allthepreparatoryworkforissueofEurobondsiscompleted.Inthenearfuture,weplantodevelopthebasicmanagementprinciplesforthereservefundprovidedinthegovernmentbudget,aswellastoexecutethepre-conditionsfortheimplementationofnewfinancialinstruments(options)inthemanagementofgovernmentdebtandassets.OurintentionistoensurethecontinualimprovementofservicesprovidedbytheTreasury,ofinformationtechnologies,ofqualitymanagementsystemsandpersonneldevelopment.

Kaspars Āboliņš TheTreasurer

The Treasurer’s Statement

the Treasury 2007 �

30May2007marked125yearssincethebirthofVoldemārsMiesiņš,thefounderandfirstTreasureroftheTreasuryoftheRepublicofLatvia.

“WhentheStateofLatviawasproclaimedon18November1918,V.MiesiņšwasinvitedtoorganiseandestablishtheTreasuryoftheRepublicofLatvia,whichcommenceditsoperationinDecember,1918.ThefirstsumsofmoneywerereceivedintheTreasuryasacontributionfromtheGermanStateCommissionerVinings–threecheques,of200000OstRoubleseach.Thefirstdomesticpayment–fromastudentnamedDukāts–afewthousandRoubles.ThefirsttaxwasreceivedfromtheRūtenbergs’TobaccoFactory–525OstRoubles.Thefirst“inflow”ofgoldandforeigncurrency:acountrywomandonatedtwofiversandsomeEnglish(war)shipofficersexchangedtheCzar’smoneyforfiveorsixBritishpounds.ThefirstpaymentwasreceivedbyJāzepsGrosvalds–300Roubles”,remembersV.Miesiņš’son-in-law,GeorgsLielbriedis.1

“WhentheBolsheviksapproached,allthevaluablethingsfromtheTreasurywereevacuatedfromRiga.V.MiesiņštransferredalloftheState’s“treasures”totheMinisterofFinanceK.Puriņšandhisbrother-in-law;theywenttoLiepāja.MiesiņšremainedinRigaasmanager

ofthebank’sdepositary.WhentheO.KalpaksbattalionandLandeswehrapproachedRiga,panicbrokeoutamongtheBolsheviks–theTreasury,aswellastreasuresreceivedfromcitizens,wereleftinastrongroominRiga.TheysentRedLatvianRiflemenwithtrucksto“save”themoney,however,noneofthemknewhowtoopenthesafe.TheyaskedV.Miesiņš;heansweredhedidnotknowhow,buthecouldtry.V.Miesiņšintentionallyputthekeyinupsidedownand,whenitwaspushedintothelock,itstuck-thestrongroomcouldnotbeopenedanymore.ThemoneyofLatviaandothervaluableitemsweresaved.ThepaymasteroftheGermanoccupation’sLandeswehroversawtheTreasury.AftertheLatvianNorthernArmyandEstonianvictoryatCēsis,KārlisUlmanistravelledfromLiepājatoRigawiththeship“Saratov”,andtheTreasurywastakenoverbytheLatvians.MinisterofFinanceK.PuriņšandDirectoroftheBoardoftheTreasuryVanagswenttotheNationalOpera,whereV.Miesiņšwasrehearsing(hewasanoperasinger),andinvitedhimtoundertakethepositionoforganiserandmanageroftheTreasury.”2

TheofficialbeginningoftheTreasury’shistorycanbedatedon25March1919,whenthePrimeMinisteroftheRepublicofLatviaK.UlmanisandtheMinisterofFinanceK.Puriņšissuedthe

decreeonthesystemoftheTreasury,andentrustedtheexecutionofthebudgettotheTreasury.

Duringthetimeperiodfrom1927to1928,thefunctionofthebudgetcashdepartmentwasperformedbybanks,butfrom1928to1992–thecentralbank.

ThebeginningofthemodernTreasuryismarkedbytheIMFtechnicalreliefmission,whichin1992suggestedestablishingtheTreasuryasanindependentinstitution,andtheMinistryofFinanceoftheRepublicofLatviaelaboratestheoperationmodeloftheTreasuryincollaborationwiththeIMFtechnicalreliefmissions.TheCouncilofMinistersmadethedecision(on28December1992,No.557)totransferthefunctionsoftheTreasurytotheMinistryofFinance,establishingagradualtake-overoffunctionsoftheBankofLatvia’scashdepartmenttoensuretheaccumulationofbudgetresourcestofinanceexpenditures,aswellastoensureacompleteaccountingofbudgetassets.

Since 1997, the Treasury has been an independent entity directly subordinate to the Ministry of Finance,whichensuresthegovernmentbudgetexecutionandgovernmentdebtmanagementfunctions.

Retrospect of the Treasury’s History

1 G.L.Lielbriedis. 125 Anniversary of the Birth of First Treasurer of the Republic of Latvia, Voldemārs Miesiņš. “Laiks”, May 26-June 1, 2007

2 Ibidem


TheTreasury’smain goalistodevelopasadynamicandmodern,clientneeds-orientedorganisationwithregardtothequalityofitsprovidedservices,effectivelyandsafelymanagingthefinancesentrustedtotheTreasury’smanagementaccordingtothebestfinancialmanagementpracticesandincompliancewiththeinterestsoftheRepublicofLatviaanditspeople.

The Strategysetsthemainoperationalprinciples,theirstrategicgoalsandtasks,aswellasthebudgetprogrammesandsub-programmeswithwhichtheycomply.Eachprogrammeandsub-programmeofthebudgetinvolvesagoalandresultingindicators,whichtheTreasuryplanstoachievebydevelopment,makingdecisionsregardingtheexecutionofroutineandlong-termtasksandinvolvingallTreasurystaffinattainingtheestablishedobjectives.

TheStrategysetsthefollowingmain operational directionsoftheTreasury,whichwereexecutedduring2007andarefurtherexplainedinthisreport:

1)Central government budget executionaimedateconomicmanagementofthefinancialresourcesofthegovernmentbudget,identificationoftheservicesrequiredbytheTreasury’sclients,improvementofthequalityoftheprovidedservicesinlinewiththebestinternationalfinancialmanagementpracticesandapplyingmoderntechnologies;

2)Central government debt management,ensuringthefinancialresourcesrequiredtoexecutefinancingofgovernmentbudgetandrefinancingofthegovernmentdebtatthelowestpossiblecosts,hedging

financialrisksandtakingintoaccountthedevelopmentofLatvia’scapitalmarketandfinancialsystem,aswellasensuringgovernmentfinancialinterestsduringtheprocessofrenderinggovernment-guaranteeloans;

3)Cash management and government budget lending,ensuringeffectiveandsafecashmanagement,limitingfinancialrisks,ensuringtheliquidityrequiredforexecutionofthegovernmentfinancialcommitmentsontimeandinfull,aswellasperformingeffectivegrantingandservicingofgovernmentbudgetloans;

4)Implementation of the Paying and Certifying Authority functions for the EU policy instrumentstoensurecompliancewiththefinancialmanagementrequirementsprescribedbytheEUandotherallocatinginstitutions,alsoapplyingthemtothefinancialmanagementofnationalfinancing,inordertoensureuniversalfinancialmanagementstandardsforallfinancesassignedtotheTreasury’smanagement;

5)In2007,oneofthemostsignificantperiodsintheoperationalhistoryoftheTreasurycametoaconclusion–management of the Treasury’s 2nd pension level investment plan.SinceOctober,theplanhasbeentransferredtoprivatemanagementinstitutions.Thus,in2007,theTreasurycompleteditsworkinoneofthemaindirectionsdefinedintheprecedingyears–managementofthestate-fundedpensionschemeassets,toensuremaximumsafeinvestmentofthefundsassignedtoitsmanagement

andatthesametimeattainmaximumincome.

ToachieveitsstrategicgoalstheTreasuryobservesunifiedoperational principles of the institution:

1)qualityandriskmanagement;

2)personnelmanagement;

3)anensured,effectiveoperationoftheinternalcontrolsystem;

4)applicationofinformationtechnologiesandsecurityofinformation;

5)anensuredlegitimacyandlegalorder.

The main priorities of the Strategyare:

1)effective use of human resource capitalbypromotingthedevelopmentofalllevelstaffandtheirinvolvementintheattainmentoftheTreasury’sobjectives;

2)client-orientationthroughidentificationofclients’needsandensuringtheavailabilityofhigh-qualityservicesusingthelatestdevelopmentsininformationtechnologies;

3)streamlined and timely planning of the Treasury’s finances,inordertoensurespendingefficiencyoftheTreasury’sfinancesincompliancewithsetobjectives;

4)maximum effective useofthebenefitsprovidedbymodern information processing technologiestoensurethedischargeoftheTreasury’sfunctions.

Operational Strategy of the Treasury


Legal status and structure of the Treasury

The TreasuryisadirectadministrationinstitutionsubordinatedtotheMinistryofFinance.Itsoperationalobjectiveistheeffectiveimplementationofpublicadministrationfunctionsintheareaofpublicfinancemanagement.

TheTreasury’soperationsaremanagedbythe Treasurer.TheTreasurerisappointedanddismissedfromofficebytheMinisterofFinance.

TheTreasuryhasthefollowingfunctions:

1)organisingtheexecutionandfinancialaccountingofthecentralgovernmentbudget;

2)giveofassignationsoutandmakingpaymentsfromthecentralgovernmentbudgetrevenue;

3)centralgovernmentdebtmanagement;

4)managementoftheassetsofthestate-fundedpensionscheme(until1November,2007);

5)functionsofthePayingandCertifyingAuthorityfortheEUpolicyinstruments,theFinancialinstrumentoftheEuropeanEconomicAreaandthebilateralFinancialinstrumentoftheNorwegiangovernmentestablishedinlawsandregulationsandtheNationalFundfunctionsdelegatedbytheNationalAuthorisingOfficer;

6)otherfunctionsprescribedbylawsandregulations.

Thelegalstatus,functions,tasks,competence,rightsandprocedureforensuringlegalityarestipulatedbytheCabinetofMinistersRegulationsNo.677“Regulation of the Treasury”issuedon3August2004pursuanttothePublicAdministrationLaw.

ThestructureandworkorganisationoftheTreasuryisestablishedbythe

RegulationoftheTreasuryissuedon1August2005,pursuanttothePublicAdministrationStructureLaw.In2007,reorganisationofthestructuralunitsoftheTreasurywascarriedout,changesinsubordinationofthestructuralunitsandinthecompetenceofthestructuralunitsmade,andamendmentsintroducedtotheRulesoftheRegulationoftheTreasuryon16Marchand4October2007.

InordertoensuregoodgovernanceandoptimiseoftheperformanceoftheTreasury,adequatechangeshavebeenintroducedto the Treasury’s structurein2007:

1)On13March2007,directsubordinationoftheBudget Execution and Monitoring DepartmenttotheDeputyTreasureronstatebudgetaccounting,reportingandtransaction,aswellasinissuingofreportsandsettlements,wasestablished;

2)InNovember2005,theCabinetofMinistersissuedadecreeestablishingthattheTreasury’sinvestmentplanportfolioshallbetransferredtoprivatemanagementinstitutionsbyorganisingatender.DuringitsSeptember2006finalreading,theSaeimaadoptedamendmentstotheState-FundedPensionsLaw,providingtheTreasury’soperationinmanagementofsecondlevelfundswouldbediscontinueduntil1November2007.Asaresult,theState-funded pension assets management departmentwasliquidatedon2January2008.

Inordertomakeunifieddecisions,thefollowingcommitteescontinuetheirworkin2007:

Audit Committee–toimprovetheoperationoftheTreasury’sinternalcontrolsystem,tofacilitatetheachievementoftheTreasury’sstrategicgoals,toprotectitsresources,andestablishandmaintaineffective

controlofmeasures.TheCommitteereviewsthefindingsandconclusionsofinternalandexternalauditors’reportsontheTreasury’soperations,recommendationsincludedinthereportsforoperationalimprovementsoftheinternalcontrolsystemestablishedintheTreasury,andcommentsprovidedbytheauditedstructuralunitsconcerningthefactsdiscoveredduringaudits.TheCommitteeisauthorisedtodecideonpotentialmeasuresformitigationorpreventionofthemostsignificantTreasury’srisks.

Central Government Debt Management Committee–tofacilitateeffectivecentralgovernmentdebtmanagementanddevelopproposalsforimprovementandimplementationoftheLatvianCentralGovernmentDebtManagementStrategy.

Credit Committee–tofacilitatecreditriskmanagementbycoordinatingtheactivitiesoftheTreasury’sstructuralunitsconcerningmonitoringofthecentralgovernmentbudgetloans,guaranteesissuedonbehalfofthegovernmentandcounterpartylimits.Central Government Budget Accounting Committee–toupdateimplementationofthefinancialaccountingpolicyofthebudgetmanagedbytheTreasuryandensureeffectivemanagementofaccountingpolicychanges.ThetaskoftheCommitteeistodefinetheaccountingpolicyanditscompliancewithaccountingstandards,establishtheaccountingpolicyobjectives,improveandupdatetheaccountingpolicyandfacilitatecompliancewiththerequirementsestablishedbytheaccountingpolicy.

Resource Liquidity Committee–tofacilitatequalityofcashmanagementinordertoensureproperliquiditymanagementincompliancewiththetaskssetintheTreasury’sCashManagementStrategy.

the Treasury 2007 �

Flowchart of the Treasury’s Structure

Deputy to the Treasureron state budget execution and financial resource management questions

Financial Resources Department

Financing Department

International Cooperation Department

Financial Risk Management Department

Forecasting and Financial Planning Department

Deputy to the Treasurer on state budget accounting, reporting, and transaction questions

Reports Department

Informatics Department

Operations Department

Budget Execution and Monitoring Department

European Affairs Department

State-funded pension assets management department

Office

Legal Department

Internal Audit Department

Quality and Risk Management Department

Personnel Department

Accounting Department

Infrastructure Maintenance Department

Treasury Units Coordination Department

Treasury Units (27)(Aizkraukle,Alūksne,Balvi,Bauska,Cēsis,Daugavpils,Dobele,Gulbene,Jēkabpils,Jelgava,Jūrmala,Krāslava,Kuldīga,Liepāja,Limbaži,Ludza,Madona,Ogre,Preiļi,Rēzekne,Rīga,Saldus,Talsi,Tukums,Valka,Valmiera,Ventspils)

Treasurer

Euro Changeover Committee–todraftproposalsforensuringtheeurochangeoverintheareasoftheTreasury’scompetenceandcoordinatetheinvolvementoftheTreasury’sstructuralunitsinimplementationoftherelevanteurochangeovermeasures.

Management Committee–toensureeffectivemanagementofthebudgetandpersonnelresourcesofthe

Treasury,attaintheobjectivessetbytheStrategy,andimplementprioritymeasuresandnewpolicyinitiatives.

In2007,the Committee for Management of Information System Changes of the TreasurywasestablishedtocoordinateconsiderationandimplementationofrequestsoftheTreasury’sInformationSystemchanges.

ByconsolidatingtheQualityManagementSystemMonitoringCommittee and Risk Management Committee,in2007,theQualityandRiskManagementCommitteewasestablishedtofacilitateconstantimprovementoftheTreasury’soperationsandcomplianceofitsserviceswiththeclients’needs,byensuringeffectivequality,riskandinformationsafetymanagement.

10 the Treasury 2007

1.1. Organizing of central government budget execution for 2007

In2007,forthepurposeofensuringthecentralgovernmentbudgetexecution,theTreasurygrantedallocations in the amount of 4645.3 million lats,ofwhich3661.9millionlatswenttothebasicbudgetand983.4millionlatstothespecialbudget.Allocationsweregrantedto640 budget institutions,forwhichoverall3086 budget accounts were opened(1568accountsor33.7%lessthanin2006).

Incomparisonto2006,thenumberofinstitutionandbasicbudgetaccounts

hasdecreasedasaresultoftheMinistryofRegionalDevelopmentandLocalGovernmentbeingnamedtheexecutoroftheprogramme12.00.00“EarmarkedSubsidiesforActivitiesbyLocalGovernment”(previously,theexecutorforthementionedprogrammewasnotdeterminedbytheannualgovernmentbudgetlawandaseparateaccountwasopenedandallocationsgrantedincompliancewithafinancingplanforeachlocalgovernment’sactivities)bytheannualLawoftheGovernmentBudget.

Incomparisonwith2006,thenumberofthebasicbudgetexpenditure

accountsin2007hasdecreasedby1524accountsas:

1)since2007,theprocedureofaccountingearmarkedsubsidiesforlocalgovernmentactivitieswaschanged;

2)in2007,reorganisationandmergingofseveralStatemanagementinstitutionswasperformed,mainlyintheareasofhealthcareandagriculture(forinstance,themergingofforestdistricts);

3)in2007,asharpdecreaseinthenumberofopenaccountswas

The Treasury’s Operation in 2007

1. Central Government Budget Execution

The Law on Budget and Financial Management has authorised the Treasury as the direct administration institution subordinated to the Ministry of Finance to organise the execution and the financial accounting of the central government budget and ensure granting of allocations and execution of payments made by budget institutions within the limits of the appropriations set in the annual central government budget.

While implementing the government budget, the Treasury maintains the State Budget Implementation System, where budget accounts for budget executors are opened; grants allocations based on financial plans; ensures payments of budget institutions by accepting both paper documents for payment execution as well as accepting instructions online via the eKase; keeps records of the budget execution transactions effected by institutions financed from the budget, monitoring their compliance with the annual appropriations from the government budget

and keeps records of the government budget revenue as well as provides information concerning the collected taxes and fees to the State Revenue Service.

Ensuring uniform accounting of public finances, the Treasury drafts laws and regulations concerning the accounting in the central and local government budget institutions, thereby setting universal accounting principles, a universal chart of accounts and a reporting system, which is compliant with classifications approved by the Cabinet of Ministers and yields information on budget execution based on both the cash flow accounting principle and accruals principle. The uniform budget reporting system ensures aggregation of the reports submitted by central and local government budget institutions, and it is used not only by the Treasury, but also by the Ministry of Finance, State Audit Office, Bank of Latvia, Central Statistical Bureau and other public administration institutions.

Table 1. Number of central government budget income and expenditure accounts of the Treasury in 2006 and 2007

Basic budget income accounts

Basic budget expenditure accounts

Special budget accounts (except grant and donation accounts)

Grant and donation accounts

Open current accounts

For local governments and their institutions

For other budget- funded institutions

2006 2007 % 2006 2007 % 2006 2007 % 2006 2007 % 2006 2007 % 2006 2007 %

285 289 1,4 4589 3065 -33,2 65 21 -67,7 304 309 1,6 1692 1832 8,3 1098 1211 10,3

the Treasury 2007 11

observed,duetoexpenditureoftheremainingpre-structuralfundassets(Phare,SAPARD).

ThedecreaseinthenumberofspecialbudgetaccountswasinfluencedbytheimplementationofthecentralisedfinancialaccountingsystemoftheStateEmploymentAgency(asof2007,noseparateaccountsforeachbranchoftheStateEmploymentAgencyhavebeenopened).

Inordertoimplementthegovernmentbudgetin2007,theTreasuryhaselaboratedthefollowinglawsandregulations:

1)CabinetofMinisters10April2007RegulationsNo.236“Procedure of Granting and Execution of Allocations”,regulatingtheprocedureofgrantingallocationstothebudget-fundinstitutionsoftheTreasury,onthebasisoftheapprovedfinancingplansofabudget-fundinstitutionoritsactivities,andensuresexecutionoftheallocation;

2)CabinetofMinisters3July2007RegulationsNo.464“Procedure of Suspending of the EU Policy Allocations”,regulatingtheprocedureinwhichtheTreasurytemporarilysuspendsallocationoftheimplementationofaprojectbelongingtoapartyreceivingsupportfromEUpolicyinstruments,ifprojectimplementationreportshavenotbeensubmittedtimely;

3)CabinetofMinisters6November2007InstructionNo.17“Procedure of Payment Execution in the Treasury”,inordertoimprovetheprocessofgovernmentbudgetexecutionandtoregulatetheprocedureofpaymentexecutionintheTreasury.

1.2. Accounting and reporting

In2007,incompliancewithArticle32oftheLawonBudgetandFinancialManagement,theReportontheRepublicofLatvia’sCentralGovernmentBudgetExecutionandLocalGovernmentBudgets2006waspreparedand,afterhavingbeen

approvedbytheCabinetofMinisters,togetherwiththeRepublicofLatviaStateAuditOffice’s“Opinion concerning the Report on the Republic of Latvia’s Central Government Budget Execution and Local Government Budgets 2006”and“StatementontheReportontheRepublicofLatvia’sCentralGovernmentBudgetExecutionandLocalGovernmentBudgets2006”,wassubmittedtotheSaeima(Parliament)(3volumes,779pages).ThereportispreparedincompliancewiththerequirementsandstructureofArticle31oftheLawonBudgetandFinancialManagementdeterminedinCabinetofMinisters5June2007RegulationsNo.367“RegulationsontheProcedureofPreparingtheAccountingYearReport”,fortheperiodof1January2006to31December2006,andsummarizing information from 28 reports submitted by Ministries and Central State Institutions, and from 553 reports submitted by local governments.AnnexesonexecutionofthecentralgovernmentbudgetarepreparedincompliancewiththestructuredeterminedbytheLawonGovernmentBudget.

IncompliancewithCabinetofMinisters12December2006RegulationsNo.1008“RegulationsontheNationalStatisticalInformationProgramme2007”,programmesections“NationalAccountsSystemincompliancewithreformedmethodologybytheEuropeanNationalandRegionalAccountSysteminEuropeanCommunity(ESA-95)andUnitedNationsOrganization”and“Publicfinance,banksandotherfinancialinstitutionsandcashcirculation”,the Treasury’s monthly, quarterly and annual reports on the central government budget execution and local government budgets,areusedasasourceofinformationbytheCentralStatisticalBureauandtheBankofLatvia,whoareresponsibleforthestatisticalinformationtobereportedinaccordancewiththerequirementssetbytheEUlegislation.TheTreasuryisresponsibleforthestatisticalinformationontheexecutionofthegovernmentandlocalgovernmentbudgettobepreparedinaccordancewiththeprogrammesection“Public

finance,banksandotherfinancialinstitutionsandcashcirculation”sub-sections“Statisticalinformationtobepreparedbasedonotherregularrequestsofinternationalinstitutions”and“Statisticalinformationtoberegularlypreparedbasedondomesticuserrequirements”.

Inaccordancewiththerequestofthemostsignificantusers(EUROSTAT,ECB,InternationalFinancialInstitutions,aswellasSaeima,theStateAuditOffice,theMinistryofFinance,theBankofLatvia,CSB),additional information on execution of the government and local government budgetduringthefinancialyear,accountingquarterandmonth,aswellasthe government and local government statistical financial informationduringtheaccountingmonth,quarterandfinancialyear,issummarisedfromtheirdirectsources.

IncompliancewiththeauthoritydelegatedbytheLawonBudgetandFinancialManagement,in2007theTreasurydraftedthefollowinglawsandregulations of the Cabinet of Ministers, setting universal accounting principles for the central and local government budget institutions,creatingalegalframeworkcompliantwithinternationalstandardsaswellasaprocedureforthepreparationandsubmissionofreports:

1)13November2007CabinetofMinistersRegulationsNo.763“Amendments to Cabinet of Ministers 25 April 2006 Regulations No. 313 ‘Regulations on the Contents of Monthly Local Government Reports, Their Preparation and Submission Procedure’”,takingeffecton1February2008;

2)5June2007CabinetofMinistersRegulationsNo.367“Regulations on Procedure of Preparing of the Report for Accounting Year”,whichtookeffecton13June2007.IncompliancewiththefourthpartoftheArticle31oftheLawonBudgetandFinanceManagement,theMinistryofFinancespreparestheReporton


AccountingYearinaccordancewiththeprocedureestablishedbytheCabinetofMinisters.Inordertoensureinvolvedcompetentinstitutionswithaunitaryandtimelyunderstandingofinformationtobeobtainedformannualreports,thecontentandvolumeofthereport,theirformsandappendices,thegeneralprinciplesandprocedureofpreparationaredeterminedforeachreport.Theabove-mentionedconditionsdeterminetheformoffinancialandbudgetexecutioninformationtobeindicated,aswellaswhatexplanationsshallbeprovidedforsignificantchangesintheaccountingyear;

3)13November2007CabinetofMinistersRegulationsNo.749“Regulations on Procedure of Preparing of the Report for Accounting Year in State-fund and Local Government Institutions”,whichdetermineshowthefirstreportfor2007shallbesubmitted.Classificationoftheinformationtobeincludedinthereportisdeterminedbyotherlawsandregulations,wheresomechangesaremadeannually.Thus,itwasnecessarytodetermineaflexibleformfortheAccountYearReportsoitwouldbepossibletopreparetheAccountingYearReportwithoutmakingchangestothecontentoftheform,andinwhichinformationinaccordancewiththerequirementsofotherlawsandregulationsmaybeincluded;

4)4December2007CabinetofMinistersRegulationsNo.832“Amendments to Regulation No.867 ‘Accounting Procedure for Budget Institutions’ from 15 November 2005”.TheRegulationtakeseffecton1January2008.ChangesweremadeincompliancewithcurrenteventsinInternationalAccountingStandardsinordertoimprovethequalityoftheconsolidatedreviews;

5)4December2007CabinetofMinistersRegulationsNo.826“Amendments to Cabinet of Ministers 21 June 2005 Regulations No. 440 ‘Regulations

on the Depreciation Norms of Fixed Assets for Budget Institutions and conditions of their use’”,takingeffectin2008.TheRegulationhasbeensupplementedbyaprovisioninrelationtotheaccountingofusedfixedassets,iftransferorreceiptoffixedassetsoccursamonginstitutionsofthegeneralgovernmentsector.Theabove-mentionedamendmentwasrequiredincompliancewith15November2005CabinetofMinistersRegulationsNo.867“ProcedureofAccountingforBudgetInstitutions”,whereaunitaryprocedurefortransfer/receiptoffixedassetsisestablishedwithintheframeworkofthegeneralgovernmentsector.

Inpreparationoftheabovelawsandregulations,theTreasuryheldactiveconsultationswithaccountants-practitionersworkinginlocalgovernmentsandministriesastotheapplicationoftheprovisionstobeincorporatedinthedraftRegulations,thusprovidinginformationabouttheexpectedchangestolocalgovernmentsandministrieswellinadvanceandensuringinformationexchangewiththeTreasuryastothepotentialproblemsandtheirpreventionwhenapplyingthoseprovisions.

TheTreasuryprovidesgovernmentbudgetandlocalgovernmentinstitutionswithconsultationsonaregularbasisregardingreportpreparationandaccountingissues.OnitsInternethomepage,theTreasuryissuesinformationonmethods,currenteventsandservicestoinstitutionsandlocalgovernments.Inordertoensureprovisionofhigh-qualityservicesforlocalgovernments,in2007,theTreasuryissuedinformative material on services proposed for local governmentsonitsInternethomepage,includinginvestments,loans,openingandservicingofaccountsandelectronicsettlementsystemservices.

TheTreasurymaintainsgovernment budget accounting policy,takingintoaccountchangesandamendmentstoaccountingplans,anddeterminesnecessarychangestothe

current procedure of transaction accountingincompliancewithchangesintheclassificationofincomeandexpenditure,byperformingrespectivecorrectionsinthegovernmentaccountingsystem.Inorderforthegovernmenttoelaborate,approveandapplyaunitary budget execution and financial management procedure,changesweremadeintheTreasury’sgovernmentbudgetaccountingplanperformedduringtheexecutionofthebudgettoimplementprocessesoftheTreasury’sunitarygovernmentbudgetplanningandexecutioninformationsysteminthemodelofbudgetexecution,andthe“AmendmentstothePolicyoftheTreasury’sGovernmentBudgetAccounting”wereelaboratedandapproved,withtheadditionofsection“AccountingofInvestmentSecurities”.

Inordertoimprovetheaccountingofbudgetandlocalgovernmentinstitutions,ensuringcomplianceoffinancialreportswiththeInternationalPublicSectorAccountingStandard,basicstatementsofInternationalAccountingStandards,4December2007CabinetofMinistersRegulationsNo.832“Amendments to 15 November 2005 Cabinet of Ministers Regulations No. 867 “Procedure for Accounting for Budget Institutions””,wereapproved.The Regulations are supplemented by the most significant accounting norms, providing a unitary model of stock accounting for budget institutions, accounting of financial instruments, assessment of their accounting principles and supplementing in accordance with changes to International Accounting Standards,whichwillimprovethequalityoffinancialinformation.TheRegulationsaresupplementedbythenorm,providing detailed accounting of fixed assets(recognition,assessment,re-assessmentincompliancewiththecadastrevalue,alienation,transferwithnorewardamongbudgetinstitutions)andseparate stock for fixed assets and liabilities.Thelawsandregulationsdetermineaunitary division of fixed assets and liabilities of the budget institutioninaccordancewiththeaccountingplan,and


provide explanation on recognition of fixed assets and liabilitiesinaparticularaccount.AmendmentsintheaccountplanhavebeenmadetotheRegulations,detalisationofparticularaccountshasbeendeterminedandrespectiveaccountingexplanationshavebeenprovided.

1.3. Electronic services development

Implementation of Unitary Government Budget Planning and Execution Information System

In2007,theworkonthejointprojectstartedin2006withtheMinistryofFinance,“Implementation of Unitary Government Budget Planning and Execution Information System”,wascontinued.Throughimplementingthefirststageoftheproject,theopportunitytoperformcentralisedsummaryandprocessingofbudgetplanswasensured,makingthisprocesslesstime-consumingandmoreadequateforopportunitiesprovidedbyinformationtechnologies.Withintheframeworkoftheproject,thetechnicalinfrastructurewasfullyimplemented,providingaccessibilityandsafetyforthesystem.Inordertoensureeffectiveuseoffinancialandhumanresources,TheTreasuryhasestablishedacommoninformationtechnologyinfrastructureincollaborationwiththeMinistryofFinancetoensurecentralisedsystemmanagement.

Summary system for budget reports

Since2006,submittersofreportsfrombudgetinstitutionsmaysubmitandvalidatetheirmonthlyandquarterreportstotheTreasuryelectronically.A system for aggregation of annual,quarterandmonthlyreportsisbeingusedforreportssubmittedbyMinistries,centralgovernmentandlocalgovernmentinstitutions,andisbasedonthelatesttechnologicalachievementsandusestheon-lineInternetmode.Inordertodevelopelectronicservicesandon-lineinformationexchangewiththeclientsoftheTreasury,andtomaintainaunitarygovernmentandlocalgovernmentbudgetreportsystem

andsystemofstatisticreports,anassessmentofthecurrentprogrammewasperformedin2007forfurtherdevelopmentofthereportsystem,systemsolutionsandspecificationselaborated,andthebestsolutionanditscompliancewiththepossibilitiesprovidedbythebudgetdetermined.

Electronic settlement system of the government budget eKase

Alreadyforthefourthyear,theTreasuryhasbeenusingeKase (electronic settlement system of the government budget),whichhasbeenelaboratedtoprovidetheTreasuryservicesovertheInternet.ViaeKase,theTreasurygrantsremoteaccesstoservicestoinstitutionsfinancedfromthebudgetandlocalgovernments,atthesametimeguaranteeingsecurityandconfidentialityofinformation.UsingtheeKase,theTreasury’sclientscan:

1)makepayments;

2)checktheresultsofimplementationofthepaymentinstructions;

3)receivefinancialinformationonaccountposition,implementationofthefinancialplansofthecentralgovernmentbudget,statementsofaccountturnoverandmonthlyaccountsummaries.

In2007,192clientssignedcooperationagreementstousetheeKasesystemandoverall1462clientswithmorethan4000usersuseeKaseservices.TheoverallshareofthelatsflowpaymentsprocessedthroughtheeKaseincomparisonwiththetotallatsflowwas62%.Incomparisonwith2006,thevolumeofpaymentsin2007processedviatheeKaseincreasedby6%.Thisexpansionwasduetothegrowingnumberoftheusersoftheservice.

InMarch2007,afterperfectingthesystemandimplementingasaferauthenticationsolution–dynamicpasswordgenerators–testing of the safety of the eKase systemwasperformedincollaborationwith“Biti”SIA.Thepurposeoftheauditwastoacquireadditionalconfidence

onthesafetyofusingthesystem.Nosignificantsafetyproblemswiththeauthenticationofusers,authorisationofpaymentsandsavingofauditingrecordswereencountered.Integrationofthedynamiccodegeneratorsolutionintothesystemwastestedwithintheframeworkofauthenticationtests.Nosignificantproblemswereobserved.Consequently,eKasesystemwasrecognizedassafeforuse.In2007,aftertheinventionofthedynamiccodegenerators,authenticationtoolsforthefirsteKaseuserswithsignatorypowersweregraduallyreplacedbydynamiccodegenerators.Thus,withtheheightenedsafetylevelofauthenticationtools,safety against unauthorized access to the eKase system is improved.

Credit cards attached to the Treasury’s accounts

Asof1January2007,theTreasuryhasimplementedcompatibilityoftheinformationsystemsincollaborationwith“Hansabanka”AS,inordertoensureworkwithCredit cards attached to the Treasury’s accountsandtoprovidebudgetinstitutionstheopportunitytoperformbudgetexpenditureswithcreditcards.Creditcardservicesareprovidedforexpendituresincurredbystaffonbusinesstripsandvisits,aswellasrunningexpenses.WhenintroducingthecreditcardslinkedtotheTreasury’saccounts,employeesofgovernmentbudgetinstitutionsareenabledtomakecashlesspaymentsduringtheirbusinesstrips,complyingwiththeLawonBudgetandFinanceManagement,whichrequiresthatgovernmentexpendituresaremadefromaccountsopenedwiththeTreasury.In2007,161budgetinstitutionsconcludedagreementsonuseoftheserviceand1198creditcardswereissued.

Introduction of payment cards by collecting government budget payments and charge for services provided by the budget institutions

InordertoensureexecutionofthetaskprovidedintheGovernmentDeclaration:to ensure the

1� the Treasury 2007

opportunity to use payment cards by collecting government budget payments and charge for services provided by the budget institutions(forinstance:dues,penalties,etc.),theTreasury,aftergatheringinformationonpossiblesolutionsfortheuseofpaymentscards,concludedthatthecommonsystemofacceptingpaymentcardsisnotadequateforthespecificcharacterofthebudgetsettlements–incomparisonwiththecommonpracticeofprocessingpaymentcards,itisimportantforthebudgetsettlementaccountingtoreceivedetaileddataonthepayer.

TheTreasuryelaboratedsolutionofpaymentcardsappropriateforthespecificofsettlementsandinSeptember11,2007,declaredopentenderonacceptanceofMasterCardandVISAsystemandpaymentfortransactionsperformedbythesecards.ThesubjectoftheTenderinvolvesacceptanceofthesecardsbothinstallationandservicingofPOSterminals.Thisservicewillbeavailabletopopulationinallthebudgetinstitutionsprovidingpaidservicesorcollectingcharges,penaltiesandothercosts(excepttaxpayments).Thisservicewillbeprovidedtothepopulationfreeofcharge.Allthecommissionpaymentsinrelationtoservicingthecardswillbecoveredfromtheservicingassetsofthegovernmentbudget.ThetenderCommission,afterassessmentofsubmittedproposals,declaredproposalby“SEBLatvijasUnibanka”ASasthemostadequatetotheTenderRegulation.

Operation in Trans-European Automated Real-time Gross settlement Express Transfer system TARGET2

On19November2007,theTreasury(asadirectparticipant)commenced its operation in Trans-European Automated Real-time Gross settlement Express Transfer system TARGET2,inordertoensureaneffective,quickandsafeinfrastructureforlarge-volumeandurgentpaymentsineuroforclientsoftheTreasury.

EuropaymentsystemTARGETisarealtimepaymentsystemusedbytheCentralBanksoftheEUMemberStateswithintheEuropeanMonetaryUnionandtogetherwiththeECBtoimplementcommonmonetarypolicyandfacilitatetheoperativeperformanceoftheeuropaymentsystem.BanksoftheEUusethesystemforfinancialmarketsettlementsaswellaspaymentsbytheirclients.

On24October2002,theBoardoftheECBmadeastrategicdecisiontochangeTARGETbyreplacingitwithatechnologicallynewsystem,TARGET2,whichsignificantlyincreasestheefficiencyofpaymentswithinEuropeandofferstheopportunityforfurtherintegrationofthefinancialinfrastructuresinEurope.Theprincipalbenefitofthenewsystem–acommontechnicalplatformprovidingequalconditionsforallstatesenteredinTARGET2,aswellastheopportunitytoinvolvenewcountries.Itisexpectedthatthenewsystemwillbeoneofthemostmodernandeffectivepaymentsystemsintheworld.

InordertoexecutesuccessfuljoiningormigrationofLatviatotheTARGET2systemwiththefirstmigrationgroup,whichconsistsoftheCentralBanksofAustria,Cyprus,Germany,Latvia,Lithuania,Luxembourg,MaltaandSlovenia,andrespectiveusersofTARGET2,theTreasuryhasperformedallthenecessarymeasuresforadoptinginternalinformationsystemsandpreparationandsigningofnecessarylegaldocuments.

Participation in Electronic Clearing system of the Bank of Latvia for settlements in euro

InordertoadjusttotheElectronicClearingsystemoftheBankofLatvia,whichwillprovideprocessingofsmallpaymentsineuro,theTreasurygatheredinformationonnecessarychangesininformationsystemsandelaboratedthedomesticstrategyfortheuseoftheeuroElectronicClearingsystem.InNovemberandDecemberof2007,theTreasurysuccessfullyparticipatedineuroclearingtests

organisedbytheBankofLatvia.On21December2007,theTreasuryandtheBankofLatviaconcludedan agreement on performance of payments in euro in the clearing system of the Bank of Latvia.

Startingin2008,theTreasurywillhavetheopportunitytousetheclearingsystemoftheBankofLatvia,whichwillprovidetheopportunityto perform payments in euro between the Treasury and banks of Latvia within one working day,withoutusingforeigncorrespondingbanksandinthesamewaypaymentsarecurrentlymadeinlats.

1.4. Concept of development of services provided by the Treasury’s settlement centres

Keepinginmindthat,asof1June2009,theadministrative-territorialreformwillbeperformedinthestate,theadministrative-territorialdivisionwillbechangedand,takingintoaccountthefactthatthemainclientsoftheTreasury’sregionalcentresarelocalgovernmentsandtheirinstitutions,in2007theTreasurycommencedpriorinvestigationsonhowthisprocessmayinfluencefurtheroperationsoftheTreasury’sregionalcentresandservicesprovidedbythem.Theformedworkteamassessedfunctionsoftheregionalcentres,issuesrelatedtothedevelopmentofpersonnelinthesesettlementcentres,observanceofinformationsafetyrequirements,distributionofobligationsamongemployees,roleofsettlementcentreswithintheframeworkoftheimplementationoftheTreasury’sfunctions,andcomplianceoftheclientserviceprocesswiththeprocedureprovidedinthedocumentsofqualitymanagementoftheTreasury.In2008,theTreasurywillelaboratepossiblemodelsofdevelopmentforthesettlementcentres,takingintoaccountexecutionoftasksdeterminedintheStrategy:toincreasethenumberofsettlementcentresinanon-linemodebyofferingtheopportunitytoreceivemodernfinancialservicesandsettingconsultationservicesforclientsastheprimaryfunctionofsettlementcentreemployees.

the Treasury 2007 1�

2. Central Government debt, cash and budget loan management

Incompliancewith theauthorisationgivenby theMinisterof Finance, the Treasury performs management of the central government debt and temporarily free central government budget cash, engages in financial derivatives deals and other deals within the framework of the central government debt management as well as organises gran-ting and monitoring of the central government budget loans and guarantees.

The annual Law on the State Budgetsets the maximum allowable level of outstanding government debt as at the end of the year, whereas objectives, basic principles and tasks of the central government debt portfolio and bor-rowing management within the framework of the medium-term government debt management are established by theLatvian Central Government Debt Management Stra-tegyapprovedbytheMinisterofFinance.

In compliance with the Latvian Central Government DebtManagement Strategy, government debt portfolio mana-gementiscarefulandorientedtolimitationandpreventionoffinancialrisks,allowinguseofderivatives,determinedintheLatvianCentralGovernmentDebtManagementStrategy,onlytoensuremanagementoffinancerisks.Theapproachofgovernment loanmanagement is loanopportunityorientedtoensureliquidityandbeneficialloanconditions.

The amount of government borrowing, central governmentdebtandtherespectivecoststobesetasidetomeetthedebtcommitments are affected by the size of the overall financing need,comprisedofthefiscaldeficittobefinancedfromthecentralgovernmentbudget,theamountofcentralgovernmentdebtcommitmentstobesettled,aswellastheamount of the required reserve liquidity to ensure theimplementationofthecentralgovernmentbudgetcycleandcommitments. Planned measures to satisfy the overallfinancing need within the current year and the financialinstruments best suited for financing are prescribed in an annual Medium-Term Funding Plan, which is developedby the Treasury, based on the guidelines established in theLatvianCentralGovernmentDebtManagementStrategyandapprovedby theMinisterofFinance.Prior toapproval, theopinionoftheBankofLatviaissought.

The Treasury Cash Management Strategy approved bythe Minister of Finance establishes the goals, tasks, basicprinciples and responsibility of the Treasury by performingtimely and effective cash management, observing liquidityrequirements and restricting financial risks. Within the

framework of temporarily free fund management, theTreasury organises financial resource placement forcollaborationwithbothlocalandforeignbusinesspartners.In order to ensure a more effective management ofgovernment budgetary assets, the Treasury has invested infixedincomeloansecurities,inadditiontoplacingresourcesintimedeposits.Tomoreeffectivelymanagefinancial risksrelatedtothesetransactions,thetransactionsaremadewithregardtocooperativelimits,whichareestablishedforeachofthe Treasury’s business partners depending on the type ofthe financial instrument in question. A financial risk management framework is developed to supplement themanagementoffixedincomeloansecurityprofiles;itincludesseveralinternationallypracticedandacceptedsecurityprofilemanagementinstrumentsandtactics.

Within the framework of the central government debtmanagement, the Treasury organises the visits of analystsfrom the three largest international rating agencies (Fitch Ratings, Standard & Poor`s andMoody`s Investors Service) toLatvia, thus providing investors with an opportunity toreceivethelatestinformationaboutLatvia,andanalysetheopinion concerning Latvia’s development trends andpotential risks. Investors use this information to assessinvestment opportunities in Latvia (including investmentinto government-issued securities). Therefore, a credit ratingisanimportantfactorforLatviaensuringavailabi-lityoffinancing,whichaffectsthepriceofborrowing.RatingagenciesupgradethecreditratingoftheRepublicofLatviaand review its future outlook on an annual basis andalso grant ratings to each specific government-issuedsecurity. Currently, Latvia credit rating for long-term liabilities in foreign currency is A2 (Moody`s Investors Service)/BBB+ (Standard& Poor’s and Fitch Ratings) withstable(Moody`s Investors Service)/negative(Standard&Poor’sandFitch Ratings)future assessment (outlook).

TheTreasuryparticipatesintheprocessofguarantees issue on behalf of the governmentbyexaminingandevaluatingtheriskspertainingtograntinggovernmentguarantees.TheTreasuryorganisestheprocess,inordertoensuresigningoftheguaranteeagreements:i.e.,participatesindraftingoftheguarantee agreements, guarantee service and guaranteecollateral agreements. After the guarantee agreements havebeensigned,theTreasurykeepsaccountsofthecommitmentsassociated with guarantees issued on behalf of thegovernment. The maximum size of guarantees issued onbehalf of the government and project implementers are setintheannuallawonStatebudget.


2.1. Central Government Debt Management Strategy

In2007,theTreasuryfullyimplementedtheLatvian Central Government Debt Management StrategyapprovedbytheMinisterofFinance.BorrowingwasmadeinlinewiththebasicprinciplesestablishedintheLatvianCentralGovernmentDebtManagementStrategy,andfinancialderivativeswereapplied,inordertoensurecompliancewiththedebtportfolioparametersprescribedbytheLatvianCentralGovernmentDebtManagementStrategy.

TheLatvianCentralGovernmentDebtManagementStrategysets the central government debt management goals and objectives.TheLatvianCentralGovernmentDebtManagementStrategyoutlinesthemedium-termoperationsoftheTreasuryinmanagingthecentralgovernmentdebtinlinewiththeeconomicdevelopmenttrendsaswellasthesituationonLatvianandglobalfinancialmarkets.

LatvianCentralGovernmentDebtManagementStrategydistinguishesbetweendebtportfoliomanagementandborrowingmanagement.Thegoalofthecentral government debt portfolio managementis to manage the financial risks of the central government debt portfolio.Thus,severalparameters of the central government debt portfolio structurehavebeensetforthepurposeofachievingthisobjective:

1)theshareofthelatsdebt;

2)maturityprofile;

3)theshareofthefixedrate;

4)interestrateduration;

5)currencycompositionforthenetforeigncurrencydebt.

The goal of the central government borrowing managementistoensuretheavailabilityofthenecessaryfinancialresourcesandtheirliquidityforfinancingthedeficitofthecentralgovernmentbudgetandrefinancingofthecentralgovernmentdebtaswell

asborrowingonfavourabletermsandconditions.Severalbasicprincipleswereestablishedforthepurposeofachievingthisobjective:

1)toensurecontinuousopportunitiesforattractingfinancialresources;

2)tomaintainthedailyminimumreserveliquidity;

3)toperformeachborrowingtransactioninaprofessionalmanner;

4)tofosterthedevelopmentoffinancialmarkets;

5)whenengaginginborrowingtransactions,ensurecompliancewiththebasicprinciplesofthecentralgovernmentdebtportfoliomanagement;

6)tocreateanexcellent“borrower”imageforLatvia.

On8August2007,TheMinisterofFinanceapprovedthespecifiedLatvianCentralGovernmentDebtManagementStrategy,wheresomechangesonminimumallowableshareoflatswithinthegovernmentbudgetportfolioweremade,takingintoaccounttendenciesofdevelopmentoftheLatvian government capital market and all the financial systems in 2007:decrease of the domestic financial market liquidity and, as a result, significant increase in rate of domestic loan securities.

Continuingtheimplementationofthedebtportfolioanalysismodels,theCost-at-risk modelwasimprovedatthehighestlevel.Itspracticalapplicationenabledadetailedanalysisoftheestablishedborrowingscenariosandtheirpotentialimpactonthedebtportfolioparameters.Thelatestapplicationofthemodeldevelopedenables more accurate forecasting of the medium-term central government debt servicing payments.Atthebeginningof2007,therelativelysimpleCost-at-riskmodelwasusedbytheTreasurytoevaluatethestructuralparametersoftheLatviancentralgovernmentdebtportfolio,andconcludedthatitisnotnecessarytochangetheparametersprescribedinthe

LatvianCentralGovernmentDebtManagementStrategy,astheyhavebeensetatanoptimumlevel.YetaftertheTreasuryspecialistsimprovedthemethodologyofthemodelandsoftware,themodelwasusedwithintheframeworkofborrowingscenariosimulationsforthe2007–2009FundingPlan,providingadditionalinformationrequiredtomakeadecisionastowhichofthemisthemostadequate.Improve-mentsfortheCost-at-riskmodelareplannedin2008,asistheintroductionofmultiplefactoranalysisopportunities.

In2006,theTreasurystartedtoregularlyanalysetheactivitywithwhichfunds are obtainedeverymonthandprepareadetailedassessmentofthefactorsimpactingborrowingbothwithinthecontextoftheLatvianandinternationalfinanceandcapitalmarkets.During2007,thestandardeffectivenessofloanpaymentscontinuedtobeanalysedquarterlyandwascomparedtotheloantransactiontimeandcostbenchmarksof2005.Attheendof2007,proposalsweredevelopedfortheimplementationofthebenchmarkmodelmethodology.

In2007,theTreasurypreparedananalyticalCentral Government Debt Management Reportfor2006,soastoprovidetheTreasury’sclients,includingtheexistingandpotentialcooperationpartnersoftheTreasuryandinvestorsingovernmentsecurities,withinformationonthelatestdevelopmentsinthegovernmentdebtmanagement,performanceindicatorsandfuturetrends.TheCentralGovernmentDebtManagementReportwasalsosenttootherbodiesimplementingsimilargovernmentdebtmanagementfunctionsintheEU(debtmanagementbureaus).Thecooperationpartners(includingbanks)expressedtheirappreciationofsuchaformofpresentinginformationonthelatestdevelopmentsintheLatviancentralgovernmentdebtmanagement.

2.2. Changes in the central government debt in 2007

In2007,theamountofborrowingwasinitiallyplannedinaccordancewiththeassessmentoffinancingdemand,which


providedagradualdecreaseofthecentralgovernmentbudgetdeficitfromtheamountsetbytheCentralGovernmentBudgetLawfor2007from1.4%oftheGDPto0.9%oftheGDPin2009.

However,takingintoaccountincreasingmacroeconomicrisks,inMarchof2007,theCabinetofMinisterssupportedmeasurestobetakentolimitinflationandtoreducemacroeconomicinstability,whereoneofthemostsignificantmeasuresforlimitinginflationwastherequirementtoimplementstrictfiscalpolicywithintheconditionsofsharpeconomicgrowth,creatingaharmonizedandfavourablegovernmentbudgetstructureforthedevelopmentofthenationaleconomy.Objectivesofpreparingthegovernmentbudgetincludinganinflationreductionplanwereobserved;thepreviouslyplannedfinancial deficit of 177.8 million latswaschangedtoafinancial excess of 54.5 million lats.

Incompliancewithoperativedata,fi-nancial excess of central government budgetin2007achievedanamountof117.2 million lats,significantlyexceed-ingtheamountofexcessapprovedintheAmendmentstotheCentralGovernmentBudgetLawof2007.

Consequently,theamountofborrowingnecessaryforbudgetlendingandrefinancingofcentralgovernmentdebt,aswellasforensuringreservesofliquidcashin2007,waslessthanwaspreviouslyplanned.

In2007,short-termgovernmentdomesticborowingbondemissionswithamaturityprofileofsixandtwelvemonths,mid-termbondswith

amaturityprofilesoftwo,andfiveyearextensionsandalong-termbondemissionprogrammewithamaturityprofileof11years,wereusedfromthegovernment’sdomesticborrowinginstrumentstocoverfinancialnecessities.

The amount of resources acquired from securities public auctions in 2007 in the domestic financial marketwas95.3 million lats.InNovemberof2007,inordertoensuretheliquidity,ashort-term loanfromdomesticcreditinstitutionsof18.5 million euro (13 million lats)wastaken.

The amount of borrowing made in foreign financial markets in 2007frominternationalfinancialinstitutionswas70.4 million lats.Thelargestofthesewerethe75millioneuro(52.7millionlats)EIBloanforco-financingEUStructuralFundsandCohesionFundprojects,andtheloanof25millioneuro(17.6millionlats)providedbyforeigncommercialbanks.Takingintoaccountborrowingandsettlementofthedebt,central government debtin2007hasincreasedby30.7millionlatsand,inaccordancewiththeoperativedataon31December2007,was1 031.8 million latsinnominalvalueor7.4%oftheGDP,withoutexceedingtheallowedmaximumdebtof1335.0millionlatsinbytheendoftheyear,asstatedintheamendmenttothelaw“OntheGovernmentBudget2007”.

TakingintoaccountforecastsbytheTreasuryandtheMinistryofFinance,thegovernmentdebtinthemiddle-termperiodwillnotexceed10%oftheGDP(seeChart1).

millions LVL of GDP

Chart . Central government debt (nominal value) in 2000-2010

Source: the Treasury

Chart . Domestic central government debt on 31 December 2006


364 days182 days 5 years 10 years

Chart . Domestic central government debt on 31 December 2007


364 daysCredit lines 2 years 5 years

11 years10 years

Chart . Foreign debt of the government on 31 December 2007 by creditors


EIBShort-term creditline World Bank

EurobondsECDBNIB Other

Table 2. Domestic government borrowing securities in 2007

Type of securities 2006(million LVL)

2007(million LVL)

Difference(+/- ) million LVL

6monthbills 12,86 16,46 +3,6

12monthbills 39,709 45,309 +5,6

2yearbonds – 2,218 +2,218

5yearbonds 42,275 31,41 -10,865

10yearbonds 72,031 – -72,031

12yearbonds – 2,120 +2,120

Total 166,875 97,517 -69,358

Source: The Treasury


2.3. Central government domestic debt

On31December2007,thecentral government domestic debt (in lats)amountedto396.743 million latsatnominal,ofwhich96.72%wascomprisedofdomesticsecuritiesand3.27%ofcreditlines(aswellasborrowingofbudgetinstitutionsoutsidetheTreasury–0.01%).In2007,a decrease in domestic (lats) debt by 21.97 million latswasobserved.

2.4. Central government foreign debt

On31December2007,the central government foreign debt (foreign currency) amounted to 635.091 million lats.

In2007,theforeign debt of the central government increased by 53.62 million lats.TheexpansionoftheforeigndebtisduetothefactthatavailablefinancingfromEIBwasusedforensuringgovernmentco-financingofEUstructuralfundsandCohesionFundprojects,performingthesecondloandisbursementamountingto75millioneuro.On31December2007,themajor part(65%)ofthecentral government foreign debtconsistedofborrowingonthecapitalmarket,i.e.euro bonds maturing in 2008 and 2014.

2.5. Management of the central government borrowing

Domestic borrowings

In2007,theshareofcurrentdomesticsecuritiesinthedomesticdebtsawaslightchange.

In2007,theamountofdomestic market securitiesissuedwasconsiderablylowerthantheplannedamount(97.52 million latsintotal).Theamountissuedwasreducedmainlyonaccountofbetterperformanceofthecentralgovernmentbudgetandthesharpincreaseoftherateoflatspairedwiththeinconsistentdemandofdomesticmarketsecurities.In2007,theamount of government securities declinedby35.37 million latstoholdat383.3millionlats.Incontrasttothepreviousyear,mostlyshort-termresources(6-and12-monthbills)aswellasbankcreditlineswereusedforfinancing,amountingto68%ofthetotalfinancing,whereaslong-termresourcesaccountedfor42%ofthetotalfinancing.

Duetolackofliquidityoflatsontheinterbankmarket,activity of investors in sales of central government domes-tic loan securitiesin2007wasverylow.Theaveragelevelofyieldsoflatsinbondauctionsachieved record levels.

Inordertomakepaymentsinthemostfavourableconditions,adecisionwasmadetoorganiseseveraltermsofsecuritysales,ensuringparticipantsofthemarketopportunitytochoosethemostsuitableinvestmentterm.

Despitethefactthattheamountsofferedatcompetingsalesinthelastyearwerecomparativelysmall,thedemandofauctionsin2007wasoftensmaller.Becausetheratesofcompetingsalesofferedtoparticipants(especiallyinthesecondhalfoftheyear)exceededtheTreasury’sideallevelofallocatedresources,securitieswerenotsoldduringseveralconsecutivesales(fixedsaleamountswerenotorganised).

Chart . Domestic loans performed in 2006


Credit lines

12 month bills 5 year bonds

6 month bills

10 year bonds

Chart . Domestic loans performed in 2007


Credit lines

12 month bills 2 year bonds

6 month bills

5 year bonds 11 year bonds

Chart . Yields of six and twelve month bills and six and twelve month RIGIBIDrates in 2007

12M RIGIBID rate


6M RIGIBID rate

12M bills yield

6M bills yield

3 If within one half of the year middle-term and long-term loans by the Treasury increase in price and government domestic loan securities rate on the securities market is less than 100 basic points over EUR standard rates (within the respective term EUR SWAP), the minimal share of debt in lats shall be ensured at least at level of 35% no later than within one year.

Table 3. Compliance of the Central Government Debt Composition Parameters with the Central Government Debt Portfolio Composition Parameters established by the Latvian Central Government Debt Management Strategy

Parameters on 31.12.2006. on 31.12.2007. Strategy

Shareofthelatsdebt,% 42 37 >253

Maturityprofile,% <1year13

<3years30

<1year22

<3years30

<1year<25

<3years<50

Shareoffixedrates,% 64,65 60,18 60-70

Interestrateduration(inyears) 3,07 3,38 3,25(+/-0,25)

Currencycompositionofnetforeigncurrencydebt,% EUR98,92 EUR99,82 EUR100(+/-)5

Source: The Treasury


Foreign borrowing

In2007,theTreasuryusedavailablefinancing from the EIBfortheloanofEUStructuralfundsandCohesionfundsprojecttograntinggovernmentco-financingof75 million euro.

In2007,adecision on the issue of Eurobonds of 500 million eurowasmade.Duetothehighlevelofuncertaintyintheinternationalfinancemarkets,resultingfromproblemsinmortgagecreditsintheU.S.A.(subprime),whichcausedalackofliquidityandincreaseofcreditrisksinfinancialmarkets,the issue of Latvian euro bonds was postponed to 2008.

2.6. Central government debt portfolio management

InordertoassesshowtheLatvianCentralGovernmentDebtManagementStrategyhasbeenimplemented,theactualdebtportfoliocompositionparameterson31December2007havebeencomparedagainstthedebtportfoliocompositionparameterson31December2006andthedebtportfoliocompositionparameterssetintheStrategy.

Inordertoexpandtherangeoffinancialinstrumentstobeusedwithintheframeworkofmanagementofcentralgovernmentdebtandcashassets,theTreasuryhascommencedimplementationofoptionaltransactionopportunities:in2007,anassessmentmodelprojectwaselaborated,whichincorporatescalculatorsforvarioustypesoffinancialoptions,bywhichonemayperformestimationofoptionpremium,usingvariousmethodsfordeterminingpricevolatility.

2.7. Central government loans

Theprocessofissuinggovernmentloansiscontrolled by the Law on Budget and Financial Management,theannuallawongovernmentbudget,andCabinetofMinisters19June2007RegulationsNo.395“Procedures for the Issue and Servicing of State Loans”.

In2007,amendmentsweremadetotheLawonBudgetandFinancialManagementbydetermining for what purposes government loans may be issued,i.e.forbudgetandfinancialmanagement,forfinancialstabilization,toimplementstudentcreditingprogrammes,toimplementinvestmentprojectandcommercialsupportprogrammes,toimplementprojectsandeventsco-financedbytheEU,aswellastoimplementprojectsfundedbyforeignprogrammes.Thelawdeterminesthe circle of receivers of the loans:localgovernments,executorsofgovernmentspecialbudgetandstudentcreditingprogrammes,institutionsfinancedfrombudget,capitalcorporations,unionsandfoundations.

Governmentloansarebeingissuedeveryyearinamountsdeterminedbytheannualgovernmentbudgetlaw.In2007,loansamountingto124177008latsweregrantedfromthegovernmentbudget.Tendencyofpreviousyearshasbeenpreservedduringtheyearofaccount,andthe majority of government loans has been received by local governments(96%oftotalamountofloansgranted)fortheimplementationofautonomousfunctions,projectsandeventsco-fundedbytheEU,aswellasforotherpurposes.

On31December2007,the local government debt to the Treasuryamountedto250 million lats,representingan increase of 83 million latsincomparisonwith31December2006.

On19June2007,anewprocedurefordetermininggovernmentloaninterestrateswasincludedinRegulationsNo.395“Procedure for the Issue of State Loans to Local Governments and Changes in the Conditions of Loans”,whichensuresthe Treasury may offer loan conditions more flexible and adequate for the economic situation.Itcanbeattestedtobythefactthat,in2007,localgovernmentsreceiveddirectloansfromtheTreasuryamountingto88%(in2006–82%)ofthetotalloansreceivedduringtheyearofaccount(bothfromtheTreasuryandanothercreditor).A local government

.

.

.

.

.

Chart . Two, five and eleven year bond yields and two, five and 11-year Euro SWAP rates in 2007

5 years SWAP yield

2 year SWAP yield

5G average bond Profit yield


11 years SWAP yield



millions LVL Proportion

,,

,,

,,,

,,

Chart . Primary trade activity of the government securities in competing multi-price auctions in 2007

Proportion of proposal cover Source: the Treasury

Sold

.. -m .. -y .. -y .. -y .. -m

.. -y .. -y .. -y .. -y .. -m

.. -y .. -m .. -m .. -y .. -y

.. -y .. -m .. -y .. -y .. -y

,millions LVL Proportion

,

,

,

,

,

Chart . Primary trade activity of the government securities in fixed rate auctions in 2007

Proportion of offer payment Source: the Treasury

Sold

.. -m .. -y .. -y

.. -y .. -m .. -y

.. -y .. -y .. -y

may receive loans from other creditors only with the consent of the Minister of Finance and if loan conditions offered by the other creditor are more favourable than those of the Treasury.

Takingintoaccountpredominanttendenciesinfinancialmarkets,attheendof2007,decisionto reduce the amount of charges to local


functions,includingsolvingsocialissues.Furthermore,the fee for issuing and servicing government loans for executors of special budgets and the sub-programme “Crediting of students and studies” was cancelled.

2.8. State guarantees

Article37oftheLawonBudgetandFinancialManagementstipulatesthatonlytheMinisterofFinancehastheauthoritytograntguaranteesinthenameoftheStatewithinthelimitssetintheannuallawonStatebudget,committingpublicfundstoimplementthePublicInvestmentProgrammeprojectsandbusinesssupportprogrammesaswellasstudyandstudentcredits.GuaranteesareissuedinaccordancewiththeCabinetofMinisters12July2005RegulationsNo.513“Procedure for Issuing and Monitoring Guarantees”.

WithintheLawonGovernmentBudget2007,guaranteeswereallocatedintheamountsof1.72millionlatsto“VidusdaugavasSPAAO”SIAand0.97millionlatsto“Alba-5”SIAfortheimplementationoftheco-financedEUCohesionFundwastemanagementproject,and7.40millionlatstotalfortheLatvianOlympicCommittee’sconstructionandreconstructionprojectsofthesportsarenasinJelgavaandVentspils,aloanrecreditingguaranteeforthemanagementoftheRojaportintheamountof0.51millionlats,creditingforstudentsandstudiesintheamountof29.70millionlats,aswellas103.97millionlatstotalforthreereconstructionprojectsinLatvianhospitalsand1.90millionlatsforthereconstructionandfacilityinstallationofRiga’sStradinaUniversitylecturehalls.All guarantees granted were in the planned amount,withtheexceptionoftheguaranteesfor“Alba-5”SIA,whichrequestedonly0.47ofthe0.97millionlatsplanned,andthestudentandstudiescreditingguaranteesof14.85millionlats.

Attheendof2007,the remainder of loans guaranteed by the Stateincreasedincomparisonto2006andwas158.11 million lats(seeChart13).

Stateguaranteedloanshavebeengrantedforthesupportofvariousindustries(Chart14).During the recent years, support for healthcare institutions has increased,andassuch,theamountofguaranteesissuedforhealthcareinstitutionsisthehighest.

ThemajorpartofloansguaranteedbytheStateisreceivedfrom foreign creditors – 74%.Theremaining26%areissuedbylocalcreditinstitutions.ThelargestcreditorforstateguaranteedloansisDEPFAplcBank,whichhasissued33%ofthetotalamount;itisfollowedbytheEIB–23.9%andZIB–13.5%ofthetotalamount.ThelargestamountofloansfromlocalcreditorscomesfromParexBank–4.8%ofthetotalamount.

In2008,Stateguaranteesfortheplannedtotalamountof45.1millionlatswillbeprovided,ofwhich23.8millionlatsareallocatedforcreditingstudiesandstudentsand14.5millionlatstosupportthreeprojectsoftheLatvianOlympicCommittee.

2.9. Liquidity management

Theobjectiveofliquiditymanagementisto ensure availability of cash to meet the financial commitmentsinduetimeandinthefullamount.TheTreasurysetstherequirementsforproviding cash liquidityanda procedure for meeting the liquidity requirements.

TheTreasuryengagesinthefollowingactivitieswithaviewtocomplywiththeliquidityprovidingrequirements:

1)monitorsthestockofliquidcashaswellascompliancewiththeliquiditylimitsandsizeoftheliquidcashreserve;

2)timelyidentifiesandpreventssituationsthatmayimpairthecashliquidityandresultinapaymentorliquiditycrisis;

3)ensuresconstantopportunitiestoborrowcashbyconcludingrespectiveagreementswithdomesticandinternational

millions LVL

Chart . Guarantees issued by the State from 2001 to 2007


Student crediting in budget issuedFor projects in budget issued

milllions LVL

Chart . Outstanding amounts of government guaranteed loans in 2007


Chart . State guaranteed loans granted by industry


Air serviceSports Sea transport Railway

Consumer servicesEnergy Regional development

Small and medium companies EducationEnvironment ptotection Healthcare

millions LVL

Chart . Loans to local governments from 2003 to 2007

Other creditor Source: the Treasurythe Treasury

governments for issuing and servicing government loans–from 0.5% to 0.25% per year–oftheamountoftheloanitself,thusallowinglocalgovernmentstoreduceexpendituresforservicingtheloansandtransferavailableassetstootherautonomous


financialmarketparticipants(creditinstitutions);

4)placesthetemporarilyfreefunds,soastomaintainanadequatestockofliquiditythatwouldensuretherequiredliquidcashreserveandcompliancewithliquiditylimitswithintherelevantperiod.

Initsdailycashmanagement,theTreasurycomplieswiththesetliquidityprovisionrequirements,thusmitigatingtheprobabilityofariskofpaymentorliquiditycrisismaterialising.

In2007,theTreasuryensuredtheavailabilityoftherequired liquid cash every day,basedonthefinancingneedsandfinancialmarketdevelopments,aswellasplacedthetemporarilyfreefunds,maintainingthe necessary liquid financial resource reservesandcomplyingwiththe liquidity limits.Italsomonitoredthe stock of liquid cash-itcompliedwiththeliquiditylimitsandmaintenanceoftheliquidcashreserve.In2007,availablecashbalanceswereusedtoprovideliquidity.Thebalanceshadincreasedasaresultofgovernmentbudgetsurplus(thegovernmentsshort-termdomesticloanbondsandmaturityprofilesofsixandtwelvemonths,aswellasmid-termbondswithamaturityprofilewithtwoandfiveyearextensionsandlong-termbondemissionprogrammeswithamaturityprofileof11years).Fundswerealsoraisedonboththedomesticfinancialmarketandforeignfinancialmarket(aloanfromEIBtoensuretheco-financingofprojectsfinancedbytheEUCohesionandStructuralFunds,aswellasshort-termloansfromforeignbanks).Whennecessary,additionalliquiditywasraisedbyresortingtotheestablishedstandbyborrowingfacility.

Inordertoimplement the Cash management strategy,in2007,theTreasurycommencedtheintroductionoftheinvestment market value risk assessment model Value-at-Risk,whichallowstodeterminepossiblelossesfromaparticularportfolioofsecuritiesand,consequently,mayserveasthebasisforadecisiontopurchaseaparticularsecurityataparticularmoment.

Inordertoimprovefinanceriskmanagement,an index (Delta) of the allowed deviation anticipated in the value of derived financial instruments was introducedwithintheframeworkoftheLatvianGovernmentDebtManagementStrategyandCashManagementStrategy.TheDeltaindexindicatesthesensitivityoftherespectivederivedfinancialinstrumentagainsttheinstabilityofthebasicfinancialinstrument.TheDeltaindexindicativelyspecifieshowmuchthetheoreticalpriceofderivedfinancialinstrumentsusedchanges,aswellashowthepriceofaportfoliochangeswhenthecostsofassets,currencyorgoodschange.IntroductionoftheDeltaindexwillallowanalysisofpossiblefluctuationsofthederivedfinancialinstrumentsand,inrespectivecases,limitingtheclosingofsuchinstruments.

TheTreasuryobservestheprincipleofprudencewithintheframeworkofcashmanagement,limitingpartnershippartyrisk.The Treasury deposits the free financial resources pro tem in the Bank of Latvia, as well as in credit institutions in Latvia and abroad.Observanceoftheprincipleofprudenceisbeingensuredbydefining clear basic principles to determine limits for the Treasury’s business partners,whicharebasedonratingsallocatedbyinternationalratingagencies,andbyindividuallyassessingthedevelopmentoffinancialoperationsofthebusinesspartners.

In2007,newtendenciesintheRealEstatemarketsectorwereobservedduetoadecreaseinactivity,thenumberofrealpropertyoperationsandmarketprices.In2007,newadministrativeobstacleswereinventedinordertolimitthevolumeincreaseinspeedcrediting.Takingintoaccounttheabove-mentionedchanges,theTreasury,recognizingpossibleimpactoftherealpropertymarketdevelopmenttendenciesonthestabilityofbankoperations,hasbeguntosummarizeandexamineavailableinformationontherelationofitsbusinesspartners(commercialbanksofLatvia)totherealpropertymarket.

In 2007, the Treasury ensured the liquidity in due time and in the required amount, complying with the set liquidity requirements, and at the same time placed the temporarily free funds in compliance with the desirable average benchmark.

2.10. Facilitating public-private partnership

TheTreasuryhasprovisionallydefineditspotential role in the mechanism of preparing, assessing, financing, implementing and supervising PPP projects,whichisdirectedtoprovidingfinancialmanagementfunctionforPPPprojectsimplementedbystateandlocalgovernment.

AlthoughthereisageneralopinionthatnobudgetassetsarerequiredtoimplementaPPPproject,andthatimplementingsuchprojectsdoesnotinfluencethelevelofgovernmentdebtanddeficit,asassetsfromtheprivatesectorarebeingattracted,theTreasuryhastriedtoattracttheattentionofrepresentativesformtheprivateandpublicsectorstothefactthattheinfluenceofPPPprojectsonthebudgetdeficitanddebtisnotunequivocal.

Inordertoavoidasituationwhere,whenconcludingPPPprojectagreementsthegovernmentorlocalgovernmentundertakesunjustifiedlong-termobligationsandobtainsundesirableinfluenceondebtindices,amechanismisrequiredwithwhichthepotentialinfluenceoftheprojectonthedeficitofthebudgetanddebtcanbeassessed.TheTreasuryhasperformedmorein-depthanalysisofthisissue,includingEUROSTATmethodologyforassessmentofthePPPproject’sinfluence.ConclusionsofsuchstudieshavebeenpresentedwithintheframeworkofmeetingsinrelationtothePPPproject.In2007,theTreasuryparticipatedbothonthePPPConsultingBoardandintheworkteamformedbytheMinistryofEconomics,whichmustpreparethereportontheinfluenceofthePPPprojectonthegovernmentbudgetanddebt.In2007,theTreasurysubmitteditsproposalsforelaborationofthedraftlawinrelationtothePPPproject.


3. Implementation of the functions of the Paying and Certifying Authority for the European Union policy instruments

3.1. Function of the Paying Authority

InaccordancewiththeprovisionsoftheEURegulations,aPaying Authorityisone or several national, regional or local institutions or bodies, chosen by the Member State to certify the incurred expenditure, submit payment claims and Declarations of Expenditure, and receive payments from the European Commission.ThePayingAuthority,thesameasotherinstitutionsinvolvedinimplementationoftheEUpolicyinstruments,mustensureoperationoftheinstrumentsincompliancewiththeEuropean

Communityinterests,effectivemanagementandmonitoringofstructuralfundsinaccordancewiththeprovisionsoftheEURegulationsandguidelines.

The functions of the Paying Authorityare to receive the funds from the European Commission and to perform payments to the receivers of the support by the foundations within the shortest term and in full amount.

TheTreasurystartedimplementingthePayingAuthorityfunctionsasof1May2004.

TheTreasuryhasthefunctions of the Paying AuthorityforthefollowingEUpolicyinstruments:

1)EU structural funds–EuropeanRegionalDevelopmentFund,EuropeanSocialFund,EuropeanAgriculturalGuidanceandGuaranteeFundandFinancialInstrumentforFisheriesGuidance;

2)Cohesion Fund;

3)European Community initiative EQUAL.

Table 4. Declarations of expenditure for the EU structural funds submitted to the European Commission and funding received from the European Commission in 2007

Fund Claim dateClaimed amount

per current Declaration, in thousands of EUR

Amount calculated by the Treasury4,

in thousands of EUR

Amount received from the EU, in thousands of EUR

ERAF Claimedin2006 33493 33493

ERAF 29.05.2007 7080 7080 7080

ERAF 11.07.2007 17345 17345 17345

ERAF 19.09.2007 15546 15546 15546

ERAF 31.10.2007 31290 31290 31290

ERAF 30.11.2007 47856 47856 47856

Total ERAF 119 117 152 610 152 610

ELVGF 12.02.2007 7050 7032 7032

ELVGF 27.04.2007 9441 9342 9342

ELVGF 11.09.2007 3093 3093 3093

ELVGF 27.12.2007 0 0 0

Total ELVGF 19 584 19 467 19 467

ZVFI Claimedin2006 1764 1764

ZVFI 05.04.2007 4877 4797 4797

ZVFI 22.08.2007 1694 1531 1531

ZVFI 03.12.2007 990 - -

Total ZVFI 7 561 8 092 8 092

ESF Claimedin2006 21533 21533

ESF 10.05.2007 10201 - -

ESF 07.08.2007 15707 - -

ESF 02.10.2007 12027 37821 37821

ESF 21.11.2007 13978 22032 139785

Total ESF 51 913 81 386 73 332

total 198 175 261 555 253 501


4 The Treasury calculates the amount to be expected from the European Commission, as the intensity of the European Community financing activities is different throughout a measure and the European Commisison makes reimbursements based on the European Commission financing rate set for the measure in the financial table of the Single Programming Document.

5 The European Commission withdrew administrative expenditures performed within the framework of the Project amounting to 8 055 thousand euro, on the basis of conclusion by the EC auditors on possible non-related expenditures. The leading institution performs the necessary measures in order to clarify the issue and solve possible problems.


WhencertifyingtheexpenditureincludedintheEUpolicyinstrumentclaimsandDeclarationsofExpenditure,thetask of the Paying Authorityis to ascertain the correctness, eligibility of expenditure incurred within the framework of projects and their compliance with the EU Regulations, as well as the sufficiency of the management control systems or checks established by the Intermediate Bodies/ Managing Authority.Inordertoensuretheabove,thePayingAuthorityhas the rightto request the Managing Authority to implement additional controls in the Intermediate Bodies/ Managing Authority, as well as conduct financial controls and audits of the Intermediate Bodies/ Managing Authority.

In2007,theTreasurychecked3 536 payment orderswithintheframe-work of the EU structural fundsandmadestructuralfundsdisbursementsintheamountof135 559 thousand lats.The number of payment orders checked increased by 44%incomparisontothepreviousyear.

16 EU structural funds Declarations of Expenditure claiming 198 174 thousand eurofromtheEuropeanCommissionweresubmittedtotheEuropeanCommissionin2007(seeTable4).

TheamountsreceivedfromtheEuropeanCommissioncoincidewiththeTreasury’sestimates(exceptthe8054545eurowithheldbytheEuropeanCommission),incompliancewiththeperformanceindicatorssetintheOperationalStrategyoftheTreasury.

InordertoensureexecutionofthetaskdefinedbytheStrategy:“Time

ofprocessingofthepayments’applicationsforStructuralfundsnolongerthan20workingdays(days)determinedbythenormativedocuments”and“AssessmenttimeforverificationoftheDeclarationofExpendituresnolongerthanthatdeterminedbythenormativedocuments(indays)”alreadyinitiallyelaboratinginternaldocumentsoftheTreasurycontrollingQualitySystem,andinordertopromoteuseofEUfunds,theTreasuryasapaymentinstitutionhasprovidedshorter terms of assessment of inquiry for the Declaration of Expenditures and Payments of Structural funds than it is determined by laws and regulations.Wherewith,duringtheconsiderationoftheinformativereportbytheMinisterforSpecialAssignmentsforAdministrationofEUfunds“InformativeReportonmiddle-termmeasuresforensuringofeffectiveuseoftheEUstructuralfundsin2008”atthemeetingoftheCabinetofMinistersonSeptember18,2007,whereseveralmeasureshavebeenmentioned,whichshallbeperformedbyinstitutionsinvolvedinmanagementofEUStructuralfunds,inordertoensureuseoffundsin2008,theTreasurywasnotrequiredtospecifytheterms.

Withintheframework of the Cohesion Fund,90 Declarations of ExpenditureweresubmittedtotheEuropeanCommissionin2007,ofwhichsix were the final Declarations of Expenditure,claiming115 753 thou-sand eurofromtheEuropeanCommis-sion.TheTreasurydisbursed 129 901 thousand euro or 91 295 thousand latsfromtheCohesionFundin2007.

In2007,theTreasurychecked60 payment orderswithintheframework

oftheEuropeanCommunityinitiativeEQUALandmadedisbursementsfromtheinitiativefundsintheamountof2 396 thousand lats.Incomparisontothepreviousyear,the number of payment orders checked increased by 15%.

WithintheframeworkoftheEuropeanCommunityinitiativeEQUAL,four European Community initiative Declarations of EQUAL Expenditures were submitted totheEuropeanCommissionin2007,claiming 3 582 thousand eurofromtheEuropeanCommission(seeTable5).

ThefactthatthetotalamountofthesumrequiredforEuropeanAgriculturalGuidanceandGuaranteeFund,thefinancinginstrumentoftheFisheriesManagementandtheinitiativeoftheEuropeanCommunityEQAL(aspre-paymentsandpaymentsofthetransitionalperiod)hasachieved95%oftheFund’sfundingallotment,therefore,incompliancewiththeprovisionoftheParagraph3,Article32oftheRegulationNo.1290/1999bytheCouncilofEuropenoassetswillbeenquireduntilsendingoftheFinalDeclarationwithintheframeworkoftheFund.Incomparisonwiththepreviousyear,EUstructuralfundsandEuropeanCommunityinitiativeDeclarationsofEQUALExpendituresDeclarationssubmittedtotheEuropeanCommissionhavenotincreased;however,theamount of referable expenditures declared for the European Commission and the amount of claim has grown significantly, which indicates that the implementation of the project is successful.Until31December2007,EQUALN+2financing

Table 5. Declarations of expenditure for the EU initiative EQUAL submitted to the European Commission and funding received from the European Commission in 2007

Fund Claim dateClaimed amount

per current Declaration, in thousands of EUR

Amount calculated by the Treasury,

in thousands of EUR

Amount received from the EU, in thousands of EUR

EQUAL Claimedin2006 910 910

EQUAL 20.02.2007 1254 1254 1254

EQUAL 23.05.2007 686 686 686

EQUAL 14.08.2007 1014 1014 1014

EQUAL 26.10.2007 628 628 628

Total EQUAL 3 582 4 492 4 492



allocationprinciple6ofEUstructuralfundsfor2005andtheEuropeanCommunityinitiativewasfulfilled,i.e.,paymentclaimsandDeclarationsofExpenditureweresent,declaringtheentireamountoftheEUstructuralfundsfinancinggrantedin2005andtheentireamountoftheEuropeanCommunityinitiativeEQUALfinancingallocation(committedamount).

Theincreaseintheamountofexpendituredeclaredin2007andthenumberofCohesionFundDeclarationsofExpendituresenttotheEuropeanCommissionincomparisonto2006maybeobservedinTable6andsuggeststhatprogressinspendinghasbeenachieved.

TheTreasuryisalsothePaymentAuthorityforthefinancial instruments of the European Economy Area and for the bilateral financial instrument of the Norwegian government.

On18October2007,theSaeimaadoptedtheLaw on European Economy Area financial instrument and bilateral financial instrument of the Norwegian government.Incompliancewiththeabove-mentionedlaw,therangeofRegulationsbytheCabinetofMinistersshallbeupdated

andelaborated.Attheendof2007,RegulationsbytheCabinetofMinisterswereupdated,andtheTreasurytookanactivepartinthisprocessastheinstitutioninvolvedwithintheadministrationoffinancialinstruments.

In2007,thefirst granting agree-ments,aswellasseveralcollaborationagreementsonadministrationoffinancialinstruments,wereconcluded.Onthebasisoftheagreementconclu-ded,donorcountriesinJuly,2007,performedfirstpre-termpayments.InOctober,2007,theTreasuryasthePaymentAuthorityverified,approvedandsubmittedtothedonorcountriesrequestsofassetsforthefinancialinstruments,forwhichthedonorcountrieshaveperformedpaymentsalreadyinNovember.(seeTable7).

3.2. Function of the Certification Authority during the planning period from 2007 to 2013

IncompliancewiththeLawoftheEUStructuralFundsandCohesionFundmanagement,theTreasurywillactasaCertifying AuthorityandPayingAuthorityfortheEuropeanRegionalDevelopmentFund,EuropeanSocialFundandCohesion

Fundintheplanningperiodfrom2007–2013.Thefunctions of the Certifying Authorityinclude preparation of certified Declarations of Expenditure and payment claims and their submission to the European Commission, as well as certifying that the declared expenditure is compliant with the existing European Community and Member State Regulations.

Inordertoestablishuniversalprinciplesforplanning,financialmanagementoftheEUfundinggrantedfortheprogrammingperiodfrom2007–2013andmakingdisbursementsandsubmittingDeclarations,incollaborationwiththeMinistryofFinance,theTreasuryelaboratedtheCabinetofMinisters26June2007RegulationsNo.418“Procedure of granting government budget assets for implementation of co-financing projects of EU funds as well as procedure of performing the payment and preparing the Declaration of Expenditures”.

In2007,withintheframeworkofplanningperiodfrom2007–2013,the first advance payments of 98 308 thousand euro were received.

Table 7. Funds claimed and received in 2007 within the framework of the European Economic Area financial instrument and Norwegian government bilateral financial instrument, EUR

No. Title of the project Type of payment Assets claimed from financial instruments, thousands EUR

Assets claimed from financial instruments, thousands EUR

date sum date sum

1. Projectpreparingfund advance 25.07.2007 5

2. Non-governmentalorganizationfund advance 25.07.2007 99

3. Projectpreparingfund transitional 18.10.2007 390 01.11.2007 390

4. Non-governmentalorganizationfund transitional 18.10.2007 400 01.11.2007 400

Total 790 894


Table 6. Comparison of expenditures certified for the European Commission in 2007 with 2006

EU policy instrument2006 2007

Sent declarations Declared expenditures,thous. EUR Sent declarations Declared expenditures,

thous. EUR

Cohesion fund 55 128316 90 172911

Structural funds 15 177864 16 283406

EQUAL 4 3165 4 5261

Total 76 309 345 110 461 578


6 Based on Article 31 of 21 June 1999 EU Council Regulation No.1260/1999, the European Commission automatically reduces the amount of financing available under Structural Funds by the outstanding (undisbursed) amount which has not been paid to the Structural Funds beneficiary and has been declared to the European Commission by the end of the second year following the year of committment.


4. State-funded pension scheme asset management

In 2007, the Treasury performed its last management of the State-funded pension scheme assets (second-tier pensions) in accordance with the State-Funded Pensions Law, which assigns this function to the Treasury as the government agent.

In 2007, the Treasury discontinued management of State-funded pension schemes. On 31 October 2007, the net asset value of the Treasury investment plan was zero lats. All parts have been removed.

When the Treasury’s investment plan was completed, the value of one part of the plan was 1.265. What this means is that each lat invested since the beginning of operation in 2001 has induced a profit of 26.5 santims, or on average 4.4 santims per year. Taking into account that income from the investments is being reinvested, at constant profitability, the income from investments in absolute expression increases with every year. Capital invested can increase in amount several times. Consequently, the total value of assets of the investment plan reached 10.3 million lats.

In November 2005, the Cabinet of Ministers expressed their support of option D of the concept “On Further Operation of the Treasury in Mana-gement of the State-Funded Pension Scheme Assets”, providing for a transfer of the Treasury’s investment plan portfolio to private asset mana-gers. The Treasury prepared adequate amendments to the State-Funded Pensions Law, which were adopted by the Saeima on 28 September 2006.

In a tender organised by the Ministry of Finance, rights to overtake the accrued capital of the Treasury’s investment plan on the state-funded pension scheme were obtained by all eight managers of assets, who had submitted their applications to the Ministry of Finance. The Treasury and SSIA ensured the change of investment plan to 30 October 2007 for those participants of the Treasury’s investment plan,

who had not chosen a different manager of assets and investment plan until 28 September 2007.

The investment plan of the Treasury was conservative, which does not foresee investments into securities of commercial institutions, other capital securities and securities equal to these. The Treasury invested assets of the second level in Latvian government securities, mortgage bonds, deposit certificates and time deposits in Latvia’s banks, taking into account the following restrictions:

1) Up to 100% of the Treasury’s invest-ment plan assets may be invested in domestic government loan debt securities, but in securities of one issue – up to 20% of the total amount of assets managed by the Treasury, providing that the Treasury’s invest-ment plan assets contain domestic loan securities from six or more issues;

2) Investments in mortgage bonds and deposit certificates of one issuer may not exceed 10% of the Treasury’s investment plan assets;

3) 25% of the total amount of assets may be invested in bank time depo-sits, but no more than 10% of assets received for managing in one bank.

The efficiency of the Treasury’s investment plan assets may be assessed by comparing its profitability to the profitability of other plans. The Treasury’s investment plan has discontinued its operation and there is no opportunity to save the securities until repayment, which would improve the profitability of the plan. However, profitability of the Treasury’s investment plan since the start of operations (3.94% per year) is the second best showing among ten conservative plans.

Concept – The prospect of an investment plan on the operation of the Treasury in the State-funded pension scheme approved by the Treasury on 26 July 2001. On 7 September the SSIA transferred the first assets (89.5 thousand lats) to the Treasury’s investment plan account. As

the Treasury was the exclusive manager of the second stage pension scheme in 2001 and 2002, the amount of assets to be managed increased sharply, and at the end of 2002 the amount of assets of investment were 12.3 million lats.

In January 2003, private managers began to operate in the management of the second stage pension scheme. Currently there are nine private mana-gers operating in this scheme offering the participants of the scheme a choice of 25 various plans – nine conservatives, four balanced and 12 active plans.

With the involvement of private managers in the second level of assets management of a pension scheme, many scheme participants changed their asset manager and competition among the managers has formed. Thus, as of 2003, the value of the Treasury’s investment plan assets increased slowly, achieving its maximum (15.8 million lats) in August 2005. However, among the conservative investment plans, the Treasury’s investment plan had the highest value of assets until September 2007.

Chart . Profitability of conservative investment plans since commencing of the operation


NORVIK Daugava the Treasury Parex Universal Astra Krājfondi Klasika SEB Latvia plan

Baltikums conservative BTB conservative DnB NORD conservative Hansa Pensions "Stability" Suprema Jūrmala

.. .. ..

milllions LVL

Chart . Changes in net assets of the largest conservative investment plans

Parex UniversalOther conservative plans

Astra Krājfondi Klasika


the Treasury Hansa Pensions "Stability"


5. Corporate governance of the Treasury as a public administration institution

5.1. The Treasury’s financing and its spending

The Treasury’s financing is comprised of:

1)agrantfromgeneralrevenue;

2)servicechargesandotherself-generatedrevenue:w revenuefromcentralgovernment

loanservice,w revenuefromcentralgovernment

guaranteeservice,w revenueformanagementofthe

assetsoftheStatefundedpensionscheme.

In2007,theTreasuryimplementedthefollowingbasic budget programmes and sub-programmes:

1)programme“Budgetexecutionandcentralgovernmentdebtmanagement”:w sub-programme“Budgetexecution”;w sub-programme“Central

governmentdebtmanagement”;

2)sub-programme“Contributionstointernationalorganisations”;

3)sub-programme“Compensationtorehabilitatedcitizens”;

4)programme“Centralgovernmentbudgetloansandtheirrepayments”;

5)programme“Granttolocalgovernmentcohesionfund”.

The objective of the sub-programme “Budget execution”isexecutionofthecentralgovernmentbudgetwithintheframeworksetbytheannuallawonthestatebudget,focusingonefficientmanagementofthegovernmentbudgetfunds,identificationofservicesrequiredbytheTreasury’sclients,improvementofthequalityoftheservicesofferedinlinewiththebestinternationalfinancialmanagementpracticeandapplyingthelatesttechnologies.

The objective of the sub-programme “Central government debt management”iseffectivemanagementofthegovernmentdebtandassets,ensuringthefundsrequiredforthepurposeoffinancingthegovern-mentexecutionandrefinancingofthegovernmentdebtatthelowestpossiblecostsbyhedgingthefinancialrisksandtakingintoaccountthedevelopmentoftheLatviandomesticcapitalmarketandtheoverallfinancialsystem.

The objective of the sub-programme “Contributions to international organisations”ismakingannualmembershipcontributionsoftheRepublicofLatviatointernationalfinancialorganisationsandpaymentsintothecapitaland/orreservesoftheinternationalfinancialinstitutions,

wheretheRepublicofLatviaisaholderofcapitalshares,induetimeandfullamount,thusensuringsettlementoftheundertakencommitments.

The objective of the sub-programme “Compensation to rehabilitated citizens”istoensuredisbursementofcompensationstorehabilitatedcitizensincompliancewiththelawsandregulations.

The objective of the programme “Central government budget loans and their repayments”istoensuregovernmentbudgetlendingincompliancewithrespectivebudgetappropriation,offeringtoprojectimplementersthemostadequatefinancialresources,toprovidecurrentinformationonthebudgetloanportfolioissued,toperformactionsrequiredfortheprocessofcollectingdelayedpayments.

The objective of the programme “Grant to local government cohesion fund”istoensuretransferofthegrantfromthecentralgovernmentbudgettotheLocalGovernmentFinancialCohesionFundincompliancewiththeeffectivelawsandregulations.

In2007,fundingapprovedinthecentralgovernmentbasic budget to cover expenditure was 79 478 488 lats,including:

Table 8. Central government basic budget funding and its spending (summary of all the programmes, LVL)

No. Financial assets In the preceding year(actual)

In the reporting year

Approved by the law actual

1. Financial assets to cover expenditure (total): 71 378 205 79 478 488 79 624 054

1.1. Grants 70099221 78360036 78360036

1.2. Servicechargesandotherself-generatedrevenue 1278984 1118452 1264018

2. Expenditure (total): 69 559 995 79 478 488 74 512 307

2.1. Maintenancecosts(total): 68399853 78257975 73761639

2.1.1. Runningcosts 3947436 7362168 5579325

2.1.2. Interests 53053767 57017910 54727836

2.1.3. Subsidiesandgrants 588784 800000 451824

2.1.4. Internationalcollaboration 3656969 5925000 5849757

2.1.5. Grantstolocalgovernments 7152897 7152897 7152897

2.2. Expendituresforcapitalinvestments 1160142 1220513 750668



1)agrantfromgeneralrevenueintheamountof78360036lats,whichis8260815latsmorethanin2006;

2)self-generatedrevenuefromtheservicingofcentralgovernmentloans,guaranteesandmanagementoftheStatefundedpensionschemeassetsintheamountof1118452lats,whichisthe38165latsmorethanin2006.

Totalallocationsgrantedundertheappropriationprocedureamountto79 478 488 lats,whichis8050800latsmorethanin2006.Ofthegrantedallocations,74 512 307 latswereactuallyspent,whichis4952312latsmorethanin2006or94%ofthetotalallocationsgrantedinthereportingyear.

In2007,expenditures for capital investment decreased by 409 474 latsoverthepreviousreportingperiod

asaresultofchangesinthescheduleofimplementationoftheproject“ImplementationoftheUniversalCentralGovernmentBudgetPlanningandExecutionSystem(SAP)”.

Thecashbalanceunderthebasicbudgetsub-programme“Budgetexecution”attheendoftheperiodamountedto564880lats.Thisamountiscomprisedofrevenuefromservicechargesthathavebeenabovetheplanforseveralyears.

Table 9. Central government basic budget funding and its spending for the basic budget programme “Budget execution and government debt management” (LVL)





1.1. Grants 58316324 64482139 64482139




2.1.1. Runningcosts 3947436 7362168 5579325

2.1.2. Interests 53053767 57017910 54727836



Table 10. Central government basic budget funding and its spending, basic budget sub-programme “Budget execution”(LVL)





1.1. Grants 3916324 5412139 5412139




2.1.1. Runningcosts 3849602 5310078 5094363



Table 11. Central government basic budget funding and its spending, basic budget sub-programme “Government debt management” (LVL)





1.1. Grantsfromgeneralincome 54400000 59070000 59070000

1.2. Servicechargesandotherself-generatedrevenue - - -

1.3. Foreignfinancialassistance - - -



2.1.1. Runningcosts 358004 2052090 484962

2.1.2. Interests 52793597 57017910 54727836

2.2. Expendituresforcapitalinvestments - - -



Duringtheaccountingperiod,withintheframeworkofthebasicbudgetsub-programme“Centralgovernmentdebtmanagement”totalexpenditureswereplannedintheamountof59070000lats,whiletheactualexpenditureswereonly55212798lats.Allocationsgrantedwerenotspentinfull,asthegovernmentbudgetexecutionperformanceindicatorswerebetterthanplanned,reducingthetotalnecessityofloansin2007.

Interestpaymentswereperformedwithintheframeworkofthebasicbudgetsub-programme“Centralgovernmentdebtmanagement”ongovernmentborrowingfromforeignandinternationalfinancialinstitutionsincompliancewithagreementsconcluded,outstandinggovernmentsecurities,couponpaymentsongovernmentbonds,aswellasothergovernmentdebtmanagementrelatedpayments,includingpaymentofachargeforregistrationofdomesticgovernmentsecuritiesandtheirretentionandsecuritieseventsserviceattheLatvianCentralDepository,as

wellastheirlistingonthemainlistofRigaStockExchange,paymentsforuseoffinancialmarketinformationsystems,forlegal,auditing,ratingagenciesandotherservicesinrelationtothecentralgovernmentdebtmanagement.Paymentstocreditinstitutionsforservicingofaccounts(includingservicingofcreditcards),aswellasinterestpaymentsforgovernmentspecialbudgetcashbalancesanddepositsmadewiththeTreasuryhavealsobeenperformed.

TheRepublicofLatviaisamemberofseveralinternationalfinancialinstitutionsandorganisations.Byjoiningthemithasnotonlyacquiredcertainrightsbuthasalsocommitteditselftomakingpaymentsintotheircapitalandreservesandannualmembershipcontributions.Therefore,withintheframeworkofthisprogrammetheTreasuryensuresthattheundertakenmembershipcommitmentsarefulfilledincompliancewiththepaymentschedules.In2007,theTreasuryensuredthatmembershippaymentsweremadeintothefollowing

internationalfinancialinstitutions:EBRD,EIB,NIB,CouncilofEuropeDevelopmentBank,WorldCustomsOrganisationandIntra-EuropeanOrganisationofTaxAdministrations.Allpaymentsweremadeintherequiredamountsandwithinthesettimeframe.

In2007,theplannedamountoftotalcontributionswas5925000lats.Allplannedpaymentstointernationalfinancialorganisationsweremadeintimeandinfullamount,totaling5849757lats.Consequently,thekeyobjectiveofthesub-programmewasattained.Nonewmeasuresoractivitiesthatmayhaveanimpactonimplementationofthesub-programmewereintroducedin2007.

In2007,compensationstorehabilitatedcitizenswerepaidinaccordancewith30December1997CabinetofMinistersRegulationsNo.443“ProceduretoReco-verthePropertyorCompensateitsValuetoPersonswhoLostitasaResultofAlienationduetoFailuretoPayIncreasedTaxFeesorwhoEscapedfromPoliticalRepressionsoftheCommunistRegime”.

Table 12. Central government basic budget funding and its spending, basic budget sub-programme “Contributions to international organisations” (LVL)





1.1. Grants 3830000 5925000 5925000

1.2. Servicechargesandotherself-generatedrevenue - -

1.3. Foreign financial assistance - -



2.1.1. Internationalcollaboration 3656969 5925000 5849757



Table 13. Central government basic budget funding and its spending, basic budget programme “Compensations to rehabilitated citizens” (LVL)




1. Financial assets to cover expenditure (total): 800 000 800 000 800 000

1.1. Grants 800000 800000 800000

1.2. Servicechargesandotherself-generatedrevenue - -

1.3. Foreign financial assistance - -

2. Expenditure (total): 588 784 800 000 451 824


2.1.1. Subsidiesandgrants,includingcontributionstointerna-tionalorganizations 588784 800000 451824




Table 14. Central government basic budget funding and its spending, basic budget programme “Grant to local government financial cohesion fund” (LVL)





1.1. Grants 7152897 7152897 7152897

1.2. Servicechargesandotherself-generatedrevenue - - -

1.3. Foreign financial assistance - - -



2.1.1. Subsidiesandgrants 7152897 7152897 7152897



Table 15. Implementation of the performance indicators of the basic budget sub-programme “Budget execution”

No. Performance indicators In the preceding year (actual)



1. Numberofinstitutions 1 1 1

2. Numberofstaffpositions 246 301 255

3. Treasury’sexpenditureperonelatsofthegrantedcentralgovernmentbudgetallocations(LVL) 0,001 - -

4. Treasury’sexpenditureperonelatsoftheservicedcentralgovernmentdebt(LVL) 0,003 - -

5.TimelysummarisedinformationonexecutionoflocalgovernmentandgovernmentbudgetandannualreportonexecutionofthebudgetincompliancewithtermdeterminedbyLaw

1 1 1

6. Timelysummarisedinformationonexecutionoflocalgovernmentbudgetandpreparedofficialmonthlyreportsonexecutionofconsolidatedcommonbudget 12 12 12

7. OfficialmonthlyTreasuryreports“Governmentdebt”,“externaldebtofthegovernment”and“grantedgovernmentguarantees”prepared 12 - -

8. Timelysummarisedinformationonexecutionoflocalgovernmentandgovernmentbudgetandpreparedquarterreports - 4 4

9. Numberofpaymentdocumentsimplementedbyclients(inmillions) 14 - -

10. AnnualreportoftheforeigndebtofthegovernmentandguaranteesissuedpreparedandsubmittedtotheWorldBank 1 - -

11. AnnualreportonmanagementofthestatefundedpensionschemeassetsundertheTreasury’sinvestmentplanprepared 1 - -

12. PaymentsoftheEUfundingreceived 88 - -

13. Numberofprocessedstructuralfundspaymentorders 3293 - -

14.Internalqualitymanagementsystemdocumentsdrafted,inordertoensuretheoperationoftheestablishedfinancialmanagementandcontrolsystemforthestructuralfunds

8 - -

15. ShareofeKasepaymentsintotalamountofprocessedpayments(%) - 45 62

16. Timeofprocessingofthestructuralfundspaymentclaimsnotlongerthan20days - 17 12

17. PaymentofexpendituresfortheEuropeanCommissiondeclaredEUpolicyinstrumentsforcalculationofthePaymentAuthority(%) - 100% 100%

18. Ensuredobservationofapprovedgovernmentdebtportfoliomanagementshowings(%) - 100% 100%

19.Ensuredincomefromgovernmentbudgetinvestmentsinamountdeterminedbytheannuallaw“OntheGovernmentBudget”intheprescribedamount(actual%oftheannualplan)

- 100%< 144.3%

20. Expendituresofgovernmentdebtservicingareensuredwithnoexceedofappro-priationdeterminedbytheannualbudgetlaw(actual%oftheannualplan) - <100% 93,5%

21. Centralgovernmentdebtattheendoftheyeardonotexceedmaximumamountdeterminedbytheannuallaw(actual%oftheannualplan) - <100% 77,3%



State and local government purchases

TheTreasuryeffectedprocurementincompliancewiththeLaw“OnPublicProcurement”andappliedprocedureforanopentender,negotiations,priceinquiryandprocedureforprocurementswheretheexpectedpriceofthecontractis1000–10000lats.Fortheprocurement,theTreasurerestablishesaprocurementcommittee,competentintheparticularareaofprocurementinwhichthecontractwillbesigned.ProcurementisregisteredandcontractsaremonitoredintheRegisterofProcurementContractsoftheTreasury.In2007,thetotalnumberofpurchasesamountedto56(excludingthepurchasesunder1000lats),andcontractsintheamountof1792202lats(VATexclusive)wereconcluded.

5.2.Personnel and personnel management

ThepersonnelarethemostimportantresourceoftheTreasury,andprovideachievementofthegoalssetbytheTreasuryandfurtherdevelopmentoftheinstitution.In2007,therewere273 positions:inJanuary–241civilservantsand32employees,civilserviceorlabourrelationshavebeenestablishedwith249 civil servants and employees.Thedivisionofthepositionofcivilservantsandemployeeson28December2007haschanged–respectively,245civilservantand28employeepositions,civilserviceorlabourrelationshavebeenestablishedwith253civilservantsandemployees.

More than one halfofthepersonneloftheTreasuryareintheage group of 20 to 39:fromtheagegroupof20to29–28%andfrom30to39–27%peoplewereemployed(seeChart17).

Incomparisonto2006,theproportion ofwomen to menhasremainedunchanged.84%ofemployeesworkingintheTreasuryarewomen,while16%aremen.Onlywomenareemployedintheregionalcentres(excepttheRigasettlementcentre).AsimilarsituationmaybeobservedamongmanagersofstructuralunitsoftheTreasuryandtheirdeputies:women–81%,men–19%.

In2007,staff turnoverintheTreasurywas12%: 30 civil servants and employeesweredismissed(staffturnoverbyyearsseeinChart18).

Takingintoaccountthetensesituationonthelabourmarketandthelackofprofessionalsanddemandthereof,theTreasuryimplementsawell-consideredStrategyforattractingandretainingpersonnel.

Inthereportingyear,71 applicant selection competitionswereheldforvacantstaffpositionsattheTreasury.32newspecialistsestablishedcivilserviceoremploymentrelationswiththeTreasuryfollowingtheselectionprocess.TheTreasurycontinuestopromotecareergrowthfortheirspecialists:23specialistsoftheTreasuryweregrantedtheopportunityofcareerdevelopmentbytransferringthemtootherstaffpositionsasaresultofstaffappraisalandinternalselectioncompetitions.

InordertoattractthosewhomighttakeaninterestinworkingattheTreasuryandtoselectthemostsuitablecandidates,theTreasurycontinuesitscooperationwithmassmedia,institutionsofhighereducationandpersonnelrecruitmentandselectioncompanies.

Inordertointroducethenewemployeeswithofficialdutiesandoperationoftheinstitution,theTreasurydrawsparticularattentiontopreparingoftheworkingscheduleforthenewemployeeandpresentingtothenewemployeefunctionsandteamoftheTreasury.Whenthetrialperiodiscompleted,performanceof35newemployeesisbeingassessed.Allthenewemployeeshavereceivedpositiveassessment,whichdemonstratesthatduringtheprocessofselectionapplicantshavingabilitytoapplytheirprofessionalknowledgeandtoacquirethenewdutieshavebeenselected.

Basedontheappraisalresultsofthetrialperiod,theStateDepartmentofCivilServicegrantedthestatusofcivilservantto21civilservantcandidatesoftheTreasuryin2007.

In2007,improvementoftheremunerationsystemoftheTreasury

Chart . Distribution of the personnel of the Treasury by age groups in 2007


30-3920-29 40-49

50-59 70 un >60-69

,

,

Chart . Staff turnover in the Treasury by years (2000 - 2007)


A DCB E

Chart . Results of performance appraisal in 2006/2007 (%)


A performance in all areas exceeds requirements of the respective industry B performance in particular areas exceeds requirements; however, the remaining areas are in compliance with the requirements of the respective industryC performance is in compliance with the requirements of the respective industryD performance is not in accordance with the requirements of the respective industry in all areas, improvement of performance is requiredE performance does not comply with the requirements in the respective industry, all areas require significant and immediate improvements


continuedbothbyimplementingguidelinesoftheTreasury’sremune-rationsystemandbyparticipatingforthefirstyearinstudiesonremunerationconductedbycompaniesFontes LatvijaandHay Group,whichallowgatheringofinformationonthelabourmarketsituationandfacilitatesattractionandretainingofemployees.

In2007,theannual performance appraisalintheTreasurywasperformedforthefourthtime.Theperformancesof206civilservantsandemployeeswereassessed(including82civilservantsinregionalsettlementcentres).Intheappraisalofthisyear,ananalysisofusefulnessoftrainingwasalsoperformedinordertoascertaintheefficiencyoftrainingandtoprepareoneselffordeterminingfurthertrainingneeds.Inaddition,theemployees’skillsinorientationtowardsclientshavebeenassessedinordertofacilitateimprovementofperformancequalityandinvolvementoftheemployeeinachievinggoalssetbytheStrategy.

ThegreatestvalueoftheTreasuryishighlyeducatedandprofessionalpersonnel.99.2%ofthestaffhaveauniversitydegree(including30%whohaveobtainedaMaster’sdegree).TwostaffmembershaveaDoctor’sdegree.Thetendencytodevelopprofessionallyandtoraisetheeducationallevelhaspersistedovertheyears(seeChart20).

EveryyeartheTreasurydeterminestheneedfortheeducationofemployeesandapprovesthetrainingplanforthefollowingyear.Duringtheaccountperiod,212(84%)ofpublicservantsandemployeesparticipatedin658trainingcourses.In2007,theTreasurytriedtofocusonadequate,speciallypreparedcorporativetrainings:inclientservicing,emphasizingobservationofbasicprinciplesdeterminedinClientServiceManual,inpreparationofinternationalreportsandfinancialreports,aswellasintheareaofinformationsafety.Inaddition,knowledgeintheareaofmanagementisbeingimprovedintrainingsorganizedbyinternationalinstitutions,.

Inordertoensurefurtherdevelopmentofthepersonnel,in2007,performance

appraisalanddeterminationofnecessityoftrainingwasimproved,aswellasmethodologyforplanningandimplementingofthepersonneldevelopmentwaselaborated.

5.3.Quality and risk management

In2007,theTreasuryreceivedaconfession letter within the framework of Annual Efficient Management Prize 2007fortheimplementationofgoodmanagementprinciplesinagovernmentalinstitution,organisedbytheConfederationofEmployeesofLatviaincollaborationwiththeChancellery,acknowledgingthatoperationoftheTreasuryisincompliancewiththebestmanagementprinciplesandtheTreasuryisoneofthemosteffectiveandbeststategovernmentinstitutions.

Inordertocuttheamountofdocumentscontrollingthequalitymanagementsysteminlesssignificantareasandtofocusattentionontheprocessesmoreexposedtorisks,classificationofprocessesbytheirmaturitylevelshasbeenperformedintheTreasury,determiningthecurrentanddesirablelevelofmaturityforeachprocessandnecessaryadjustmentsitrequires,inordertoensurenecessarylevelofcontroloftheprocess.

Duringtheperiodofaccount,inaccordancetotheself-assessmentoftheTreasury,risksidentifiedintheprocessesoftheTreasurybasicoperationin2008willbeattachedtothesub-processes of the basic operation classified by the level of maturity,andriskmanagementwillbeperformeddependingonthelevelofmaturityofthesub-process.

In2007,theTreasuryconductedaninquiry of clientsontheserviceofpaymentcardsattachedtotheaccountsoftheTreasury,inordertoimprovecollaborationwithclientsintheareaofcreditcardservicesandtoadjusttheservice,aswellastoidentifypossibleproblemsclientsmayencounterwhenperformingfunctionsofaccountingofbudgetexpenditures.Basedontheresultsoftheinquiry,in2008,weplantomakeimprovementstotheserviceof

Chart . Education obtained by the employees of the Treasury (2004-2007)

2st level Higher Professional Education

Bachelor's Degree

Master’s DegreeSource: the Treasury

1st level Higher Professional Education


creditcardsattachedtotheaccountsoftheTreasury.

WhenassessingtheTreasurymanagementsystembothintheareaofprocessmanagementandprovidingservices,efficiency of internal control has increased.TheTreasuryreceivesonaregularbasisexternalassessmentintheframeworkofISO 9001:2000 supervisory audit,whichaidsinworkorganisation.

5.4. Internal control system

Theinternal control systemoftheTreasurywasestablished,basedoncomprehensivebasicelementsofaninternalcontrolsystem:controlenvironment,performanceappraisal,riskmanagement,controlactivities,monitoringandeffectiveinformationflowsandintercommunication.InternalcontrolwithinthestructuralunitsoftheTreasuryisoneofthemeanstopreventpotentiallosses.Inordertoreducerisksinherentinadministrationoftransactions,theTreasuryimplements the double authorisation principle,whichdeterminesthattransactionshavetobevalidatedbyatleasttwoindependentemployees.Transactingisgovernedbyinternalqualitymanagementdocuments

Theresults of internal auditscompletedin2007confirmedthatoveralltheestablishedinternalcontrolsystemprovidessufficientandreasonableassurancethattheTreasury’sassignedtasksareimplementedinaccordancewiththestrategicobjectives,ofperformanceefficiency,datacorrectnessandreliability,compliancewithlegislativerequirementsaswellasriskmanagementandprotectionoftheresourcesattheTreasury’sdisposalagainstpotentiallosses.The internal control systemisundercontinuousdevelopment:notonlyrequirementsoflawsandregulationsareregularlytakenonboard,butalsobestpracticesandexperienceofthefinancialsector.

The recommendations provided within the framework of internal auditsconductedin2007relatetoimprovingthebudgetplanningandeffectivebudgetspending,improvinginformationexchangesystemamongstructuralunitsforplanningofbudgetexpenditures,improvementsofdatareservecopyingprocess,planningofthecontinuityoftheoperationandamendmentsinaccountingdocumentsandprocedureofaccounting.

In2007,aself-appraisal of the Treasury’s internal control systemwasconductedforallthebasicoperationprocesses:executionofgovernmentbudget,managementofgovernmentdebtandassets,implementationofthefunctionsofEUpolicyinstrumentPaymentAuthorityandforeignfinancialassistancetonationalfund.

5.5.Information technology development

OneoftheTreasury’sbasicprioritiesistheeffectiveuseofmoderninformationsystems,ensuringthedischargeoftheTreasury’sbasicfunctions.Therefore,inordertoimprovethequalityofservicesprovided,theTreasuryimplementscontinuousmeasurestomoderniseitsinformationsystemsandinformationtechnologyinfrastructure.

In2007,replacement of serversinthegovernmentbudgetinformationsystemandthegovernmentbudgetelectronicsettlementsystemeKasewasperformed,migratingthemtotheUNIXplatform,thusensuringcomplianceofperformancewiththeincreasingnumberofclientsandtransactions,theamountofwhichreached14.7millionin2007.Inordertoincreasethesafetyofusingthesystemforclients,a unique code generator solution was implementedfortheauthenticationoftheeKaseandbudgetreportsystem.

In2007,workstartedin2006onaprojectincollaborationwiththe

MinistryofFinance“Implementation of a Universal Central Government Budget Planning and Execution Information System”wascontinued.Withintheframeworkofthisproject,acommonmanagementsystemofthepublicfinanceswasestablished,whichmergethefunctionalityoftheTreasurymanagementsystem(governmentdebtandassetmanagement)andthebudgetexecutioninformationsystem,byintegratingthemintoonesystem,thuspreventingtheshortcomingsofthecurrentsystems,reducingthetransactionprocessingtimeandthenumberofthecomplicateddataexchangeprocedures.Completeimplementationofthesystemplanningblockwillprovideanopportunityforcentralisedaggregationandprocessingofbudgetplans,makingthisprocesslesstime-consumingandusingmoderninformationtechnology.

In2007,new accounting, store and personnel management software was introduced.ThissystemmodernisestheTreasury’saccountingrecordsbyensuringfastprocessingofaccountinginformationandmoreeffectivecontroloftheprocess,aswellasfacilitatesperformanceoffunctionsinrelationtothepersonnel.

Inordertoensuresafeandfastexchangeofinformationonpaymentsineuro,in2007the payment systems of the Treasury were adjusted to the requirements of TARGET2,whichallowsamoreeffectiveperformanceofpaymentsineuros.

Attheendoftheyear,project of renovation and modernisation of the information technology infrastructureoftheTreasurywasstarted,whichwillbecontinuedalsoin2008,whenfunctionallyandphysicallydepreciatedequipmentoftheTreasury’scomputernetworkcommunicationwillbechangedandvirtualserverswillbeinvented,thusensuringabaseforoperationofnew,high-quality,fastmulti-useronlinesystem.


ValuablecommunicationbetweentheTreasuryandsocietyispossiblebyensuringaneffectiveexchangeofinformation.TheTreasuryinformsonaregularbasismassmediaonissueswithinitscompetence:itpreparesanddistributespressreleases,providesanswerstoquestionsofinteresttothemassmedia.

OneofthemainprioritiesoftheStrategyisanorientationtowardsclients,theirneedsandinterests.TheTreasurylearnsaboutclientsatisfactionbymeansofquestionnaires.

Since2002,theTreasurymaintainsitsinternethomepage(www.kase.gov.lv),whereinformationontheinstitutionanditsfunctionsisavailable.InformationontheTreasury’s

currenteventsisupdatedandadjustedonaregularbasis.Itispossibletoaskquestionsaswellassubmitapplicationselectronically.Visitorstothehomepagecanreceivefastanswerstotheirquestions,whereastheTreasuryhastheopportunitytoacquaintitselfwithquestionsofinterestfromtheirclientsand,ifnecessary,preparemorein-depthinformationbothontheinternetwebpageandfordistributioninsettlementcentres,aswellasidentifypotentialproblemsandtopreventthem.InordertoachieveamoreintensiveexchangeofinformationamongtheTreasuryandcommunity,in2007,theTreasuryunveiledanewversionofitsinternethomepage,whichisincompliancewiththenewgraphicalstandardoftheTreasuryaswellasthelatesttechnologiesandnewcontent.

Public Communication


Central government budget execution 1)IncollaborationwiththeMinistry

ofFinance,elaborateauniversalgovernmentfinancemanagementsystem(SAP),incorporatingafullcycleofgovernmentbudgetmanagement–fromtheplanningofthebudgettothesupervisionofitsimplementation.

2)TocreatereportsandrequestsintheSAPsystemdatastockincompliancewiththestructureoffinancingplans,governmentbudgetandonthebasisofwhatisdefinedbythebudgetexecutionmoduleoftheMinistryofFinanceandtheTreasuryunitarygovernmentbudgetplanningandexecutioninformationsystems.

3)Incollaborationwithpartnersdeterminedbytender,elaboratetechnicalsolutionsinordertoensuretheopportunitytousepaymentcardsbycollectinggovernmentbudgetpaymentsandchargeforservicesprovidedbybudgetinstitutions.

4)Toensureunitarygovernmentandlocalgovernmentbudgetreportsystemsandstatisticalreportsystemstothelevelofbudgetinstitutions.

5)ToperformchangesintheTreasury’sgovernmentbudgetfinanceaccountingpolicyandtopreparerequestsforappropriatechangesinthesystemoftheTreasury’smanagement,incompliancewiththeInternationalpublicsectoraccountingstandards,nationallegislationandprocessesoffinancemanagement.

6)Tocontinueeffectiveuseofinfor-mationtechnologiesinclientservices,

toincreaseshareofpaymentsperformedbyeKaseto65%.

7)ToimproveservicingofcreditcardsattachedtotheTreasury’saccounts.

8)Inaccordancewithchangingrequirementsoflawsandregulationsintheareaofbudget,toperformamendmentstolawsandregulations,definingtheprocedureofbudgetinstitutionaccounting,procedureofpreparinggovernmentbudgetinstitutionandlocalgovernmentannualreports,aswellastoelaborateinstructionsonexecutionofthegovernmentbudgetreports.

Central government debt managementCentral government debt portfolio management

1)ToassesscomplianceoftheLatvianCentralGovernmentDebtManagementStrategywiththecurrentfinancemarketsituationandtoevaluatethenecessityandopportunitiestoimplementindicesofthenetdebtportfolioindices.

2)ToimprovetheCost–at-riskmodelbysupplementingtherangeofpercentratesimulationswiththeoptionofmultiplefactoranalysis.

3)Toimplementanoptionassessmentmodelforroutineuse.

4)Inordertomakeriskmanagementofpercentratesmoreeffective,identifycashflowexposedtothepercentrateriskwithinaparticularperiodoftimeandtimelylimitanypossiblepercentraterisk,aswellasoptimizepercentpaymentflowstoimplementGAP analysis systemforroutineuse.

Borrowing management

1)Toelaboratetheplanforattractingresourcesfor2009-2011.

2)Inadditiontotheannualplanforattractingresources,assesstheCP(CommercialPapers)andMTN(MediumTermNote)programmesincomparisonwithothersimilarshort-termfinancingalternativesforgovernmentbudgetfinancingpayments.

3)Toimprovetheprocessofmanagementofvisitsbyinternationalratingagencies.

Servicing and supervision of government guarantees

1)Toelaboratethemanualforbusinessplanassessment.

2)Toimprovetheanalysisoftheguaranteeportfolio.

Management of assets and government budget loansCash management

1)ToinventaValue-at-Riskmodelforroutineuse.

2)ToinventtheDeltamodelforroutineusewithintheframeworkoftheTreasury’scashmanagementstrategyandLatvianCentralGovernmentDebtManagementStrategy.

The Treasury’s development priorities for 2008


3)Withintheframeworkofassetmanagement,ensurepreparingofthefixedincomesecuritiestradeportfolioinpractice.TodeterminetheparametersforoptimalmaintenanceoftheportfoliostructureandtoensuretradeportfoliomanagementwithintheframeworkofValue-at-Risk.

Liquidity management

1)Toconcludeadditionalgrantedcreditline(overdraft)agreementswithinternationalandlocalparticipantsoffinancialmarketsincompliancewithregulationsprovidedfortheTreasurybythestrategicdocuments.

2)ToassessnecessarychangesinmethodicalinstructionsforensuringtheTreasury’sliquidityinrelationtotheTreasury’sjoiningtothepaymentsystemTARGET2.

Granting and servicing of loans

1)ToparticipateintheelaborationofthePPPcontrollingnormativebaseinthecontextofissuesinrelationtoprojectaccountingandassessingoffinancialrisks.

2)Toelaborateguidelinesforgrantingandservicinggovernmentloans.

3)Toimprovetheanalysisoftheloanportfolio.

4)Toelaboratethemanualforassessmentofloansandbusinessplans.

Implementation of EU policy instruments for the Payment Authority1)Toimprovetheprocessof

expenditurecertificationwithintheframeworkoftheCohesionFundbycommencingcontrolofmediatoryinstitutions,inordertoverifytheefficiencyoftheexpendituredeclarationsoftheprojectandpaymentdocumentchecks.

2)Inordertoverifycorrectness,justificationandcompliancewithregulationsbyEUandMemberStatesofexpenditureswithintheframeworkoftheEUStructureFunds,theTreasuryperformsselectivecontrolofclaimsofprojectStructureFundsincludedinexpendituredeclarations,incompliancewithrecommendationbytheEuropeanCommissionauditors.

3)InordertoensuretheprocessofspendingofESStructuralFundsattheendoftheplanningperiod,performprocessingandpaymentofsubmittedclaimsforpaymentsfromStructuralfundswithinashorterperiodoftime.

Management of the Treasury as a government administration institution1)Tomaintainaqualitymanagement

systeminaccordancetothestandardISO9001:2000“Qualitymanagementsystems.Requirements”.

2)ToreviewandsimplifymanagementoftheTreasuryprocessesandqualitymanagementsystem.

3)Tocontinuetheeffectiveuseofinformationtechnologiesinservicingclients.

4)Toelaborateadraftofproposalsonpossibledevelopmentmodelsofsettlementcentres.

5)Inordertoensurefurtherdevelopmentofthepersonnel,improveprovisionofpersonnelintheTreasurybyinventingnewpersonalitytestsduringtheselectionprocessofthepersonnel.

6)Inordertoensurepersonneldevelopment,improvethepersonneltrainingprocessbyelaboratingguidelinesfortraining.

Des

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The Treasury of the Republic of LatviaSmilšu ielā 1, Rīgā, Latvia, LV-1919

www.kase.gov.lv

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