The Main Audit Results of Ukraine’s The Main Audit Results of Ukraine’s System of Public Debt Management System of Public Debt Management

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Selection of the audit theme Selection of the audit theme

Since its foundation in 1996 the Accounting Chamber of Ukraine has been constantly paying attention to public debt issues

There were conducted systematical audits and analysis of certain local problems in this sphere

External debt restructuring in 2001-2003 has drawn a considerable attention to the problem of public debt management

The necessity for comprehensive research of the public debt management system has appeared

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

What do we imply by the notion What do we imply by the notion ““systemsystem”?”?

The system of public debt management is a range of interrelated methods and tools of public debt management defined by legal acts, which are used by the managerial authorities and administrative apparatus.

Forecasting, planning, organizing, operational control, accounting and monitoring of public debt are the functional composite elements of this system.

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Participation in theParticipation in the IDIIDI--EUROSAI EUROSAI ““Public Debt AuditPublic Debt Audit”” programme programme, 2006, 2006

Exchange of experience with respect to national peculiarities of public debt management

Studying the best practices of analysis and audit of public debt

Presenting, discussing and submitting for approval the draft plan of audit of Ukraine’s public debt management system

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Purpose of the AuditPurpose of the Audit

- to assess the state of public debt management system and its compliance with the generally accepted international standards and practices in this field

- making recommendations for the improvement of public debt management

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Audit ScopeAudit Scope

Functional performance by the entities that administer public debt Coordination of activity by the policy-making institutions and public debt management

State of the internal control system

Informational support of the entities that administer public debt

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Audit EntitiesAudit Entities- Cabinet of Ministers of Ukraine

- Ministry of Finance of Ukraine

- National Bank of Ukraine

- State Treasury of Ukraine

TimeframesTimeframesReport on public debt from December 31, 2005

Analysis of economic indicators and their ratios from 2000 to 2005

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Audit methodsAudit methods- analyzing materials of preceding audits and mass-media

- analyzing legislative acts

- written inquires, questionnaires and discussions

- analyzing financial and statistical reports

- reviewing public financial liabilities

- analyzing dynamic economic indicators and their ratios

- comparative analysis with the IMF, World Bank and INTOSAI recommendations

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Key QuestionsKey QuestionsDoes the public debt legislation complies with the generally accepted international standards and practices in this sphere?

Does the accounting and oversight exist over all direct and contingent public financial liabilities?

Is there any clear task sharing and interaction between entities that administer public debt?

To what extent the informational and analytical support of public debt is applied?

How effectively are the basic budget indicators and limitations as to the public debt followed?

What are the trends and ratios, which characterize sustainability, flexibility and vulnerability of public debt?

Are the public debt management aims defined and attained?

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Audit Audit FindingsFindings (1) (1)- absence of the basic special law “On Public Debt”

- problem with disclosure of guaranteed by the state compensations to Ukrainian citizens for deposits that were devaluated in consequence of the USSR's collapse

- narrow in comparison with the INTOSAI definition of “public debt” notion, which does not include debts of local government bodies and state enterprises

- division of public debt into direct debt and contingent debt has been defined not on the level of legislation but by the Ministry of Finance

- the notion of “contingent debt” implies only “guaranteed debt”

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Audit Findings Audit Findings (2)(2)- in official reports the Government discloses information only about the direct public debt

- sometimes in public reports the Government has included the sum of guaranteed contingent debt

- direct debt ratio was 80 percent (12.5 billion dollars) and the rest was a guaranteed debt (3 billion dollars) during the period from December 31, 2005

- data about the growth external debt of Ukraine is formed by the National Bank of Ukraine

- there is a wide range of other public financial liabilities, which forms the notion of “contingent debt”, though they are not centrally registered

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Audit Findings Audit Findings (3)(3)- public debt management system is decentralized (Ministry of Finance, National Bank)

- the Ministry of Finance has been approving and registering the borrowings of local government bodies, though the accounting of this borrowings is not comprehensive

- there were no plans in the Ministry of Finance to conduct internal audit of public debt operations

- information gathering on public debt is not regulated

- informational and analytical subsystems of public debt management have a range of defects, in particular with respect to risk analysis

- officially public debt remains in the scope of 60 % GDP (2000 – 37.8 %, 2005 – 14.9 %)

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Audit FindingsAudit Findings (4) (4)

- during the last years the Government of Ukraine has not been able to stabilize the ratio of budget deficit to GDP

- total sum of public debt in foreign currency is still constant and quite substantial – about 84 %

- burden of borrowings on public debt is decreasing

- the State Programme on Public Debt of Ukraine for 2004-2010, which was planned earlier, has not been elaborated

- goals and tasks on public debt in governmental action programs have not envisaged any quantitative results

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

ConclusionsConclusions1. The system of public debt management differs from the generally accepted practice in this sphere

2. The national legislation in the sphere of public debt management is underdeveloped

3. Government reports disclose information about the state of public debt only in its main aspects

4. Decentralized public debt management blocks the formation of united public debt policy

5. In spite of positive changes public debt management remains underdeveloped

6. Due to unclear goals of government programs it is hard to estimate the effectiveness of public debt management

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

RecommendationsRecommendations- to speed up the adoption of the law “On Public Debt”, which is based on international practice

- to introduce the accounting along with information disclosure standards about all kinds of direct and contingent public financial liabilities

- to approve a mid-term strategy, which will include the definition of goals and ultimate assessment indicators

- to consider the issue of public debt centralized management in one single specialized institution

- to organize systematic internal audit of public debt operations

- to improve informational and analytical subsystem in order to enhance forecasting and analyzing public debt risks

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Recommendations Follow up (1)Recommendations Follow up (1)- the Parliament has been reviewing the draft law “On Public Debt”, which incorporates a range of indicators on liabilities to public debt

- the central Government has approved the Forecast of Consolidated Budget for 2008-2010, envisaging the following characteristics:

-ratio of public debt to GDP must stand at the economically safe level - not higher than 20 %-keeping the ratio of interests on serving the public debt to public budget deficit of not more than 1-3 %-increasing the debt volume in national currency

- an offer concerning the programme approval of public external borrowings has been supported

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Recommendations Follow up (Recommendations Follow up (22))

- government decision has been made about the registration of external borrowings of entities working in public sector

- proposal concerning the creation of the Agency on public debt management is supported in principal by the Ministry of Finance

- issues concerning internal audit operations with public debt are being elaborated

- agreement on informational and analytical system of public debt management has been concluded

Accounting Chamber of UkraineAccounting Chamber of Ukraine

INTOSAI Public Debt Committee MeetingINTOSAI Public Debt Committee MeetingLisbonLisbon, , PortugalPortugal,, June June 21-22 21-22, 2007, 2007

Thank you for you attention!

We wish you fruitful work!