Asia is undergoing a rapid transformation on the background of globalization and a post-independence historical process. The rise of China energized the whole region. Asia is poised to become the largest global economic power, with almost 50% of the global GDP by 2025.
From war-torn Afghanistan to Russia and the former Soviet republics, to Indonesia and Vietnam, Asian governments are reforming the public sector. Reforms aimed at decentralization and devolution of authority and modernizing existing financial management systems to establish fiscal control, budget transparency and better governance of public finances.
The Mongolia Story
Government Financial Management Information System (GFMIS).
Mongolia is transforming successfully into a market economy. The collapse of the Soviet Union left Mongolia with a huge external debt and severe internal disruptions. A harsh climate and vast lands made the transition to market economy difficult, but Mongolia managed to resume positive growth in a relatively short period of time. The success is attributed to government policies of deregulation, privatization and market liberalization.
Progress came at a high cost. In mid 1990s public expenditure consumed more than 50% of the gross domestic product (GDP). Government finance reforms under the Asian Development Bank Governance Reform Program (GRP), formulated a 10-year plan for improving fiscal discipline, strengthening public sector budget formulation and operational efficiency. Reforms became the Public Sector Management and Finance Law (PSMFL) in 2002. The legal framework provided a foundation for introducing computer technology to maximize accountability, risk management, transparency. A World Bank loan for the provision of a government financial information management system (GFMIS) was issued in 2003.
IBM Canada and FreeBalance were selected from an international competition with bidders from Russia, Korea, Europe and North America.
Mongolia acquired the FreeBalance Accountability Suite (formerly FreeBalance eFinancials) as the GFMIS application software. The FreeBalance software was fully integrated to support the government’s transition from cash to accrual accounting.
The FreeBalance software was deployed to connect the Central Treasury with the Central Bank, commercial banks, 15 line ministries, 21 aimags (provinces), the capital city treasury and 9 districts. Following IMF recommendations, a Treasury Single Account (TSA) was created to capture all expenditures and all revenues. The Chart of Accounts (COA) was configured to manage 4787 budget entities and 69 multi-funds. The GFMIS was deployed country-wide with cash execution centralized at the Ministry of Finance and the Economy (MOFE).
The FreeBalance Accountability Suite was configured to provide strong budgetary controls at several levels – (1) Allotment I – the budget approved by Parliament and allocated to government groups, which further allocate funds to the budget entities (2) Allotment II – based on Allotment I, monthly allowable expenditures allocated by warrants from Central Treasury according to requirements and cash availability, (3) Summary level, (4) Item level, (5) Check controls. The solution included the core financial module, Financial Accountability (Controls, General Ledger, Appropriations and Expenditures), integrated with the Revenue, Assets, and Purchasing modules. Fiscal reporting from all modules is provided through an integrated version of Crystal Reports, the industry standard for business intelligence reporting.
Implementation of the FreeBalance software took about 18 months, from start to finish. The project was launched in July 2003, the core financial system went live in June 2004, and government-wide deployment in January 2005.
Deployment of the GFMIS improved fiscal discipline and contributed to tighter budgetary controls in the first of operation. A budget surplus of USD 50 million (3.2% of GDP) was recorded in 2005, as a result of improved expenditure control and economic growth. According to statistics from the European Bank for Reconstruction and Development (EBRD), expenditure in Mongolia dropped from 40% of GDP in 2004 to 34% in 2005. .
Additional Project Information:
- Mongolia – Government Financial Management Information System (PDF)
- Government Financial Management & Information System Case Study (PDF))
- Sistema de Información y Administración Financiera Gubernamental (PDF)