## Section I. Detailed Technical Assessment and Recommendations

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### Summary of mission outcomes and priority recommendations
- TA mission: January 16–27, 2023 (GFS−PSDS capacity development at CCAMTAC and the D4D fund).
- Main task: support Ministry of Finance (MoF) of Georgia to expand fiscal reporting coverage by including state-owned enterprises (SOEs) operating on a non-market basis.
- Follow-up to prior TA missions in 2019, 2021, and 2022 on sectorization, compilation of GFS for non-market SOEs, and institutional arrangements.
- Post-2019/current status:
  - List of non-market SOEs expanded to include local government-established enterprises: 160 units.
  - Current list of non-market SOEs comprises 325 units.
  - Coverage still incomplete: 2450 schools and kindergartens not yet included in the Treasury Single Account (TSA).
  - Inclusion of schools and kindergartens expected to have minimal impact on fiscal balances but increase fiscal transparency.
- MoF actions and timetable to ensure TSA data availability from 2026:
  - In 2023 prepare and approve action plan for gradual transition of SOEs to State Treasury in 2024-2025.
  - Draft rules for transferring SOEs’ commercial bank accounts to the TSA.
  - Approve list of quarterly and annual data to be submitted to the MoF before SOEs integrated into TSA.
- Interim solution: introduce legally binding special reporting for non-market SOEs to collect accrual-based and mapping details before TSA integration.
- Institutional recommendation: establish a dedicated GFS unit (minimum 3 persons) and assign collection, processing, and quality checks of SOE special reporting to an appropriate MoF department (e.g., State Treasury).
- Short-term operational step: GFS team to compile annual GFS for selected large non-market SOEs based on current financial reporting using mission approach; mission compiled GFS for non-market SOEs for 2021 in cooperation with FRMD.
- Priority recommendations and target dates:
  - September 2023: Introduce uniform, legally binding reporting for non-market SOEs based on accounting data (quarterly and annual reporting). — Responsible: MoF
  - September 2023: Establish institutional arrangements within MoF for collection, processing, quality checks, and analysis of non-market SOE reporting. — Responsible: MoF
  - December 2023: Compile annual GFS for selected large non-market SOEs based on current financial reporting using mission approach (interim). — Responsible: MoF (GFS team)
  - January 2024: Establish dedicated GFS unit comprising at least 3 persons. — Responsible: MoF

### A. Expanding the institutional coverage of fiscal reporting
- Current coverage and recent improvements:
  - Georgia reports GFS for the General Government (GG) on annual, quarterly, and monthly basis.
  - MoF revised time series for 2004-2021 to include extra-budgetary units (EBU) controlled by central government (Legal Entities of Public Law and Deposit Guarantee Fund).
  - Authorities started reporting in 2021 comprehensive balance sheet data including stock positions of non-financial and financial assets and liabilities for 2019–2021.
- Remaining gaps:
  - Non-market SOEs not yet consolidated within GG despite comprehensive sectorization.
  - 2450 schools and kindergartens outside GFS reporting; inclusion planned and expected to better reflect economic structure of government spending.
- Expansion of non-market SOE list:
  - After 2019 sectorization (initially 183 non-market units), FRMD expanded list to include 160 local government-controlled enterprises.
  - Updated list now comprises 325 entities to be included in GG sector.
  - Two firms reclassified from public corporations to non-market SOEs:
    - Tbilisi Transport Company:
      - More than one third of operating income financed by government subsidies.
      - Total operating income covered 41.4 percent and 34.5 percent of sales in 2020 and 2021 respectively.
      - Large cumulative losses: 360 and 532 million GEL in 2020 and 2021.
      - Received capital injections (cash and in kind): 296.4 million GEL and 296.6million GEL in 2020 and 2021 respectively.
      - Conclusion: operates as a non-market producer; recommended classification in GG sector.
    - Georgian Tele-Radio Center:
      - Income consists of license fee for temporary use of the spectrum (transferred to state budget), radio frequency fee, and annual regulation fee paid by broadcasters (main source).
      - None classify as sales; unit fails quantitative market/non-market test.
      - Conclusion: should be classified as a GG unit.
- Expanding TSA coverage:
  - State Treasury established in 1995; about 20 regional treasuries. TSA operated since 2006; Treasury provides services to local government, autonomous republics, and LEPLs.
  - Since 2015 (legally) and 2017 (actually), Treasury has liquidity management function.
  - Currently around 2,250 schools and 200 kindergartens not included in TSA; authorities aim to capture these units by end 2024.
  - Transition plan includes professional training for accountants and directors of schools.
  - Inclusion expected to improve reporting of expenditures by economic category and possibly impact second-level COFOG classification and revenue coverage from own revenues.
  - 2023 Budget Code actions:
    - Calls for action plan approved by MoF by July 15, 2023.
    - Commits MoF to approving, by February 15, 2023, a list of data to be collected from SOEs.
    - Requires Government of Georgia to prepare rules for transfer of SOE accounts in commercial banks to Treasury unified account system by January 1, 2024.
  - Treasury planned to develop detailed transition plan integrating GFS classification and meet with three big SOEs to discuss practical aspects.
- Importance of preserving accrual financial reporting alongside cash-based TSA:
  - TSA cash reporting omits accrual operations and operations performed outside TSA that can have material impact on fiscal aggregates (e.g., direct payments by banks to suppliers financed by credit), potentially underestimating expenditure and debt.

### B. Compilation of 2021 GFS for non-market SOEs
- Mission compilation:
  - Compiled GFS (statement of operations and balance sheet) for 2021 covering 17 large non-market SOEs, representing around 90 percent of all non-market SOEs in terms of annual turnover.
  - Used full financial reporting sets: comprehensive balance sheet, income statement, cash flow statement, and notes.
  - A compilation file provided to authorities bridges individual financial-statement items to GFS items by economic categories (stocks and flows).
  - Statements of operations compiled:
    - On a cash basis using input data from cash flow statement.
    - On an accrual basis derived from income statement and amended by cash-flow statement to cover items not reported in income statement.
  - Non-monetary adjustments made based on notes to financial statements to ensure integrity of stocks of assets and liabilities and related transaction data.
  - Appendices B and C present methodology to bridge financial statements into GFS statement of operations and balance sheet.

### Overall 2021 outcome and key aggregates
- Fiscal outcome:
  - Revenue of non-market SOEs: 3.5 percent of GDP.
  - Expenditure of non-market SOEs: 3.4 percent of GDP.
  - Accrual-based surplus (Net lending): 0.1 percent of GDP.
  - Surplus largely financed by government grants: 1.6 percent of GDP (46 percent of SOEs’ total revenues).
- Revenue composition (2021):
  - Total revenue: 2,108.8 million GEL (3.5 percent of GDP).
  - Grants: 967.4 million GEL (1.6 percent of GDP) — 46 percent of total SOEs’ revenues.
  - Other revenue (mainly sales): 1,141.4 million GEL (1.9 percent of GDP).
  - Two thirds of proceeds from sales earned by Commercial Operator of Electric Energy System.
  - Nearly 40 percent of government grants as subsidies; another 40 percent as capital transfers.
- Expenditure breakdown (2021):
  - Total expense: 1,576.5 million GEL (2.6 percent of GDP).
    - Compensation of employees: 313.4 million GEL (0.5 percent of GDP).
    - Use of goods and services: 1,062.2 million GEL (1.8 percent of GDP).
    - Consumption of fixed capital: 102.6 million GEL (0.2 percent of GDP).
    - Interest: 20.7 million GEL (0.0 percent of GDP).
    - Other expense: 77.6 million GEL (0.1 percent of GDP).
  - Net/gross investment in nonfinancial assets: 496.8 million GEL (0.8 percent of GDP).
  - Total expenditure (expense + investment): 2,073.3 million GEL (3.4 percent of GDP).
  - Allocation of spending:
    - More than half used to acquire goods and services.
    - 24 percent of total spending invested in non-financial assets.
    - 15 percent used to pay compensation of employees.
  - Most SOEs made negligible investments in non-financial assets in 2021 except: Water Supply Company, Tbilisi Transport Company, and Harvest Company.
- Financing and financial flows (2021):
  - Net financing (FIN): 23.5 million GEL (0.0 percent of GDP).
  - Net acquisition of financial assets: 291.1 million GEL (0.5 percent of GDP).
  - Net incurrence of liabilities: 267.6 million GEL (0.4 percent of GDP).
  - Financial assets increased by 0.48 percent of GDP; liabilities increased by 0.44 percent of GDP.
  - More than two thirds of growth in financial assets (0.3 percent of GDP) related to increased savings in deposits:
    - Of that deposit increase: 52 percent by Water Supply Company, 20 percent by Tbilisi Transport Company, 10 percent by the Mountain Resort.
  - Remaining asset increases mostly due to equity injections by SOEs into subsidiaries and acquisition of trade receivables.
  - Liabilities: SOEs slightly reduced borrowing in form of loans, but debt increased by 0.47 percent of GDP due to unpaid trade credits and other accounts payable.
    - More than 44 percent of increase in other accounts payable reported by Tbilisi Transportation Company.
  - Overall statistical discrepancy (NLBz): -12.0 million GEL (0.0 percent of GDP).

### Accrual versus cash-based results (2021) — selected exact figures
- Accrual vs Cash key figures (Million GEL / Percent of GDP):
  - Revenue: Accrual 2,109 / 3.5 ; Cash 2,131 / 3.5
  - Expenditure (2+31): Accrual 2,073 / 3.4 ; Cash 1,921 / 3.2
  - Expense (2): Accrual 1,576 / 2.6 ; Cash 1,491 / 2.5
  - Net/gross investment in nonfinancial assets (31): Accrual 497 / 0.8 ; Cash 430 / 0.7
  - Net lending (NLB): Accrual 36 / 0.1 ; Cash 210 / 0.3
  - Financing (FIN): Accrual 24 / 0.0 ; Cash 210 / 0.3
  - Net acquisition of financial assets (32): Accrual 291 / 0.5 ; Cash 207 / 0.3
  - Net incurrence of liabilities (33): Accrual 268 / 0.4 ; Cash -3 / 0.0
  - Statistical discrepancy (32-33-NLB): Accrual -12 / -0.02 ; Cash 0 / 0.0
- Explanation: Accrual expenditure exceeded cash by 0.2 percent of GDP mainly due to acquisition of goods and services and non-financial assets not yet paid by SOEs, increasing trade credits and other accounts payable.

### Balance sheet (2021) — selected exact aggregates
- Total assets of non-market SOEs: 3,413.7 million GEL (5.7 percent of GDP).
  - Nonfinancial assets: 2,595.1 million GEL (4.3 percent of GDP).
    - Fixed assets: 2,384.9 million GEL (4.0 percent of GDP).
    - Inventories: 209.3 million GEL (0.3 percent of GDP).
    - Valuables: 0 million GEL (0.0 percent of GDP).
    - Non-produced assets: 0.9 million GEL (0.0 percent of GDP).
  - Financial assets: 818.6 million GEL (1.4 percent of GDP).
    - Currency and deposits: 356.4 million GEL (0.6 percent of GDP).
    - Loans: 27.5 million GEL (0.0 percent of GDP).
    - Equity and investment fund shares: 98.7 million GEL (0.2 percent of GDP).
    - Other accounts receivable: 336.0 million GEL (0.6 percent of GDP).
- Liabilities: 3,413.6 million GEL (5.7 percent of GDP).
  - Loans: 1,307.7 million GEL (2.2 percent of GDP).
  - Equity and investment fund shares: 1,644.5 million GEL (2.7 percent of GDP).
  - Other accounts payable: 461.5 million GEL (0.8 percent of GDP).
- Net financial worth (financial assets less liabilities): -2,595.1 million GEL (-4.3 percent of GDP).
- Net worth (61+62-63): 0 million GEL (0.0 percent of GDP) by convention of business accounting where assets equal liabilities.
- Additional notes:
  - Non-financial assets mainly infrastructure, buildings, and other fixed assets and equipment (mainly United Water Supply and Tbilisi Transport Company).
  - Financial assets mainly cash and deposits in commercial banks, and other accounts receivable towards suppliers.
  - Main component of liabilities is equity capital owned by government (all compiled units fully owned):
    - Equity capital amounted to 2.7 percent of GDP or 48 percent of total liabilities in 2021.
  - Debt in loans amounted to 2.2 percent of GDP and other accounts payable (mainly trade credits) amounted to 0.8 percent of GDP in 2021.
  - More than 73 percent of total debt of compiled non-market SOEs was held by United Water Supply Company in 2021.

### Evolution 2019–2021 (percent of GDP) — exact series
- Net lending (+) / Net borrowing (-): 2019 -0.6 ; 2020 -1.6 ; 2021 0.1
- Revenue: 2019 2.4 ; 2020 2.0 ; 2021 3.5
- Expenditure: 2019 3.0 ; 2020 3.6 ; 2021 3.4
- Outstanding Debt: 2019 3.1 ; 2020 3.1 ; 2021 2.9
- Net Financial Worth: 2019 -4.2 ; 2020 -4.2 ; 2021 -4.3
- Note: Coverage differs across years; 2021 data covered 17 big SOEs (90 percent of turnover).

### Consolidation of non-market SOEs into General Government (2021) — consolidation impacts (exact figures)
- Inclusion of non-market SOEs improved GG deficit by 36 million GEL (0.1 percent of GDP) in 2021.
- Consolidation impacts (Million GEL):
  - GG original revenue: 16,443 ; non-market SOEs revenue: 2,109 ; consolidation adjustments: -1,126 ; consolidated GG incl. SOEs revenue: 17,426 ; impact of SOEs (consolidated): 983
  - GG original expenditure (2+31): 20,006 ; non-market SOEs expenditure: 2,073 ; consolidation adjustments: -1,126 ; consolidated GG incl. SOEs expenditure: 20,954 ; impact of SOEs (consolidated): 948
  - Net lending (NLB) original: -3,563 ; consolidated with SOEs: -3,528 ; impact of SOEs (consolidated): 36
- Imputation of non-monetary transfers (transfers of non-financial assets from government to SOEs) of 57 million GEL in 2021 to align budgetary organizations (cash basis) with consolidation — imputation does not change fiscal balance but shows increased expenses and reduction in budgetary assets.
- Revenue/expenditure consolidation used SOE income statements; due to missing details (e.g., subsidies not shown separately) mission matched SOE IDs with Treasury cash data to derive cash-based consolidation flows for 17 enterprises.
- Estimated accrual-based consolidation (grants, subsidies, other revenue): 1,126 million GEL vs Treasury cash data consolidation: 1,000 million GEL.
- Mission recommendation: after full integration of SOE data into GFS, change classification of consolidation flows by the Treasury — reclassify subsidies (24), social benefits (27) and other expense (28) into grants (26).
- Consolidation by economic classification (Million GEL):
  - Revenue consolidation (Treasury data): -1,000 ; (SOE data + adjustments): -1,126
    - Grants (13): -874 (Treasury) ; -967 (SOE adj)
    - Other revenue (14): -126 (Treasury) ; -158 (SOE adj)
  - Expense consolidation (Treasury data): -1,000 ; (SOE data + adjustments): -1,126
    - Use of goods and services (22): -126 (Treasury) ; -158 (SOE adj)
    - Subsidies (25): -416 (Treasury) ; -416 (SOE adj)
    - Social benefits (27): -48 (Treasury) ; -61 (SOE adj)
    - Other expense (28): -410 (Treasury) ; -490 (SOE adj)
  - Financing consolidation effects negligible (Net acquisition of financial assets -3 ; Net incurrence of liabilities -3 ; discrepancy 0)
- Consolidation impact on GG balance sheet (Million GEL):
  - Original GG total assets: 48,438 ; Non-market SOEs total assets: 3,414 ; Nonmarket SOEs consolidation adjustment (equity elimination): -1,662 ; Consolidated GG incl. SOEs total assets: 50,190
  - Original GG financial assets: 13,395 ; SOEs financial assets: 819 ; after equity consolidation: -1,662 ; consolidated financial assets: 12,551
    - Currency and deposits: original 3,549 ; SOEs 357 ; consolidated 3,906
    - Loans: original 3,643 ; SOEs 27 ; consolidated 3,670
    - Equity and investment fund shares: original 2,866 ; SOEs 99 ; consolidation -1,662 ; consolidated 1,303
    - Other accounts receivable: original 2,630 ; SOEs 336 ; consolidated 2,966
  - Original GG liabilities: 33,207 ; SOEs liabilities: 3,414 ; consolidation -1,662 ; consolidated liabilities: 34,959
    - Loans: original 23,407 ; SOEs 1,308 ; consolidated 24,714
    - Other accounts payable: original 2,453 ; SOEs 444 ; consolidated 2,897
- Consolidation of non-market SOEs deteriorated GG net financial worth by 2,595 million GEL (-4.3 percent of GDP) in 2021; net worth unchanged as negative net financial worth offset by non-financial assets held by SOEs.
- Full amount of SOEs’ equity capital consolidated: 1,662 million GEL (2.8 percent of GDP) reflecting 100% government ownership of compiled SOEs.

### Institutional arrangements and way forward — recommendations (exact prescriptions)
- Establish a dedicated GFS unit within MoF comprising at least 3 persons.
  - Current: no GFS unit; only one staff from MAFPPD assigned to GFSM 2014 reporting among many other tasks — limited GFS capacity.
  - A specialized unit/division should be devoted exclusively to GFS compilation and cooperate closely with internal users to meet fiscal policy data needs.
- Introduce special, legally binding reporting for non-market SOEs in short term as interim before full TSA integration; continue thereafter as additional advanced data source.
  - Special reporting must be aligned with accounting records and include appropriate details/breakdowns to enable accurate annual and high-frequency GFS and fiscal risks analysis.
  - Mission developed draft list of details required for GFS based on income statement, cash-flow statement, and balance sheet (see Appendix D).
  - Mission shared experience/templates from Slovak Republic where compulsory questionnaires are collected monthly (cash) and quarterly (accrual).
- Assign responsibilities for collection, processing, and quality checks of SOE reporting to appropriate MoF unit (e.g., State Treasury) to ensure accuracy and consistency; GFS team would then receive ‘clean’ input data.

### Use of existing financial reporting and interim data approach
- Finding: Even if special reporting not yet in place, Georgian authorities should be able to compile sound GFS for non-market SOEs using currently available financial reporting.
- Implementation note: Compilation and balancing of accrual data using mission approach might be challenging for MoF given limited GFS capacities.
- Interim proposal: Use cash-flow statement as proxy to compile reliable GFS for non-market SOEs.
- Advantages of cash-flow statement:
  - Provides data on all inflows and outflows consistent with changes in currency and deposits, ensuring a zero discrepancy between above- and below-the-line operations by convention.
  - Allows compilation of:
    - fiscal balance (net lending/net borrowing), and
    - above- and below-the-line transactions by main economic categories.
  - Priorities:
    - First priority: Compile fiscal balance and main above/below-the-line transactions to enhance credibility of main GFS indicators including non-market SOEs.
    - Secondary priority: Compile more detailed breakdowns of revenue and expenditure categories.
- Estimation, supplementary information, and statistical techniques:
  - Detailed breakdowns could be estimated using supplementary information and statistical techniques per IMF Data Quality Assessment Framework (DQAF) and SDDS practices.
  - DQAF allows estimates, adjustments, and imputations in GFS in case of missing or inadequate data.
- Adjustments and imputations recommended:
  - Supplement cash data by imputing non-monetary transactions (e.g., transfers of non-financial assets for free; acquisition of non-financial assets and related incurrence of debt by direct payment by creditor to supplier).
  - Adjust cash-based expenditure toward accrual using data on increase/decrease of other accounts payable, in particular trade credits.

### Operational guidance: bridging financial statements into GFS (method summary from Appendix C)
- Stepwise bridging procedure highlights (source mappings):
  - Compile revenue and expense from Income Statement.
  - Exclude other economic flows and transactions in financial assets/liabilities (Income Statement and notes).
  - Include transactions not covered in Income Statement from Cash Flow Statement and notes (taxes, subsidies, dividends, other transfers).
  - Compile net investments in non-financial assets from Cash Flow Statement; add non-monetary transactions and deduct depreciation from Income Statement.
  - Compile financing operations from Cash Flow Statement; add accrued interest from Income Statement; treat changes in other accounts receivable/payable as changes in stocks using Balance Sheet.
  - Compile balance sheet by converting accounting balance sheet into GFS categories using notes.
  - Reconcile stocks and flows and amend revenue, expenditure, and financing accordingly.

### Recommended breakdown for special SOE reporting (selected items from Appendix D)
- Balance sheet — Current assets: Inventories; Cash and deposits; Accounts receivable; Other current assets; Total current assets.
- Balance sheet — Non-current assets: Fixed assets; Land and other non-produced assets; Intangible asset; Long-term deposits; Loans; Investment in subsidiaries; Investment in equities; Accounts receivable; Other long-term assets; Total non-current assets.
- Balance sheet — Current liabilities: Loans; Accounts payable; Other current liabilities; Total current liabilities.
- Balance sheet — Long term liabilities: Loans; Other long-term liabilities; Total long-term liabilities.
- Balance sheet — Equity: Owners’ equity; Retained earnings; Uncovered losses; Total equity.
- Profit and loss — Operating revenue: Subsidies from government; Other operating revenue; Total operating revenue.
- Profit and loss — Operating expenses: Salaries; Depreciation; Other operating expenses; Total operating expenses.
- Cash flow statement — Net cash from operating activities: Cash receipts from government as a customer; Cash receipts from other customers; Subsidies from government; Interest received; Other income from operating activities; Cash paid to suppliers; Cash paid to employees; Taxes paid; Expenses for current renovation; Expenses for rent, fuel and other; Net cash from operating activities.
- Cash flow statement — Net cash used in investment and financing activities: detailed line items including subsidies/transfers from government; cash received from borrowings; proceeds from sale of property, plant and equipment; acquisition of property, plant, and equipment; repayment of borrowings; dividend paid; etc.
- All breakdowns should be strictly linked to accounting records and financial statements of SOEs.

### Appendices and supporting data highlights
- Appendix B: Conceptual differences between financial statements and GFS — objectives, measurement, and presentation differences; need to exclude other economic flows and treat transactions in financial instruments as financing.
- Appendix C: Detailed 7-step bridging procedure from financial statements to GFS statement of operations and balance sheet.
- Appendix D: Recommended breakdown of SOE financial statements for special reporting (detailed templates).
- Appendix E (selected aggregates, accrual data, 2021): TOTAL Revenue 2,109 Million GEL; Grants 967 Million GEL; Other revenue 1,141 Million GEL; TOTAL Expense 1,576 Million GEL; Net/gross investment in nonfinancial assets (31) 497 Million GEL; NLB 36 Million GEL; Financing 24 Million GEL; Net acquisition of financial assets 291 Million GEL; Net incurrence of liabilities 268 Million GEL; Overall statistical discrepancy -12 Million GEL.
- Appendix F (selected aggregates, cash data, 2021): TOTAL Revenue 2,131 Million GEL; Grants 925 Million GEL; Other revenue 1,206 Million GEL; TOTAL Expense 1,491 Million GEL; Net/gross investment in nonfinancial assets (31) 430 Million GEL; NLB 210 Million GEL; Financing 210 Million GEL; Net acquisition of financial assets 207 Million GEL; Net incurrence of liabilities -3 Million GEL; Overall statistical discrepancy 0.0.
- Appendix G: Balance sheet by SOEs 2021 — selected aggregates replicate figures in Balance sheet (total assets 3,413.7 million GEL; nonfinancial assets 2,595.1 million GEL; financial assets 818.6 million GEL; liabilities 3,413.6 million GEL; net financial worth -2,595.1 million GEL).

*Source: tarea2024044 - Section I. Detailed Technical Assessment and Recommendations (IMF technical report)*

### Section I. Detailed Technical Assessment and Recommendations ...................................................... 5

### Section I. Detailed Technical Assessment and Recommendations

### Summary of Mission Outcomes and Priority Recommendations
- TA mission took place during January 16–27, 2023 as part of the GFS−PSDS capacity development workstream at CCAMTAC and the D4D fund.
- Main task: support the Ministry of Finance (MoF) of Georgia in expanding fiscal reporting coverage by including state-owned enterprises (SOEs) operating on a non-market basis.
- Follow-up to TA missions in 2019, 2021, and 2022 on sectorization, compilation of GFS for non-market SOEs, and institutional arrangements.
- Post-2019 developments and current status:
  - List of non-market SOEs expanded to cover all enterprises established by local governments: 160 units.
  - Current list of non-market SOEs comprises 325 units.
  - Coverage still incomplete: 2450 schools and kindergartens are yet to be included in the Treasury Single Account (TSA) and subsequently accounted for in GFS.
  - Inclusion of schools and kindergartens expected to have minimal impact on fiscal balances but increase fiscal transparency.
- MoF actions and timetable to ensure TSA data availability starting from 2026:
  - In 2023 prepare and approve an action plan for gradual transition of SOEs to the State Treasury in 2024-2025.
  - Draft rules for transferring SOEs’ commercial bank accounts to the TSA.
  - Approve a list of quarterly and annual data to be submitted to the MoF before SOEs are integrated into the TSA.
- Interim solution: introduce legally binding special reporting for non-market SOEs to collect accrual-based and mapping details before TSA integration.
- Institutional recommendations:
  - Establish a dedicated GFS unit (minimum 3 persons).
  - Assign collection, processing, and quality checks of SOE special reporting to an appropriate MoF department (e.g., State Treasury).
- Short-term operational step:
  - GFS team to compile annual GFS for selected large non-market SOEs based on current financial reporting using the TA approach.
  - Mission compiled GFS (statement of operations and balance sheet) for non-market SOEs for 2021 in cooperation with FRMD.
- Priority recommendations and target dates:
  - September 2023: Introduce a uniform, legally binding reporting for non-market SOEs based on accounting data, including details for high-frequency and annual fiscal reports. — Responsible: MoF
  - September 2023: Establish appropriate institutional arrangements within the MoF for collection, processing, quality checks, and analysis of reporting by non-market SOEs. — Responsible: MoF
  - December 2023: During the interim period, compile annual GFS for selected large non-market SOEs based on current financial reporting, using the approach introduced by the mission. — Responsible: MoF (GFS team)
  - January 2024: Establish a dedicated GFS unit comprising at least 3 persons. — Responsible: MoF

### A. Expanding the institutional coverage of fiscal reporting
- Current coverage of GFS:
  - Georgia reports GFS for the General Government (GG) on annual, quarterly, and monthly basis.
  - MoF revised time series for 2004-2021 to include extra-budgetary units (EBU) controlled by the central government (Legal Entities of Public Law and Deposit Guarantee Fund).
  - Authorities started reporting in 2021 comprehensive balance sheet data including stock positions of non-financial and financial assets and liabilities for 2019 – 2021.
- Remaining gaps hampering GFS reliability:
  - Despite completing a comprehensive sectorization of SOEs, expansion of GFS sector coverage has not been completed—non-market SOEs have not yet been consolidated within GG.
  - 2450 schools and kindergartens are outside GFS reporting; their inclusion is planned and expected to better reflect the economic structure of government spending.
- Expanding the list of non-market SOEs:
  - After the 2019 sectorization (initially 183 non-market units), FRMD further expanded the list to include local government-controlled enterprises (160 units).
  - Updated list of non-market SOEs now comprises 325 entities to be included in the GG sector.
  - Two companies reclassified from public corporations to non-market SOEs: Tbilisi Transport Company and Georgian Tele-Radio Center.
    - Tbilisi Transport Company:
      - More than one third of operating income financed by government subsidies.
      - Total operating income covered 41.4 percent and 34.5 percent of sales in 2020 and 2021 respectively.
      - Large cumulative losses: 360 and 532 million GEL in 2020 and 2021.
      - Received large capital injections (cash and in kind): 296.4 million GEL and 296.6million GEL in 2020 and 2021 respectively.
      - Conclusion: operates as a non-market producer; recommended classification in the GG sector.
    - Georgian Tele-Radio Center:
      - Income consists of (i) license fee for temporary use of the spectrum (transferred to state budget), (ii) radio frequency fee, and (iii) annual regulation fee paid by broadcasters (main source).
      - None of these fees classify as sales (they are taxes or rent); unit fails the quantitative market/non-market test.
      - Conclusion: should be classified as a GG unit.
- Expanding coverage of the TSA:
  - State Treasury established in 1995; about 20 regional treasuries.
  - TSA operated since 2006 to centralize cash transactions; Treasury provides services to local government, autonomous republics, and LEPLs.
  - Since 2015 (legally) and 2017 (actually), Treasury has liquidity management function.
  - Currently around 2,250 schools and 200 kindergartens are not included in the TSA and not covered in fiscal reporting; authorities aim to capture these units by end 2024.
  - Transition plan includes professional training for accountants and directors of schools.
  - Inclusion of these units expected to improve reporting of expenditures by economic category and possibly impact second-level COFOG classification and revenue coverage from own revenues.
  - 2023 Budget Code actions:
    - Calls for an action plan to be approved by the MoF by July 15, 2023.
    - Commits the MoF to approving, by February 15, 2023, a list of data to be collected from SOEs.
    - Requires Government of Georgia to prepare rules for transfer of SOE accounts in commercial banks to the Treasury unified account system by January 1, 2024.
  - Treasury planned to develop a detailed transition plan integrating GFS classification and to meet with three big SOEs to discuss practical aspects.
  - Importance of preserving accrual financial reporting of SOEs alongside cash-based TSA reports:
    - TSA cash reporting omits accrual operations and operations performed outside TSA that can have material impact on fiscal aggregates (e.g., direct payments by banks to suppliers financed by credit), potentially leading to underestimated expenditure and debt.

### B. Compilation of 2021 GFS for non-market SOEs
- Mission compilation overview:
  - Compiled GFS (statement of operations and balance sheet) for 2021 covering 17 large non-market SOEs, representing around 90 percent of all non-market SOEs in terms of annual turnover.
  - Compilation used full financial reporting sets: comprehensive balance sheet, income statement, cash flow statement, and notes.
  - A compilation file provided to authorities bridges individual financial-statement items to GFS items by economic categories (stocks and flows).
  - Statements of operations compiled:
    - On a cash basis using input data from the cash flow statement.
    - On an accrual basis derived from the income statement and amended by the cash-flow statement to cover items not reported in the income statement.
  - Non-momentary adjustments made based on notes to financial statements to ensure integrity of stocks of assets and liabilities and related transaction data.
  - Appendices B and C present methodology to bridge financial statements into GFS statement of operations and balance sheet.

_italics: Source: tarea2024044 - Section I. Detailed Technical Assessment and Recommendations (IMF technical report)_

### 16. The fiscal balance of non-market SOEs was positive in 2021 (0.1 percent of GDP), however

### 16. The fiscal balance of non-market SOEs was positive in 2021 (0.1 percent of GDP), however

### Overall 2021 outcome
- Revenue of non-market SOEs: 3.5 percent of GDP.
- Expenditure of non-market SOEs: 3.4 percent of GDP.
- Accrual-based surplus (Net lending): 0.1 percent of GDP.
- The surplus was largely financed by government grants: 1.6 percent of GDP (46 percent of SOEs’ total revenues).

### Revenue composition and support
- Total revenue: 2,108.8 million GEL (3.5 percent of GDP).
- Grants (financial support from government): 967.4 million GEL (1.6 percent of GDP) — 46 percent of total SOEs’ revenues.
- Other revenue (mainly sales of goods and services): 1,141.4 million GEL (1.9 percent of GDP).
- Two thirds of proceeds from sales were earned by the Commercial Operator of Electric Energy System.
- Nearly 40 percent of government grants provided as subsidies; another 40 percent as capital transfers to cover financing gaps.
- Residual transfers included purchase of goods and services, transfers of a social nature, and transfers of non-financial assets.

### Expenditure breakdown
- Total expense: 1,576.5 million GEL (2.6 percent of GDP).
  - Compensation of employees: 313.4 million GEL (0.5 percent of GDP).
  - Use of goods and services: 1,062.2 million GEL (1.8 percent of GDP).
  - Consumption of fixed capital: 102.6 million GEL (0.2 percent of GDP).
  - Interest: 20.7 million GEL (0.0 percent of GDP).
  - Other expense: 77.6 million GEL (0.1 percent of GDP).
- Net/gross investment in nonfinancial assets: 496.8 million GEL (0.8 percent of GDP).
- Total expenditure (expense + investment): 2,073.3 million GEL (3.4 percent of GDP).
- Allocation of spending:
  - More than half of expenditures used to acquire goods and services.
  - 24 percent of total spending invested in non-financial assets.
  - 15 percent used to pay compensation of employees.
- Most SOEs made negligible investments in non-financial assets in 2021 except: Water Supply Company, Tbilisi Transport Company, and Harvest Company.

### Financing and financial flows (2021)
- Net financing (FIN): 23.5 million GEL (0.0 percent of GDP) as reported; net financing positive consistent with above-the-line results.
- Net acquisition of financial assets: 291.1 million GEL (0.5 percent of GDP).
- Net incurrence of liabilities: 267.6 million GEL (0.4 percent of GDP).
- Net financing implied by growth:
  - Financial assets increased by 0.48 percent of GDP.
  - Liabilities increased by 0.44 percent of GDP.
- More than two thirds of growth in financial assets (0.3 percent of GDP) related to increased savings in deposits:
  - Of that deposit increase: 52 percent by Water Supply Company, 20 percent by Tbilisi Transport Company, 10 percent by the Mountain Resort.
- Remaining asset increases mostly due to equity injections by SOEs into subsidiaries and acquisition of trade receivables.
- Liabilities changes:
  - SOEs slightly reduced borrowing in the form of loans, but debt increased by 0.47 percent of GDP due to unpaid trade credits and other accounts payable.
  - More than 44 percent of the increase in other accounts payable was reported by Tbilisi Transportation Company.
- Overall statistical discrepancy (NLBz): -12.0 million GEL (0.0 percent of GDP).

### Accrual versus cash-based results (2021)
- Cash-based fiscal surplus was higher by 0.2 percentage points compared to accrual.
- Accrual vs Cash key figures (Million GEL / Percent of GDP):
  - Revenue: Accrual 2,109 / 3.5 ; Cash 2,131 / 3.5.
  - Expenditure (2+31): Accrual 2,073 / 3.4 ; Cash 1,921 / 3.2.
  - Expense (2): Accrual 1,576 / 2.6 ; Cash 1,491 / 2.5.
  - Net/gross investment in nonfinancial assets (31): Accrual 497 / 0.8 ; Cash 430 / 0.7.
  - Net lending (NLB): Accrual 36 / 0.1 ; Cash 210 / 0.3.
  - Financing (FIN): Accrual 24 / 0.0 ; Cash 210 / 0.3.
  - Net acquisition of financial assets (32): Accrual 291 / 0.5 ; Cash 207 / 0.3.
  - Net incurrence of liabilities (33): Accrual 268 / 0.4 ; Cash -3 / 0.0.
  - Statistical discrepancy (32-33-NLB): Accrual -12 / -0.02 ; Cash 0 / 0.0.
- Explanation: Accrual expenditure exceeded cash by 0.2 percent of GDP mainly due to acquisition of goods and services and non-financial assets not yet paid by SOEs, increasing trade credits and other accounts payable.

### Recommended interim data approach
- Mission considers using the cash-flow statement as a good proxy to compile reliable GFS for non-market SOEs during the interim period.
  - Using cash-flow statement ensures integrity of above and below-the-line transactions with a zero discrepancy.
  - Cash-based GFS should be adjusted toward accrual by imputing some transactions (e.g., present actual expenditure in arrears using data on trade credits, or expenditure financed by direct payments from creditors to suppliers).
- Interim recommendation: Georgian authorities should reflect fiscal performance of non-market SOEs in GFS using currently available financial reporting while more detailed source data and GFS capacities are developed.

### Balance sheet (2021)
- Total assets of non-market SOEs: 3,413.7 million GEL (5.7 percent of GDP).
  - Nonfinancial assets: 2,595.1 million GEL (4.3 percent of GDP).
    - Fixed assets: 2,384.9 million GEL (4.0 percent of GDP).
    - Inventories: 209.3 million GEL (0.3 percent of GDP).
    - Valuables: 0 million GEL (0.0 percent of GDP).
    - Non-produced assets: 0.9 million GEL (0.0 percent of GDP).
  - Financial assets: 818.6 million GEL (1.4 percent of GDP).
    - Currency and deposits: 356.4 million GEL (0.6 percent of GDP).
    - Loans: 27.5 million GEL (0.0 percent of GDP).
    - Equity and investment fund shares: 98.7 million GEL (0.2 percent of GDP).
    - Other accounts receivable: 336.0 million GEL (0.6 percent of GDP).
- Liabilities: 3,413.6 million GEL (5.7 percent of GDP).
  - Loans: 1,307.7 million GEL (2.2 percent of GDP).
  - Equity and investment fund shares: 1,644.5 million GEL (2.7 percent of GDP).
  - Other accounts payable: 461.5 million GEL (0.8 percent of GDP).
- Net financial worth (financial assets less liabilities): -2,595.1 million GEL (-4.3 percent of GDP).
- Net worth (61+62-63): 0 million GEL (0.0 percent of GDP) by convention of business accounting where assets equal liabilities.

Additional balance-sheet notes:
- Non-financial assets mainly comprise infrastructure, buildings, and other fixed assets and equipment (mainly United Water Supply and Tbilisi Transport Company).
- Financial assets mainly include SOEs’ cash and deposits in commercial banks, and other accounts receivable towards suppliers.
- Main component of liabilities is equity capital owned by the government (all compiled units fully owned):
  - Equity capital amounted to 2.7 percent of GDP or 48 percent of total liabilities in 2021.
- Debt in loans amounted to 2.2 percent of GDP and other accounts payable (mainly trade credits) amounted to 0.8 percent of GDP in 2021.
- More than 73 percent of total debt of compiled non-market SOEs was held by United Water Supply Company in 2021.

### Evolution 2019–2021 (percent of GDP)
- Net lending (+) / Net borrowing (-): 2019 -0.6 ; 2020 -1.6 ; 2021 0.1.
- Revenue: 2019 2.4 ; 2020 2.0 ; 2021 3.5.
- Expenditure: 2019 3.0 ; 2020 3.6 ; 2021 3.4.
- Outstanding Debt: 2019 3.1 ; 2020 3.1 ; 2021 2.9.
- Net Financial Worth: 2019 -4.2 ; 2020 -4.2 ; 2021 -4.3.
- Note: Coverage of SOEs differs across years; 2021 data covered 17 big SOEs (90 percent of turnover).

### Consolidation of non-market SOEs into the General Government (GG) sector (2021)
- Inclusion of non-market SOEs improved GG deficit by 36 million GEL (0.1 percent of GDP) in 2021.
- Consolidation impacts (Million GEL):
  - GG original revenue: 16,443 ; non-market SOEs revenue: 2,109 ; consolidation adjustments: -1,126 ; consolidated GG incl. SOEs revenue: 17,426 ; impact of SOEs (consolidated): 983.
  - GG original expenditure (2+31): 20,006 ; non-market SOEs expenditure: 2,073 ; consolidation adjustments: -1,126 ; consolidated GG incl. SOEs expenditure: 20,954 ; impact of SOEs (consolidated): 948.
  - Net lending (NLB) original: -3,563 ; consolidated with SOEs: -3,528 ; impact of SOEs (consolidated): 36.
- Imputation of non-monetary transfers (transfers of non-financial assets from government to SOEs) of 57 million GEL in 2021 to align budgetary organizations (reported on cash basis) with consolidation — imputation does not change fiscal balance but shows increased expenses and reduction in budgetary assets.
- Consolidation of revenue/expenditure used SOE income statements; due to missing details (e.g., subsidies not shown separately) the mission matched SOE IDs with Treasury cash data to derive cash-based consolidation flows for the 17 enterprises.
- Estimated accrual-based consolidation (grants, subsidies, other revenue): 1,126 million GEL vs Treasury cash data consolidation: 1,000 million GEL.
- Mission recommendation: after full integration of SOE data into GFS, change classification of consolidation flows by the Treasury — reclassify subsidies (24), social benefits (27) and other expense (28) into grants (26).

Consolidation by economic classification (Million GEL):
- Revenue consolidation (Treasury data): -1,000 ; (SOE data + adjustments): -1,126.
  - Grants (13): -874 (Treasury) ; -967 (SOE adj).
  - Other revenue (14): -126 (Treasury) ; -158 (SOE adj).
- Expense consolidation (Treasury data): -1,000 ; (SOE data + adjustments): -1,126.
  - Use of goods and services (22): -126 (Treasury) ; -158 (SOE adj).
  - Subsidies (25): -416 (Treasury) ; -416 (SOE adj).
  - Social benefits (27): -48 (Treasury) ; -61 (SOE adj).
  - Other expense (28): -410 (Treasury) ; -490 (SOE adj).
- Financing consolidation effects negligible (Net acquisition of financial assets -3 ; Net incurrence of liabilities -3 ; discrepancy 0).

Consolidation impact on GG balance sheet (Million GEL):
- Original GG total assets: 48,438 ; Non-market SOEs total assets: 3,414 ; Nonmarket SOEs consolidation adjustment (equity elimination): -1,662 ; Consolidated GG incl. SOEs total assets: 50,190.
- Original GG financial assets: 13,395 ; SOEs financial assets: 819 ; after equity consolidation: -1,662 ; consolidated financial assets: 12,551.
  - Currency and deposits: original 3,549 ; SOEs 357 ; consolidated 3,906.
  - Loans: original 3,643 ; SOEs 27 ; consolidated 3,670.
  - Equity and investment fund shares: original 2,866 ; SOEs 99 ; consolidation -1,662 ; consolidated 1,303.
  - Other accounts receivable: original 2,630 ; SOEs 336 ; consolidated 2,966.
- Original GG liabilities: 33,207 ; SOEs liabilities: 3,414 ; consolidation -1,662 ; consolidated liabilities: 34,959.
  - Loans: original 23,407 ; SOEs 1,308 ; consolidated 24,714.
  - Other accounts payable: original 2,453 ; SOEs 444 ; consolidated 2,897.
- Consolidation of non-market SOEs deteriorated GG net financial worth by 2,595 million GEL (-4.3 percent of GDP) in 2021; net worth unchanged as negative net financial worth offset by non-financial assets held by SOEs.
- Full amount of SOEs’ equity capital consolidated: 1,662 million GEL (2.8 percent of GDP) reflecting 100% government ownership of compiled SOEs.

### Institutional arrangements and way forward (recommendations)
- Establish a dedicated GFS unit within the Ministry of Finance comprising at least 3 persons.
  - Current situation: no GFS unit at MoF; only one staff from MAFPPD assigned to GFSM 2014 reporting among many other tasks — limited time capacity for GFS.
  - A specialized unit/division should be devoted exclusively to GFS compilation and cooperate closely with internal users to meet fiscal policy data needs.
- Introduce a special, legally binding reporting for non-market SOEs in the short term as an interim solution before full integration into the TSA; continue using it thereafter as an additional advanced data source.
  - Special reporting must be aligned with accounting records and include appropriate details/breakdowns of items in financial statements to enable accurate annual and high-frequency GFS and fiscal risks analysis.
  - The mission developed a draft list of details required for GFS based on the income statement, cash-flow statement, and balance sheet (see Appendix D).
  - The mission shared experience and templates from the Slovak Republic where compulsory questionnaires are collected monthly (cash) and quarterly (accrual).
- Assign responsibilities for collection, processing, and quality checks of SOE reporting to an appropriate MoF unit (e.g., State Treasury) to ensure accuracy and consistency with accounting records; the GFS team would then receive ‘clean’ and reliable input data for compilation.

*Source: Financial statements, IMF calculations.*

### 25.      Even if the special reporting is not yet in place, the Georgian authorities should be able to

### tarea2024044 - 25.      Even if the special reporting is not yet in place, the Georgian authorities should be able to

### Use of existing financial reporting to compile GFS for non-market SOEs
- Finding: Even if the special reporting is not yet in place, the Georgian authorities should be able to compile sound GFS for non-market SOEs using the currently available financial reporting.
- Implementation note: Compilation and balancing of accrual data using the mission approach might be challenging for the MoF, given the limited GFS capacities.
- Interim proposal: Use the cash-flow statement in the interim period as a good proxy to compile reliable GFS for non-market SOEs.

### Advantages of using cash-flow statements
- The cash-flow statement provides data on all inflows and outflows that are consistent with the changes in the currency and deposits. This would, by convention, ensure a zero discrepancy between the above- and below-the-line operations.
- Even if the cash-flow statement does not provide detailed breakdown of revenue and expenditure, it will allow the Georgian authorities to compile:
  - the fiscal balance (net lending/net borrowing), and
  - the above- and below-the-line transactions by the main economic categories.
- Priorities:
  - First priority: Compile the fiscal balance and main above/below-the-line transactions to enhance the credibility of the main GFS indicators reflecting the actual performance of the general government including non-market SOEs.
  - Secondary priority: Compile more detailed breakdowns of revenue and expenditure categories.

### Estimation, supplementary information, and statistical techniques
- Practice: In line with the compilation practice applied by other countries, detailed breakdowns could be estimated using supplementary information and various statistical techniques.
- IMF standards referenced:
  - Based on the IMF’s Data Quality Assessment Framework (DQAF), the Special Data Dissemination Standard (SDDS) envisages estimates in macro-economic statistics as part of the compilation practice including statistical techniques.
  - According to the DQAF (section 3.3.1), estimates, adjustments, and imputations are made in GFS in case of missing or inadequate data.
  - DQAF section 3.1.1 refers to estimates with respect to extra-budgetary units (such as non-market SOEs) as: “data for extra-budgetary agencies are not normally available through centralized budget/financial management systems, and also are likely to have specialized account codes”.

### Adjustments and imputations to reflect economic reality
- Recommendation: Supplement the cash data by imputing non-monetary transactions to reflect the economic reality and provide an adequate picture of the fiscal performance of non-market SOEs.
- Examples of imputed non-monetary transactions:
  - transfers of non-financial assets for free,
  - acquisition of non-financial assets and related incurrence of debt by means of a direct payment by the creditor to the supplier.
- Additional adjustment: Cash-based expenditure could be adjusted towards accrual using data on the increase/decrease of other accounts payable and, in particular, trade credits.

### Officials met during the mission (Ministry of Finance)
- Mirza Gelashvili — MoF, Deputy Minister
- Shota Gunia — Head of Fiscal Risks Management Department
- Vakhtang Chalapeikrishvili — Head of Macroeconomic Analysis and Fiscal Policy Planning Department
- Davit Gamkrelidze — Head of the State Treasury Service
- Pridon Aslanikashvili — Macroeconomic Analysis and Fiscal Policy Planning Department (responsible for GFS)
- Maia Lavrinenko — Fiscal Risks Management Department
- Ana Chabashvili — Fiscal Risks Management Department
- Elene Chkheidze — Fiscal Risks Management Department

### Appendices
- Appendix A: UPDATED LIST OF NON-MARKET SOEs (detailed list provided in the source).

*IMF | Technical Report – Georgia Government Finance*

### APPENDIX B. CONCEPTUAL DIFFERENCES BETWEEN FINANCIAL STATEMENTS AND GFS

### APPENDIX B. CONCEPTUAL DIFFERENCES BETWEEN FINANCIAL STATEMENTS AND GFS

### Conceptual differences: objectives and scope
- Primary goal difference:
  - Accounting reporting: provide information on the performance of individual organizations.
  - GFS: designed for fiscal analysis and fiscal policy at the macro-level in conformity with the outputs from other macroeconomic statistical frameworks (i.e., the system of national accounts, external statistics, and monetary financial statistics).
- Consequence: the structure, level of detail, classification, and substance of individual items in financial statements are not fully in line with GFS rules and principles.
- Despite differences, financial statements provide a solid basis for the compilation of GFS, subject to adjustments described below.

### Key distinctions in measurement and presentation
- Operating balance / net profit:
  - GFS strictly distinguishes between transactions (operations resulting from government’s decisions) and other economic flows (e.g., revaluation gains/losses due to exchange rates or market prices; losses from natural disasters).
  - GFS fiscal balance measures the impact of government transactions/operations, excluding other economic flows.
  - Accounting net profit includes both transactions and other economic flows as income and expense.
  - Income statements may include transactions in financial assets/liabilities treated in GFS as financing rather than revenue/expense.
  - Depending on the accounting standard, some transfers (e.g., subsidies, capital transfers, taxes, dividends) may not be included in the income statement.
- Net lending / net borrowing (NLB):
  - GFS includes expenditures related to net investment in non-financial assets (acquisitions less disposals) in addition to revenue and expense.
  - Financial statements do not report an equivalent comprehensive NLB indicator.
- Financing:
  - Financial statements do not provide comprehensive information on transactions in financial assets and liabilities.
  - In GFS, financing data is an inevitable element of the statement of operations, showing how NLB was financed and the impact of government operations on financial assets/liabilities.
  - Financing data should be reconcilable with revenue/expenditure operations and with stocks of financial assets and liabilities.
  - Reconciliation of stocks and flows serves as a quality check on fiscal balances and the financial balance sheet.

*Appendix 6 of GFSM 2014 provides a detailed description of differences between accounting and GFS rules and principles.*

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### APPENDIX C. BRIDGING FINANCIAL STATEMENTS INTO THE GFS STATEMENT OF OPERATIONS AND BALANCE SHEET

### Stepwise bridging procedure (source mappings)
- 1 Compile revenue and expense
  - Source: Income Statement
- 2 Exclude income/expense from the Income Statement that do not belong to the GFS revenue/expenditure categories
  - Exclude other economic flows (revaluation and other changes in the volume of assets and liabilities) — Source: Income Statement and/or notes to financial statements
  - Exclude transactions in financial assets and liabilities (e.g., investments in equity of subsidiaries) — Source: Income Statement and/or notes to financial statements
- 3 Include transactions in revenue and expense not covered in the Income Statement
  - Add other revenue and expense such as taxes, subsidies, dividends, and other current and capital transfers — Source: Cash Flow Statement and/or notes to financial statements
- 4 Compile net investments in non-financial assets (expenditure)
  - Compile cash transactions on purchase and sale of non-financial assets — Source: Cash Flow Statement
  - Add non-monetary transactions in non-financial assets (e.g., transfer of non-financial assets from/to government) — Source: Notes to financial statements
  - Deduct depreciation as a proxy to the consumption of fixed capital — Source: Income Statement
- 5 Compile financing operations
  - Use data on cash inflows/outflows on all financial instruments (e.g., loans granted, inflows from repayment of claims, inflows from borrowing, repayment of debt) — Source: Cash Flow Statement
  - Add data on accrued interest receivable/payable, when relevant — Source: Income Statement
  - Transactions in other accounts receivable/payable compile as a change in stocks (a proxy substituting transactions) — Source: Balance sheet
  - When possible, exclude other economic flows (revaluation or write-offs) from the changes in stocks of other accounts receivable/payable — Source: Income Statement and/or notes to financial statements
  - Add non-monetary transactions in financial assets/liabilities (e.g., conversion of debt into the equity capital; injection into the capital by transfer of non-financial or financial assets; debt assumption or debt cancellation) — Source: Statement of Changes in Equity and notes to financial statements
- 6 Compile balance sheet
  - Convert data from the accounting balance sheet on a best effort basis into the GFS categories using supplementary information from notes to financial statements.
  - As a second priority, examine compliance of valuation principles applied in the accounting with the GFS rules and principles.
  - Sources: Balance sheet, notes to financial statements
- 7 Reconcile stocks and flows
  - Compare changes in stocks by individual (GFS) categories of assets/liabilities with related transactions from the statement of operations, and with data on other economic flows as identified in the income statement and notes to financial statements.
  - Examine discrepancies between stocks and flows, focusing on possibly missing transactions in assets and liabilities (e.g. transfers of assets for free, debt assumption/cancellation, financial leasing, etc.).
  - Amend data on revenue, expenditure, and financing accordingly.
  - Sources: GFS statement of operations and balance sheet, and notes to financial statements

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### APPENDIX D. RECOMMENDED BREAKDOWN OF THE EXISTING FINANCIAL STATEMENTS OF SOEs

### Purpose
- Special financial reporting for MoF during the interim period (until SOEs are integrated in the TSA) must include appropriate details to ensure high quality and consistency of compiled GFS data.
- Main items of economic classification of income/expense and financial instruments of the balance sheet must be identified by SOE data providers to allow accurate transition to GFS classification.
- All breakdowns should be strictly linked to the appropriate accounting records and financial statements of SOEs.

### Recommended breakdowns (selected items)
- Balance sheet — Current assets: Inventories; Cash and deposits; Accounts receivable; Other current assets; Total current assets.
- Balance sheet — Non-current assets: Fixed assets; Land and other non-produced assets; Intangible asset; Long-term deposits; Loans; Investment in subsidiaries; Investment in equities; Accounts receivable; Other long-term assets; Total non-current assets.
- Balance sheet — Current liabilities: Loans; Accounts payable; Other current liabilities; Total current liabilities.
- Balance sheet — Long term liabilities: Loans; Other long-term liabilities; Total long-term liabilities.
- Balance sheet — Equity: Owners’ equity; Retained earnings; Uncovered losses; Total equity.
- Profit and loss (Income statement) — Operating revenue: Subsidies from government; Other operating revenue; Total operating revenue.
- Profit and loss — Non-operating revenue: Interest; Holding gains; Other non-operating revenue; Total non-operating revenue.
- Profit and loss — Operating expenses: Salaries; Depreciation; Other operating expenses; Total operating expenses.
- Profit and loss — Non-operating expenses: Interest; Holding losses; Other non-operating expenses; Total non-operating expenses.
- Cash flow statement — Net cash from operating activities: Cash receipts from government as a customer; Cash receipts from other customers; Subsidies from government; Interest received; Other income from operating activities; Cash paid to suppliers; Cash paid to employees; Taxes paid; Expenses for current renovation; Expenses for rent, fuel and other; Net cash from operating activities.
- Cash flow statement — Net cash used in investment activities: Subsidies/transfers from government; Cash received from borrowings; Interest received; Proceeds from sale of property, plant and equipment; Other revenue from investment activities; Acquisition of property, plant, and equipment; Acquisition of intangible assets; Other expense from investment activities; Net cash used in investment activities.
- Cash flow statement — Net cash used in financing activities: Cash received from borrowings; Subsidies from government; Interest received; Cash received from issued capital; Other revenues from financing activities; Repayment of lease liabilities; Repayment of borrowings; Interest paid; Dividend paid; Other expenses from financing activities; Net cash used in financing activities.
- Cash flow statement — Sum of Net (decrease)/increase in cash and cash equivalents; Sum of Cash and cash equivalents at 31 December; Sum of Cash and cash equivalents at 1 January; Sum of Net (decrease)/increase in cash and cash equivalents.

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### APPENDIX E. STATEMENT OF OPERATIONS BY SOEs, ACCRUAL DATA, 2021 — SELECTED AGGREGATES

- TOTAL Revenue: 2,109 Million GEL; 3.5 percent of GDP
- Grants: 967 Million GEL; 1.6 percent of GDP
- Other revenue: 1,141 Million GEL; 1.9 percent of GDP
- TOTAL Expense: 1,576 Million GEL; 2.6 percent of GDP
- Net operating balance (1-2): 532 Million GEL; 0.9 percent of GDP
- Net/gross investment in nonfinancial assets (31): 497 Million GEL; 0.8 percent of GDP
- Expenditure (2+31): 2,073 Million GEL; 3.4 percent of GDP
- Net lending (+) / Net borrowing (-) (NLB): 36 Million GEL; 0.1 percent of GDP
- Financing (FIN): 24 Million GEL; 0.0 percent of GDP
- Net acquisition of financial assets (32): 291 Million GEL; 0.5 percent of GDP
- Net incurrence of liabilities (33): 268 Million GEL; 0.4 percent of GDP
- Overall statistical discrepancy: NLB vs Financing (NLBz): -12 Million GEL; 0.0 percent of GDP

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### APPENDIX F. STATEMENT OF OPERATIONS BY SOEs, CASH DATA, 2021 — SELECTED AGGREGATES

- TOTAL Revenue: 2,131 Million GEL; 3.5 percent of GDP
- Grants: 925 Million GEL; 1.5 percent of GDP
- Other revenue: 1,206 Million GEL; 2.0 percent of GDP
- TOTAL Expense: 1,491 Million GEL; 2.5 percent of GDP
- Net operating balance (1-2): 640 Million GEL; 1.1 percent of GDP
- Net/gross investment in nonfinancial assets (31): 430 Million GEL; 0.7 percent of GDP
- Expenditure (2+31): 1,921 Million GEL; 3.2 percent of GDP
- Net lending (+) / Net borrowing (-) (NLB): 210 Million GEL; 0.3 percent of GDP
- Financing (FIN): 210 Million GEL; 0.3 percent of GDP
- Net acquisition of financial assets (32): 207 Million GEL; 0.3 percent of GDP
- Net incurrence of liabilities (33): -3 Million GEL; 0.0 percent of GDP
- Overall statistical discrepancy: NLB vs Financing (NLBz): 0.0

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### APPENDIX G. BALANCE SHEET BY SOEs 2021 — SELECTED AGGREGATES (as presented)
- Total assets1501,4287191348410723681614324461518697303,4145.7
- 61Nonfinancial assets 01,194601116595442891292417447525902,5954.3
- 611Fixed assets 01,188587025442891242316426025502,3854.0
- 612Inventories 0614115570005111150402090.3
- 6M2Net financial worth (62-63)0-1,194-601-116-59-5-44-289-129-24-17-44-7-5-2-590-2,595-4.3
- 62Financial assets 150233118192552879321872813671408191.4
- 6202Currency and deposits [6212+6222] 321156930016102615625057003560.6
- 6204Loans [6214+6224] 002700000000000000270.0
- 6205Equity and investment fund shares [6215+6225] 00300006100000139120990.2
- 6208Other accounts receivable [6218+6228] 11811919152551286411300203360.6
- 63Liabilities 1501,4287191348410723681614324461518697303,4145.7
- 6304Loans [6314+6324] 11,21600305110274000001401,3082.2
- 6305Equity and investment fund shares [6315+6325] 241336151314337366117191742141685501,6442.7
- 6308Other accounts payable [6318+6328] 1257910545022531720740171404610.8
- 6Net worth (61+62-63)0000000000000000000.0
- 6M2Net financial worth (62-63)0-1,194-601-116-59-5-44-289-129-24-17-44-7-5-2-590-2,595-4.3

*IMF | Technical Report – Georgia Government Finance | APPENDIX B–G*

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_Source: https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024044.pdf_