Across its institutions, the Hungarian government perceived a lack of standardised systems, processes and controls. The Hungarian State Treasury wanted to address the lack of standardised infrastructure and qualified workforce. Their current budget execution reform, supported by PwC Hungary, aims to advance their budget execution and enhance their digital ecosystem.
Adopting international best practices, the Treasury plans to become a service provider for government institutions in the field of financial administration. As a result, budget execution information will be easy to gather and understand, while ultimately saving the government money.
I interviewed Zsolt Tavaszi, Vice President for Government at the Hungarian State Treasury, on what budget execution reform means for the country and the region.
The Hungarian State Treasury is currently undergoing a great transformation with regards to budget execution, including methodological and IT development. What is the goal of this reform?
Our goal is to unify budget execution throughout governmental institutions, thus enabling the creation of a simplified, yet exact and comprehensive monitoring system. In the long term, the Treasury also aims to take over the administrative tasks from certain institutions and act as a service provider. Today the Hungarian system is quite fragmented; institutions use their own, heterogeneous systems, making budget execution and administration a lot harder than it should be. With the Treasury taking the administrative burden off their shoulders, institutions can concentrate on their core activity: fund and expenditure management.
What makes this budget execution reform necessary?
First of all, the 21st century’s digital and technological landscapes provide us with opportunities that cannot be missed. Improving our current IT infrastructure could make budget execution easier, faster and more agile. On top of that, Hungary suffers from a lack of skilled workforce in this field. This combination calls for accelerated digitisation and upskilling. The same trend can also be observed on the international landscape. However, while most nations started outsourcing tasks from the Treasury, the Hungarian one is actually taking on more responsibilities than before. This is not necessarily a bad thing: we can achieve effectiveness through the centralisation of similar activities as well.
In 2007, a project with similar goals of integration was started but was terminated in 2011, mostly unsuccessfully. What was the reason behind this fizzle?
The goal of that project was to redesign the complete IT infrastructure of the Treasury and provide an integrated solution instead of heterogeneity. In the end, we only managed to create a reporting and an institutional accounting system (that we use today), and had to terminate the rest of the project due to overstepping EU deadlines. I believe the reason behind the failure was its forced march tempo and not focusing on the ‘business’ processes behind budget execution. As a side note, we were not the only ones to fall into this trap. For instance, France similarly failed to implement its first attempt at reform. All in all, the Treasury and the institutions were not mature enough to reach the goals set.
On the positive side, the failure of this project was a great learning experience for us. We are now making sure to map processes and create livable solutions in our current transformation, bearing in mind the amount of manual work we can save and the simplifications we can make. PwC’s experts – with whom we are working on the current project – have been indispensable in this matter.
The goal now is similar then: to create a standardised, more controllable system where the Treasury can become a service provider in the long run. Are there any global or European regulations that affect the transformation?
There is great uncertainty around the question of accounting standards, namely IPSAS (International Public Sector Accounting Standards) and EPSAS (European Public Sector Accounting Standards). Hungary’s public sector accounting is currently not IPSAS-compliant, but it has an accrual basis, like most countries in Europe. It is necessary to rethink and unify the public accounting standards in this decade, but the EPSAS requirements will affect Hungary for sure.
You have mentioned international examples before. Are there any best practices out there? What can Hungary draw from them?
Personally, I very much enjoy analysing benchmark countries to see in which fields Hungary can develop. As a Central European country, the primary and most relevant benchmarks for us are the Czech Republic and Slovakia. They are walking on a quite similar path to us, but use a more state of the art IT infrastructure than our current one. Looking a bit further away, the Nordic countries lead by great example in Europe: they were the first ones to look at budget execution as a service and to start creating shared service centres for administrative tasks with paperless, deeply-rooted digital solutions. Estonia is my personal favourite. I admire what they achieved, having started from a similar socialist past like ours. Looking further away, South Korea might be the best example, as they execute the budget in a 100% automated and integrated way from a central system, to which institutions connect with a simple interface.
Of course, if we talk about trends and glance at the distant future – digital money, the idea of basic income or social credit may also influence us sooner than we think. While the journey of our current reform project has a clear destination, we are also open to future expeditions if and when they become timely.
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