– Askar Baurzhanovich, in your opinion, what is the current share of the state in the country's finances?
– In Kazakhstan, the total amount of the revenue part exceeds 40 trillion tenge, or almost 40% of GDP, if we consider the budget, the quasi-state sector, and off-budget funds. Thus, the share of the state in the country's finances is very high. At the same time, we see that the flows of off-budget funds, such as ENPF, GFSS, and OSMS, are increasing, and almost 3.3% of the country's income is redistributed through these funds, which is comparable to taxes due to their mandatory nature. The burden on the wage fund (WF) is increasing, and a large part of this burden occurs off-budget. It is projected that the burden on the WF will grow from 36% to 41%, which exceeds the average indicators of OECD countries.
– In your opinion, what is the reason why the Ministry of National Economy and the Ministry of Finance do not consolidate the funds of off-budget funds into the state budget? Have you seen a solution to this issue in the draft of the new Budget Code?
– The new draft of the Budget Code attempts to at least bring the consolidated accounting of off-budget funds and consider their income and expenses together with the state budget. However, in practice, the financial flows of off-budget funds, such as ENPF, GFSS, and FSMS, are excluded from budget procedures. Consequently, both the expenses and income of these off-budget funds are isolated from budget control.
The government could consolidate off-budget funds, primarily FSMS and the Social Insurance Fund, as they operate on a solidarity principle. The functions of these off-budget funds could easily be financed within the budget through taxes. Previously, before the establishment of FSMS, the medical services payment committee successfully fulfilled its tasks. Perhaps it would be worth returning to such a practice; however, the social block and representatives of off-budget funds resist this idea as they do not want to give up financial independence and unaccountability over their funds. They independently manage financial flows, and no serious restrictions and control measures that exist within the budget apply to them.
– In this regard, why does the state yield to off-budget funds? What is the state's interest?
– This concerns important decision-making issues. The decision-making system is structured in such a way that it does not allow for significant reforms. If there are contradictions in the government between the economic and social blocks, and all arguments indicate that it would be more effective to consolidate these off-budget funds into the budget, but the social block opposes this, then there are no quick and effective procedures to resolve this conflict. Therefore, we do not see the possibility of implementing such a solution in the near future under the current leadership of the social block.
– Speaking of cross-subsidization of the economy by the Samruk-Kazyna fund and low dividends paid by quasi-state companies, what are the main elements that the reform of the quasi-state sector should contain?
– The issue of the efficiency of the quasi-state sector has long been on the agenda. The Samruk-Kazyna fund was created based on the Singaporean Temasek Foundation with the aim of increasing the long-term value of state assets and profitability. However, since the main shareholder of Samruk-Kazyna is the government, the fund performs social tasks that contradict its financial interests. One of these tasks is subsidizing the provision of services at reduced rates, which are below profitability or cost price. For example, this concerns passenger transportation, postal services, fuel, gas, and other goods and services sold by entities of the quasi-state sector at a loss.
The amount of subsidization of the economy by the Samruk-Kazyna fund is 1.2 trillion tenge per year, which significantly limits the payment of dividends to the budget. A more effective approach would be a gradual abandonment of cross-subsidization and a transition to market principles, where the main goal is to increase the value of assets and profitability of the business. If the Samruk-Kazyna fund makes a profit, then a significant part of it, for example, 50-70%, should be directed as dividends to the budget. Then the budget should address these funds to areas that require subsidization, but through the state budget. Currently, such subsidies are issued indiscriminately to all consumers regardless of income and financial situation, rather than being targeted.
The main problem with Samruk-Kazyna is that it is managed by the government, and its board of directors includes government members. Since the fund is managed by the government, it performs the tasks set by it according to its own priorities. If we aim to transition it to market principles, I believe that the government should abandon direct management and entrust this task to independent directors and managers whose goal will be to focus on the fund's efficiency.
– Regarding the budget deficit and borrowing, the Ministry of Finance believes that we are in a non-critical zone. Is it a matter of methodology or a reluctance to see the problem?
– The issue here is that the Ministry of Finance is guided by international standards, according to which public debt is considered acceptable within 50-70% of GDP. Currently, the level of public debt in Kazakhstan is about 23% of GDP, which corresponds to IMF standards. There are examples of other countries where public debt exceeds 100% of GDP, and this distorts the picture. For instance, the USA has significant public debt, but their economic power and structure allow them to manage this risk.
For resource-based economies such as Russia, Norway, Azerbaijan, and Chile, the threshold for public debt is usually lower than that of developed countries, at up to 20-30% of GDP. Given the structure of our economy and dependence on commodity prices, it is better to aim for a more conservative level of public debt. We believe that the maximum level for Kazakhstan should be around 25% of GDP to avoid serious financial risks and ensure budget sustainability.
An increase in the level of public debt can create additional pressure on the budget and increase risks in the event of crises, as we discussed at the recent round table.
– What could be the consequences for the economy if public debt is not increased, where will the state get money in that case?
– The budget consists of two main components: revenues and expenditures. Borrowing is necessary when expenditures exceed revenues. There are two ways to reduce the level of borrowing: increasing revenues, which is a long-term task, and optimizing expenditures. The latter is the focus. The head of state stated at the Assembly of the People of Kazakhstan about the potential for optimizing expenditures and the need for strict budgetary austerity. Therefore, serious restrictions on the budget deficit are required to prevent its growth. Previously, the goal was to reduce the budget deficit to 1% of GDP, but this has not been achieved for many years. This indicates insufficient effectiveness in optimizing expenditures.
– According to TALAP, over the past three years, expenditure growth has amounted to 60%, with the main part concerning current expenditures and state procurement. Can you specify which state bodies and national companies significantly increased their procurement budgets? Or is the increase characteristic of all state bodies in general?
– The increase in expenditures is characteristic of all budget items of state bodies, as the main part is accounted for by current expenditures. They mainly depend on inflation, that is, on changes in prices and tariffs. Since we have observed high inflation in previous years, all these expenditures were indexed. This is due to a primitive approach to budget planning, where the expenditures of the previous year are taken and indexed by a certain coefficient. As a result, the limits of these expenditures grow, but administrators do not analyze how effectively these funds are used and for what purposes they are directed. The budget structure shows that only 35% of state budget expenditures are allocated to salaries and direct payments to the population. The remaining 65% is spent on various procurements, acquisition of goods and services, capital expenditures, and construction. There is serious potential for optimization here.
– Can we say that the figures you provided regarding the fact that 65% falls under the category of expenditures "Construction, repair, procurement, subsidies" are related to the implementation of the national project "Comfortable Schools"?
– The budget growth is associated not only with the implementation of the "Comfortable Schools" initiative, for which 500 billion tenge was allocated last year. Its share in the total budget expenditures of 27 trillion tenge is insignificant. Moreover, the project is financed through a targeted transfer from the National Fund. There are other expenditure items contributing to the budget growth, such as financing the quasi-state sector or subsidizing various sectors of the economy, including interest rates on business loans.
– Speaking of the assessment of the effectiveness of subsidization, there was a task to conduct an analysis, but there are no results yet.
– For many years, discussions on the assessment of the effectiveness of state support measures have been ongoing. It includes not only subsidies but also preferential lending and guarantees. However, no one has conducted such an assessment so far. There was also an initiative to introduce reciprocal obligations for businesses. It was proposed to require companies receiving state support to demonstrate the effectiveness of this support, including profit and employment growth. However, this information is not publicly available.
– Where do you see opportunities for budget optimization?
– Currently, we continue to finance the quasi-state sector by providing loans and increasing authorized capital. As I mentioned, the quasi-state sector not only does not pay sufficient dividends but also receives huge funding from the budget. If we add the two figures, the same Samruk-Kazyna has received more from the budget over the years than it has paid in dividends, making it a loss-making asset for the state. The volume of subsidies is increasing, including significant amounts in agriculture. However, the effectiveness of using these funds raises questions, as the sector remains low-productive for many years, unlike neighboring countries.
I believe there is significant potential for optimizing local budgets. As more powers are transferred to local authorities, as well as corresponding taxes (part of the corporate income tax has already been transferred to local authorities), the financial condition of local budgets is strengthening, but the efficiency of fund expenditure remains questionable. At the local level, there are many examples of inefficient use of funds. Even in the case of anti-flood measures, it became known that more than 1 billion tenge was embezzled. Embezzlement mainly occurs through construction, major repairs, and landscaping projects.
I think it is necessary to strengthen control and monitoring by maslikhats and the public. Any facility should be subject to thorough public oversight. For example, the issue of dismantling the pedestrian bridge near "Astana Opera" raises doubts about the necessity of such expenditures, considering other problems in the city.
Overall, this is a serious issue for urban planning. We see that large sums are invested in ill-conceived expensive projects that are subsequently little used by citizens. At the same time, they require significant expenditures for their maintenance.
– You touched on the topic of low tax collection. How is the state addressing this issue? At the same time, we observe an increase in taxes for entrepreneurs and the introduction of various fines.
– Currently, tax revenues to the treasury account for only 16% of GDP, while government expenditures are about 23% of GDP. This difference indicates the need to increase the tax base.
There are two main ways to increase tax collection. The first is to increase tax rates. However, this decision may negatively affect the economy and business. The second way is to work on increasing the tax base. This path is more complex and takes time, but it is more effective in the long term.
The government is currently inclined to raise taxes. Previously, it was proposed to increase VAT, now the corporate income tax rate. But in the long term, it is more effective to work on improving the business climate and tax administration. A large share of the economy is in the shadow, especially in the small and medium business sector. This is due to the burdensome tax administration procedures and high penalties. It is necessary to reconsider the approach to tax collection, making it more stimulating and convenient for taxpayers.