What experts say
Advisor to the Chairman of the Board of Halyk finance JSC Murat Temirkhanov highlighted several problems of Kazakhstan's budget system. Among them are the following:
There is no accountability for the finances of the entire public administration sector, although the republican budget should include absolutely all state finances, except for the budgets of akimats.
Parliament does not regulate all principles and rules of financial management of the entire public administration sector;
Problems with transparency and reliability of information on public finances;
The government has extremely low discipline in executing budget plans, while our rules do not correspond to the best global practices;
Low quality of economic forecasts for the formation of the country's medium-term budget, which leads to constant budget adjustments and incorrect planning;
Medium-term state planning of the socio-economic development of the country is disconnected from medium-term budget limits, which causes the government to constantly tap into the National Fund.
At the same time, the draft of the new Budget Code introduced the definition of 'public finances'. The speaker positively assessed this innovation, as it implies all revenues, expenditures, assets, and liabilities of the entire public administration sector.
Regarding the regulation of principles and rules of financial management, Murat Temirkhanov notes that today there are two key legislative documents in Kazakhstan – the Budget Code and the Concept of Public Finance Management. This creates a conflict of interest and reduces the role of parliament in the budget system.
'The head of state is part of the executive power and regularly initiates the growth of budgetary and extra-budgetary state expenditures for the economic and social development of the country. If the rules for using the National Fund hinder such growth in public expenditures, then the rules are simply changed by presidential decrees without discussing the economic feasibility of such changes in parliament,' he noted in his report.
When it comes to the rules of accounting and reporting on public finances, if they are established independently by executive bodies, distortions and various manipulations with information arise. There must be clear rules that need to be followed. As an example, he mentioned that three years ago a limit on the growth of public expenditures and others was approved, but these rules have not been followed even once.
In summary, Murat Temirkhanov gave a 'very negative' assessment of the Budget Code, which has already been adopted in the first reading.
'There are certain improvements at the level of project financing, interregional, but fundamental problems, due to which there will be a 100% crisis, (it exists. – Ed.) already now, (are not being solved. – Ed.). We spend a lot, go into debt, borrow a lot,' he said.
Director of the Applied Research Center Talap Askar Kysykov agrees with his colleague.
'If we take a comprehensive approach to the public finance system, what role the state plays in the financial system, the total revenue is more than 40 trillion and almost 40% of GDP. The role of the state is very high. The participation of extra-budgetary funds is growing, but they are excluded from all sub-budget procedures: ENPF, OMS. Currently, 3.3% of the country's GDP is redistributed through these funds, although in essence they are taxes, as they are mandatory payments. We are increasing the burden on the wage fund. And most of this burden occurs outside the budget. Currently, the burden on the wage fund is 36%, but it will rise to 41%, which is higher than in OECD countries. This is a gigantic punishment for employers for creating jobs,' he noted.
Askar Kysykov also emphasized that the role of Samruk-Kazyna as a quasi-state sector should play a larger role in replenishing the budget, but the organization does not play such a role: only 10-15% of net income goes to the budget, while the rest is for other purposes, mainly social.
Another problem is the chronic budget deficit: we spend assets instead of saving. As a result, public debt has increased by 77%.
'If we take the National Fund and subtract public debt, and take net assets, we are close to a zero indicator. Our net asset is 1.6% of GDP, 1.9 trillion tenge. And the question is: should we spend or save? Essentially, we have nothing left to spend because our debt obligations have already equaled what we have in savings. If we consider the debt of the quasi-state sector, it is almost 7 trillion tenge, and part of it is expressed in dollars, then we already have a negative balance: we owe more than we have in assets. As a result, the costs of servicing public debt have already increased 2.7 times over the past 5 years, and this budget has already planned 2 trillion tenge for servicing public debt,' the expert explained.
'Over the past three years, budget expenditures have increased by 60%. This is a serious increase. We need to understand what the expenditures have grown for, what we are spending more on. We have broken down this increase in expenditures, but the main items are education, social security, and debt servicing. When we look at the structure of the budget, (we come to the conclusion. – Ed.) this is a very important direction, but if we look at the structure of this increase, 80% of it is accounted for by current expenditures, not development. We are simply consuming them, but we are not investing in development,' said the director of the Talap Applied Research Center.
He is convinced that 2/3 of the budget needs to be optimized. Another problem is low tax collection.
'If we look at the execution of the republican budget for this year, there is a shortfall in tax. We are almost 20% under-collecting, and there is non-fulfillment of the revenue plan for all key taxes,' he emphasized.
The head of the Desht analytical center Kuanish Zhaikov disagreed with the notion that the budget is mainly spent on current expenditures.
'Free education, healthcare, including what we have, is in that part, which is 65%: we give 35% directly to people, but we also create these indirect benefits. I don't know how much they can be classified as unproductive, because it is a basic function of the state to engage in this, that is, it does it this way. I see that the state has had no other choice in recent years. I do not believe that we will reduce expenditures or freeze their growth, because it is impossible to finance public goods and infrastructure in such a vast territory with low taxes, generally with low incomes and expenditures,' he said.
What those close to power say
Advisor to the Prime Minister Alisher Kozhasbaev agreed that goal-setting is necessary. But he added that he is tired of attending such events where problems are listed that are known and quite simple. At the same time, the government is open to discussion and finding solutions to pressing issues.
'Let's truly discuss and seek together a solution that the government is also trying to find now. All these problems that have been listed are known. Then what is our strategic goal-setting, how will we get out (of the situation. – Ed.) – first. Second – what specifically to do with the budget code? Sequestration? (proportional reduction of funds provided for in the budget in the context of overcoming its deficit. – Ed.) I recently sat in this same expert community and said: 'Let's sequestrate.' Then I looked at this budget, and what to sequestrate? Especially when you travel to the regions, look at these people, try to tell them that sequestration is necessary. Try it, you won't leave that region,' he said.
At the same time, he expressed agreement that it is necessary to work on revenues, the quality of work performed, and human capital.
'The quality of work performed, the quality of human capital, and costs per unit of efficiency, I consider the main problem today for overall economic, social, and welfare growth,' noted Alisher Kozhasbaev.
He also shared his personal viewpoint that the annual GDP target should be abolished.
'It creates a whole bunch of problems. Our real incomes are falling, while GDP is growing. What is the value of such GDP growth? Why? Where is the quality of this growth? Where are the structural changes in the economy? Ultimately, any economy is for people, where the growth of welfare occurs. But because we are set such targets, we have to achieve them. We have to achieve them, accordingly, from here we then have to start telling that yes, it turns out that your policy with the National Bank does not match, and it turns out that our inflation is rising, as if we do not know, honestly, the level of the population is falling,' the expert explained.
He proposed creating a composite index that would include GDP, inflation, growth of population incomes, and also called for discussing this idea.
Alisher Kozhasbaev added that he also advocates for public control, but competent.