In 2003, the International Monetary Fund (IMF) published its latest assessment of fiscal transparency for Kazakhstan. The IMF notes that the country has rapidly and substantially improved in three critical areas: simplification of intergovernmental fiscal relations, establishment of a new treasury system, and achievement of basic accounting transparency. However, the Fund cautioned that maintaining these achievements over the long term will require institutional reform, including a strong emphasis on establishing auditing institutions that adhere to international standards and practices. It also urged that the system of intergovernmental transfers be made more transparent. The IMF mission praised the Kazakh authorities on the availability of public information, stating that no further effort is required on this issue. In contrast, the 2006 Open Budget Index, tracking the production of seven key budget documents, rated Kazakhstan at only 43%. The IMF's concluding statement from its 2007 mission to Kazakhstan noted a number of promising initiatives that could lead to increased transparency and better economic management. Chief among them ranks Kazakhstan's commitment to comply with the principles of the Extractive Industries Transparency Initiative.

General Overview

In its 2003 Report on the Observance of Standards and Codes (ROSC), the International Monetary Fund (IMF) concluded that Kazakhstan had rapidly and substantially improved in three critical areas: simplification of intergovernmental fiscal relations, establishment of a new treasury system, and achievement of basic accounting transparency. The IMF mission praised the Kazakh authorities on the availability of public information and stated that no further efforts are required to improve this issue. As of 2003, the government began work on a medium-term budget framework. The IMF indicated that the new framework will ensure that policy proposals are fully assessed in light of their long-term costs, which is of paramount importance in linking development programs to recurrent costs and in examining social security trends. The IMF recommended that the treasury system and medium-term budget management issues be given high priority. However, despite these positive developments, the 2003 IMF assessment cautioned that maintaining these achievements over the long term will require institutional reform, including a strong emphasis on establishing auditing institutions that adhere to international standards and practices. Complex transparency issues can arise in managing assets accumulated in the various stabilization, development, and social-protection agencies or funds that have been established or proposed. The 2003 IMF ROSC noted that the system of intergovernmental transfers needs to be made more transparent. The regulatory framework covering operation of private sector enterprises will need to be streamlined, both to improve transparency and to enhance the business environment. In order to sustain these improvements over the long-term, the country needs to strengthen its supervisory agencies. These efforts are required at the national level of auditing and the supervision and transparency of public procurement.

The IMF's concluding statement from its 2007 mission to Kazakhstan noted a number of promising initiatives that could lead to increased transparency and better economic management. It highlighted the planned publication in 2007 of the first audited report under the Extractive Industries Transparency Initiative (EITI) as a positive development in transparency. By the same token, the IMF also applauded progress in broadening the coverage of public debt to include debt of state enterprises and development institutions, and in disaggregating import data across the oil and non-oil sectors of the economy. The IMF mission asserted that the completion of these initiatives will facilitate analysis and the assessment of underlying economic conditions. Lastly, the mission welcomed the initiation of a World Bank assisted project to assess and improve public financial management. The December 2006 World Bank press release specifies that the Republic of Kazakhstan signed two memoranda of understanding with the World Bank that aim to further modernize the country's economy and strengthen the oversight of its extractive industries revenue. The agreements focus on improving the efficiency of public finance management at all levels of the Kazakh government and supporting the country's efforts to increase transparency of payments and revenues of extractive industries through implementation of EITI.

The IMF's 2008 data module ROSC asserted that the Budget Code provides provisions for the budget's drafting, execution, and reporting processes. The IMF indicated in its 2003 report that the National Bank of Kazakhstan (NBK) is the custodian of the National Fund for the Republic of Kazakhstan (NFRK), and the Ministry of Finance (MoF) represents the government. The NBK reports to the President of the Republic of Kazakhstan and operates independently within the powers assigned to it by the law. According to the 2003 IMF report, the NBK's custodian role for the NFRK is established by a transparent contract regulating "the relationship between its responsibilities as the custodian and those of the Ministry of Finance as the agent of the government" (p.6). The IMF's 2005 Selected Issues paper noted that the NFRK constitutes a peculiarity of Kazakhstan's fiscal policy. According to the report, the "NFRK was established in 2001 to reduce the economic impact of volatile oil prices and to serve as a vehicle for saving part of the oil income for future generations. The rules governing the NFRK are complex and have changed over time. The NFRK is an off-budget fund that is managed by the NBK on behalf of the government. All NFRK assets are invested abroad" (p. 14). Moreover, the NBK services the single treasury account of the MoF. In 2003, the IMF deemed the NBK's relations with the government to be transparent. It further found that there is a clear legal and administrative framework for budget management in Kazakhstan. Recurrent budget spending was improving, and many extrabudgetary activities had been included in the budget. However, more remained to be done in order for a unified fiscal management system to be in place.

Writing for the International Budget Project's Open Budget Initiative, M. Makhmutova compiled an Open Budget Index (OBI) for 2006 that rated Kazakhstan's budget process, overall, at 43%. The OBI tracks the production of seven key budget documents: the Pre-Budget Statement, the Executive's Budget Proposal, the Citizens' Budget, In-Year Reports, the Mid-Year Review, the Year-End Report, and the Auditor's Report. Kazakhstan produces all but two of these documents (the Citizens' Budget and the Mid-Year Review), and makes available all of the documents it produces.

The Principles

Clarity of roles and responsibilities.

II

Although Kazakhstan's general definition of government has improved, it still does not adhere to international standards, according to the IMF's 2003 assessment. The same report further observes that the current definition of general government does not include extrabudgetary funds like the NFRK and funds accumulated since 1996 in various offshore accounts, which have been transferred to the NFRK. In addition, some public enterprises are required to provide noncommercial services to the public without a clearly budgeted financing arrangement. The privatization process is governed by a presidential decree and is deemed transparent. The decree defines the type of state-owned enterprises that can be privatized. According to its website, the Ministry of Economy and Budgetary Planning of the Republic of Kazakhstan (MEBP) is the central executive body, responsible for the management of state finances, the state budget for the medium-term, and projections of the budget for the relevant fiscal year. The 2003 IMF report observed that Kazakh law stipulates the responsibilities and revenue powers of different government levels. However, the report found that the structure and implementation of intergovernmental transfers ought to be developed with more transparency, and with the objective of reducing discretionary spending and clarifying policy regarding regional equity. Revenue-sharing formulas and spending responsibilities are clearly spelled out and adhere to the observed international practice. The report does not directly address Kazakhstan's compliance with this principle, however.

The 2003 IMF report stated that the NBK is the custodian of the NFRK, and the MoF represents the government. The NBK reports to the President of the Republic of Kazakhstan but operates independently within the powers assigned to it by law. The NBK has "a transparent contract establishing the relationship between its responsibilities as the custodian [of the NFRK] and those of the MoF as the agent of the government" (p.6). The NBK services the MoF's single treasury account. The IMF found the NBK's relations with the government to be transparent, stating that there is a clear legal and administrative framework for budget management in Kazakhstan. Reporting on current budget spending is improving and many formerly extrabudgetary activities have been included in the budget. However more remains to be done in order for a unified fiscal management system to be in place.

Open budget processes

II

Per the IMF's 2003 assessment, annual budget procedures and budget allocations are clearly defined and in line with the country's macroeconomic policy. The budget classification is consistent with IMF Government Finance Statistics (1986) standards. Although the macroeconomic policy framework is usually well-defined and succinctly analyzed, this information could be made more widely accessible to the public. The IMF also found that the goals of major programs are only broadly described and often lack a progress report. The IMF further stated that estimates for new projects and current expenditures of government policies remain inadequately defined in the budget documents. The IMF indicated that the accounting system does generate sound in-year and end-year reports on central and general government budget outturns, but coverage and reconciliation of the accounts could be further improved. The audited final accounts are completed within six months of year-end and are available to the public around nine months after year-end. The report does not directly address Kazakhstan's compliance with this principle, however.

Public availability of information.

II

According to the IMF's 2003 assessment, the budget document covers the principal expenditure totals for the year prior to the budget year. However, it offers no detailed forward budget estimates. The annual budget documents comprise the annual budget law and an attached explanation of the draft law for each year covered therein. Articles 14 through 16 of the Law on the Budget System require that the budget take into account the forecast indicators for the next three years while remaining consistent with the socioeconomic development plan established for the current budget period. The report does not directly address Kazakhstan's compliance with this principle, however.

The authorities frequently release reports to the public on debt and guaranteed debt of the central government. Further, the MoF's monthly Statistical Bulletin provides a table that displays aggregate debt and guaranteed debt of the central government. However the 2003 IMF report noted problems in reconciling debt, financing, and monetary data. The budget does not include estimates of tax expenditures or quasi-fiscal activities. However, relevant information or significant concessions is published elsewhere, and could be incorporated into the budget documentation. Information on state and financial assets is available to the public, but it is not presented in systematic form. Although formal rules exist for the publication of basic fiscal data, advance release calendars are not provided. Under the budget laws, the government is required to conduct annual and monthly reporting. The law does not require publication of the report, but monthly and annual budget execution reports are frequently published.

Independent assurances of integrity.

II

State Statistics, along with international statistical practices, provide the legal basis for the generation of fiscal data in a transparent manner. Provisions in the Budget Code ensure the production of quality statistics, while Article 4 of the Law on Official Statistics governs the performance of statistics-related activities. Further, Article 8 of the same law ensures that statistical data are comprehensively and objectively analyzed and that statistical bureaus are free to choose their methodologies and methods. Under the Budget Code and the Law on State Statistics, government finance statistics are compiled and disseminated on an impartial basis. In addition, statistical methods and dissemination decisions are spelled out in the Budget Code and the provisions in the Law on State Statistics. The IMF noted in its 2003 assessment that although the process of accounts reconciliation and fiscal reporting are generally sound and the statements of accounting policy are included in monthly budget reports, the treasury coverage needs to be further improved. The monthly Statistical Bulletin of the MoF contains a brief statement describing the analytical framework and accounting basis for the fiscal data. The report does not directly address Kazakhstan's compliance with this principle however.

The IMF 2003 report further asserted that the external audit is not fully independent of the president's office even though it directly reports to parliament and the public. The Accounting Committee produces the external audit reports, but the legislature frequently does not review these assessments. In an effort to improve the role of the Accounting Committee, the IMF has recommended that auditing practices be strengthened and trained staff be increased. The IMF found that there was little external review of the government's macroeconomic models and assumptions by the country's stakeholders. The Law on State Statistics assures the independence of the Statistics Agency of the Republic of Kazakhstan, and confers upon it (and other agencies involved in statistical compilation) the authority to collect all needed information and to apply internationally recognized methods.