Programmatic Public Expenditure Review

1. Programmatic Public Expenditure Review Budget execution process the Republican Budget of the Kyrgyz Republic (planning) Main findings of the diagnostic study World Bank, 2005

2. Budget Execution Process • Achievements • Cash Forecasting Division • Regular reporting on budget execution • Progress in budget execution at an aggregated level (i.e. total revenues, expenditures and deficit) • The Treasury modernization started

3. Budget Execution Process • Key problems • Low predictability in resources for spending units during the year • Numerous changes to the approved budget due to its unrealistic nature • Budget execution does not reflect the needs of spending units in allocation of resources within the year As a result – unpredictability and low quality of provided services • General reasons • Untimely information flows • Political pressure • Organizational and procedural aspects • Capacity constraints

4. Budget Execution Process • Reasons for the problems • Numerous changes in the budget • Unplanned decisions during the budget year and inevitable budget revisions • Concentration of responsibilities in the Ministry of Finance / Central Treasury compared to ministries • Low effectiveness of the allocation of quarterly budget expenditures in budget execution process • Low effectiveness of cash planning and release of funds for spending units • Ineffectiveness of domestic borrowings

5. Numerous changes in budget execution process • The originally approved budget of ministries are subject to numerous changes during the fiscal year (totals, by items, by institutions) Recommendations • To establish hard budget constraints in budget execution process • There is a need for strong commitment from top management, appropriate legal framework and institutional maechanisms

6. Table 4. State Budget Execution, 2004 – by some institutions – Name of institution Deviation in % (actual execution . / approved budget . ) Parliament (Assembly of People’s Representatives) 25.5 Administration of the President (central apparatus) 112.0 General Prosecutor’s Office (central apparatus) 49.4 Ministry of Justice (central office) - 20.9 Center of social and - economic reforms under the Ministry of Finance - 62.6 National security (health facilities) 95.6 Ministry of Education (institutions of culture) - 54.6 Ministry of Transport and Communications (central office) - 28.0 Ministry of Transport and Communications (roads) 20.7 Ministry of Transport and Communications (Department of Roads of Bishkek 157.9 and Osh) Source: Estimations of the Central Treasury and the World Bank

8. Unplanned decisions during the fiscal year • Decisions on new policy without additional financing • Non-transparent reallocation of resources Recommendations • Changes shall be approved by the Parliament prior to their execution • Reserves for unforeseen policies

9. Table 7. List of budget units established in 2004 Allocated amount Name (thous. soms) 4,703 National IT Center 651 Center for Attracting Direct Investment 2,194 Center for Social and Economic Reforms 1,312 State Center for Construction Standard., Certif. & Licensing . 1,639 State Agency on Information Resources and Technologies . 53,962 State Commission for Culture and State Language Devel. . 3,350 Department on Youth’s Issues 3,109 Minister of international integration and cooperation 4,300 Agency on Civil Service Affairs 75,219 Total Source: Central Treasury

10. Concentration of responsibilities in the Ministry of Finance / CT • MoF / CTmake decisions at a micro-level • Allocation of resources by quarters for line ministries by sub-agencies and spending units • Approval of resources reallocation from one quarter to another, and from one sub-agency and spending unit to another • Financing for the current month independently of monthly applications • Quarterly plans are changed during the year frequently This practice consumes a lot of time and undermines the responsibility and accountability of ministries Recommendations • The ministries shall be delegated more authority and responsibility (in allocating resources to subordinated institutions) • To strengthen the accountability and control of ministries over subordinate institutions • To develop capacity for internal audit

11. Low efficiency of quarterly budget expenditure plans • QEA is prepared formally and is based on simplified assumptions • QEA is not realistic from the viewpoint of the needs of ministries Recommendations • Take into account the needs of ministries when preparing the detailed plans • To improve the methodology of introducing changes in QAP (given the revenue forecast, borrowing capacity)

12. Low efficiency of cash planning and release of funds • Ad-hoc decisions on prioritization of monthly expenditures (unprotected items) • Request of institutions are not included into MFP in full • Appropriations are given not for all expenditures included into MFP • Not all opened credits are actually financed in the current month • Less than 10 days are left for actual execution of a monthly budget • Practice of establishing limits and offsets Recommendations • To build up the capacity of the MoF and the CT in revenues forecasting and cash management (training, experience of other countries) • To eliminate offsets • To introduce commitment control

13. To increase the effectiveness of domestic borrowings • QEA does not reflect borrowing plans • T-Bills financing is limited by domestic debt • Ad-hoc borrowing from other sources • A larger number of government accounts not used Recommendations • To develop a mid-term and long-term strategy of domestic financing • To study a possibility to use resources in the Government accounts and other domestic short-term borrowings

14. Next steps • To identify the sequenced actions to improve budget execution • To identify actions, which can be taken by the MoF and CT using their own efforts • To identify what kind of assistance is needed and in which areas

15. Thank you for attention