Budget policy of Republic of Kazakhstan Printable versionLast update: 16.03.2023
Following the independence, Kazakhstan has gone a long way in development and improvement of budgeting processes and the period between 1991 and 1993 can be characterized as a stage of budget system emergence.
On December 17, 1991, the first Law "On the Budget System" was adopted, which defines the procedure for formation of the republican and local budgets, as well as the procedure for interaction of the budget of individuals and legal entities when paying taxes.
The period of budget system evolvement in Kazakhstan (1993 to 1997) is described by development and implementation of a new budget classification based on international standards.
Over the years, major economic reforms have been carried out in the country related to tax legislation, structuring of executive power and the second law "On the Budget System" was adopted on December 24, 1996.
In the period from 1998 to 2003, the budget system was still under reformation and an analysis of the public sector was performed based on which organizations financed from the budget were optimized.
With the adoption of the third Law "On the Budget System" as of April 1, 1999, distribution of revenues and expenditures between the republican and local budgets was legislatively approved, followed by the process of modernization of the budget system, which was marked by the adoption of the first Budget Code as of April 24, 2004.
It combined the prior laws ("On the Budget System", "On State and Guaranteed Loans and Debt", "On Enforcement of Republican and Local Budgets") that regulated the entire budget process.
For the first time, the Budget Code as of 2004 systematized issues of inter-budgetary relations and adopted a norm on stable inter-budgetary relations for mid-term.
Since that time, seven laws have been developed on the volume of transfers of a general nature for mid-term periods: 2005-2007, 2008-2010, 2011-2013, 2014-2016, 2017-2019, 2020-2022 and 2023-2025.
In 2007, work began on creating a qualitatively new public administration model based on the principles of corporate governance, efficiency, transparency and accountability to society. In order to form a holistic and effective system of state planning focused on achieving strategic goals and implementing priority tasks of the socio-economic development of the country, in December 2007, a Concept was approved on implementation of a results-oriented state planning system.
This was reflected in the new Budget Code as of December 4, 2008 aimed at creating conditions and prerequisites for the most effective management of public finances, namely, shifting the budget process from managing budget resources to managing results. There was also a transition from one-year budget planning to a three-year budget, which became the basis for a new state planning model.
Since the independence of Kazakhstan, the foundation of a modern public finance management system has been laid.
An important reform for the budget system of Kazakhstan became creation in 2000 of the National Fund of the Republic of Kazakhstan (hereinafter: National Fund) with aim to accumulate financial resources for future generations by saving oil revenues, as well as reduce the dependence of the republican budget on the situation in the world commodity markets. The National Fund has become an important tool for maintaining macroeconomic stability in the country.
Establishment of the National Fund made it possible to balance the external shocks of the crises of the 2000s during the "peak" price levels on commodity markets by allocating funds to implementation of large-scale anti-crisis programs.
The goals of transferring most part of oil revenues to the National Fund in combination with a fixed transfer to the budget are to limit the impact of oil revenue volatility on the budget and increase fiscal discipline.
The budget process at all levels of public administration is regulated by the Budget Code of the Republic of Kazakhstan (hereinafter: Budget Code) adopted in 2008.
The fiscal policy areas, including formation and use of funds of the National Fund, were first defined in the Concept of the new Fiscal Policy of the Republic of Kazakhstan approved by Decree of the President of the Republic of Kazakhstan as of June 26, 2013 No. 590 (hereinafter: Concept of Fiscal Policy) and the Concept of Formation and Use of Funds of the National Fund of the Republic of Kazakhstan approved by Decree of the President of the Republic of Kazakhstan as of June 8, 2013. December 2016 No. 385 (hereinafter: Concept of the National Fund).
The concept of fiscal policy defined the vision, major approaches to the formation of fiscal policy until 2020 and measures aimed at ensuring comprehensive reforms in the field of public finance, it also established rules regarding the state budget deficit and debt.
This fiscal framework was improved in the Concept of the National Fund, which contained additional rules regarding the non-oil budget deficit, government debt and the minimum amount of assets of the National Fund, as well as changes in the system of transfers from the National Fund to the republican budget.
Since 2017, considering the additions made to the Budget Code, the level of non-oil deficit is approved in the law on the three-year republican budget.
In order to determine the limits of government debt and state-guaranteed debt, a limit is set on the external borrowing of quasi-public sector through coordination of their volumes with the Government. This restriction was fixed in 2017 by the Budget Code.
In 2018-2020, the Concept of the National Fund was amended with respect to the rules on guaranteed transfer from the National Fund to the republican budget, non-oil deficit and debt stabilization.
In 2020, the Budget Code fixed a fiscal rule regulating the amount of guaranteed transfer from the National Fund. According to the rule, the amount of the guaranteed transfer should not exceed the projected revenues to the National Fund from the oil sector at the established cut-off price for oil.
In 2022, by Decree of the President of the Republic of Kazakhstan as of September 10, 2022 No. 1005, Concept of Public Finance Management of the Republic of Kazakhstan until 2030 (hereinafter: Concept of Public Finance Management) was approved, the main purpose of which is to ensure financial stability, promote high–quality and sustainable economic growth.
The Concept of Public Finance Management contains new approaches to the following major tasks:
- Ensuring the balance of public finances by defining a set of fiscal rules: basic and additional. The main fiscal rules include the rule on guaranteed transfer from the National Fund and the rule on expenditures of the republican budget. The rule on non-oil budget deficit, the rule on net assets of the state, the rule on debt and others will be introduced as additional types of fiscal rules. These rules are also aimed at ensuring the accumulation and limited use of financial resources in the National Fund.
- Strengthening the revenue side of the budget through cancelling inefficient tax benefits, expanding the tax base, strengthening administration.
- Improving the efficiency and economic impact of allocated budget funds through the introduction of individual elements of the budget, cost review, use of a mechanism for assessing the economic effect of spending on budget investments and subsidies, synchronizing the timing for generation of statements based on the results of assessment with the processes of budget formation, improving the system of inter-budgetary relations, state investment policy, ensuring accountability and control of budget expenses, reformation of quasi-public sector.
- Ensuring debt sustainability provides for measures to strengthen monitoring of internal and external debt of national operators, state-owned enterprises and enterprises owned by municipal entities, development of tools for assessing and forecasting debt sustainability, expansion of the list of quasi-public sector entities for which the maximum limit of external debt is determined, development of the internal market of government securities.
- Increasing the transparency and openness of the budget process through improving the effectiveness of transparency tools.
- Automating and digitizing the budget process through improvement and integration of information systems.
It is expected that implementation of the Concept of Public Finance Management will lead to the following results:
- reduction of non-oil deficit from 9.8% in 2021 to no higher than 5.0% of GDP in 2030;
- reduction of budget deficit from 3.1% in 2021 to no higher than 2.0% of GDP in 2030;
- maintaining public debt from 27.4% in 2021 to no higher than 32.0% of GDP in 2030, including government debt from 23.0% in 2021 to no higher than 27.5% of GDP in 2030;
- increase of the National Fund's foreign currency assets to USD 100.0 billion in 2030;
- net external assets (ratio of the government's external debt, guaranteed debt and quasi-public sector external debt to the National Fund's foreign exchange assets): 0.75;
- servicing of government debt from the republican budget at the level of no more than 10% of budget expenditures;
- increase of state budget revenues excluding transfers to 18% of GDP in 2030.