On approval of the Concept of Public Finance Management of the Republic of Kazakhstan until 2030

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Decree of the President of the Republic of Kazakhstan dated September 10, 2022 No. 1005.

In accordance with paragraph 5 of the National Action Plan for the implementation of the Address of the Head of State to the People of Kazakhstan dated September 1, 2021 "Unity of the people and systemic reforms are the solid foundation of the country's prosperity", approved by Decree of the President of the Republic of Kazakhstan dated September 13, 2021 No. 659, I DECREE:

1. To approve the attached Concept of Public Finance Management of the Republic of Kazakhstan until 2030.

2. To invalidate certain decrees of the President of the Republic of Kazakhstan in accordance with the annex to this Decree.

3. The Government of the Republic of Kazakhstan, state bodies directly accountable and subordinate to the President of the Republic of Kazakhstan, and other organizations shall take measures arising from this Decree.

4. Control over the implementation of this Decree is entrusted to the Administration of the President of the Republic of Kazakhstan.

5. This Decree shall enter into force from the date of its signing.

President of the Republic of Kazakhstan

K. Tokaev

Approved by Decree of the President of the Republic of Kazakhstan on September 10, 2022 No. 1005

Public Finance Management Concepts of the Republic of Kazakhstan until 2030

The footnote. The concept as amended by Decree of the President of the Republic of Kazakhstan dated 17.12.2022 No. 57; dated 22.09.2023 No. 357.

Nur Sultan, 2022

Content

Section 1. Passport (basic parameters)

Section 2. Analysis of the current situation

2.1. Assessment of the current state regulation in the field of public finance

2.2. Key issues and justification of the need to develop a Public Finance Management Concept

Section 3. Review of international experience

Section 4. Vision for the development of public finance management

Section 5. Basic principles and approaches to shaping public finance management policy

5.1. Basic principles of Public Finance Management Policy

5.2. Basic approaches to public finance management policy

5.3. Policy of formation and use of funds of the National Fund of the Republic of Kazakhstan

5.4. Fiscal policy

5.4.1. Defining a set of budget rules

5.4.2. Strengthening the revenue side of the budget (tax policy)

5.4.3. Improving the efficiency and economic impact of budget expenditures

5.5. Public Debt Management Policy

5.6. Increasing the transparency and openness of the public finance management process

5.7. Automation and digitalization of the public finance management process

Section 6. Target indicators and expected results

Section 7. Action Plan for the implementation of the Concept of Public Finance Management of the Republic of Kazakhstan until 2030.

Section 1.Passport (basic parameters)

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Name

The concept of public finance management of the Republic of Kazakhstan until 2030

The basis for the development

The Development Strategy of Kazakhstan until 2050, the National Development Plan of the Republic of Kazakhstan until 2025, the Message of the Head of State to the people of Kazakhstan dated September 1, 2020 "Kazakhstan in a new reality: time for action", the Message of the Head of State to the People of Kazakhstan dated September 1, 2021 "Unity of the people and systemic reforms are a solid foundation for the prosperity of the country"

The Government agency responsible for the development of the Concept

Ministry of National Economy of the Republic of Kazakhstan

Government agencies and organizations responsible for the implementation of the Concept

Central and local executive bodies, quasi-public sector entities

Terms of implementation

2022-2030 years

Section 2. Analysis of the current situation

2.1. Assessment of the current state regulation in the budgetary sphere

Since gaining independence, Kazakhstan has gone a long way in establishing and improving its budget regulation system.

A number of significant, interrelated and well-thought-out reforms in the budgetary sphere have been carried out.

Formation of the budget system and the National Fund

An important reform of the budget system of Kazakhstan was the creation in 2000 of the National Fund of the Republic of Kazakhstan (hereinafter - NFRK) in order to accumulate financial resources for future generations by saving oil revenues, as well as reducing the dependence of the republican budget on the situation in the global commodity markets. The NFRK has become an important tool for maintaining macroeconomic stability in the country.

The creation of the NFRK made it possible to offset the external shocks of the crises of the 2000s during the "peak" price levels in the commodity markets by allocating funds for the implementation of large-scale anti-crisis programs.

The goals of channeling the bulk of oil revenues to the NFRK, combined with a fixed transfer to the budget, are to limit the impact of oil revenue volatility on the budget and increase budget discipline.

The budget process at all levels of government is regulated by the Budget Code of the Republic of Kazakhstan (hereinafter referred to as the Budget Code), adopted in 2008.

The directions of budget policy, including the formation and use of funds of the NFRK, are defined in the Concept of the New Budget Policy of the Republic of Kazakhstan, approved by Decree of the President of the Republic of Kazakhstan dated June 26, 2013 No. 590 (hereinafter referred to as the Concept of Budget 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 dated December 8, 2016 Year No. 385 (hereinafter referred to as the NFRK Concept).

The budget policy concept defines the vision, the main approaches to the formation of fiscal policy until 2020 and measures aimed at ensuring comprehensive reforms in the field of public finance. The Budget Policy Concept also establishes rules regarding the State budget deficit and debt.

This fiscal framework has been improved in the NFRK Concept, which established additional rules regarding the non-oil budget deficit, government debt and the minimum amount of assets of the NFRK, as well as changed the system of transfers from the NFRK to the republican budget.

Since 2017, taking into account the additions made to the Budget Code, the level of the non-oil deficit has been approved in the law on the three-year republican budget.

Today, Kazakhstan's budget system is based on budget rules.

Budget rules limiting the budget deficit and non-oil budget deficit, as well as setting parameters for public debt and a lower limit on NFRK's financial assets, are necessary to maintain the sustainability of public finances.

In 2018-2020, the NFRK Concept was amended with respect to the rules on guaranteed transfer from the NFRK to the republican budget, non-oil deficit and debt stabilization.

Certain restrictions have been introduced to prevent the National Fund's assets from being replaced by government debt.

According to the report on the execution of the republican budget, the amount of the guaranteed transfer from the National Fund to the republican budget in 2019-2021 amounted to 10.1 trillion tenge. By the end of 2021, the cost of servicing and paying off government debt amounted to 17% of the republican budget revenues.

In order to determine the limits of government debt and government-guaranteed debt, a limit on the external borrowing of the quasi-public sector will be established through the coordination of their volumes with the Government. This restriction is fixed in the Budget Code.

In 2020, the Budget Code establishes a budget rule governing the amount of a guaranteed transfer from the NFRK. According to the rule, the amount of the guaranteed transfer should not exceed the projected revenues to the NFRK from the oil sector at a set cut-off price for oil.

Assessment of the sustainability of public finances

In Kazakhstan, the types of risks that can have an impact on the country's economy are considered by the Government when developing a Forecast of Social and Economic Development (hereinafter referred to as the PSER) for the medium term, which is the basis for planning the national budget.

Since 2018, an assessment of the sustainability of public finances has been presented as part of the PSER.

According to experts of the International Monetary Fund, despite the disclosure of a set of risks in the PSER, the current modeling methods are limited to analyzing a narrow range of mechanisms for the impact of macroeconomic risks, based on the supply side of the economy. As a result, the degree of impact of economic shocks on budgetary positions is underestimated, which leads to the realization of budgetary risks.

At the same time, socio-economic development indicators are projected for five years and budget parameters are drawn up for three years. The current system does not require the development of long-term forecasts covering a period of more than 10 years. The observed trend in other countries related to demographic indicators, such as population aging, an increase in the birth rate, or climate change, is also relevant for Kazakhstan, as it has implications for economic growth, pension programs, health and social services, taxation, and others, which will also affect the parameters of the state budget.

In order to bring the country's current forecasting and planning system closer to the forefront of budget practice, international experts have recommended the publication of a separate document that will become an important milestone towards further improving the Government's work on budget risk analysis and management and assessing the sustainability of public finances.

The norm of budget legislation adopted on January 1, 2022 (subparagraph 1-1) of paragraph 1 of Article 74 of the Budget Code) serves as the basis for the development of an analytical report on budget risks and long-term sustainability of public finances, which the Government of the Republic of Kazakhstan submits to the Parliament of the Republic of Kazakhstan simultaneously with the draft law on the republican budget for the planning period.

For Kazakhstan, the introduction of a budget risk management system and assessment of the long-term sustainability of public finances is an important addition to the currently applied strategic planning in the budget process. Disclosure of budget risks and assessment of long-term sustainability will help to determine the balance of costs and benefits when making policy decisions, and provide an understanding of long-term pressure points.

The budget revenue base is being strengthened through measures taken to improve the quality of tax and customs administration, taking into account the use of digital technologies, as a result of which about 700-800 billion tenge of additional revenue to the national budget is provided annually. Over the past 3 years (2019-2021), the budget has already received more than 2.3 trillion tenge of additional revenues (916 billion tenge in 2019, 710 billion tenge in 2020, 683 billion tenge in 2021).

The revenue forecast for 2022, due to tax and customs administration measures and their digitalization, takes into account additional revenues in the amount of 726 billion tenge, which reduced the level of the shadow economy from 27% in 2018 to 20.2% in 2020 of GDP (23.7% in 2019).

Work in this area will continue, taking into account the full functioning of the National Product Traceability System in 2022, which is a complex of information systems.

In addition, taking into account international experience, the authorized budget execution body has launched a project on horizontal monitoring of large businesses, based on remote information interaction between tax authorities and the accounting department of large businesses by mutual agreement of the parties, which eliminates tax surcharges and fines in the future.

According to the current legislation on transfer pricing, control is not carried out on transactions made on the commodity exchange with exchange-traded goods in accordance with the legislation of the Republic of Kazakhstan (hereinafter - RK) on commodity exchanges.

During the period 2015-2020, a total of 147 transfer pricing inspections were conducted for exporters of strategically important goods (oil, gas, petroleum products, metals, ores and concentrates, coal, grain), as a result of which taxes in the amount of 50 billion tenge were collected to the budget.

In addition, when monitoring transactions for 2019 for liquefied gas and grain sold through commodity exchanges in Kazakhstan, it was found that prices were underestimated by 10-25% of market prices in the importing country (Uzbekistan, Tajikistan, Afghanistan).

Also, in practice, artificial intermediary structures are created that take minimal risk in the subsequent sale of exported products and are not recognized by interrelated parties.

Such transactions are not controlled by transfer pricing legislation, and capital is being withdrawn from the Republic of Kazakhstan.

Mobile applications with convenient and simple functions have been launched to drastically simplify the fulfillment of tax obligations. These are "E-Salyq-Azamat" for individuals and, from January 1, 2022, "E-Salyq-business" for individual entrepreneurs.

At the same time, in the domestic tax legislation there is a wide range of preferences, deferrals, deductions, changes in the methods of paying taxes and other mandatory payments to the budget, which are benefits.

The analysis of tax benefits and preferences is carried out on an ongoing basis.

The current Tax Code contains 277 tax benefits.

The amount of these benefits amounted to 4,511.4 billion tenge in 2018.

In terms of taxes, the amount of value-added tax benefits (hereinafter referred to as VAT) is 2,700.4 billion tenge, corporate income tax (hereinafter referred to as CIT) is 1,786.5 billion tenge, and other benefits are 24.5 billion tenge, i.e. the lion's share in the structure is occupied by VAT and CIT benefits (99.5%).

The amount of benefits in 2019 amounted to 4,017.7 billion tenge, in 2020 - 4,401.9 billion tenge. The structure of benefits has been preserved.

Most of these benefits are standard, i.e. they correspond to international practice.

In 2020, the amount of VAT benefits amounted to KZT 3,153.4 billion (71.6%).

The amount of benefits under the CPN in 2020 amounted to 1,224.6 billion tenge (27.8%).

A large number of tax benefits cost the state a significant amount of lost income.

Issues of increasing the efficiency of the budget system

In 2014-2020, work to improve the efficiency of the budget system was carried out in accordance with the Budget Policy Concept and the National Plan - 100 Concrete Steps.

The reforms were carried out comprehensively. The main message of the reforms in this period is the continuation of work on the transition from "budget management" to "results management".

In this regard, in 2013, the Concept of Improving the Results-based State Planning System (hereinafter referred to as the Concept) was adopted.

The concept so far contains the basic principles and approaches for the further development of the state planning system, as well as defines the goals and objectives of the implementation of state policy on state planning.

The basic principles are the necessity and legality of developing documents at a lower level, depending on the documents at a higher level.

This means that target indicators and performance indicators should be decomposed and determined based on the hierarchy of documents in the state planning system.

In turn, budget expenditures should be directed towards achieving the target indicators and performance indicators set out in the documents of the state planning system, that is, "results management".

The main approaches to "results management" involve the following:

The budget is formed based on the goals and results of the state policy;

When planning expenses, the main focus is on substantiating the final results within the framework of budget programs.;

The allocation of budget funds between the administrators of budget funds and (or) the budget programs implemented by them is carried out in direct dependence on the achievement of final results in accordance with the priorities established by the country's program documents.;

The performance of administrators of budgetary funds is assessed based on the results achieved.

The use of results-based budgeting allows you to:

focus budget expenditures on priority areas of economic development;

establish the relationship between the expected results of budget programs and the amount of necessary resources;

increase the reasonableness of budget expenditures;

expand the independence of government agencies with increased responsibility for the implementation of budget programs.

Starting with the formation of the budget for fiscal years 2021-2023, a new budget planning system has been introduced.

With the introduction of new approaches in budget planning, the budget process begins not with spending limits, but with prioritizing strategic goals and objectives.

Budget program administrators, within the framework of the budget application, evaluate the effectiveness of the claimed expenditures on budget investments and budget subsidies.

Departmental budget commissions have been established under each ministry, which approve the administrators' application for fixed costs. In addition to independence, this will improve the quality of planning at the level of government agencies themselves.

Thus, the budget legislation has significantly expanded the boundaries of the independence of government agencies, while increasing responsibility.

The changes affected the format of the presentation of the draft budget, the report on its implementation and their consideration in Parliament. These procedures are focused on achieving results according to the principle of transition from "money management" to "results management".

During the discussion of the annual report, the Parliament hears reports from authorized persons, heads of administrators of budget programs on achieving direct and final results, and akims on targeted transfers and budget loans received from the republican budget.

In 2021, the country adopted a new System of state planning: the decrees of the President of the Republic of Kazakhstan approved the National Priorities of the Republic of Kazakhstan until 2025 and the National Development Plan of the Republic of Kazakhstan until 2025.

National projects were approved with legislative integration into the budget process. According to the requirements of the Budget Code, the financing of activities of national projects is carried out on a priority basis in compliance with the principles of the budget system.

The results assessment system

The results-based budgeting system being created in the country required further development of the results assessment system with the introduction of new assessment tools.

By Decree of the President of the Republic of Kazakhstan dated March 19, 2010 No. 954, a system of annual assessment of the effectiveness of the central state and local executive bodies of regions, cities of republican significance, and the capital was introduced as a tool to improve the effectiveness of their activities.

The subject of the evaluation of the effectiveness of the central state and local executive bodies was the degree of implementation of the assigned tasks and functions of the state body.

The issue of estimating budget expenditures for Kazakhstan has become relevant in the process of implementing a new results-based budget planning system.

Currently, the following types of assessment are used in the public administration system of Kazakhstan:

assessment of the implementation of State Planning System documents;

assessment of the effectiveness of government agencies;

assessment of the implementation of budget investments;

assessment of the effectiveness of state property management.

All these types of evaluation of results are carried out on an annual basis with the provision of evaluation results with relevant conclusions and recommendations to authorized and higher authorities.

At the same time, an analysis of the use of recommendations based on evaluation results, as well as ongoing work to improve the budget planning process, show that there are certain problems in the demand for evaluation results and their use in making decisions on resource allocation.

Budget investments

As part of the implementation of the Budget Policy Concept, the budget investment planning system has been revised, in which, already at the stage of forming investment proposals, before developing feasibility studies and design estimates (hereinafter referred to as the PSA), projects will be strictly selected according to appropriate criteria and their financing scheme will be determined.

In order to reduce unnecessary procedures in the planning and implementation of budget investments, in 2013 the Budget Code introduced a method for selecting public investment projects based on the principle of a "budget comparator", which involves determining the possible type and methods of financing public investment projects at the investment proposal stage through budget or private investments, i.e. the implementation of the project as a budget investment project, a budget loan, the formation or increase of the authorized capital of legal entities, a public-private project or through private investment.

Despite the ongoing work to improve budget procedures for planning and implementing budget investments, one of the significant problems today is the lack of a single database on budget investments that allows for full-fledged accounting and monitoring of all planned and implemented budget investments on a single platform, with the accumulation and preservation of historical project data, starting from the stage of their implementation. planning before actual commissioning (achieving direct and final results).

To address this issue, the authorized body for budget planning, together with the authorized body for state planning, is currently working on the inclusion and development of a separate module "Public Investment Projects" as part of the development of the State Planning Information System.

With the commissioning of the above-mentioned information system, it is expected to optimize business processes by connecting all interested government agencies into a single information system, which will complete the full transition to electronic document management.

It is also expected that the commissioning of the above module will provide timely assistance in addressing some pressing issues, including the introduction of a database on public investment projects and the introduction of a single window approach for reviewing feasibility studies and PSAs.

A full-fledged institute of public-private partnership (hereinafter - PPP) was introduced with the adoption on October 31, 2015 of the Law of the Republic of Kazakhstan "On Public-Private Partnership" (hereinafter - the PPP Law).

The PPP Law has opened up the possibility of implementing PPP in many areas of the economy, expanded its contractual forms, as well as the possibility of concluding contracts not only on the basis of a competition, but also through direct negotiations.

In 2019, amendments were made to the legislation on PPP to increase the priority and quality of projects, which stipulates that decisions on PPP projects should be made taking into account the value to the public and the urgency of the project. To ensure an integrated and comprehensive approach to project development, minimize unaccounted-for risks, and reduce corruption, the mandatory creation of an Interdepartmental Project Team was introduced.

During the period of the PPP institute's existence from 2015 to December 1, 2021, 876 PPP contracts were concluded for a total amount of 2,098 billion tenge, including the number of projects of the 1st category - 331 (1,873.3 billion tenge), 2nd category -212(118 billion tenge), 3rd category - 333 (107.1 billion tenge).

The burden on the budget depends on the classification of PPP projects into one category or another, since category 1 is full reimbursement of all costs from the budget, category 2 is partial reimbursement of costs from the budget, and category 3 is projects that are recouped through tariffs and paid services.

Inter-budgetary relations

Since the widespread introduction of independent budgets of local governments in 2020, the budget system of Kazakhstan has been represented by a four-tier state budget system consisting of a republican and three levels of local budgets in the form of regional (cities of republican significance, the capital), district (cities of regional significance), cities of regional significance, villages, towns and rural districts.

In matters of ensuring effective public administration in the country, regional policy, implemented at the expense of local budgets, is of great importance. In turn, the system of inter-budgetary relations between the center and the regions plays an important role in the successful functioning of local budgets.

According to the current system, inter-budgetary relations are regulated by general transfers (budget subventions and withdrawals), targeted transfers (targeted current and development transfers) and loans.

Transfers of a general nature are aimed at equalizing the level of budget provision (equalizing local budget revenues and expenditures) and ensuring equal fiscal opportunities for regions to provide state-guaranteed services.

Targeted transfers are a tool for the operational regulation of inter-budgetary relations during the period of three-year transfers of a general nature.

Targeted current transfers are allocated to compensate for losses of local budgets resulting from the adoption of regulatory legal acts, and targeted development transfers are aimed at equalizing the provision of regions with social infrastructure and life support facilities.

The amounts of budget subventions and withdrawals between the republican and local budgets are approved by law for a three-year period and are not subject to change for three years.

The consolidation of budget subsidies and withdrawals for 3 years is stimulating for the regions, as it allows akims to independently manage additional revenues received during the three-year general transfers to address local issues.

The revenues received by the M&E in excess of the forecast, as well as the free balances of budget funds at the beginning of the year, remain at their disposal and are not withdrawn to the republican budget, which creates an incentive to increase the tax base for taxes received by the local budget.

So, if the annual over-fulfillment of the forecast for local budget revenues for 2013-2019 averaged 109.2% compared to the previous year, then for the period 2020 - 2021 it averaged 124.5% compared to the previous year.

Every year, there are unused balances of local budget funds at the end of the year. Thus, at the end of 2013, the remaining budget funds of the regions amounted to 98.3 billion tenge, while at the end of 2021 they amounted to 414.5 billion tenge.

These funds are independently allocated by the regions to solve socio-economic problems, including infrastructure development.

Local budgets are allocated tax revenues that are stable and independent of external factors.

Current taxes, individual income tax, social tax, transport, property and land taxes, and other charges that go to the local budget are a stable source of income for small and medium-sized enterprises and are less affected by economic cycles.

In addition, these taxes are levied from the tax base, which has a clear territorial reference, and have a high degree of collection.

All this ensures the stability of local budget revenues.

Also, starting in 2020, local budgets have received income from small and medium-sized businesses (hereinafter referred to as SMEs) to strengthen the interest of akims in expanding the tax base through the diversification of regional economies, as well as the development of SMEs in the non-resource sector.

As a result, in 2021, an additional 304 billion tenge was received by local budgets, or 70.8% of the forecast (forecast - 429 billion tenge).

In order to strengthen the incentive for M&E to increase economic activity in the region, develop SMEs and increase local budget revenues, as part of the improvement of budget legislation, it is planned to fix the maximum standards for the distribution of income from SMEs from the regional budget to the district (city of regional significance) budget of at least 50%.

In 2021, the methodology for calculating transfers of a general nature was improved, indicators and coefficients were revised, taking into account their relevance and taking into account regional specifics aimed at improving the standard of living of the population.

Additional industry coefficients have been introduced, taking into account the current state of infrastructure in the regions.

The approach to determining the forecast of current expenditures of local budgets has been revised. The actual current expenditure level of each region is used as the calculation base.

This objectively and maximally takes into account the specifics of each region and the current level of current costs of the region per inhabitant (recipient of budget services).

Accounting and reporting in the budget system

The reforms in the budget system have also affected the areas of accounting and reporting.

In accordance with international experience, the foundations for accrual-based reporting have been laid, and therefore there are currently two streams of information in the public sector: cash-based and accrual-based.

The financial statements of government agencies, formed using the accounting chart of accounts, are information based on the accrual method.

Budget reporting and the draft budget using a single budget classification represent a flow of information on a cash basis.

For further implementation of the reform, it is necessary to combine these two streams of information, for which, starting in 2024, it is planned to apply a single chart of accounts as a codification of accounting accounts, budget accounting and a single budget classification.

Currently, the functions of ensuring the execution of the republican budget, cash management services for the local budget, the formation of reliable budget reports on budget revenues and expenditures on a cash basis for all levels of the budget, as well as the preparation of consolidated financial statements using the accrual method are assigned to treasury bodies, which have been an agency with territorial divisions in the structure of the central commissioner since 1994. the budget execution authority.

The Treasury authorities, accumulating receipts to the NFRK, funds from the republican and local budgets, external government loans and grants for the formation and increase of the authorized capitals of legal entities on a Single Treasury Account (hereinafter referred to as the CEN), ensure their daily operational processing and preparation of budget reports.

As a result of further improvement of the treasury system, improvement of the quality of services provided, integration with other related information systems, treasury bodies are currently ensuring transparency of financial transactions, accelerated transfer of budget money to the real sector of the economy, complete paperless document management with system participants, reducing the time for processing financial documents from 3 days in 2010 to 6 hours in 2021.

Efficiency of State property management

Over the years of independence, Kazakhstan has made some progress in the management of state assets.

The effectiveness of state property management has a certain impact on the sustainability of public finances due to the active financing from the budget of quasi-public sector entities.

In the absence of a dynamically developing private sector and constant dependence on the extractive industry, it was the quasi-public sector that was supposed to become one of the main tools for stimulating the country's economic development.

At the initial stage, the creation of quasi-public sector entities was aimed at solving certain tasks of the state, including the development of strategically important and underdeveloped markets, the creation of high-tech industries in non-resource sectors of the economy, followed by the entry of quasi-public sector entities into a competitive environment.

The role of the state as an owner and a manager was divided, national holdings for the management of state assets and development institutions were formed. This institution has also made it possible to reduce the burden on the state apparatus and provide flexibility in matters of management and remuneration.

In order to reduce government involvement in the economy in 2016-2020, 506 facilities were sold, 301 facilities were reorganized and liquidated as part of the Comprehensive Privatization Plan. 629.5 billion tenge was received from the sale of assets.

Further work to reduce government involvement in the economy is underway as part of the implementation of the Comprehensive Privatization Plan for 2021-2025, which includes 721 state-owned and quasi-public sector facilities.

In general, this measure is reflected in the Concept for the Development of Public Administration in the Republic of Kazakhstan until 2030, approved by Decree of the President of the Republic of Kazakhstan dated February 26, 2021 No. 522.

An Action Plan has also been developed to implement the Concept for the Development of Public Administration in the Republic of Kazakhstan until 2030, approved by Resolution No. 470 of the Government of the Republic of Kazakhstan dated July 8, 2021, where the government's share in the economy is planned to be reduced to 14% (December 2025).

Despite the ongoing work, today there remains a significant share of state participation in the economy and a large number of quasi-public sector entities.

Today, three types of organizational and legal forms are legally defined for quasi-public sector entities: a joint-stock company, a limited liability partnership, a republican and a municipal enterprise.

In 2021, about 6.4 thousand organizations are operating in the country.

A significant part of them (80%) are social (healthcare, education, culture, sports), which mainly function as state-owned enterprises (4.2 thousand) and state-owned enterprises with the right of economic management (1.3 thousand).

At the same time, there are 300 joint-stock companies and 600 limited liability partnerships (including organizations belonging to the Samruk-Kazyna National Welfare Fund JSC (hereinafter referred to as the Fund) and National Managing Holding Baiterek JSC).

In general, the measures taken to implement the Budget Policy Concept and the NFRK Concept make it possible to concentrate public finances on the implementation of priority areas of the country's development, increase the efficiency of public finance management, and improve the quality of use of budget funds and state assets.

As a result of the reforms, the public finance management system in Kazakhstan has advanced towards compliance with the principles of good international practice, so:

the relationship between strategic planning and budget expenditures is ensured;

A set of fiscal rules has been defined to ensure the long-term sustainability of the budget and the necessary buffer in case of future economic shocks.;

Budget transparency has significantly improved and citizen participation has increased through the introduction of the Open Budgets online portal and the introduction of community councils.;

Accrual accounting has been adopted in accordance with international standards, which improves the quality and transparency of public finances.

2.2. Key issues and justification of the need to develop a Public Finance Management Concept

In general, the priorities set by the Government in achieving key national benchmarks correspond to the goals of the Strategy of Kazakhstan until 2050 and the National Development Plan of the Republic of Kazakhstan until 2025.

Taking into account the development priorities for the medium and long term, the goal of fiscal policy was to ensure a balance between public finances and budgetary efficiency, while further strengthening the sustainability of public finances.

At the same time, significant problems and negative trends remain in the formation of fiscal policy related to non-compliance with targets for public finance parameters set out in the concepts of fiscal policy and the NFRK.

Fiscal policy

In order to ensure a balanced balance between the state budget and the National Fund, fiscal policy should have been based on a gradual reduction in the non-oil deficit relative to GDP to 6.0% by 2025.

The trajectory of the indicator in 2013-2021 is characterized by its instability, with a sharp increase in 2017-2020 from 7.3% in 2013 to 12.4% in 2017 and 11.5% in 2020.

Dynamics of the target value of the non-oil deficit of the National Development Plan of the Republic of Kazakhstan until 2025 and the state budget, in% of GDP

Source: Statistical bulletin of the Ministry of Finance of the Republic of Kazakhstan, Information and legal system of regulatory legal acts of the Republic of Kazakhstan

The instability of the medium-term targets indicates that there are significant risks to maintaining fiscal stability and, in general, to achieving the indicators of the National Development Plan of the Republic of Kazakhstan until 2025 in the stated values.

The lack of targeted work on fiscal risk management with the identification of measures to finance current expenditures, as well as provide financing for long-term priorities, without resorting to significant adjustments to the balance of budget revenues and expenditures and the build-up of debt obligations, has led to risks of imbalance in public finances.

The increase in government spending was not accompanied by an appropriate tax base and the completeness of the revenue side of the budget.

For the period from 2013 to 2021, state budget revenues, excluding transfers, averaged 14% of GDP, while state budget expenditures showed steady growth from 20% of GDP in 2013 to 23-25% of GDP in some years.

At the same time, the share of the development budget in the total volume of state budget expenditures decreased from 18.9% in 2013 to 11.6% in 2021.

The faster growth rates of expenses over revenues contributed to a greater withdrawal of funds from the NFRK and an increase in the fiscal budget deficit.

Parameters of the state budget from 2013 to 2021

Source: statistical bulletin of the Ministry of Finance of the Republic of Kazakhstan, calculations of the Ministry of National Economy of the Republic of Kazakhstan.

As a result, transfers from the NFRK to the republican budget tended to grow gradually from 3.9% of GDP in 2013 to 8.1% of GDP in 2017 and to 6.8-5.5% of GDP in 2020-2021.

Due to the increased use of NFRK funds and the decline in world oil prices, since 2015, for the first time, there has been a tendency to reduce the National Fund's foreign exchange assets, which amounted to 63.4 billion US dollars in 2015 (70.8 billion US dollars in 2013) and reached 55.3 billion US dollars in 2021.

As a result, in the parameters of the NFRK for 2022-2024, the value of the target indicator for the non-deductible balance of funds exceeded the limit of at least 30% of GDP.

This was also facilitated by the stimulating fiscal policy adopted in 2014. Economic support programs were funded through the exclusive use of NFRK funds and additional external borrowing.

The consequences of the COVID-19 pandemic have had a strong impact on the economy, similar to the scale of the 2014-2015 crisis. Due to the downturn in economic activity, non-oil tax revenues to the budget have decreased.

In order to ensure measures to support the economy and fulfill social obligations in full, additional transfers from the NFRK have been attracted to the republican budget as part of the Government's anti-crisis program for 2020.

The funds of the NFRK were aimed at strengthening social support for citizens, including increasing incomes and supporting low-income segments of the population, and addressing housing issues for low-income citizens.

The traditional balancing of the parameters of the state budget due to additional withdrawals from the NFRK and an increase in the budget deficit led to a violation of the established targets for deficits and non-oil deficits, public debt and debt burden.

The minimum value of the budget deficit was provided in 2013-2019 at the level of 1.9-1.3% of GDP, in 2020-2021 its value was 4-3.1% of GDP, respectively.

The need to achieve the priorities and goals defined in strategic planning documents and to make a qualitative leap in socio-economic development in conditions of limited budgetary resources increases the urgency of developing and implementing a system of measures to improve the country's fiscal policy, including revising the existing budget model based on building a system of new budget rules.

Despite the systematic implementation of reforms over the past few years and a well-established system of budgetary procedures and processes in the public sector, a number of unresolved issues remain.

The ongoing reforms to transform the strategic and budgetary planning system offset the persistence of systemic deficiencies in planning.

During the implementation of measures to introduce results-based budgeting, problems were identified with the definition and prioritization of goals and results of activities and non-compliance with their hierarchy, lack of qualified personnel, the ability to work structurally with documents of the state planning System, high-quality development of their own documents and their decomposition.

The system for the development of human resources in the field of strategic and budgetary planning is not organized at the proper level, ensuring the planning, execution, achievement of results of budget programs, accounting and reporting of public funds in accordance with the requirements of the Budget Code.

Openness and accountability of the budget process

The problem of excessive bureaucratization of processes, incomplete automation and integration of strategic and budgetary planning processes remains important.

In 2016, as part of the implementation of the provisions of the Law of the Republic of Kazakhstan dated November 16, 2015 No. 401-V SAM "On Access to Information", the online portal "Open Budgets" was introduced as a component of the e-government web portal, which provides the placement of budget reports, consolidated financial statements, the civil budget, the results of the state audit and financial control, as well as public discussion of draft budget programs and reports on the implementation of budget programs.

However, to date, the portal does not solve the tasks set due to the lack of systematic data, lack of information for comparison, short deadlines for discussion, poor quality and violation of the deadlines for posting information.

In this regard, there is an objective need to conduct a comprehensive analysis and develop effective recommendations for improving the Open Budgets portal aimed at ensuring transparency and accountability of budget funds.

Budget investments

The decrease in the quality of the selection of budgetary investment projects is reflected in the priorities of the budget for the development of expenditures of the republican budget.

In addition, there is no single database on budget investments and PPP projects for accounting and monitoring planned and ongoing projects with the accumulation and preservation of their historical data, starting from the planning stage to the actual commissioning.

The poor quality of the PSA development, as well as insufficient accounting for work or the use of outdated data and technologies, the use of unreasonable calculations in the preparation of construction estimates lead to adjustments to the PSA, an extension of the standard construction time, an increase in the cost of the project and an increase in inefficient costs in general.

The implemented PPP projects are not considered from the perspective of their budgetary efficiency and risk management related to public finances, as the main focus of the review is on the compliance of PPP obligations with the established limits of government obligations for PPP projects. However, in recent years, due to the increase in the number of implemented PPP projects, there is a risk of non-compliance with the established limits of government obligations.

Inter-budgetary relations

Regional differences between regions remain in the system of inter-budgetary relations.

Currently, except for four regions: Atyrau, Mangystau regions and the cities of Almaty and Nur-Sultan, all other thirteen regions belong to the subvention.

The total amount of budget withdrawals, which amounted to KZT 121.1 billion in 2013, is KZT 490.4 billion for 2022.

The total amount of budget subventions, which amounted to 865.8 billion tenge in 2013, is 2,124.7 billion tenge for 2022.

Over the period 2013-2022, the increase in subventions far outstrips the growth in budget withdrawals. So, if during this period the volume of budget withdrawals increased 3 times, then subventions increased almost 12 times.

In addition, local budgets remain highly dependent on funds allocated from the national budget. The share of dependence of the local budget on funds allocated from the national budget for the period 2013-2021 averaged 57%.

The volume of transfers allocated from the national budget to the regions is growing. Thus, in 2013, the volume of targeted current transfers amounted to more than 500.0 billion tenge, in 2022 their volume increased to 1,895.3 billion tenge.

The increase in targeted current transfers to the regions is mainly due to the need to compensate for additional M&E costs resulting from the adoption of new regulatory legal acts.

In addition, targeted transfers from the national budget have begun to finance local-level facilities, including low-cost ones and areas that legally fall within the competence of the Ministry of Health, such as financing the construction of outpatient clinics, rural clubs, and sports and recreation complexes under the Auyl-El Besigi Program.

Thus, transfers from the national budget continue to be the main source of solutions to the socio-economic problems of the regions.

There is little interest on the part of M&E in reducing dependence on transfers and replenishing the revenue side of local budgets from other sources.

At the same time, the existing system of inter-budgetary relations indicates that there are reserves for further improvement.

Public debt

The formation of a budget with a deficit contributed to Government borrowing to cover it and increased public debt.

Thus, from 2013 to 2021, the level of public debt increased from 12.5% of GDP to 27.0% of GDP. During the same period, the national debt increased 5 times in nominal terms (from 4.4 trillion tenge in 2013 to 22.0 trillion tenge in 2021).

About 80% of the national debt is Government debt, which increased from 4.4 trillion tenge in 2013 to 18.7 trillion tenge in 2021, or from 10.1% to 23.0% of GDP,

The increase in government debt has led to higher maintenance costs. Republican budget expenditures on government debt servicing increased from 177.3 billion tenge in 2013 to 977.7 billion tenge in 2021, or from 2.8% to 6.4% of the total republican budget expenditures.

In this regard, the main task of the Government will be to curb the growth of public debt and the cost of servicing it.

Quasi-government debt

The debt of the quasi-public sector (the Fund, Baiterek and KazAgro holdings) in nominal terms increased from 14.1 trillion tenge in 2015 to 17.3 trillion tenge in 2021, while it decreased in relation to GDP from 34.6% to 21.2%.

In the structure of quasi-public sector debt, external debt (Funds, Baiterek and KazAgro holdings) decreased from 8.1 trillion tenge (23.9 billion US dollars) in 2015 to 7.6 trillion tenge (17.7 billion US dollars) in 2021, or from 20.0% to 9.4% of GDP.

The Government's task will be to regulate the debt level of the quasi-public sector within the framework of the covenants established by this Concept.

The results assessment system

According to the requirements of the Budget Code, the consideration by authorized bodies for state and budget planning of proposals from budget program administrators when planning the budget for the new planning period should be based on the results of an assessment of the effectiveness of achieving the goals of development plans and indicators of budget programs for the past year.

At the same time, the evaluation of the results in accordance with the deadline established by law is carried out later than the deadline set for the submission of documents for budget planning.

In addition, the existing system for evaluating the effectiveness of budget expenditures, despite its attribution to an integral part of the budget process, in practice represents a disparate system with different goals, different deadlines and different levels of presentation of final assessment reports, which generally does not allow them to be taken into account when planning the budget and act as one of the levers to increase the efficiency of expenditures.

In this regard, it is necessary to consider synchronizing the timing of the evaluation of results with the timing of the budget expenditure planning process, which would allow budget planning to proceed from the results achieved.

Efficiency of State property management

The issues of the effectiveness of the quasi-public sector remain relevant.

There remains a significant share of state participation in the economy and a large number of quasi-public sector entities, numbering about 6.4 thousand organizations.

There is a low efficiency of the quasi-public sector, its dependence on the state budget, weak corporate governance, and the lack of strategic coherence between the activities of legal entities with state participation and national goals.

The current classification of state property does not reflect the commercial or non-commercial purpose of creating quasi-public sector entities, which leads to a lack of consistency in determining the organizational and legal forms of such organizations, to a different system of financing from the budget and property accounting.: State-owned enterprises are financed according to an increased per capita financing standard, unlike government institutions, and property accounting is carried out according to various financial reporting standards.

Gaps in revenue recognition and valuation of government assets and liabilities need to be addressed. For an objective and undistorted picture of the Government's financial situation and the true cost of budget decisions, accurate cost accounting is necessary in accordance with international standards, which can provide useful information about relative efficiency in various administrative areas.

The information secrecy of the quasi-public sector remains. There is no publicly available data on the structures of companies, financial performance, dividends paid and other aspects of the activities of legal entities with state participation.

In addition, the issue of the formation of consolidated financial statements for all institutional units of the state and quasi-public sectors, as well as extra-budgetary funds, has not yet been fully resolved.

Taking into account the analysis of the current situation, we note the following main problems of public finances:

budget dependence on oil revenues, reduction of assets of the NFRK associated with increased withdrawals from the NFRK to support the economy;

insufficient consolidation of non-oil tax revenues, requiring the abolition of ineffective tax benefits, expansion of the tax base, and strengthening of tax administration measures;

a significant share of state participation in the economy with low efficiency of the quasi-public sector;

the lack of additional tools for assessing and reorienting expenditures from low-impact to highly productive, which would contribute to the formation of an integrated vision in the priorities and directions of budget expenditures.

The consequences of these problems are a chronic deficit and an increase in the non-oil deficit, an increase in the debt burden on the budget, weak financial discipline in terms of compliance with established budget rules, and the growth of the shadow economy.

Based on the above, one of the main objectives of public finance management until 2030 is to consolidate public finances and restore budget balance and sustainability by strengthening the revenue side of the budget, accumulating NFRK funds, revising debt policy, increasing the efficiency and economic impact of budget expenditures, strengthening budget transparency, including automation and digitalization of the budget process.

Section 3.Overview of international experience

Among the diverse approaches to budget reform in recent years, the most popular areas of focus have been fiscal rules, reviewing spending priorities, improving budget planning, and increasing budget transparency.

Budget rules

A budget or fiscal rule imposes long-term constraints on fiscal policy through numerical constraints on fiscal aggregates. This means that fiscal policy sets boundaries that cannot be changed frequently, and some operational recommendations are provided by defining a numerical target that limits a specific budget aggregate, whether it is expenditures or revenues.

The debt rule sets a limit or target for government debt as a percentage of GDP.

By definition, this type of rule is the most effective in terms of ensuring convergence with the debt target.

The budget balance rule restricts the variable that primarily affects the debt burden ratio and is largely under the control of policy makers.

The structural balance rule is based on a pre-determined estimated oil price. This approach effectively breaks the link between expenses and fluctuations in oil revenues associated with price changes, which prevents the impact of oil price volatility on cyclical fluctuations in fiscal policy. The estimated oil price should be based on long-term historical and future prices.

The cut-off price will be estimated by applying expert estimates on the oil price (based on a consensus forecast based on estimates from international financial organizations (hereinafter referred to as IFIs) for the budget planning period, subject to a formal upper limit at the level of the 30-year average oil price ($50/brl).

According to the rule of structural balance, government expenditures should be planned in the amount corresponding to revenues adjusted for the economic cycle.

The spending rules set limits on general, basic, or current expenses.

Such limits are usually set in absolute terms or growth rates, and sometimes as a percentage of GDP, with a time horizon generally ranging from three to five years.

These rules are not directly related to the purpose of ensuring debt sustainability, as they do not limit the revenue side. However, they can provide an operational tool to trigger the necessary fiscal consolidation appropriate to sustainability when accompanied by debt or budget balance rules.

In addition, they can limit spending during an upward economic cycle, when income windfalls are temporarily high and overall deficit constraints are easy to comply with.

Income rules set a ceiling or minimum income and are aimed at increasing revenue collection and/or preventing excessive tax burden.

Categorization of rules

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Rule type

Positive

Minuses

The debt rule

A direct link to debt sustainability.It is easy to control and explain to society

There is no economic stabilization function (it may be procyclical).The rule can be implemented using temporary measures.Debt can be affected by events beyond the government's control.

Expense rule

Clear operational guidance.Provides economic stabilization.Regulates the size of the budget.Relatively easy to control

It is not directly related to the acceptable level of debt, as there are no restrictions on the revenue side.This may lead to undesirable changes in the allocation of expenses if, in order to reach the ceiling, there is a transition to categories of expenses that are not covered by the rule.

Revenue rule

Manages the size of the budget.It can improve revenue policy and administration.Can prevent procyclical expenses (rules that limit the use of unexpected income)

It is not directly related to the acceptable level of debt, since there are no restrictions on the expenditure side (with the exception of rules limiting the use of unforeseen income).There is no economic stabilization function (may be procyclical)

Taking into account the trade-offs, many countries combine two or more fiscal rules.

For example, a debt rule combined with an expense rule could provide a link to debt sustainability, as well as help policy makers make short- and medium-term operational decisions by allowing for some countercyclical behavior and focusing on budget size.

Similarly, this could be achieved through a combination of the debt rule and a cyclically adjusted budget balance.

In OECD countries, the most commonly used rules limit debt and budget balance, and this often happens in combination.

National fiscal rules are also dominated by spending rules. They are often combined with budget or debt balance rules to provide a more reliable basis for debt sustainability.

Revenue rules play a much more limited role, probably because they are less suitable for ensuring the sustainability of public finances.

The legislative framework for ensuring the implementation of the rules in OECD countries varies depending on the type of government and the country. The main part of the rules of national expenditures, balance and debt are fixed in the legislative norms. Fewer existing revenue rules are implemented through a combination of political commitments, coalition agreements, and legislation. In general, most balance sheet and debt rules are supranational rules established by international treaties within the framework of the European Council (hereinafter - the EU).

Automatic adjustment mechanisms

Automatic rule correction mechanisms can increase their strength, but so far they are embedded in very few rules. As with other elements of the rules, clearly defining the mechanism and enshrining it in legislation can help enforce them, but in the end, political will matters.

The debt rules for Poland and Slovakia, which set the debt ceiling at 60% of GDP, include thresholds at which actions are automatically initiated to avoid violating this rule.

For example, in the case of Slovakia, when the debt-to-GDP ratio reaches 50%, the Finance Minister is required to explain to Parliament the reasons for the increase and propose debt reduction measures. At the level of 53% of GDP, the Cabinet of Ministers should adopt a package of measures to reduce debt and freeze wages. At 55%, expenditures will be automatically reduced by 3%, and budget expenditures will be frozen next year, with the exception of those co-financed by EU funds. At 57% of GDP, the Cabinet of Ministers must present a balanced budget. Ideally, later trigger points will not be necessary if effective actions are taken earlier.

Ancillary arrangements

Effective implementation and monitoring of fiscal rules often requires a number of supportive mechanisms and good institutional capacity.

Medium-term budget frameworks, such as those used in Australia, France, Sweden, and the United Kingdom, prioritize, represent, and manage both revenue and expenditure over a multi-year framework at the same level as budget allocations. This allows governments to demonstrate the impact of current and proposed policies over several years, set future budget priorities, and ultimately achieve better control over government spending.

Effective budget execution systems such as commitment control, overdue debt monitoring, and cash management systems are necessary to ensure that budget results are consistent with budget allocations.

Fiscal rules can be supported by financial responsibility laws, which usually establish procedural and transparency requirements, and in some cases also numerical rules.

In some countries, such as Peru and Spain, fiscal responsibility laws contain specific numerical objectives of national fiscal rules. In other countries (for example, in Australia and New Zealand), financial responsibility laws focus more on procedural aspects, establish transparency requirements and the need for the government to describe the fiscal strategy in detail in budget documents.

An increasing number of advanced economies are using independent bodies to further increase confidence in their financial regulations.

One example is the Swedish Fiscal Policy Council, which monitors compliance with the budget balance rule, evaluates whether current fiscal policy is consistent with budget sustainability, and evaluates budget transparency and the quality of forecasts. Tax boards or independent committees can also provide key budget assumptions and methodologies, for example, for calculating potential GDP and reference commodity prices in Chile, which are key factors in implementing the rules. After the crisis, some countries established fiscal councils (Ireland, Portugal, Romania, and the United Kingdom).

Experience in developing a report on budgetary risks and the long-term sustainability of public finances shows that in individual OECD member countries, they are formed separately as independent documents.:

1) report on fiscal (budgetary) risks;

2) Long-term sustainability report.

The Budget Risk Report (hereinafter referred to as the OBR) is the final component of the budget risk management system, which also includes risk identification and analysis (step 1); risk reduction (step 2); provision/reserve creation (step 3); and residual risk management (step 4).

At the same time, the basic principles of the budget risk management system are:

selecting policy measures based on the maximum acceptable level of risk;

assigning risks to the bodies with the greatest risk management capabilities;

developing a risk reduction strategy based on benefit/cost analysis and risk prioritization;

eliminating the "risk of abuse and dependency."

The OBR identifies potential risks to budget projections that can lead to problems for budget management and sustainability in the medium and long term.

According to international practice, the OBR identifies potential risks to the macroeconomic environment, since macroeconomic risks arise frequently and lead to a significant effect on the budget position.

Individual OECD member countries have implemented a budget risk analysis, which discloses the results either as separate chapters/sections of the annual budget documentation or as an independent document. Countries such as the Philippines, Georgia, Rwanda, Uganda, and Ghana also issue an OBR, while the Republic of South Africa and Kenya disclose fiscal risk analysis in their annual fiscal policy report.

The structure of the OBR is generally similar for many countries and includes: a clear description of past macroeconomic shocks and mechanisms for transmitting economic impacts; a description of the effects on budget components (revenue and expenditure); an analysis of forecast errors; calculation of various macroeconomic scenarios and/or approximate empirical effects; a description of the risks of contingent liabilities; a description of other risks.

In addition to the analysis of fiscal risks, individual countries also produce an analysis of long-term fiscal sustainability, which is usually published as an independent document with less frequency than the OBR.

The Report on Long-term Fiscal Sustainability (hereinafter referred to as the ODBU) is being developed to determine trends in basic indicators of GDP growth, expenditures and budget revenues, which may negatively affect the budget position in the period exceeding the horizons of short- and medium-term economic forecasting. For example, the effect of population aging on GDP growth and, in particular, on pension and healthcare costs. In 2012, the Canadian Ministry of Finance developed a long-term fiscal forecast until 2050 for the country's pension payments and debt, the Economic and Fiscal Implications of Canada's Aging Population Report.

In addition, the formation of analytical reports on budget risks and the long-term sustainability of public finances will increase awareness among the Government of the Republic of Kazakhstan and the public about the extent and sources of budget risks to public finances, strengthen incentives for risk mitigation measures, and enhance the effectiveness and efficiency of Government decisions on public funds management and trust. from investors and the public.

The experience of using a block budget

The experience of using a block budget is most applicable in the budget system of the Republic of Singapore. There is a system of "budget blocks" or "Block-budget" for each of the ministries. This "block" is formed for the long term, taking into account the expenses of the last seven years.

Such a block is set in the budget as a share of GDP, that is, the budget volume of each ministry is defined as a percentage of GDP. For example, the ceiling of the Ministry of Education may be equivalent to 4% of GDP per year.

Within the framework of the "block", ministries have independence in determining the final amounts of funds between different types of activities, i.e. the allocation of costs within one ministry is at the discretion of the ministry itself.

During budget execution, administrators of budget programs have full autonomy in managing funds, there is no need to coordinate the redistribution of funds within the budget "block".

During the five-year planning period, ministries may borrow funds for one year from appropriations in subsequent years and defer appropriations for one year to the following year. During the five-year period, the spending limit is fixed, but each individual year is variable.

The advantage of a block budget is that such a mechanism provides greater predictability and a more stable budget spending structure.

The experience of OECD countries in applying budget expenditure reviews

Cost surveys are widely used in OECD countries, but vary in their scope and objectives.

5.2. Basic approaches to public finance management policy

Taking into account the challenges of ensuring a balanced budget, further real GDP growth and strengthening social protection, public finance management policy will be based on the following approaches:

the establishment of sound and flexible fiscal rules independent of fluctuations in oil prices, with an independent assessment of their compliance;

strict observance of quantitative restrictions on budgetary parameters and determination of budget expenditures within fiscal limits;

prevention of budget risks and taking measures to minimize their negative consequences;

prioritization of budget expenditures in accordance with the objectives of socio-economic policy;

efficient allocation of budget funds, ensuring the greatest socio-economic effect;

continued accumulation of financial resources in the NFRK;

adequacy of tax policy to increasing obligations;

stimulating private sector investment rather than replacing it;

expanding financial independence and increasing the responsibility of local authorities in addressing regional development issues;

openness and transparency at all stages of budget planning and execution with the involvement of the public in budget management;

providing monitoring and administration through digitalization and automation.

5.3. Policy of formation and use of NFRK funds

The main goal of the NFRK is to save financial resources through the formation of savings for future generations and reduce the dependence of the republican budget on the situation in the global commodity markets.

The functions of the NFRK are savings and stabilization.

The formation and use of NFRK funds will be based on the following principles:

Transparency is the allocation of NFRK funds to the country's economy only through the republican budget, as well as the allocation of funds from the NFRK for the purposes provided for in this Concept, with the Parliament informed as part of the Government's report on the implementation of the republican budget.;

accountability is the mandatory publication of approved (clarified, adjusted) NFRK indicators, reports on the formation and use of NFRK funds, reports on the investment management of NFRK funds, in which the profitability results are indicated for the last 5 and 10 years since the beginning of management, and the annual audited financial statements of the NFRK (since its creation) on the website of the Commissioner the budget execution authority and in the information and legal system of regulatory legal acts of the Republic of Kazakhstan "Adilet";

completeness - reporting on the NFRK of all receipts and expenses provided for by the legislation of the Republic of Kazakhstan;

timeliness is the crediting of cash to the control account of the National Fund and its transfer to Government accounts in the National Bank within the time limits established by relevant regulatory legal acts and in compliance with the procedure;

Efficiency is the management of the National Fund's funds based on the need to preserve assets and ensure profitability in the long term with a moderate level of risk.

Formation of the NFRK

The accumulation of funds of the NFRK is carried out at the expense of:

1) direct taxes from organizations in the oil sector (with the exception of taxes credited to local budgets), which include corporate income tax, alternative tax on subsurface use, tax on mining, bonuses, rental tax on exports, tax on excess profits, share in the production division and additional payment by subsurface users engaged in activities related to the production sharing contract;

2) other income from operations carried out by organizations of the oil sector (with the exception of income credited to local budgets), including income for violations of the terms of oil contracts (with the exception of income credited to local budgets);

3) proceeds from the privatization of republican property;

4) income in full (with the exception of funds allocated by the Fund's group to repay debt obligations or finance socially significant, industrial and innovative projects contributing to the sustainable development of the economy of the Republic of Kazakhstan, but not more than 50% in total for the Fund's group) from the transfer to a competitive environment of assets of national management holdings, national holdings, national companies and their subsidiaries, affiliates and other legal entities that are affiliated with them, in the order and according to the list determined by the Government of the Republic of Kazakhstan;

At the same time, it is not allowed to repay obligations to the NFRK at the expense of funds received from the privatization of republican property and the transfer to a competitive environment of assets of national management holdings, national holdings, national companies and their subsidiaries, dependent and other legal entities affiliated with them.

5) proceeds from the sale by an organization specializing in improving the quality of second-tier banks' loan portfolios of assets acquired in accordance with a targeted transfer to an organization specializing in improving the quality of second-tier banks' loan portfolios, which may incur losses.;

6) proceeds from the sale of agricultural land;

7) investment income from the management of the NFRK;

8) other receipts and incomes not prohibited by the legislation of the Republic of Kazakhstan.

The maximum size of the NFRK will not be limited.

In order to eliminate the risk of the NFRK not receiving oil revenues and maximize the coverage of organizations in the List of organizations in the oil sector, a clearly regulated methodology for including organizations in the above list will be developed.

In addition, in order to avoid conflicts of interest, the issues of forming a List of organizations in the oil sector will be considered at the National Fund Management Council of the Republic of Kazakhstan.

Use of NFRK funds

The policy and volume of use of the NFRK in the medium and long term will be based on the need to prevent the reduction of the NFRK's foreign exchange assets and their accumulation for future generations.

NFRK is used:

1) in the form of an annual guaranteed transfer from the NFRK to the republican budget;

2) in the form of a targeted transfer from the NFRK to the republican budget;

3) to cover expenses related to the management of the NFRK and the annual audit;

4) in the form of payments of target claims and to cover the costs of paying for banking services related to transfers and payments of target savings in accordance with the legislation of the Republic of Kazakhstan.

Target requirements are defined as the Government's obligations to citizens of the Republic of Kazakhstan who have not reached the age of eighteen, formed annually at the expense of fifty percent of the NFRK's investment income averaged over the eighteen years preceding the reporting year and investment income averaged over the eighteen years preceding the reporting year, calculated annually for this amount.

In order to implement the stabilization function, the National Bank, depending on the current situation in the financial market, converts and reconverts the assets of the NFRK in accordance with the procedure established by the Board of the National Bank. These operations are carried out to allocate guaranteed and targeted transfers and do not relate to NBK interventions. Guaranteed and targeted transfers from the NFRK must pass through the republican budget in accordance with budgetary procedures.

Acquisition of Kazakhstani securities of public, quasi-public and private sector entities, purchase of blocks of shares and stakes in Kazakhstani companies, financing of second-tier banks, direct lending to legal entities and individuals from the NFRK, use of assets as collateral for obligations, as well as attraction of public financing from the NFRK on non-market (preferential) terms for quasi-public sector entities prohibited, except for:

implementation of projects of national importance, in each case with the direct consent of the Head of State after passing an appropriate examination (including project evaluation) and in the absence of alternative sources of financing through the acquisition of debt securities of the Fund issued for these projects.;

acquisition of shares of the National Company KazMunayGas Joint Stock Company and the National Atomic Company Kazatomprom Joint Stock Company by Government decision at a discount to its market value to finance the republican budget with the right to prioritize the sale of the NFRK share during the international SPO (Secondary public offering).

The examination of projects of national importance (including their assessment) proposed for financing at the expense of the NFRK, as well as consideration of alternative sources of financing for such projects, is carried out in accordance with the procedure determined by the Government.

Funds from the NFRK in the form of bond loans are allocated under the following conditions:

bond loans in national currency - at a rate not lower than the average annual inflation in the Republic of Kazakhstan over the past ten years according to the latest available data as of the end of the last reporting year;

bond loans in US dollars - at a rate not lower than the average annual investment return on assets of the NFRK over the past ten years, according to the latest quarterly report on the NFRK, approved by the Board of the National Bank, but not lower than the yield of US government securities as of the end of the previous quarter with the appropriate maturity.;

the share of funding from the NFRK is no more than 50% of the total required funding;

The maximum term of bond loans is not more than twenty years.;

President

Republic of Kazakhstan

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