Despite some progress in the area of public finance management, budgetary policy in Tajikistan contains a number of serious, one might even say, conceptual problems, – says economist Konstantin Bondarenko (Dushanbe, Tajikistan) in his article written exclusively for CABAR.asia
Although from technical point of view, the budgetary policy is now much more streamlined than, for example, in the 1990s, budgeting in Tajikistan is hardly result-oriented. Budget information is not provided in full and, to a large extent, does not meet the principles of open government data. There are large-scale quasi-fiscal activities, as well as the practice of providing tax incentives that impede the development of fiscal policy and carry serious risks. In addition, considerable funds are spent on activities and projects that do not give significant economic and social effects, such as the construction of anniversary objects and celebrations. If the latter situation is quite obvious even to ordinary citizens, many other listed problems do not lie on the surface and are the “pitfalls” of Tajik fiscal policy, which only a narrow circle of experts is aware of.
The bill “On the State Budget of the Republic of Tajikistan for 2016” and indicators of the state budget for 2017-2018 were approved during the meeting of the government on October 28, 2015. It was declared that during the first 9 months of this year, the state budget was implemented for 96.5%, resulting in a fact that the budget did not get more than 391 million Somoni. 
What is the cause of the failure to fulfill the plan of budget revenues? The visible part of the problem, of course, is related to the difficult economic situation. At the same meeting of the government, it was said: “under the influence of external factors, the pace of real GDP growth declined in comparison with the same period last year by 0.5 percentage points, foreign trade turnover – by 17.9%, including imports – 21.8 %, cash services to the population – by 8.1%, and the rate of Somoni is still under pressure”.
Some of these factors are already sufficient to reduce the budget revenues. Given that the share of taxes collected at importing (VAT, fees and excise duties) is traditionally high in Tajikistan, its decline by almost a quarter could lead to a significant shortfall of funds. Obviously, this does not happen because the tax authorities have made significant efforts to implement the plan, literally “squeezing” taxes of Tajik entrepreneurs. A proof of this is the thesis from the same government meeting, where “adopting and implementing effective measures for the full implementation of the state budget” was offered as the solution to the problem.
But is it all that simple? There is not enough money, “measures have been taken”, and again all goes according to plan. Why don’t we approach the issue in a different way – it is not enough, not because there is a little income, but because there is large and inefficient spending? Like the heroes of the famous fairy tale about Winnie-the-Pooh, “It all comes…of not having front doors big enough… – It all comes…of eating too much.”
In Tajikistan, one of the main problems of the budgetary policy lies in the fact that the forecast of the revenue side of the budget is tied to the planned expenditure. Thus, even if the economic situation deteriorates, it is not a major factor in planning the budget. The priority of spending forces to look for new income, but not to save.
Due to this kind of practice, the state budget expenditures in Tajikistan are growing faster than the rate of economic growth. For the upcoming year of 2016, the volume of the state budget is provided in the amount of 18 billion 306 million Somoni, which is 3.3 billion Somoni, or 19.8% more than in the current year.
Even if this year, the principle of “we will pay the price” is observed, and the income plan will be implemented by any means, the situation will be repeated next year. Against the background of serious economic slowdown, the fall in foreign trade and the problems with the Somoni rate, the increase in the parameters of the budget by 20% in 2016 means that the plan will be again implemented with moans and groans.
As a result, when domestic sources of budget revenue from taxes will be exhausted (which will happen sooner or later), the budget will have a serious shortage. In order to solve this problem, the government will have to either increase the monetary emission, which will cause greater inflation and hurt the pockets of citizens, or to resort to external borrowing. External borrowing, in turn, enhances another problem – the growth of public debt, the burden of which will affect the budget and ultimately – the citizens.
Linking income to the planned spending (and not vice versa, that would seem more logical) has a systemic character, associated with the desire to maintain a significant weight of the public sector in the economy, which inevitably leads to a greater need to reallocate funds. This is an attempt to maintain the “social” orientation of the state, which results in significant spending for the health care, education and a number of other budget articles (nearly half of the budget). In addition, there are a lot of public organs that are also costly to the budget: numerous and extremely inefficient state-owned enterprises – various state departments and joint stock companies, actively absorbing budgetary resources. Finally, a specific feature of Tajikistan is the construction of the anniversary “pyramids”.
Given the diversity of all mentioned and unmentioned areas of expenditure, the task of budget savings is rather burdensome, but the problem is not only in the amount of expenditures but also in their overall efficiency.
The fiscal policy of Tajikistan, in general, lacks clarity in the process of budget priorities and their compliance with strategic priorities. Except for the financing of infrastructure projects, many other areas of public spending have more abstract goals.
This is expressed also in the fact that the principle of program budgeting is poorly used in Tajikistan today. This means that the costs are tied not to the planned results but to the process. Some governmental organizations receive funding based not on the “product” of their operations, but on the number of full-time workers, on the amount of money necessary to maintain the buildings, equipment, etc. Moreover, some standards of costs in government institutions are based on the documents adopted during the Soviet era. Such an approach could lead to a situation of “A soldier sleeps, but he’s still serving his army”. That is, if there is a Ministry or a state organization, there is funding, but it is difficult to assess the extent of consistency of the amount of funds spent with the positive effect of their work.
Speaking about the “effect”, I mean that in Tajikistan, there is no procedure of compulsory budget examinations – anti-corruption, gender, regulatory impact analysis, and most importantly, the analysis of cost-effectiveness (cost/ result ratio). That’s why the budget money is not spent effectively.
The problem of this type of budgeting is exacerbated by the fact that when planning of future earnings is taking place, it is difficult to estimate the taxable base of such taxes, as VAT or excise duties and to make an accurate forecast of revenue for them. Obviously, the figures of the previous period are taken as the basis, but they can greatly vary depending on the current economic situation.
As a result, to a large extent, the practice – “From each according to his ability, to each according to his need”, which kills long-term economic growth for the sake of short-term interests, is dominating in Tajikistan. The effective taxpayers bear greater burden, while ineffective state structures can exist almost forever.
Non-transparent budgeting process
The problem of low efficiency and questionable prioritization of public spending is preserved by the fact that there are problems of access and quality of budget information. At the same time, the level of involvement of citizens in the discussion of budgetary issues in the country is extremely low.
So, despite the fact that Tajik legislation does not directly prohibit the access to budget information, the existing ambiguities prevent the public from seeing the full information on budget. The legislation of the Republic of Tajikistan does not provide for procedures to inform the public about processes and results of fiscal policy and the budget. Therefore, the amount of information that is accessible depends more on the goodwill of the structures providing it.
In fairness, it should be noted that the website of the Ministry of Finance has a list of documents available to the public, and this list has grown considerably. Now one can find there not only the law on budget for the current year, but a number of other documents. The problem so far is the timeliness of the information and its quality.
For example, despite the fact that the draft budget was almost a month ago approved by the government, it is not yet published on the website of the Ministry of Finance. For 2015, one can find a very important document – the so-called “Budget for the public”, but its quality is clearly disappointing. The document is in the form of a PowerPoint presentation made at the school level and contains both redundant information and, at the same time, it does not contain a number of important things, without which it is not particularly valuable.
One can find the general parameters of the cost/ income, their sources and allocations, but is it really valuable? Most items of expenditure are presented in a very aggregated form – there is an article “agriculture”, but it is impossible to understand for what purpose the money is spent. Graphical data, to put it mildly, leave much to be desired. Therefore, journalists or activists, or other citizens who are not experts, cannot make any serious conclusions based on such information.
However, even such an achievement became possible after 2012, when Tajikistan for the first time found itself in the Open Budget Index, taking an unfortunate position there. Then, the indicator of budget transparency in Tajikistan amounted to only 17 out of 100 points, which is significantly below the average of 43 points for all 100 countries surveyed and is the lowest among the CIS countries.
The situation could change more rapidly, if there is a strong request from the public. But according to the local mentality, many consider the budget sacred information that is accessible only to the initiates. Many citizens think that it is impossible to require a report on the expenditure of funds or to force to review the redistribution of budget items. Such a civic culture can be instilled through budget hearings. These are the activities, carried out at different levels (Jamoat, district, city, state), when the population receives information on the budget and gives suggestions on the priorities of spending, thus participating in the implementation of the principle of local self-government.
In Tajikistan, the practice of holding budget hearings is quite rare; they are carried out only in a few districts. The legislation does not contain any detailed provisions on public budget hearings; in addition, this initiative is not financed on a regular basis from the budget.
Thus, this information will still be of little use, and citizens will not be able to influence the formation of the budget.
As, probably, you could understand, the budget information that is now present in the public domain does not allow even suspecting the existence of a number of specific problems in the budgetary policy of Tajikistan.
Here are some interesting examples.
A common practice in Tajikistan is the use of so-called “Quasi-fiscal operations”. These are operations of mainly state-owned companies (but sometimes private) on behalf of the government, which have implications for the budget, but not reflected in budget reporting.
For example, the government may designate financial or commercial institutions to provide goods or services at prices lower than market prices, and then the difference between the market and subsidized price is the losses of those institutions. However, had the government directly subsidized the operation, it would have been reflected as a subsidy in the state budget, and the costs of such a policy would have been obvious.
Another example of flawed budgetary practices is the use of so-called “Contingent liabilities”, the timing of the materialization and the size of which are determined by the occurrence of some future event. In Tajikistan, the most common types of contingent liabilities are sub-loans, i.e. loans from international organizations provided to the Government, which then are provided to companies. Or a more complex “combination”: the resolution of the Government of the Republic of Tajikistan №634 «On state support of some of the energy and industrial enterprises of the republic” instructed to transfer the amount payable for the supply of electric power to “TALCO” at the expense of increasing the share of “Barki Tojik” in the authorized capital of “TALCO”.
It would seem, so what’s the problem? All is legal. However, the problem is significant enough, because such operations generally complicate the task of assessing the effectiveness and efficiency of use of budgetary funds and have a redistributive effect.
Quasi-fiscal activities and contingent liabilities are not simply a non-transparent way of conducting tax-fiscal policy, they have a significant fiscal risk. The budget shall bear the costs of such actions either as a consequence of the reduction in tax revenues, or, ultimately, because of the need to subsidize or recapitalize the corporation involved in them. A striking example is the situation with Tajik banks: they are first forced to lend with “preferential” interest rates, and when banks experience serious problems, the government “saves” the banks at the expense of budget funds.
The situation with tax incentives is more comprehensible to the layman. For budget, in fact, incentives are a hidden type of expenditure, as they entail lost revenue. Two laws provide for tax incentives in Tajikistan: the Tax Code of the Republic of Tajikistan and the Law on State Budget of the Republic of Tajikistan for the upcoming year.
If the Tax Code provides for incentives depending on types and tax regimes, the Law “On the State Budget” provides tax benefits for individual enterprises and organizations for the next year, i.e. the latter are provided in addition to the benefits written in the Tax code.
The practice of providing tax incentives by the State Budget Law is constant. Despite the fact that the Law “On the State Budget” contains provisions on granted benefits, the data about the quantification of these benefits are not given in the budget documents. At the same time, the benefits are granted by other documents, too, such as government resolutions. For example, in 2011, the tax debt of the power holding “Barki Tojik” and the company “Sangtuda-1” was written off. The exact amount of tax benefits and the effect they have on the budget are not known.
Quite a specific problem is the share of non-tax revenues, or so-called “special funds”, in total government revenue. In 2015, the amount of such revenues amounted to about 1 billion Somoni (1030.8 million Somoni), which is comparable to large individual taxes. These revenues include the revenues of public institutions from issuing permits and other documents (patents, certificates, etc.), fines, fees, and others.
There are some questions: Don’t such paid services motivate budget organizations to “earn” means? Is there a charge for the services that the government should provide free of charge? After all, citizens have already “paid for” the maintenance of the budget structures by paying taxes. There is also a “plan for penalties”, how adequate is it? Some government structures use the amount of collected fines as a measure of the efficiency of their work, and, in fact, they are indirectly interested in increasing the number of violations.
Is the legal framework of sources of special funds expenditures developed in a transparent way? And finally, don’t the special funds collected in such amount restrict the economic development?
In short, it is good that the budget receives additional funds, but how adequate is this approach, if the citizens overpay or pay for imposed unnecessary services?
I would also like to mention about the spending of special stabilization and presidential funds. The procedures of their spending are not clear. At the same time, the amount of funds accumulated there is becoming more significant from year to year. It turns out that the use of this part of the budget money can have an obvious situational character.
Tough reforms will help optimize the budget
The state budget is not only a sphere of management of finance. It is one of the main instruments of public policy, which, in general, affects the economic relations and the quality of life of the population. Therefore, many questions, the solution of which affects the prospects for economic development of Tajikistan, rest on the need to reform the budgetary policy.
Now, in a situation of economic downturn and growing uncertainty, it is necessary to make a tough audit of the public spending and limit the growth of expenditure and revenue sides of the budget, at least, at the level of GDP growth over the previous year.
There is never enough money to meet all the needs. Even if we want to live “here and now”, it is necessary to evaluate the budgetary expenditures in terms of long-term and often less obvious consequences. The most beautiful teahouse is a visible short-term effect, but its invisible price in the future is the reduction of investment opportunities for the private sector in the development of production and creation of jobs. These significant losses remain “invisible”, because no serious analysis of the budget spending effectiveness has ever been conducted.
It is necessary to set clear quantitative indicators of the overall reduction in government spending in Tajikistan, without cutting the most socially sensitive items. Those items definitely do not include the construction of different kinds of cultural facilities, celebrations and supporting the work of state-owned enterprises. If a rigid target is set in the form of cost reductions, for example, by 10%, as a result of this tough choice, this optimization will be achieved. Otherwise, there will always be reasons not to cut costs.
The reduction of inefficient spending would allow creating an opportunity for tax reform during a relatively short period of time, whose aim should be to reduce the rates of existing taxes. Provided that there will be other related reforms, it will create conditions for the resumption of economic growth in the medium term.
More specifically, the budgetary policy of Tajikistan also requires the following changes:
• Exclude binding the forecast of the revenue to the planned budget expenditures.
• Amend the legislation on access to information for the public. At the same time, improve the quality and comprehensiveness of budget information, in the first place on the sites of government agencies.
• Actively implement Performance-based budgeting, not process-based (program budgeting).
• Issue a full “civil” budget containing a concise, accessible and understandable description of items of income and expenses.
• Enshrine in laws the budget hearings and provide funding for this.
• Limit the scope of quasi-fiscal operations and strengthen control over them.
• Eliminate the practice of writing off the tax debt through government regulations.
• Ensure that the Tax Code is the only legal instrument for granting tax exemptions. At the same time, quantify the tax concessions and make their results public.
• Develop inventories of paid and free public services and eliminate incentives to raise additional charges, primarily through the provision of imposed services, the issuance of additional approvals or the imposition of fines.
This list of measures is not exhaustive, and the limited scope of this article does not reveal all aspects of the fiscal policy perspective. However, the implementation of even a part of the mentioned changes will allow public finance management in Tajikistan become conceptually different – more oriented to market principles and the principles of an open civil society.
In turn, without radical reforms, including the rejection of many familiar but perverse practices, the budgetary policy in Tajikistan will continue to be a means of redistribution, not of creation of national wealth.
Konstantin Bondarenko, economist
The opinion of the author does not necessarily represent the opinion of CABAR.asia