Reforming Budgetary Processes and Procedures in Countries of the Former Soviet Union - Experiences in Azerbaijan and the Central Asian Republics

By Mikesell, John L.; Mullins, Daniel R. | Journal of Public Budgeting, Accounting & Financial Management, October 1, 2001 | Go to article overview

Reforming Budgetary Processes and Procedures in Countries of the Former Soviet Union - Experiences in Azerbaijan and the Central Asian Republics


Mikesell, John L., Mullins, Daniel R., Journal of Public Budgeting, Accounting & Financial Management


INTRODUCTION

Many vital elements of public budget systems necessary for a marketoriented democracy have been slow to develop in the countries of the former Soviet (FSU), however, important progress is being made. This paper reviews features important to effective and accountable budget systems against the status of those systems in several FSU states. Our countries of focus include Azerbaijan and four Central Asian states of the FSU--Kazakhstan, Uzbekistan, Turkmenistan and the Kyrgyz Republic. Tajikistan continues to experience such civil unrest and governmental instability as to prevent substantial reform and is, therefore, given only limited treatment in this examination.' The financial crisis in Russia in August 1998 and the collapse of world oil prices shortly thereafter complicated the economic and budgetary progress of all these countries. In most cases, these changes have greatly disrupted progress toward reform.

Budgetary process and procedures within the FSU have failed to provide fiscal discipline or to provide realistic and prioritized resource allocation, and have failed to develop a budget that is a planning or policy document, or which satisfies essential managerial or expenditure control requirements.2 Current systems and procedures do not assure that public services funded through the budget are appropriate and adequate to the needs of the public or are consistent with actual government revenue yields. The International Monetary Fund (IMF) has recently emphasized the importance of fiscal transparency as a contributor to budgetary reform, with a focus on clear roles and responsibilities, comprehensive and reliable fiscal information, open budget preparation, execution and reporting, and independent assurances of integrity.3 While these improvements are clearly needed, limited basic institutional capacity and the lack of supporting administrative systems will seriously impair the direct link between improvements in transparency and the development of sound budgetary systems. To be sure, IMF recommendations recognize the need for improved budget and financial management systems. This suggests the importance of a broader approach toward reform which includes transparency as one of its critical elements. It is not likely that meaningful transparency can be achieved without these other elements or even that transparency is their precursor.

TURMOIL IN THE TRANSITION PUBLIC SECTOR

The economic restructuring experienced as countries of the FSU transform toward market economies governed by democratic governments has brought collapse in public spending as Table 1 demonstrates. Real GDP dropped an average of one-third in focus countries between 1992 and 1997, with a 42 percent decline in Azerbaijan and a 54 percent reduction in Turkmenistan.4 During this same period, real budgeted government expenditures declined by approximately 84 percent in Tajikistan, 73 percent in Azerbaijan, 53 percent in Kazakhstan, 52 percent in the Kyrgyz Republic, 54 percent in Turkmenistan and 28 percent in Uzbekistan. (For comparison, reductions in Ukraine and Russia were 63 percent and 50 percent, respectively.) Expenditures for critical functions such as education and health have experienced similar (and often greater) overall real declines, and have thus often declined significantly as a portion of this reduced GDP. These expenditure declines are often not associated with corresponding reductions in staffing - and, as noted later, often lead to wage and salary arrears.5 As might be expected, revenues have experienced a similar fate. During 1997, across these countries revenues averaged 21 percent of GDP, with expenditures averaging 24 percent. Revenue on average experienced real declines of 49.7 percent compared to a 57.1 percent reduction for expenditures. The greatest revenue declines were experienced in Azerbaijan, Tajikistan and Turkmenistan, with 76, 73 and 68 percent. Revenues as a portion of GDP are lowest in Tajikistan, Kazakhstan and the Kyrgyz Republic. …

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