## _cr0756 — EXECUTIVE SUMMARY ## Source details **Canonical URL:** [_cr0756 — EXECUTIVE SUMMARY](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0756.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0756.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0756.pdf.json) --- ### Overview and mission - Report assesses fiscal transparency practices in the Republic of Tajikistan against the IMF Code of Good Practices on Fiscal Transparency. - Based on: discussions with the authorities, the authorities’ responses to the IMF fiscal transparency questionnaire, and other sources. - IMF staff mission in Dushanbe: July 21–August 3, 2006. Team: Ms. Jacobs (Head), Messrs. Pattanayak, and Mr. Zohrab. ### Progress and strengths - Roles and responsibilities of the executive, legislature, and judiciary are clearly defined. - Reporting on the budget to parliament and the general public has strengthened in recent years. - Tax transparency improved by consolidating tax legislation into two organic codes. - Government operations distinguished from the National Bank of Tajikistan (NBT) and the financial sector in most cases. - NBT is formally independent and does not currently carry out quasi-fiscal activities (QFAs); the Law on the National Bank of Tajikistan (1996) specifies objectives and transfer of NBT net profits to the budget. ### Partial compliance and key issues - Donor-financed projects and some extrabudgetary revenues and expenditures are not well integrated with the budget process. - Boundaries of the general government sector need clearer definition. - Extensive tax exemptions create tax expenditures that are not analyzed and published. - Contingent liabilities require analysis and publication. - Quasi-fiscal activities (QFAs) in the energy and transport sectors remain sizable and need more intensive monitoring and analysis. - Financial relations between tiers of government lack a sound and permanent footing. - Monitoring of financial operations of state-owned enterprises (SOEs) needs greater attention and scrutiny. - Budget preparation framework has improved but does not meet Code requirements in some areas. - Treasury operations need modernization and consolidation. - External audit reforms require attention. ### Detailed findings on government scope and budget coverage - General government largely defined consistently with Government Finance Statistics (GFS) principles; two-tier structure of government (central and local). - Central government comprises the republican budget and the Social Protection Fund (SPF). There are no other state extrabudgetary funds (EBFs). - Indicative estimates of extrabudgetary transactions (special resources) are taken into account in the budget submitted to parliament, but individual budgetary organizations may adopt supplemental schedules during the year. - Example: fiscal year 2006 — indicative estimates of expenditures from special resources in the budget approved by parliament: 66.0 million somoni; actual expenditures under this category in the first ten months: 107.4 million somoni. - Law on State Finances defines a budget organization as any organization receiving not less than 70 percent of its funds from the budget, but regulations do not clearly distinguish nonprofit/nonmarket from nonprofit/market institutions and public corporations. ### Box — General Government Budget in Tajikistan, 2005 (as presented) - Republican Budget: 798.2 Somoni millions - Public Investment Program (PIP): 264.1 Somoni millions - Extrabudgetary accounts (so-called special revenue accounts): 78.1 Somoni millions - Republican Budget: 11.1 percent of GDP - PIP: 3.7 percent of GDP - Extrabudgetary accounts: 1.1 percent of GDP - Central government budget = Republican budget + Social Protection Fund budget: 959.0 Somoni millions (13.3 percent of GDP) - General government budget = central government budget + local government budgets: 1402.7 Somoni millions (19.5 percent of GDP) - Note: There are no other extrabudgetary funds in Tajikistan. ### State-owned enterprises, QFAs, and privatization - More than 500 public enterprises remain; SPC has 347 SOEs on its privatization list (from about 500); 37 SOEs (natural monopolies) designated not to be privatized but restructured. - No centralized monitoring of SOE financial performance; some SOEs receive explicit subsidies (e.g., transport and utility services for certain low-income groups). - Quasi-fiscal activities significant in energy and transport; these sectors dominated by fully or partially government-owned enterprises carrying out QFAs. - Privatization framework: Law on the Privatization of State Property (1997); SPC executes the privatization program covering 2003–2007. Privatization proceeds are remitted to the treasury and used for budget financing. ### Deficiencies in public financial management and oversight - Licensing, business registration, and inspection systems impose informal restrictions; multiple inspections and administrative tariff setting persist. - No formal anti-corruption commission or similar independent watchdog. - Financing and transfers between levels of government incomplete: Law on State Finances does not define revenue sharing for key taxes (e.g., VAT and income tax); transfers to local governments are approved annually by parliament. - Local governments may collect additional revenues treated as special extrabudgetary resources; these are not reflected in the initial budget nor presented to parliament through supplementary budgets, though the treasury processes their use and they are included in fiscal reports. ### Priority recommendations (selected key reforms) - Review and demarcate boundaries between the general government sector and the broader public sector. - Develop an organizational classification in line with international standards for budget preparation and execution. - Strengthen the link between policy and budgeting. - Further strengthen macroeconomic analysis and forecasting. - Submit a fiscal risk assessment report with the budget. - Show separately in the budget documents the cost effect of policy changes. - Strengthen the external audit function. - Establish a Ministry of Finance website to disseminate publicly budget preparation and execution data and information on public financial management system reforms. - Compile a database for domestic debt and financial assets and publish it together with foreign debt data. - Introduce a sounder and more permanent system for revenue sharing and resource transfer formulae between tiers of government. - Eliminate extrabudgetary activities and consolidate them with mainstream line ministry activities. - Analyze and publish contingent liabilities and QFAs in the energy and transport sectors. - Complete establishment of a Treasury Single Account by consolidating all domestic currency bank accounts used in the general government sector. - Design and implement a comprehensive commitment control system in harmony with the new decentralized procurement system. - Expand the functions of the cash management unit to include all functions of modern government cash planning and management. - Harmonize internal control and internal audit reforms carefully with other public financial management and public administration reforms. ### Public financial corporations and QFAs; fiscal relations - Public financial corporations are no longer allowed to undertake QFAs. - Government controls only one commercial bank. - All financial institutions are subject to supervision by the NBT (Chapter V of the NBT Law). - Previously government-owned bank undertook QFAs with concessional lending; this practice is now prohibited. - Constitutional and legal framework: Constitution (1994) describes functions; Law on State Finances prescribes monthly allocation if annual budget law not approved. - Budget preparation: draft annual budget discussed by cabinet before parliament; no practice of consulting employers, labor groups, or civil society on budgetary issues. - Budget process centralized: MoF prepares state budget including republican and local budgets; MOET controls capital budget; local governments have limited fiscal autonomy and no legal borrowing powers. ### Tax policy, administration, and corruption controls - Tax Code (2005) and Customs Code (2005) provide legal bases; Article 4 of Law No. 197 (July 28, 2006) governs changes to payments and fees. - Tax exemptions are extensive; aggregate estimates of tax expenditures are neither available nor reported to parliament. - MSRD created (Chapter 13 of the Tax Code, effective January 2005) as separate tax collection agency no longer reporting directly to MoF; MSRD still employs Tax Police officials. - Taxpayer Identification Numbers widely used; appeals procedure set out in Tax Code (Chapter 36). - No “Taxpayer Bill of Rights” exists. - Laws and regulations on conduct: Law on Civil Service (amended 2001), Law on Combating Corruption (1999), Code of Ethics for civil servants (2004); officials must submit annual special tax and property returns. - Corruption continues to be perceived as a key problem. ### Budget process, macro framework, and forecasting - Typical budget cycle milestones (calendar highlights): - End May: MoF issues instructions to line ministries/local governments/budget organizations. - June*: MOET presents macroeconomic projections to MoF (SEDP basis). - July: MoF prepares macroeconomic framework. - End July: line ministries/local governments submit budget proposals to MoF. - August: negotiations. - September: MoF submits draft state budget to cabinet. - November: draft state budget submitted to parliament (by November 1). - By 31st December: Parliament approves the state budget. - January: Publication of the annual budget law. - *The June due date is applicable for the 2007 budget onwards; previously MOET submitted projections by end-August. - New budget classification based on GFS 1986 effective January 1, 2005; functional classification also GFS 1986. Budget classification lacks organizational classification for parliamentary accountability. - MoF uses overall balance of general government as fiscal stance indicator; boundaries of general government not clearly defined. - MoF established a macroeconomic division with four staff members; main macroeconomic parameters provided for the budget year plus two years; underlying assumptions/methodology provided to budget commission and cabinet but not presented to parliament. - No systematic mid-year review of macro forecasts. ### Medium-term planning, fiscal risks, and SPF - Budget documents include a medium-term forecast for the budget year plus two forward years; projections are largely mechanical and not rigorously linked to medium-term macro prospects. - MoF developing a Medium-Term Expenditure Framework with World Bank assistance. - Fiscal sustainability analysis focuses on debt ratio, primary balance, and overall balance; no long-term fiscal sustainability report prepared or published. - Pension payments from the SPF follow a “pay-as-you-go” principle and are essentially funded through employers’ contribution; SPF has met annual expenditure requirements but has not undertaken a systematic assessment of long-term sustainability. - Existing policy commitments with future financial impact include pension liabilities and unemployment and disability benefits under the Law on Social Security. ### Fiscal rules, costing, and budget documentation (paras. 26–28) - No fiscal rule is used in the budget process. There are no explicit fiscal rules except conditionalities inherent to IMF program targets. (para. 26) - No explicit costing of new policy initiatives included in budget documentation. (para. 27) - Budget documents identify main government policies broadly but do not quantify costs of new spending programs nor clearly distinguish them from ongoing activities. (para. 27) - Budget documents do not include sensitivity analysis of estimates to economic variables nor a discussion of contingent liabilities, guarantees, or QFAs. (para. 28) ### Commitments, procurement, treasury operations, and cash/debt management - Expenditure control focused on payment stage with partial ex ante control for commitments and cash management. (para. 29) - Commitment registration system: requires certification of funds by the treasury before initiating centralized procurement; registered and funds reserved in the treasury’s accounting system. Coverage may decline as centralized procurement coverage reduces. (Box 3) - For many expenditures (utilities, transfers, subsidies, business trips, lending, court payments), no commitment control exists; treasury relies on monthly cash application forms not recorded for commitment monitoring. (Box 3) - Treasury controls cash balances of most government bank accounts but bank account structure is not integrated. (para. 30) - Treasury controls 222 domestic currency bank accounts: - 73 are tax revenue transit accounts; - 149 are normally operating bank accounts. (para. 30) - Exceptions to treasury control: pension fund separate account; bank accounts required by international agreements; foreign currency accounts outside Tajikistan controlled by embassies. (footnote 26) - Payment arrears not a serious problem at present; protected budget items for utilities, salary, and pensions introduced. (para. 31) - Payroll data maintained manually at budgetary organizations; civil service register under development. (para. 31) - Cash and debt management not well coordinated; comprehensive formal rolling cash plans not yet used. (para. 32) - Cash management division established; new functions expected compulsory starting on January 1, 2007. (para. 32) - Box 4 lists existing, initial, prospective, and not-yet-provided cash management functions. ### Internal audit, procurement, civil service, and tax administration - Internal audit narrow in focus, not meeting international standards; does not undertake systematic risk assessment nor complement external audit. (para. 33) - Department staffing: 57 staff; 7 cover 800 central government budget institutions; remainder cover local government. (footnote 27) - Department focuses on legal compliance; reports not public. (para. 33) - Public procurement: open bidding share increased from 46 percent to 58 percent. (para. 34) - New procurement law largely UNCITRAL compliant enacted; implementing regulations not promulgated; existing tendering law contradicts new law. (para. 34) - Civil service reforms initiated under Government Reform Strategy (2006): competitive recruitment regulations and code of ethics promulgated; income and property tax returns required; computerized civil service register planned. (para. 35) - Tax and customs administrations: almost no computerization; Asian Development Bank approved two computerization projects (tax and customs). (para. 36) - Internal audit functions in tax/customs not yet fully established; MSRD internal audit limited; periodic compliance audits by SFCC; no performance audit. (para. 36) - MSRD established in 2002; new tax and customs codes approved in late 2004 enhanced independence. (para. 37) ### Accounting, reporting, and external audit - Accounting system can produce quarterly reports but with difficulty; treasury accounting single-entry, manual consolidation; budget organizations’ chart of accounts diverges. (para. 38) - Fiscal reporting appears to cover most general government including extrabudgetary transactions, but comprehensive assessment of included organizations has not been undertaken. (para. 39) - Parliament and local legislatures receive quarterly budget execution reports but do not undertake mid-year reviews. (para. 40) - Article 56 of the Law on State Finances requires quarterly reports within two months of quarter end; in practice by end of the month following the quarter. (para. 40) - Annual financial statements submitted to parliament within six months of fiscal year end (Article 57 requires submission by June 1). (para. 41) - Annual financial statements include revenues and grants; expenditures by budget classification; treasury bank account balances; state financing transactions and stock of external debt; budget organization payables, receivables, and fixed assets. (para. 42) - Not included: contingent liabilities and assets; stock of domestic debt, loans, advances, and ownership. (para. 42) - External audits: SFCC undertakes audits every two years of budget execution, checks accuracy but does not certify statements; SFCC lacks independence required by Lima Declaration of INTOSAI. (para. 43) ### Results-oriented budgeting and public availability - Budget documentation contains little discussion of expected outputs or outcomes; focus is on inputs; program objectives not defined in output/outcome terms; no performance indicators used. (para. 44) - Fiscal information is readily available to the public with committed timing, but comprehensiveness limited. - Quarterly information disseminated within one month of quarter end pursuant to presidential decree, including 3–4 page press release and media briefing. (para. 45) - Annual financial statements are not publicly available; short summaries published in print media. (para. 45) - Some fiscal information available from the State Committee of Statistics publications and website. (para. 45) ### Coverage and publication of budget information (paras. 46–) - Main budget documents include draft law on the state budget with explanatory note, main macroeconomic forecasts (aggregate growth and inflation), and fiscal deficit and its financing. - State budget includes republican, subnational, and social protection fund budgets. - Missing disclosures: public debt management report covering internal and external debts not included in budget documentation; some extrabudgetary and QFAs not reflected. - No government website that publishes financial and economic data presented with annual budget documentation; annual budget law and statement on economic and fiscal policies published in the press after parliamentary approval. - Defense expenditures compiled in a separate volume presented to parliament but not public. - Budget discloses main aggregates for two years prior and forecasts for next two years; provides actuals for year preceding prior year and provisional estimated outturn for prior year. ### Contingent liabilities, tax expenditures, QFAs, and debt publication - No statement of contingent liabilities in budget documents; claims against government by buyers of privatized SOEs pending in courts not reported in the budget. - Some tax expenditure estimates included (deductible amounts for salaried individuals and certain exemptions) but overall foregone revenue from exemptions not systematically estimated or integrated with the budget process. - QFAs: energy and transport companies incur quasi-fiscal deficits from below-cost tariffs and poor collection; IMF staff estimated economic losses from large underpricing of electricity at about 10 percent of GDP in early 2005. - External public debt: beginning 2005 MoF publishes annual Status Report on the External Debt of Tajikistan disclosing debt ratios, creditors, borrower classification, currency composition, historical debt servicing, comparisons, analyses, and commentary; report does not disclose time profile of future debt servicing obligations nor fixed/floating mix. - Domestic public debt: no publication of domestic public debt data; domestic debt database in process of establishment. - Under IMF agreements, new borrowing should not exceed 4 percent of GDP in any one year, terms at least 20 years, grace period five years, and interest not exceeding IMF rates. ### Assurances of integrity, reconciliation, and reporting variability - 2002–04 period: annual difference for the state budget averaged 18 percent. - Revenue collection exceeded budget by more than 24 percent during 2002–04. - Annual difference between above-the-line and below-the-line fiscal data reduced to 0.1 percent of GDP in 2005. - Article 46 of the Law on State Finances: increases in expenditure over 10 percent require supplementary budget to parliament; increases up to 10 percent may be made without parliamentary approval provided approved deficit not exceeded. - Article 50 provides virement limits up to 20 percent of budget allocation per expenditure item within a budget organization. - Reconciliation processes: treasury cross-checks daily bank statements with authorized payments; formal reconciliation with the bank quarterly; monitoring of delays between collection and transmission to treasury inadequate. - Treasury accounting single-entry; no suspense accounts maintained for temporary advances; practices do not meet international standards. ### Independent oversight and audit - SFCC is the national audit institution established by Law No. 66 of 2002; reports to the president; president appoints and may dismiss chairman and approves SFCC regulations, structure, staff numbers and salaries; detailed quarterly SFCC reports provided only to the president; summarized annual report submitted to parliament. - SFCC mandate broad; reviews financial transactions of government agencies once every two years but does not provide certification of final accounts. - SFCC lacks the independence required by the Lima Declaration of INTOSAI; about 160 staff, most in field units; focuses on regularity and compliance audits; many staff lack professional accounting qualifications and modern auditing training. - SFCC has begun monthly press conferences to circulate summary findings; general public does not have access to SFCC detailed reports. ### Statistical independence - State Committee of Statistics established under Law No. 43 of 1997; granted functional and technical independence; verifies consistency of data sets and indicates data sources during publication. ### IMF staff commentary — key observations and reform priorities - Encouraging progress in fiscal transparency in recent years; compliance with the fiscal transparency code in several areas. - Areas needing further improvement: - Donor-financed projects and some extrabudgetary revenues and expenditures are not fully consolidated as general government operations. - More analytical work needed on tax expenditures and exemptions, and these should be published. - QFAs in energy and transport are sizable and require more intensive monitoring. - Make all changes to tax laws and regulations more accessible to the public. - Financial relations between republican and local governments need a sounder and more permanent footing. - Modernizing and consolidating treasury operations is urgent, as are reforms in external audit. ### High-priority recommendations (selected and restated) - Thoroughly review activities of fee-supported service organizations and public corporations to demarcate boundaries between general government and broader public sector per GFSM 2001. - Develop hierarchical organizational classification for parliamentary authorization and monitoring. - Strengthen link between policy and budgeting by assigning MoF lead coordinating role for both current and capital budgets and clarifying sectoral ministry roles. - Advance timing and transparency of macroeconomic forecasts; include underlying assumptions and sensitivity analysis; subject macro models to public scrutiny. - Submit fiscal risk assessment with the budget covering contingent liabilities, macro risks, and detailed analysis of QFAs with quantification where possible. - Computerize tax and customs administrations and establish internal audit functions reporting to their heads. - Strengthen SFCC capacity, public availability of reports, and independence (including legislative amendment to protect removal process of head of national audit body). - Establish MoF website for dissemination of budget preparation and execution data and public financial management reforms. - Compile and publish domestic debt and financial asset database alongside foreign debt data. - Expand publicly disseminated quarterly and annual budget execution summaries to include analyses of variations between approved and adjusted budgets and outturns. - Complete establishment of a Treasury Single Account consolidating all domestic currency government bank accounts into a single Somoni Bank account operated by the treasury. - Design and implement comprehensive commitment control system aligned with decentralized procurement reform; expand cash management unit functions. - Strengthen monitoring and reporting of SOE financial operations; require draft annual financial plans and regular performance reporting to MoF. - Identify and disclose contingent liabilities and QFAs in the energy and transport sectors to parliament and the public. *Source: EXECUTIVE SUMMARY, _cr0756.* ### EXECUTIVE SUMMARY ### _cr0756 - EXECUTIVE SUMMARY ### Overview - This report assesses fiscal transparency practices in the Republic of Tajikistan against the requirements of the IMF Code of Good Practices on Fiscal Transparency, based on discussions with the authorities, the authorities’ responses to the IMF fiscal transparency questionnaire, and other sources of information. - IMF staff mission in Dushanbe: July 21–August 3, 2006. The IMF staff team comprised Ms. Jacobs (Head), Messrs. Pattanayak, and Mr. Zohrab. The mission met with senior officials of the Ministry of Finance and other government institutions and donors. ### Progress and strengths - Roles and responsibilities of the executive, legislature, and judiciary are clearly defined. - Reporting on the budget to parliament and the general public has strengthened in recent years. - Tax transparency improved by consolidating tax legislation into two organic codes. - Government operations are well distinguished from the activities of the central bank (National Bank of Tajikistan, NBT) and, in most cases, from activities of the financial sector. - The NBT is formally independent and does not currently carry out quasi-fiscal activities (QFAs). The Law on the National Bank of Tajikistan (1996) specifies the NBT’s objectives and its role vis-à-vis the government, including transfer of NBT net profits to the budget. ### Partial compliance and key issues - Donor-financed projects and some extrabudgetary revenues and expenditures are not well integrated with the budget process. - Boundaries of the general government sector need clearer definition. - Extensive tax exemptions create tax expenditures that are not analyzed and published. - Contingent liabilities require analysis and publication. - Quasi-fiscal activities (QFAs) in the energy and transport sectors remain sizable and need more intensive monitoring and analysis. - Financial relations between tiers of government lack a sound and permanent footing. - Monitoring of financial operations of state-owned enterprises (SOEs) needs greater attention and scrutiny. - The budget preparation framework has improved but does not meet Code requirements in some areas. - Treasury operations need modernization and consolidation. - External audit reforms require attention. ### Detailed findings on government scope and budget coverage - General government is largely defined consistently with Government Finance Statistics (GFS) principles and is mostly covered in the budget process. A two-tier structure of government exists (central and local). - Central government comprises the republican budget and the Social Protection Fund (SPF). There are no other state extrabudgetary funds (EBFs). - Indicative estimates of extrabudgetary transactions of budgetary organizations (special resources) are taken into account in the budget submitted to parliament, but individual budgetary organizations may adopt supplemental revenue and expenditure schedules during the year. These extrabudgetary transactions are processed by the treasury and included in fiscal reports, although actual expenditures could exceed the indicative estimates included in the approved budget. Example: in fiscal year 2006, indicative estimates of expenditures from special resources in the budget approved by parliament totaled 66.0 million somoni, while actual expenditures under this category totaled 107.4 million somoni in the first ten months of the year. - Recent initiatives to introduce user charges and fees could complicate boundaries of the general government sector. Law on State Finances defines a budget organization as any organization receiving not less than 70 percent of its funds from the budget, but current regulations do not distinguish clearly between nonprofit/nonmarket institutions (which belong in general government) and nonprofit/market institutions and public corporations (which belong in the broader public sector). Box 1 — General Government Budget in Tajikistan, 2005 (as presented) - Republican Budget: 798.2 Somoni millions - Public Investment Program (PIP): 264.1 Somoni millions - Extrabudgetary accounts (so-called special revenue accounts): 78.1 Somoni millions - Republican Budget: 11.1 percent of GDP - PIP: 3.7 percent of GDP - Extrabudgetary accounts: 1.1 percent of GDP - Central government budget = Republican budget + Social Protection Fund budget: 959.0 Somoni millions (13.3 percent of GDP) - General government budget = central government budget + local government budgets: 1402.7 Somoni millions (19.5 percent of GDP) - Note: There are no other extrabudgetary funds in Tajikistan. ### State-owned enterprises, quasi-fiscal activities, and privatization - More than 500 public enterprises remain, with varying levels of government equity ownership. Except for TadAZ (Tajikistan Aluminum Works), SOEs report to sectoral ministries and are legally separate from the government, though ministries appoint directors and key personnel. - No centralized monitoring of SOE financial performance exists; SOEs provide data to ministries, MoF, and the State Statistics Committee. Some SOEs receive explicit subsidies from republican and local budgets (e.g., transport and utility services for certain low-income groups). - Government equity holdings are published only partially (e.g., enterprises identified for privatization). The State Property Committee (SPC) has 347 SOEs on its privatization list (from about 500), with 37 SOEs (natural monopolies) designated not to be privatized but restructured. - Quasi-fiscal activities of public nonfinancial corporations are significant in energy and transport; these sectors are dominated by fully or partially government-owned enterprises carrying out QFAs. - Privatization framework: Law on the Privatization of State Property (1997); SPC executes the privatization program covering 2003–2007. Accounting of privatization proceeds is transparent: official proceeds are remitted to the treasury and used for budget financing. ### Deficiencies in public financial management and oversight - Licensing, business registration, and inspection systems impose informal restrictions on private sector activity; multiple inspections and administrative tariff setting persist in a number of sectors. - Tajikistan lacks a formal anti-corruption commission or similar independent watchdog. - The framework for financing and transfers between levels of government is incomplete: the Law on State Finances does not define revenue sharing for key taxes (e.g., VAT and income tax); transfers to local governments are approved annually by parliament. - Local governments may collect additional revenues treated as special extrabudgetary resources; these are not reflected in the initial budget nor presented to parliament through supplementary budgets, although the treasury processes their use and they are included in budget execution reports. ### Priority recommendations (selected key reforms highlighted) - Review and demarcate the boundaries between the general government sector and the broader public sector. - Develop an organizational classification in line with international standards for budget preparation and execution. - Strengthen the link between policy and budgeting. - Further strengthen macroeconomic analysis and forecasting. - Submit a fiscal risk assessment report with the budget. - Show separately in the budget documents the cost effect of policy changes. - Strengthen the external audit function. - Establish a Ministry of Finance website to disseminate publicly budget preparation and execution data and information on public financial management system reforms. - Compile a database for domestic debt and financial assets and publish it together with foreign debt data. - Introduce a sounder and more permanent system for revenue sharing and resource transfer formulae between tiers of government. - Eliminate extrabudgetary activities and consolidate them with mainstream line ministry activities. - Analyze and publish contingent liabilities and QFAs in the energy and transport sectors. - Complete establishment of a Treasury Single Account by consolidating all domestic currency bank accounts used in the general government sector. - Design and implement a comprehensive commitment control system in harmony with the new decentralized procurement system. - Expand the functions of the cash management unit to include all functions of modern government cash planning and management. - Harmonize internal control and internal audit reforms carefully with other public financial management and public administration reforms. *Source: EXECUTIVE SUMMARY, _cr0756.* ### 11. Public financial corporations are no longer allowed to carry out QFAs. The ### 11. Public financial corporations are no longer allowed to carry out QFAs. The ### Public financial corporations and QFAs - Public financial corporations are no longer allowed to undertake quasi-fiscal activities (QFAs). - The government controls only one commercial bank (see paragraph 6). - All financial institutions are subject to supervision by the NBT as spelled out in Chapter V of the NBT Law. - Previously, the government-owned bank undertook some QFAs with concessional lending to certain sectors; this practice is now prohibited. ### Fiscal management relations among the branches of government - Constitutional and legal framework: - The Tajikistan Constitution (1994) gives a clear description of executive, legislative, and judicial functions (Chapters III and V). - Parliament approves the republican budget (which includes the budget of the SPF). - The Law on State Finances prescribes that if the annual budget law is not approved by the start of the fiscal year, monthly provisions equal to one-twelfth of the authorized budget of the previous year are allocated. - Budget preparation practice: - Before presentation to parliament, the draft annual budget is discussed by the cabinet. - There is no practice of consulting or seeking views on budgetary and related issues from representatives of employers, labor groups, government, and civil society. - Institutional notes: - The Budget Committee comprises government and trade unions, but has no representatives from civil society. ### Fiscal management relations among different levels of government - Legal basis and assignment: - Division of responsibilities between republican and local governments is broadly defined in the Constitution, the Law on Local Government Authorities, and the annual budget law. - The budget process is centralized: the MoF prepares the state budget that includes both the republican and local government budgets. - Practical arrangements and constraints: - Current and capital budgets are essentially determined separately; the capital budget is controlled by the ministry of economy and trade (MOET). - Local budget revenues and expenditures are determined by MoF on the basis of norms to estimate grants and contributions for regions. - Local governments have limited opportunities to exercise assigned functions; financial resource issues are decided at the central level. - Financing gaps of local governments are addressed by government grants or various types of transfers. - Local governments have no legal borrowing powers. - Fiscal imbalance driver: - Vertical imbalance attributed to uneven distribution of per capita budget revenues among Tajikistan’s regions. ### Legal and administrative framework for budget management - Legal instruments: - Key principles set in the Law on State Finances and the Law on State Borrowing. - Annual budget law establishes fiscal targets and constraints. - Tax Code (2005) establishes tax rates and bases for domestic taxes. - Customs duties determined by the Customs Code (2005). - Law on Social Insurance (Law No. 518 of 1997) and Regulation on the National Social Protection Fund define SPF scope and coverage. - Progress and limitations: - Gradual implementation of these laws has brought more stability and transparency. - The MoF plays a dominant role; its role has been recently strengthened via treasury reforms and organizational changes. - Donor-financed projects: - Foreign-financed investment projects are shown separately in budget documents and are not fully covered by treasury operations. - Information on donor-financed projects is available because assistance is incorporated in budget documents. - The annual budget law determines the overall budget deficit target including donor-financed projects. ### Legal and administrative framework for tax policy and administration - Legislative basis: - Tax and customs codes provide legal basis for tax liabilities and concessions for major revenue categories. - Major tax policy changes are generally introduced with the annual republican budget. - Article 4 of the Law on Other Compulsory Payments to the Budget, No. 197 of July 28, 2006, requires changes to payments and fees to follow the procedure for amending that Law. - Tax exemptions and reporting: - Tax exemptions from direct and indirect taxes are extensive. - Aggregate estimates of tax expenditures are neither available nor reported to parliament. - Administrative developments: - Chapter 13 of the Tax Code (effective January 2005) defines legal framework for the ministry of state revenues and duties (MSRD) and enforcement powers of tax officials. - MSRD was created as a separate tax collection agency no longer reporting directly to MoF. - Taxpayer Identification Numbers are widely used. - The degree of discretion granted to tax and customs officials in requesting and releasing information to third parties might be considerable. - MSRD still employs Tax Police officials as part of its staff component. - Taxpayer rights and information: - The Tax Code specifies appeals procedure (Chapter 36): complaints filed first with local tax offices; local rulings can be appealed to MSRD headquarters or relevant judicial authority. - Taxpayer information could be improved, notably via website publication of laws and regulations. - No “Taxpayer Bill of Rights” exists in Tajikistan. ### Public servants’ code of behavior and anti-corruption activity - Legal and institutional measures: - Conduct of government employees regulated by a variety of laws and regulations (e.g., Law on Civil Service as amended in 2001). - Law on Combating Corruption (1999) obliges all government authorities, local governments, and persons authorized to perform government functions to fight corruption within their competence (Article 6). - A new Code of Ethics for civil servants was approved in 2004 and is generally available. - Government officials must submit annual special tax and property returns. - Perception and challenges: - Despite initiatives, corruption continues to be perceived by businesses, donors, and others as a key problem. - Tajikistan has tended to score low in comparison with other transition countries in indices measuring perceptions about corruption and red tape. ### Open budget preparation, execution, and reporting - Regulation and calendar: - The annual budget process is mostly regulated by cabinet resolution each year; the Law on State Finances does not define a detailed budget calendar beyond two due dates. - Typical budget cycle milestones: - End May: Issue of instructions by the MoF to line ministries/local governments/budget organizations. - June*: MOET presents macroeconomic projections to the MoF based on its State Economic Development Plan (SEDP). - July: Preparation of macroeconomic framework by the MoF. - End July: Line ministries/local governments/budget organizations present budget proposals to the MoF. - August: Negotiation with line ministries/local governments/budget organizations. - September: The MoF submits the draft state budget to the cabinet. - November: The draft state budget is submitted to parliament (by November 1). - By 31st December: Parliament approves the state budget. - January: Publication of the annual budget law. - *The June due date is applicable for the 2007 budget onwards; previously MOET submitted projections by end-August. - Classification and presentation: - A new budget classification based on GFS 1986 classifications came into force on January 1, 2005, including main aggregates: revenues, grants, expenditure, lending minus repayments, and financing. - Functional classification is also based on GFS 1986. - Budget classification does not include an organizational classification to allow clear tracing of responsibility before parliament. - Parliament approves the budget by broad functional categories; allocations to individual spending units are made administratively during the year by the MoF. ### The macroeconomic framework and policy basis for the budget - Fiscal stance indicator and boundary issues: - The MoF uses the overall balance of general government as the preferred fiscal stance indicator. - Boundaries of general government are not clearly defined: the overall deficit includes republican (central) budget, local budgets, the social protection fund, and the donor-funded part of the PIP. - Many institutions under central ministries and local governments are self-financed fee-supported services; it is unclear whether their revenues and expenditures should be included in the government budget balance. - Forecasting process: - Progress made in preparing and presenting budget forecasts and macro assumptions, but forecasts arrive too late to guide ministries and agencies. - MoF established a macroeconomic division with four staff members. - MoF leads development of macroeconomic framework by July each year; MOET prepares its own SEDP-based projections and is required to submit them to MoF by end-June (from 2006 onwards). - Main macroeconomic parameters provided in the budget for the coming fiscal year plus two years. - Underlying assumptions and methodology for macro forecasts are provided to the budget commission and cabinet but not presented to parliament. - No systematic mid-year review of macro forecasts, although ad hoc revisions occur. - One deficiency: line ministries and spending agencies lack updated macro indicators while preparing budget submissions based on MoF instructions issued in May, leading to potential revisions after submission. ### Medium-term planning and analysis of fiscal risks - Medium-term budgeting status: - Budget documents include a medium-term forecast of fiscal aggregates for the budget year plus two forward years. - Projections are largely mechanical, not based on robust revenue forecasts or fully costed expenditure policy proposals, and not rigorously linked to medium-term macro prospects. - Current and capital budgets determined separately; capital budget controlled by MOET. No systematic assessment of future recurrent expenditure needs from present capital investments. - Institutional framework lacks effective coordination to link resource allocations with sectoral policy priorities. - Line ministries have a very limited role in sectoral policy formulation; MoF interacts directly with many disaggregated spending units called key budget organizations. - Local governments included in medium-term projections are free to change inter-sectoral allocations within the national parliament–approved overall budget envelope. - Reforms and risk assessment: - MoF is developing a Medium-Term Expenditure Framework with World Bank assistance to address weaknesses. - Fiscal sustainability analysis focuses on debt ratio, primary balance, and overall balance; no long-term fiscal sustainability report is prepared or published. - Existing policy commitments with future financial impact include pension liabilities and unemployment and disability benefits under the Law on Social Security. - Pension payments from the SPF follow a “pay-as-you-go” principle and are essentially funded through employers’ contribution. - The SPF has so far met annual expenditure requirements through employers’ contribution but has not undertaken a systematic assessment of long-term sustainability. *Source: _cr0756 - 11. Public financial corporations are no longer allowed to carry out QFAs. The* ### 26. No fiscal rule is used in the budget process. There are no explicit fiscal rules with ### _cr0756 - 26. No fiscal rule is used in the budget process. There are no explicit fiscal rules with ### Fiscal rules, costing, and budget documentation - No fiscal rule is used in the budget process. There are no explicit fiscal rules with the exception of the conditionalities inherent to the program targets with the IMF. (para. 26) - There is currently no explicit costing of new policy initiatives included in the budget documentation. (para. 27) - Budget documents: - Identify in a broad manner the main government policies explaining major changes in budget revenue and spending. (para. 27) - Contain general statements on new government priorities but do not provide a quantification of the costs of new government spending programs nor clearly distinguish them from the cost of ongoing government activities. (para. 27) ### Budget sensitivity analysis and fiscal risks - Analysis of sensitivity of the budget estimates to changes in economic variables is not included in the budget and fiscal risks are not stated. (para. 28) - Budget documents do not include: - Information on all the underlying key assumptions and the methodology used for the macro forecasts. (para. 28) - A report on sensitivity analysis of fiscal aggregates to changes in economic parameters or other uncertainties. (para. 28) - A discussion of fiscal risks arising from changes to macroeconomic variables or an analysis of contingent liabilities. (para. 28) - Any statement describing the nature and significance of government contingent liabilities, including a statement on government guarantees, and of QFAs. (para. 28) ### Clarity of control of budget execution — commitments and procurement - Expenditure control is focused on current control (payment stage), with partial ex ante control for commitments and cash management. (para. 29) - Commitment registration system (Box 3): - Requires budget organizations, before initiating the bid process for centralized procurement, to submit an application to the treasury for certification of the availability of funds; this application specifies estimated value and likely payment schedule. These are registered in the treasury’s accounting system and funds are reserved accordingly. (Box 3) - Coverage of the centralized procurement system is expected to reduce substantially, conceivably to zero, which would reduce the coverage of the commitment registration system unless it is decoupled from centralized procurement. (Box 3) - For other expenditures (utilities, transfer payments, subsidies, business trip expenses, government lending operations, payments arising out of court decisions, etc.), there has been no commitment control. The treasury’s only information for such expenditures comes from monthly cash application forms submitted by budget organizations; this information is not recorded by the treasury for commitment monitoring. (Box 3) ### Treasury, bank accounts, and payment arrears - The treasury controls cash balances of most government bank accounts, but the bank account structure is not integrated. (para. 30) - The treasury controls 222 domestic currency bank accounts; of these: - 73 are tax revenue transit accounts; and - 149 are normally operating bank accounts. (para. 30) - Exceptions to treasury control include: the pension fund’s separate bank account; bank accounts required by international agreements to be controlled separately; and foreign currency bank accounts outside Tajikistan controlled by its embassies. (footnote 26) - Payment arrears are not a serious problem at present, though past instances occurred, particularly for utilities payments. The government introduced protected items in the budget for utilities payments, salary, and pensions. (para. 31) - Payroll data are maintained manually at the level of budgetary organizations only; control mechanisms for payroll correctness are weak. A proper personnel database or civil service register is under development. (para. 31) - Advance payment is common, reducing payables but contributing to significant receivables because of supplier delivery delays after advance payments. (para. 31) ### Cash and debt management - Cash and debt management are not well coordinated. Comprehensive formal rolling cash plans are not yet used for effective cash/debt management. (para. 32) - A cash management division has been recently established in the treasury; new functions are expected to be compulsory starting on January 1, 2007. (para. 32) - Box 4 — Coverage of cash planning and management functions: - Existing functions include: - Consolidation of estimates made by budgetary organizations each quarter of the cash they need for the quarter. - Requests to the banks used by the treasury to ensure the availability of cash. - Contribution to the central bank’s liquidity forecasting system by forecasting cash expenditure for the week ahead. - Effecting of payments. - Ensuring funding priority for protected items and commitments registered under the centralized procurement system. - Initial new functions include: - Centralized monitoring of cash balances and flows in the system of treasury bank accounts. - Prospective new functions include: - Systematic centralized cash outturn analysis and reporting. - Functions not yet provided for include: - Stable schedule of payment dates and elimination of ministerial involvement in timing of payments. - Submission of revenue authorities’ forecasts to the treasury rather than separately to the central bank. - Definition of comprehensive cash forecasts on a daily basis for several months ahead. - Systematization of cash releases. (Box 4) ### Internal audit, procurement, and civil service - Internal audit: - Has a narrow focus and does not meet international standards. It does not undertake systematic risk assessment in expenditure management nor complement external audit. (para. 33) - The department has 57 staff, of which 7 cover the 800 central government budget institutions, with the balance covering local government. (footnote 27) - The department focuses mainly on assessing legal compliance of expenditure; reports are not available to the public. (para. 33) - The department was recently moved from the treasury to report directly to the MoF. (para. 33) - Public procurement: - Extensive problems with existing procurement arrangements have been documented; current arrangements do not provide a sound basis for open and competitive procurement practices. (para. 34) - Open bidding share of procurement of goods and services has recently increased from 46 percent to 58 percent. (para. 34) - A new procurement law, largely if not completely UNCITRAL compliant, has been enacted, but implementing regulations have not been promulgated; the existing tendering law contradicts the new procurement law and will need to be repealed. (para. 34) - Authorities will need to develop new tender procedures and documentation according to international standards, followed by training and reorganization. (para. 34) - Civil service: - Existing civil service employment arrangements remain problematic; civil service legislation enacted in 1998 has been largely ineffective. (para. 35) - Government Reform Strategy approved in 2006 initiated a sweeping civil service reform involving: strengthened regulatory framework; transparent employment arrangements including open and competitive recruitment; a streamlined pay and benefits system; skills upgrade; and capacity-building in the civil service department. (para. 35) - Regulations on competitive recruitment and a code of ethics have been promulgated; all officials now have to file income and property tax returns. An upgraded computerized civil service register is planned. (para. 35) - The department’s software: a version has been in use since 2005 but not all institutions are connected on-line; software needs further development, including enabling payroll cost forecasting. (footnote 30) - Training programs are under way or planned. (para. 35) ### Clarity of internal control and independence of tax administration - Tax and customs administration computerization and audit: - There is almost no computerization of the government tax administration system and its internal audit function has not yet been fully established. (para. 36) - At present, no computerized system is operational in the tax and customs departments; many tax offices operate manually and some have obsolete computers. (para. 36) - The Asian Development Bank has recently approved two projects for computerization: one for the tax administration and the other for the customs administration. (para. 36) - A comprehensive internal audit function reporting directly to management is yet to be established in the tax and customs administrations. (para. 36) - Limited audit of procedures is carried out by the internal audit unit of the MSRD; periodic independent compliance audits are undertaken by the State Financial Control Committee (SFCC). Neither the internal audit unit nor the SFCC undertakes any performance audit. (para. 36) - Autonomy improvements: - Level of autonomy of national tax and customs administrations has improved with establishment of the MSRD and promulgation of new tax and customs codes. (para. 37) - MSRD was established in 2002 by merging erstwhile customs and tax committees under the cabinet. (para. 37) - New tax and customs codes approved in late 2004 have considerably enhanced independence of tax and customs administrations. (para. 37) - The relationship of the tax administration with the MoF continues to evolve; the annual budget drafted by the MoF provides detailed targets for collection under each category of tax which the tax department is required to achieve. (footnote 31) ### Accounting and reporting on budget execution - In-year reporting and arrears: - The accounting system is capable, with difficulty, of producing accurate in-year reports on central or general government budget outturns; it produces quarterly reports on central and local government budget outturns. (para. 38) - The accounting system does not provide accurate consolidated data on budget arrears in a timely manner; arrears data are captured by budget organizations’ accounting systems but are not consolidated timely because preparation and transmission are manual. (para. 38) - The treasury’s accounting system incorporates the budget classification, but budget organizations’ chart of accounts diverges somewhat from the budget classification. (para. 38) - Coverage and assessments: - Fiscal reporting appears to cover most if not all general government, including extrabudgetary as well as budgetary transactions. (para. 39) - It is possible fiscal reporting does not cover some organizations that, if classified correctly, would be included within the general government sector; a comprehensive assessment of government-controlled organizations for inclusion within the general government sector has not yet been undertaken. (para. 39) - Parliamentary reporting and mid-year review: - Parliament and local legislatures receive quarterly budget execution reports but do not undertake mid-year reviews of budget execution. (para. 40) - Article 56 of the Law on State Finances requires quarterly budget execution reports within two months of the end of the quarter; in practice, by presidential decree, this occurs by the end of the month following the end of the quarter. (para. 40) - The MoF is required to prepare quarterly budget execution reports comparing actual and approved incomes, actual and approved expenses, grants, deficits, and borrowings with explanations of divergences. (para. 40) - Treasury prepares quarterly budget execution reports after aggregating data from 73 local treasuries located in oblasts and rayons; these reports are on a cash accounting basis as per the budget classification and include extrabudgetary revenues and expenditures. (para. 40) - Reliability of quarterly reports is undermined by the treasury’s weak accounting system: single-entry basis, lacks controls inherent to double-entry accounting, and reliant on manual record-keeping. Commitments are not consolidated by the treasury and reported in the quarterly reports. (para. 40) - Annual financial statements and audits: - Annual financial statements are submitted to parliament and local legislatures within six months of the end of the fiscal year but are not subject to external audit beforehand. Article 57 of the Law on State Finances requires submission by June 1 (within six months). Article 8 of the Treasury Law 2001 requires the central treasury to prepare within three months of the end of fiscal year a consolidated annual budget execution report and submit it to the MoF. Article 10 requires an annual consolidated financial report on assets and liabilities/debts. (para. 41) - Annual budget execution reports are consolidated on a cash accounting basis as per the budget classification. Ministries, agencies, and other budget organizations submit annual financial statements which are reconciled with treasury data for preparation of consolidated annual financial statements. (para. 41) - Due dates for submission of annual budget execution reports to parliament were met in 2004 and 2005; in 2006 there was a slight delay. (para. 41) - Annual financial statements include information on: revenues and grants; expenditures according to budget classifications with comparisons between budget and outturns; treasury bank account balances; state financing transactions and the stock of external debt; and budget organization payables, receivables, and fixed assets. (para. 42) - Information not included in annual financial statements: contingent liabilities and assets and the stock of domestic debt, loans, advances, and ownership. (para. 42) - Reliability of disclosures in annual financial statements is undermined by undeveloped accounting systems in the treasury and budget organizations; lack of consistency between treasury budget accounting and budget organizations’ financial accounting. (para. 43) - Accounting in budget organizations is on a double-entry accrual basis, but the accrual basis does not conform to international standards and is reliant on manual record-keeping; these factors make data difficult to reconcile, validate, and audit. (para. 43) - External audits are undertaken by the SFCC every two years of budget execution more generally; it checks accuracy of statements but does not certify them. (para. 43) ### Results-oriented budgeting and reporting - Current budget documentation contains little discussion on expected outputs or outcomes from government activities; the budget formulation process mostly focuses on inputs. Program objectives are not defined in terms of outputs or outcomes and performance measures or indicators are not used to evaluate program outcomes. (para. 44) - A sound budget classification system including a program classification is a precondition to moving towards a performance-based budgeting system. (para. 44) - Note: A sound performance-based budgeting system would require a clear one-to-one correspondence between a program or sub-program and the agency responsible to implement it; current arrangements in Tajikistan allow a program or sub-program to cut across multiple budget organizations and a budget organization to be in charge of multiple programs. (footnote 32) ### Public availability of information - Fiscal information is readily available to the public and there is a clear commitment to provide information at approximate times, but comprehensiveness is limited. (para. 45) - Quarterly information is disseminated within one month of the end of the quarter pursuant to presidential decree; dissemination includes a 3–4 page press release and a media briefing. (para. 45) - Summary information is published in specialist financial media for the central government budget and in local newspapers for local government budgets. Article 62 of the Law on State Finances requires the annual budget execution report to be published. (para. 45) - Annual financial statements are not publicly available; short summaries of aggregated data with some text are published in the print media. (para. 45) - Limited summary information is published monthly by the statistics committee in its Social and Economic Situation report; annual summary information is published by the statistics committee in Finances of Tajikistan. The statistics committee publishes a timeframe for publication of its documents, but it is not a legal requirement. Some of the statistics committee’s fiscal information is available on its website. (para. 45) - The comprehensiveness of publicly available fiscal information is constrained by the cash accounting basis and coverage of the budget and by limited commentary. (para. 45) *Source: IMF staff report content as provided in the supplied document excerpt.* ### 46. The comprehensiveness of fiscal information presented with the annual budget ### 46. The comprehensiveness of fiscal information presented with the annual budget ### Coverage and publication of budget information - The main budget documents include: - the draft law on the state budget together with an explanatory note; - main macroeconomic forecasts, such as aggregate growth and inflation; - fiscal deficit and its financing. - The state budget includes all levels of the general government: republican (central) budget, budget of the subnational governments, and the budget of the social protection fund. - The annual budget law shows budget revenues by major categories and expenditure provisions as per functional and economic classifications. - Donor-funded projects: information on donor assistance to the government is disclosed. - Missing or limited disclosures: - A public debt management report, covering both internal and external debts, is not included in the budget documentation. - Some extrabudgetary and quasi-fiscal activities (QFAs) are not reflected in budget documents. - There is no government website that publishes the financial and economic data presented with the annual budget documentation. However, the annual budget law and the statement on economic and fiscal policies are published in the press following parliamentary approval. ### Defense expenditures - Defense expenditures are compiled in a separate volume and presented with the annual budget to parliament but are not made public. ### Past and forecast fiscal data presented - The budget discloses main revenue and expenditure aggregates for two years prior to the budget year and forecasts for the next two years. - Data provided include tax and nontax revenue components, and expenditures by major functional and economic categories. - For past data, the budget provides actuals for the year preceding the prior year and provisional estimated outturn for the prior year. ### Contingent liabilities, tax expenditures, and QFAs - Contingent liabilities: - No statement of contingent liabilities is included in the budget documents. - Claims against the government by buyers of erstwhile SOEs that have been privatized are pending in courts; some records are kept by the SPC but are not reported in the budget. - Tax expenditures: - Some estimates of tax expenditures are included, mainly deductible amounts from gross tax liability for salaried individuals and certain exemptions. - Methodology: overall tax base multiplied by the rate of deduction or exemption with the number of eligible persons/cases. - Not systematically included: estimates of foregone tax revenue due to extensive exemptions and concessions or major tax policy changes. - The tax expenditure budget is not fully integrated with the budget process to determine the cost of government programs or services. - Quasi-fiscal activities (QFAs): - Certain QFAs are undertaken by state-owned enterprises (SOEs) that receive equity injections, loans, and subsidies. - Energy and transport companies incur quasi-fiscal deficits due to below-cost tariffs and poor collection rates. - IMF staff estimated the economic losses from large underpricing of electricity at about 10 percent of GDP in early 2005. - There is no centralized reporting of the cost of these QFAs. ### Publication of debt and financial assets - External public debt: - Beginning in 2005, an annual Status Report on the External Debt of Tajikistan is published by the Ministry of Finance (MoF). - The report discloses: debt ratios; public debt by individual creditor; external debt by borrower classification (public, public enterprises of which government-guaranteed, privately guaranteed, non-guaranteed); external debt by currency composition; historical debt servicing by year and debtor and creditor category; comparisons with other CIS countries; analyses and commentary. - The report does not disclose the time profile of future debt servicing obligations nor the fixed/floating mix. - Domestic public debt: - There is no publication of domestic public debt data. - A domestic debt database is in the process of being established. - Public debt management strategy: - Under agreements with the IMF, new borrowing should not exceed 4 percent of GDP in any one year, and its terms should be at least 20 years, with a grace period of five years and interest not exceeding IMF rates. - Government financial assets: - Apart from receivables, information on government financial assets is not published. - No comprehensive database of government equity holdings or domestic loans exists. - There are no immediate plans to adopt the Government Finance Statistics Manual 2001 framework and/or move to a full balance sheet presentation of government accounts. ### Commitment to timely publication and data dissemination standards - Formal commitments to more regular publication of fiscal data have not been made and advance release calendars are not announced. - Tajikistan participates in the General Data Dissemination Standard (GDDS) and intends to participate in the Special Data Dissemination Standard (SDDS) from the beginning of 2008. ### Assurances of integrity — reconciliation and reporting - Budget outturn variability: - In the 2002–04 period, the annual difference for the state budget averaged 18 percent. - Revenue collection exceeded budget by more than 24 percent during 2002–04. - The annual difference between above-the-line and below-the-line fiscal data was reduced to 0.1 percent of GDP in 2005. - Intra-year adjustments and virement: - Article 46 of the Law on State Finances: an increase in expenditure of more than 10 percent requires submission of a supplementary budget to parliament; increases up to 10 percent during the fiscal year may be made without parliamentary approval provided the approved deficit is not exceeded. - Article 50 provides for virement limits up to 20 percent of the budget allocation per expenditure item within a budget organization. - The resulting variance in primary expenditure composition was about 4 percent during 2002–04. - Reallocations in favor of general public services provided them between 35 and 60 percent additional resources during 2002–04. - Reconciliation processes (Box 5 highlights): - Payments: treasury cross-checks daily bank statements with authorized payments; monthly consolidated bank statements are reconciled; check encashment validity period is 10 days. - Revenues: daily bank statements and memorial orders are sent to the treasury; formal reconciliation between the treasury and the bank takes place quarterly; reconciliation between revenue assessment and revenue collection is done by tax authorities, not the treasury; monitoring of delays between collection and transmission to treasury accounts is inadequate. - No suspense accounts are maintained by the treasury for temporary advances; monitoring of adjustments for such advances is done by budget organizations. - Accounting and reconciliation limitations: - Treasury uses a single-entry accounting system; different accounting systems between treasury and budget institutions; largely manual recording and consolidation. - No reconciliation of deficit and debt data is shown explicitly in accounting reports, except for the report on budget deficit and financing in annual financial statements. - Statements on accounting policy are not included in budget and final accounts documents. - Existing MoF regulations define treasury and budget institution accounting but practices do not meet international standards; no recent developments in government accounting standards. - Planned improvements: - A public debt management strategy is under preparation. - A domestic debt database is being established. ### Independent oversight and audit - Supreme audit institution (SFCC): - The State Financial Control Committee (SFCC) is the national audit institution established by the Law on the State Financial Control (Law No. 66 of 2002) and reports to the president. - The president appoints and may dismiss the chairman, approves SFCC regulations, structure, staff numbers and salaries, and approves audit plans; detailed quarterly SFCC reports are provided only to the president; a summarized annual report is submitted to parliament. - The SFCC’s mandate is broad, covering republican and local budgets, state funds and property, gold and foreign currency reserves, movement of public resources in banks, use of credit resources and external debt, the social protection fund, and other entities using public funds. - The SFCC reviews financial transactions of government agencies once every two years but does not provide certification of final accounts for agencies or the government as a whole. - On balance, the SFCC lacks the independence required by the Lima Declaration of INTOSAI to carry out its mandate effectively. - Audit capacity and practices: - The SFCC has about 160 staff members, most in field units. - Focus is on regularity and compliance audits. - The SFCC does not yet use INTOSAI standards; many staff lack professional accounting qualifications and training in contemporary auditing techniques. - Legislature and public access: - Parliament’s economic and budget committee discusses annual summary audit reports to a limited extent and does not systematically follow up in the absence of detailed audit findings. - The general public does not have access to SFCC reports and findings; SFCC has begun holding monthly press conferences to circulate summary findings. - External scrutiny of macroeconomic models: - External scrutiny and independent analysis of macroeconomic models and assumptions is constrained because budget data is made publicly available only after parliamentary approval; limited discussion of macroeconomic projections within government and little public discussion. ### Statistical independence - The State Committee of Statistics is established under the Law on State Statistics (Law No. 43 of 1997) and is granted functional and technical independence. - The Committee verifies consistency of data sets and indicates data sources during publication. ### IMF staff commentary — key observations and reform priorities - Progress and strengths: - Encouraging progress in fiscal transparency in recent years; meets requirements of the fiscal transparency code in several areas. - Roles and responsibilities among executive, legislative, and judiciary are relatively clearly defined. - Reporting to parliament and the public has strengthened; consolidation of tax legislation into two organic codes (taxes and customs) improved transparency. - Government operations are generally distinguished from central bank and financial sector activities. - Areas needing further improvement: - Donor-financed projects and some extrabudgetary revenues and expenditures are not well consolidated as general government operations. - More analytical work is needed, for example on tax expenditures and exemptions, which should be published. - QFAs in energy and transport are sizable and require more intensive monitoring. - All changes to tax laws and regulations should be made more accessible to the public. - Financial relations between republican and local governments need to be placed on a sounder and more permanent footing; reforms should address limited autonomy of local governments. - Modernizing and consolidating treasury operations is urgent, as are reforms in external audit. *Source: _cr0756 - 46. The comprehensiveness of fiscal information presented with the annual budget* ### 68. Progress in transparency appears to move ahead very slowly in a few areas in ### _cr0756 - 68. Progress in transparency appears to move ahead very slowly in a few areas in ### Transparency progress and key weaknesses - Progress in transparency appears to move ahead very slowly in a few areas in recent years. The regulatory environment remains complex and non-transparent and prone to corruption.44 - The monitoring of financial operations of SOEs deserves greater attention and scrutiny. Currently, the MoF as the key fiscal agency of the government plays no role in the monitoring of financial operations of SOEs, nor does any other central government agency monitor SOE finances comprehensively and systematically. ### Budget framework and fiscal transparency gaps - The framework for budget preparation has improved in recent years, but does not yet meet the requirements of the fiscal transparency code in some areas. - Budget documents are quite comprehensive, but do not include: - (i) a comprehensive explanation and sensitivity analysis of the macroeconomic framework to changes and uncertainties in underlying assumptions and parameters; and - (ii) an assessment of important fiscal risks due to contingent liabilities and QFAs. - The link between governmental policy priorities and budgeting is still weak and as a result the medium-term projections are mostly mechanical. - Shortcomings remain in budget classification to clearly establish administrative accountability in use of public funds. ### Internal control, internal audit, and public financial management reform sequencing - A proposal to undertake a sweeping modernization of the internal control system, including internal audit, in Tajikistan’s government sector, to bring them up to international standards, is under consideration by the authorities. - The proposal, if implemented, would have a major impact on the legal framework and institutional responsibilities of the public financial management system. - Any internal control and internal audit reforms need careful integration with other public financial management and public administration reforms. ### Procurement reform and commitment controls - The timing of reform of commitment controls should be harmonized with the implementation of the new decentralized procurement system. - In the course of 2007, larger budget institutions in terms of procurement are expected to start undertaking procurement themselves, with progressive rollout to other budget institutions thereafter. - Outside the central procurement agency there appears to be limited awareness of, or confidence in, the reform. - Budget institutions will need training to conduct procurement; the central procurement agency will need reorganization to focus on supervision, analysis and advice. - The design and implementation of the reformed commitment controls should take into account progress with the procurement reform. ### High-priority recommendations — Budget preparation, presentation, and reporting - Undertake a thorough review of the activities of organizations providing fee-supported services (both self-financed ones and those receiving a transfer from the budget), public financial (and non-financial) corporations, etc. to clearly demarcate the boundaries between the general government sector and the broader public sector by defining the budget organizations, nonprofit/nonmarket institutions, nonprofit/market institutions, and public corporations, in line with the GFSM 2001. - Develop a hierarchical organizational classification based on a logic reflecting the administrative hierarchy and structure for the purpose of: (i) parliamentary authorization of budgetary appropriations by organizational units and (ii) providing a clear framework for allocating budgets and monitoring their execution at various levels of budget organizations. - Strengthen the link between policy and budgeting by: (i) assigning a lead coordinating role in budget consolidation and negotiation process, for both current and capital budgets, to a single institution, i.e., the MoF; and (ii) improving the sectoral policy formulation by clearly specifying the role of sectoral ministries. - Further strengthen macroeconomic analysis and forecasting by: - (i) advancing the date of preparing the macroeconomic forecasts to integrate them better with the preparation of budget submissions by budget organizations, - (ii) include in the budget documents information on the underlying assumptions and the methodology used for macroeconomic forecasting and a sensitivity analysis in response to a range of prospective macroeconomic developments, and - (iii) subjecting the macroeconomic model to public scrutiny by publishing the macro analysis and forecasts in the press to have an independent debate and analysis before the budget is presented to parliament. - Submit a fiscal risk assessment report with the budget covering: - (i) estimates of contingent liabilities including an assessment of fiscal risks arising from them; - (ii) fiscal risks from changes or uncertainties in main macroeconomic assumptions underlying the submitted budget; and - (iii) a detailed analysis of individual quasi-fiscal operations, including the policy objective they are aimed at, and an assessment of risks arising from them—and where possible, quantification of the costs of such activities. - Show separately in the budget documents the extent of change in budget estimates for the ongoing policies due to cost changes and the budget estimates for the new policies. - Computerize the operations of tax and customs administrations and establish an internal audit function, directly reporting to the head of both these administrations, to undertake systemic, financial, and performance audits. - Strengthen the external audit function by: - (i) upgrading the capacity of the SFCC staff in modern auditing approaches and techniques, including systemic, information technology, and performance audits; - (ii) making available its reports and findings to the public and its detailed quarterly reports simultaneously to parliament,45 and - (iii) assuring the independence of the SFCC at least through an amendment to the Law on State Financial Control to ensure that the head of the national audit body could be removed only by parliament through a procedure independent of the executive.46 - Establish a MoF website to disseminate publicly budget preparation and execution data, as well as information on Tajikistan’s public financial management system, including reforms being considered or under way. - Compile a database for domestic debt and financial assets and publish in the same format together with the foreign debt data, including receivables, payables, and a reconciliation of deficit against changes in stocks. - Expand the publicly disseminated quarterly and annual budget execution report summaries to include a full analysis of variations between the originally approved and adjusted budget allocations and outturns. ### Clarifying responsibilities and coordination - Introduce more regular consultations with local governments, with the objective to establish a sounder and more permanent system for revenue sharing and expenditure transfer formulae. This might entail the development of a new regulatory framework as well. - Identify extrabudgetary activities and consolidate them with mainstream line ministry activities for the purpose of fiscal analysis and presentation. - Streamline responsibilities for SOEs between the State Property Committee and line ministries. ### State-owned enterprises and QFAs - Strengthen the monitoring of financial operations of SOEs, for example by requiring line ministries to provide the MoF with draft annual financial plans for SOEs for review and approval, and regular reports on SOE financial performance. - Identify and report on contingent liabilities and QFAs in the energy and transport sectors and disclose this as well as policy recommendations to parliament and the general public, either as part of the draft budget or separately. ### Treasury reforms, accounting, and reporting on budget execution - Complete the establishment of a Treasury Single Account by consolidating all domestic currency bank accounts used in the general government sector into a single Somoni Bank account operated by the treasury. - Design and implement a reformed and comprehensive commitment control system in harmony with the implementation of the new decentralized procurement system. - Expand the functions of the cash management unit to include all the functions of modern government cash planning and management. - Integrate any internal control and internal audit reforms carefully with other public financial management and public administration reforms, such as the reforms in regard to the commitment control and cash management systems. ### Public sector accounting and oversight - Consider government accounting reform after completion of the above first generation treasury reforms. - Strengthen accounting and auditing standards for SOEs, and task the government to publish their audited annual accounts. ### Appendix I — Summary assessment highlights (selected) - Overall: Tajikistan complies with the Code of Good Practices on Fiscal Transparency in a few instances, and has improved compliance in a number of areas in recent years; modernization of budget preparation procedures and treasury operations, and reforms to the external audit function, remain the most important needs. - Clarity of roles and responsibilities: - General government is defined largely consistent with GFS principles (1.1.1). - Fiscal roles of branches are mostly clear and defined in law; responsibilities of different levels of government could be improved upon (1.1.2). - Mechanisms for coordination and management of budgetary and extrabudgetary activities should be improved (1.1.3). - Public availability of information: - Budget documents and annual budget execution reports cover most general government fiscal activities but some extrabudgetary and QFAs are still not reflected (2.1.1). - There is currently no publication of information on domestic debt (2.1.4). - Publication of fiscal information is not a legal obligation (2.2.1). - Open budget preparation, execution, and reporting: - Medium-term fiscal policy objectives are not always stated and links to concrete fiscal policy measures in annual budgets are unclear (3.1.1). - Budget classification lacks an organizational classification for parliamentary accountability (3.2.1). - Procurement rules and practices are not clear; reforms are needed (3.3.2). - Assurances of integrity: - Budget estimates are not a reliable indicator of actual budget outcomes (4.1.1). - External audit is not fully independent of the executive branch and does not provide regular reports to the legislature and public (4.2.1). *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0756.pdf* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0756.pdf_