Budget Reform Needs Rethink

A radical budget reform designed to increase the powers of local government is doomed to failure and will not get off the ground until there is a change in the way the regions are structured, say analysts.



Under current legislation, Kyrgyzstan is due to move to a two-tiered local government budget system in 2007, replacing the four layers that operate now. According to the new rules, only national and local administrations will have access to taxpayers’ money, while regions and districts will be excluded.



The old system was that revenue flowed from urban and rural areas into the national budget, and expenditure was distributed via regional and district administrations, finally reaching the local rural level. Local government in urban and rural areas will now have control over their own budgets, bypassing the regional and district levels.



According to experts surveyed by NBCentralAsia, the main shortcoming of the new system is that it will not go hand in hand with a reform of the local government structure. The regional and district administrations headed by governors and district heads will continue to exist after the new budgetary system, which deprives them of much of their authority to distribute spending, comes into force. It is hardly surprising that these local leaders are vehemently opposed to the reform.



Supporters of the plan say it will allow these officials to concentrate on other tasks. But the situation is complicated by the fact that it was staff at the finance ministry’s regional and district departments who designed the local budgets, yet it is lower-down local government heads who will have to tackled the complex business of planning revenue and expenditure.



Some analysts suggest that the national budget will have to grow significantly before the reform can bring real results. Local administrations whose budgets come mainly from state subsidies will be adversely affected by the reforms. Rural administrations that owe large debts for public utilities will be especially hard hit, while those with a large revenue base will be able to develop successfully and raise their income further.



Observers also question whether the local administrations will be able to manage funds transparently once there is no more oversight from the district and regional levels.



Analysts point out that budget reform would have a much greater chance of success if it were preceded by reform to the system of local government itself. A two-tiered administration would be optimal, given the proposed budgetary structure, but a three-tiered system that left either the regional or district tier in place as a link between central government and local administrations would also be an improvement.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)