EVALUATION OF USAID FISCAL REFORM PROGRAM: 
KAZAKHSTAN AND KYRGYZSTAN
Submitted to: 
U.S. Agency for International Development 
Under: 
Evaluation IQC No. AEP-I-00-00-00023-00 
Task Order No. 838 
Team Members: 
Thomas L. Bertone, DPA 
Fuat M. Andic, Ph.D. 
Svetlana Druzhinina 
 
 Submitted by: 
Development Associates, Inc. 
1730 N. Lynn Street 
 Arlington, VA 22209-2023 
 (703) 276-0677 
 
 
August 29, 2003
Evaluation of USAID Fiscal i August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
TABLE OF CONTENTS 
Page No. 
1.0 Executive Summary............................................................................................................ 1 
1.1 Current Status. Budget Reform Objectives Have Been More Fully Achieved In 
Kazakhstan Than In Kyrgyzstan............................................................................. 1 
1.2 Impact. Usaid Assistance Has Been Important To Progress................................... 3 
1.3 Lessons Learned. Technical Assistance Should Be Based Upon A 
 Comprehensive View Of Institutional Development And Respond 
 To The Client's Capacity......................................................................................... 3 
1.4 Recommendations. Consider A Transition Program For Kazakhstan, 
 With An Exit Date Of Within Two Years, And A Program For Kyrgyzstan 
 That Focuses Indigenous Resources On Areas Of Opportunity ............................. 3 
2.0 Introduction......................................................................................................................... 4 
2.1 Objective And Scope .............................................................................................. 4 
2.2 Organization Of The Report ................................................................................... 4 
2.3 Methodology........................................................................................................... 5 
3.0 Kazakhstan.......................................................................................................................... 6 
3.1 Tax Policy............................................................................................................... 6 
3.1.1 Current Status. This Component of Technical Assistance Has 
 Achieved Its Objective................................................................................ 6 
3.1.2 Impact. USAID's Assistance Has Been Appropriate and 
 Effective and Has Had a Very Positive Effect on Policy Design ............... 7 
3.1.3 Lessons Learned. There Is a Close Relationship Between 
 Strong Tax Policy and Political Will .......................................................... 7 
3.1.4 Recommendations. Considering the Achievements, No Further 
 Technical Assistance Should Be Undertaken ............................................. 8 
3.2 Tax Administration ................................................................................................. 8 
3.2.1 Current Status. Objectives Are Essentially Achieved; All But One 
Benchmark Is Reached ............................................................................... 8 
3.2.2 Impact. Assistance Provided by USAID Has Been Effective..................... 9 
3.2.3 Lessons Learned. Tax Policy and Administration Are Closely Linked.... 10 
3.2.4 Recommendations. Consider the Mission Essentially Completed ........... 10 
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3.3 Budget Reform...................................................................................................... 10 
3.3.1 Current Status. Budget Reform in Support of Fiscal Policy 
 Management Is in the "Effectively Achieving Objectives" Stage of 
Development............................................................................................. 10 
3.3.2 Impact. USAID Impact Upon Budget Reform Has Been Substantial ...... 11 
3.3.3 Lessons Learned. Adapt the Technical Assistance Program to 
 the Needs of the Country .......................................................................... 12 
3.3.4 Recommendation. Consider Technical Assistance to Create Within 
ME&BP an Organization for Promoting Continuing Financial 
Management Improvement ....................................................................... 12 
3.4 Intergovernmental Fiscal Relations ...................................................................... 13 
3.4.1 Current Status. Intergovernmental Fiscal Relations Is in the First Stage of 
Development; Little Has Been Accomplished.......................................... 13 
3.4.2 Impact. USAID Has Been the Exclusive Source of Technical 
 Assistance, and Progress Has Been Made in Improving 
 Understanding of the Area........................................................................ 13 
3.4.3 Lessons Learned. In Selecting Areas in Which to Provide 
 Technical Assistance, USAID Could Consider (but Not Be 
 Controlled by) Timing and Whether Contemplated Changes Are 
Politically Acceptable ............................................................................... 14 
3.4.4 Recommendation. Indirectly Assist ME&BP to Get the Technical 
Assistance that It Needs to Progress in Intergovernmental 
 Fiscal Relations......................................................................................... 14 
3.5 Fiscal Analysis...................................................................................................... 15 
3.5.1 Current Status. The First Stage of Development Has Been 
 Successfully Concluded, but Much Progress Is Needed before 
Sustainability Will Have Been Reached................................................... 15 
3.5.2 Impact. The Parliament Does Recognize that Information from the 
Executive May Be Tainted, and that Recognition Is Linked to USAID 
Assistance ................................................................................................. 16 
3.5.3 Lessons Learned. Successful Technical Assistance Depends upon the 
Client Wanting and Accepting Responsibility for Change....................... 17 
3.5.4 Recommendation. Continue Technical Assistance to the 
 Parliament at a Greatly Reduced Level .................................................... 17 
4.0 Kyrgyzstan ........................................................................................................................ 18 
4.1 Tax Policy............................................................................................................. 18 
4.1.1 Current Status. Tax Policy Benchmarks Are Not Fully in Place............. 18 
4.1.2 Impact. USAID's Assistance Was Effective at the Start........................... 19 
4.1.3 Lessons Learned. Policy Requires Capacity Building and Consistency In 
Management.............................................................................................. 20 
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4.1.4 Recommendations. Redirect Technical Assistance .................................. 20 
4.2 Tax Administration ............................................................................................... 21 
4.2.1 Current Status. Only Basic Components Have Been Partially 
 Completed................................................................................................. 21 
4.2.2 Impact. The Impact Has Been Limited ..................................................... 21 
4.2.3 Lessons Learned. Design Technical Assistance that is Compatible 
 with the Capacity Formation in the Country............................................. 22 
4.2.4 Recommendations. Provided Redesigned Technical Assistance for 
 Some Time to Come ................................................................................. 22 
4.3 Budget Reform...................................................................................................... 23 
4.3.1 Current Status. Budget Reform in Support of Fiscal Policy 
 Management Is Still in the First Stage of Development........................... 23 
4.3.2 Impact. To Date, USAID Impact Upon Budgeting in the 
 Kyrgyz Republic Appears to Have Been Significant but Limited 
(Extensive but not Deep) .......................................................................... 23 
4.3.3 Lessons Learned. For Countries in the Early Stage of Development, 
Reform Should Be Limited, Focused, and Methodically Follow 
 a Broad Institutional Development Agenda.............................................. 24 
4.3.4 Recommendation. For a Two-Year Program, Focus Technical 
 Assistance So As to Complete Benchmarks Needed to Progress 
 Through Development Stages................................................................... 24 
4.4 Intergovernmental Fiscal Reform ......................................................................... 25 
4.4.1 Current Status. Intergovernmental Fiscal Relations Is in the First 
 Stage of Development, although Progress Has Been Made ..................... 25 
4.4.2 Impact. USAID, through Its Democracy And Governance Program, 
Played a Major Role in Developing the Draft Law; the Fiscal Reform 
Program Developed a Training Program to Improve Local Government 
Financial Management.............................................................................. 25 
4.4.3 Lessons Learned. In Kyrgyzstan, the Distribution of Wealth Makes It 
Particularly Important that MINFIN Concerns about Local Financial 
Management Be Addressed ...................................................................... 26 
4.4.4 Recommendation. As Indigenous Resources Permit, Consider 
 Technical Assistance Support to Decentralization and 
 Intergovernmental Fiscal Relations .......................................................... 26 
4.5 Fiscal Analysis...................................................................................................... 27 
4.5.1 Current Status. The First Stage of Development Has Not Been 
Successfully Concluded, and No Benchmark Seems to Have Been 
Attained..................................................................................................... 27 
4.5.2 Impact. Internal Capacity Is Undeveloped; and, Consequently, 
 Authentic Impact Has Not Begun............................................................. 28 
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4.5.3 Lessons Learned. In An Environment of Limited Resources, the Client 
Will Tend to Use Technical Assistance Resources Operationally............ 28 
4.5.4 Recommendation. Base Continued Technical Assistance upon a 
Memorandum of Understanding Signed by Leadership of the New 
Parliament Which Requires that Leadership to Create an Appropriate 
Internal Staff ............................................................................................. 29 
5.0 Conclusion ........................................................................................................................ 30 
5.1 It Is Premature To Withdraw From Kazakhstan, But The Technical Assistance 
Program Can Be Re-Designed And Reduced ....................................................... 30 
5.2 Technical Assistance To Kyrgyzstan Should Plan For The Full 
 Requirements Of Institutional Development And Focus Indigenous 
 Resources To Maximize Progress......................................................................... 32 
Endnotes........................................................................................................................................ 33 
APPENDICES 
Appendix I Scope of Work ......................................................................................................I-1 
Appendix II List of People Interviewed...................................................................................II-1 
Appendix III Materials Reviewed ........................................................................................... III-1
Appendix IV Tax Policy..........................................................................................................IV-1 
Appendix V Fifteen Questions ................................................................................................ V-1
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EVALUATION OF USAID FISCAL REFORM PROGRAM: 
KAZAKHSTAN AND KYRGYZSTAN
1.0 EXECUTIVE SUMMARY
USAID has operated the Fiscal Reform Program in Kazakhstan and Kyrgyzstan since 1995. It 
has now contracted with Development Associates, Inc. and Nathan Associates, Inc. to evaluate 
the success of the Program. The evaluation occurred over the period July 14 to August 31, 2003. 
This is the Executive Summary of the Evaluation Report. 
1.1 CURRENT STATUS. BUDGET REFORM OBJECTIVES HAVE BEEN MORE 
FULLY ACHIEVED IN KAZAKHSTAN THAN IN KYRGYZSTAN 
 
The fiscal reform status varies between Kazakhstan and Kyrgyzstan. 
1.1.1 In Kazakzstan, Objectives Have Been Achieved in Two of the Five Components, and 
USAID Assistance Could End in These Two Areas 
Reform objectives have been achieved in Tax Policy, Tax Administration, and Basic Budget 
Reform. Important progress has been made in Program Budgeting, where the mechanics of 
program budget preparation have been absorbed and budgets in program formats are being 
produced. However, since reform objectives for program budgeting have not been achieved, 
Budget Reform objectives overall have not been achieved. Additionally, important progress has 
been made in Fiscal Analysis, where the Parliament expresses a need for objective information 
of professional quality separate from that provided by the Executive. In Intergovernmental Fiscal 
Relations, little reform has been accomplished to date. 
Kazakhstan has the resources and apparently believes that it, as the result of its progress, has the 
understanding to continue fiscal reform even if USAID assistance terminates. 
On the basis of Kazakhstan's achievement of objectives and on the apparent capacity of 
Kazakhstan to continue reform, USAID could consider ending fiscal reform technical assistance 
in Kazakhstan for Tax Policy and Tax Administration. 
1.1.2 In Kyrgyzstan, Basic Objectives Have Not Been Achieved, but Opportunities for 
Progress Seem to Exist
Objectives have not been attained in any of the five fiscal reform components. However, 
opportunities for achievement exist. 
• Budget Reform. By focusing technical assistance, opportunities seem to exist for 
accomplishment in Basic Budget Reform. Acceptance of a new Budget Code seems 
attainable after passage of the Law on the Economic and Financial Bases of Local Self￾Government. Similarly, creation of capacity in the areas of Medium-Term Budget 
Framework and Analysis of Expenditure Plans and Budgets (in a program budget 
context) seems attainable. 
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• Intergovernmental Fiscal Relations/Property Tax. Cities may now implement a real 
property tax, and the head of the Ministry of Finance (MinFin) Valuation Unit is 
providing leadership for them to do so. Regulations to implement the tax will soon be 
issued. A train-the-trainers program to assist implementation has been planned. In short, 
the Government seems serious about progress. Moreover, local governments need Own￾Source Revenue. Finally, the property tax will support decentralization, a USAID 
priority. This seems an area ripe for USAID technical assistance. 
• Intergovernmental Fiscal Relations/Budget Reform Support to the Property Tax. Local 
governments do not manage their finances well. If the property tax is to be implemented, 
budget reform technical assistance is also called for. Local budget reform is an interest of 
MinFin. This recommendation focuses that interest so as to maximize effectiveness. 
Kyrgyzstan has experience with budget reform, which could increase the probability of 
achievement. 
• Tax Policy. Technical assistance is still required here. This technical assistance should 
be redirected after assessing the existing capacity and redesigned in a way that is 
compatible with the needs of the country and the absorptive capacity of the staff of the 
Ministry of Finance. For specific recommendations, see Point 4.1.4. 
• Tax Administration. Technical assistance should continue in this component. To be 
discouraged by not obtaining the expected impact and to cut off assistance would result in 
the loss of past achievement. Without continuing technical assistance there would be no 
way to sustain those past advancements that are worth building upon. For specific 
recommendations, see Point 4.2.4. 
• Intergovernmental Fiscal Relations/Transfer Formulae. Passage of the Law on the 
Economic and Financial Bases of Local Self-Government offers significant opportunity. 
Therefore, technical assistance should be offered to develop transfer formulae. 
Nevertheless, this area also holds fairly high risk, for there is no assurance that political 
agreement can be reached upon particular formulae. For this reason, this assistance is 
listed sixth, even though the Law on the Economic and Financial Bases of Local Self￾Government has passed the Parliament. 
• Fiscal Analysis. Kyrgyzstan has a new constitution and will soon have a new, unicameral 
parliament. USAID should regard this as a new beginning and offer technical assistance, 
if an agreement with the parliamentary leadership to create an appropriate internal staff 
can be reached. 
These opportunities contain political risk. Therefore, they are prioritized based upon Expected 
Value judgment, i.e., they combine judgment about the worth of a change and the probability of 
getting it. They should be pursued to the extent that indigenous resources are available, e.g., if 
the government can recruit and retain suitable personnel. 
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1.2 IMPACT. USAID ASSISTANCE HAS BEEN IMPORTANT TO PROGRESS 
Whatever the degree of success in the two countries and the five components, USAID has been a 
major contributor to that success. In some cases, the IMF and the World Bank have provided 
important leadership and even an agenda, but it has been USAID that has provided the technical 
know-how to help each country make progress against the agenda. In doing so, USAID has been 
virtually the lone provider of fiscal reform technical assistance. Since all five components of the 
Fiscal Reform Program are heavily technical, neither country could have made progress without 
outside assistance. USAID provided that assistance. 
1.3 LESSONS LEARNED. TECHNICAL ASSISTANCE SHOULD BE BASED UPON 
A COMPREHENSIVE VIEW OF INSTITUTIONAL DEVELOPMENT AND 
RESPOND TO THE CLIENT'S CAPACITY 
To be effective, organizations/institutions have minimum requirement in eight areas. (For a list 
of the areas, see Point 3.3.3. in the body of the report.) If any of these requirements is not met, 
the organization will not function effectively. Therefore, technical assistance planning should 
consider and provide in some manner for minimum requirements in all eight areas. 
Kazakhstan, because it is relatively resource rich for a developing country, is relatively well 
endowed in several of the eight areas For example, its personnel resource pool is fairly well 
developed. Therefore, an abbreviated program could be undertaken in the past with a reasonable 
likelihood of success. 
Kyrgyzstan is relatively resource poor, including in its personnel pool. Therefore, its technical 
assistance program should explicitly address all eight areas for any fiscal reform measure that is 
contemplated. 
1.4 RECOMMENDATIONS. CONSIDER A TRANSITION PROGRAM FOR 
KAZAKHSTAN, WITH AN EXIT DATE OF WITHIN TWO YEARS, AND A 
PROGRAM FOR KYRGYZSTAN THAT FOCUSES INDIGENOUS RESOURCES 
ON AREAS OF OPPORTUNITY 
The evaluation team believes that Kazakhstan officials need continuing technical assistance in 
several areas to sustain past achievements and to progress on and complete other benchmarks. 
Program budgeting is a case in point. We think that they will fail if left to their own planning and 
will not consider all eight requirements of institutional development and the numerous 
components of a fully developed fiscal capacity. If this is true, further attempts at progress may 
fail, and past achievements may be lost. Therefore, we recommend that USAID work with 
Ministry of Economy and Budget Planning (ME&BP) over the next two years to establish an 
internal organization to lead and support continuing fiscal reform. Additionally, technical 
assistance to the Parliament could be continued if the Parliamentary leadership agrees to create a 
professional staff under a multi-partisan commission. 
In the past, USAID has reduced the size of its program in Kyrgyzstan to match the program more 
closely to Kyrgyzstan's capacity to absorb technical assistance. The evaluation team believes that 
even further reduction in scope and greater focus are required. To elucidate, the report identifies 
a comprehensive list of opportunities. This results from the fact that objectives have not been 
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attained and much remains to be accomplished if objectives are to be attained. The report also 
suggests that, since Kyrgyzstan is resource constrained, a technical assistance program should 
not be bigger than indigenous resources can support. Therefore, priorities are set on the 
opportunities in the individual components, where it is helpful to do so. In Point 1.1.2.above, 
priorities are offered across the components. The opportunities listed in Point 1.1.2 should have 
call on available indigenous resources in the order in which the opportunities are listed. 
2.0 INTRODUCTION
USAID has operated the Fiscal Reform Program in Kazakhstan and Kyrgyzstan since 1995. It 
has now contracted with Development Associates, Inc. and Nathan Associates, Inc. to evaluate 
the success of the Program. The evaluation occurred over the period July 14 to August 31, 2003. 
This is the report on that evaluation. 
2.1 OBJECTIVE AND SCOPE
The objective was to provide an independent evaluation of the state of fiscal reform in 
Kazakhstan and the Kyrgyz Republic so as to inform USAID for its current and future decision 
making. 
The evaluation covered both countries and all components of the program. There are five 
components: 
• Tax Policy 
• Tax Administration 
• Budget Reform 
• Intergovernmental Fiscal Relations 
• Fiscal Analysis 
For each component, the report was to provide and does provide four types of information. It 
provides information on: 
• The current state of fiscal reform 
• The impact of USAID assistance 
• Lesson learned 
• Recommendations, as needed, to achieve greater program impact, particularly over the 
next two years 
In addition, the report was to provide, and does provide, answers to fifteen specific questions 
posed by USAID in the scope of work. 
2.2 ORGANIZATION OF THE REPORT 
To facilitate matching the results of the evaluation and its report to the objective, the 
organization of the report follows precisely the organization of the objective. Consequently: 
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• The body of the report is divided into two major sections, Kazakhstan and Kyrgyzstan. 
• Each major section is divided into sub-sections corresponding to the five components, 
Tax Policy, Tax Administration, Budget Reform, Intergovernmental Fiscal Analysis, and 
Fiscal Analysis. 
• Each sub-section is divided into sub-sub-sections corresponding to the types of 
information, Status, Impact, Lessons Learned, and Recommendations. 
• To the sections and sub-sections, an Executive Summary, Introduction, and Conclusion 
are added. 
• The fifteen questions are answered in a separate appendix, Appendix V. 
• Four other appendixes are also attached, the Statement of Work, A List of Persons 
Interviewed, a List of Documents Reviewed, and a series of tables presenting the status of 
each benchmark used in the USAID Performance Monitoring System for the Program. 
2.3 METHODOLOGY 
Data was gathered for the evaluation through interviews and document review. As indicated, a 
List of Persons Interviewed and a List of Documents Reviewed are included in the Appendixes. 
The status of reform is based upon, but does not adopt, the USAID evaluation scheme. The 
USAID Performance Monitoring System for the Program includes development stages and 
benchmarks of progress within each stage. The evaluation determined reform status by relating 
gathered data to the benchmarks and concluding whether the benchmark had or had not been 
achieved. The USAID scheme assigns each benchmark a value of 0 to 3 for progress. We believe 
that our binary approach, complete or not complete, is more appropriate for an "end of Program" 
evaluation for it relates more closely to achievement of the objective in a linked process. Thus, it 
is more important in our opinion to accomplish 100 percent of the benchmarks through the 
Sustainable stage than, say, 75 percent of each objective through the "Effectively Achieving 
Objectives" stage. We have, however, included scores for each benchmark to allow comparison 
between the two approaches. 
This leads to some variation between reporting in the tax area and in other areas of reform. The 
Performance Monitoring System for taxation uses economic data, tax revenues as a percent of 
GDP, in its evaluation and does not in the other areas. Therefore, economic data is used 
prominently in the tax area but not in others. 
Similarly, economic data is used importantly to determine the impact of tax reform, assessing 
ultimate consequences for the economy of reform efforts. In non-tax areas, the focus is upon the 
impact USAID technical assistance has had upon accomplishment of the benchmarks, movement 
through the stages of development, and building governmental capacity. The logic of the "brick 
chart" approach is that there can be socio-economic impact only if all bricks have been 
completed and put in place, i.e., if the "Effectively Achieving Objectives" stage is complete. 
Since in the non-tax area only one program component (Kazakhstan Basic Budget Reform) 
approaches "Effectively Achieving Objectives," by implication there is little or no socio￾economic impact. In this institutional development stage, therefore, evaluation of impact should 
focus on benchmark accomplishment in non-tax areas. 
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Lessons Learned are derived from questions placed to interviewees and from the evaluation 
team's analysis of the gathered data. 
Recommendations are derived from questions placed to interviewees, the evaluation team's 
analysis of the gathered data, and from the professional knowledge and experience of the team. 
3.0 KAZAKHSTAN
3.1 TAX POLICY 
3.1.1 Current Status. This Component of Technical Assistance Has Achieved Its Objective 
After the breakdown of the Soviet Union, Kazakhstan became an independent republic, and 
began to veer towards a market economy. This country, rich in oil and gas resources, has had a 
very rocky start like so many FSU republics. Inflation in the early nineties and subsequently the 
Russian economic crisis (1998) caused the economy to shrink until the beginning of 1999. 
However, since then the economy has shown a healthy growth at an annual 5-6% rate, thanks to 
the boom in the petroleum sector. Per capita income rose and unemployment declined to about 
10% in 2002, but the income disparity among the families did not decline.i
 During the initial 
years of independence national policies were aimed at political reform and macro-economic 
stabilization in order to assure a peaceful transformation of the country from the command to the 
market economy. 
One of the giant steps that were taken was to install a tax system that incorporated all the 
parameters required for a market economy. Not only did IMF encourage the Government for the 
comprehensive revamp of its tax system (a system that carried all the idiosyncrasies of the Soviet 
era), but also USAID directed a massive technical assistance (TA) to prepare a comprehensive 
tax code and design a tax administration that would operationalize its application. A consulting 
firm (Barents) was contracted to carry out the required assistance and advice. The result was the 
tax code (adopted in 1995 by a Presidential Decree) that included all the provisions required by a 
market economy and all the rules and regulations for its application. The code was the very first 
one in the FSU republics of Central Asia and became a model for the other countries in the 
region. 
In essence, the code was resource allocation neutral with some provisions that took into 
consideration, for example, a sui generis nature of the petroleum sector and of agriculture.ii From 
its enactment until 2002 the code has been changed several times introducing amendments 
consisting of a series of specific exemptions etc. It was thoroughly revised and the new code 
came into effect as of January 1, 2003. One of the major changes in the new code is the special 
regime applicable to the SMEs.iii The measure undoubtedly reflects the option of ease in 
administration. But at the same time it reflects the policy of the Government to stimulate the 
growth of SMEs. Although it stands to reason that the growth of SMEs is not only a function of 
tax provisions, but also depends upon several factors, such as credit facilities, markets, 
availability of transportation and a host of other factors, the provision in the tax code definitely 
reflects the concern of the Government to provide special stimulus for SMEs.iv It may be noted 
that small businesses in Kazakhstan are on the rise and, during the last several years, their 
number has been increasing on the average by about 20% per year, totaling 747,220 
establishments in 2002. 
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In short, the current status of the tax code and the overall policy it has shaped appear to be 
satisfactory and consistent with the overall macro-economic policy followed by the Government, 
and also to both IMF and the World Bank. However, the tax-to-GDP ratio is still below 15% and 
heavy reliance on VAT (%48 of tax revenue) continues. The low tax-to-GDP ratio is perhaps 
understandable because of the preponderance of the revenues derived from gas and petroleum 
exploration fees and exportations. 
The overall conclusion is that Kazakhstan has completed practically all the benchmarks. The 
basic components are in place; the system is operationally functional and sustainable. Practically 
all objectives have been effectively achieved, with the exception of the establishment of 
quantitative analysis capabilities in the Parliament. 
3.1.2 Impact. USAID's Assistance Has Been Appropriate and Effective and Has Had a Very 
Positive Effect on Policy Design 
Government activities, output and socio-economic data, structural reforms in the country (the tax 
code being one of many), good macro-economic management, and the preponderance of the 
petroleum sector began to show their impact especially as of 2000.v
 The annual average growth 
rate of GDP during the last few years was around 10%. However, while the economy is growing, 
the buoyancy (the ratio of the percentage change in tax revenue to percentage change in GDP 
without taking into consideration the statutory changes) of total tax revenues is not fully 
satisfactory. The average buoyancy during the period 1995-2000 was only around 1, and only 
after 2000 did it begin to increase, due to the better collection of income taxes, reducing the 
heavy reliance on heavy indirect taxes. And despite the fact that almost 30% of the population 
lives below the poverty line, this reduction in the reliance on indirect taxes is yet to inject the 
equity considerations into the tax system.vi 
The impact of the code and tax policy, thanks to USAID’s assistance, had a positive impact on 
the overall economic policy of Kazakhstan. It simply made the code consistent with the overall 
policy target of moving from the command to transition economy, and from the transition to 
market economy. The assistance provided has clearly showed the Kazakh authorities the 
essential elements of a good tax policy as incorporated into the code. The necessary provisions 
are already now in the code, such as the special status of SMEs as well as of the petroleum 
industry was also clarified. The code, as amended and now operational as of January 2003, 
clearly shows the policy parameters that are consistent with the overall economic policy, as the 
original code also reflected. In this context it may be added that in the parliamentary circles there 
are some thoughts to simplify the tax code even further by, for example, reducing the income tax 
rate or even making it a flat rate, further facilities for foreign direct investment, etc. These 
thoughts, whether or not will be implemented remain to be seen. They do indicate, however, that 
in the Legislative level (as in the Executive level) the parameters of tax policy are well 
understood. This is another indication of the impact of USAID’s tax policy. In short, the impact 
has been essentially positive and consistent with the economy that is about to complete its 
transitional state. 
3.1.3 Lessons Learned. There Is a Close Relationship Between Strong Tax Policy and 
Political Will 
Several lessons can be extracted from the experience of Kazakhstan. 
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ƒ There is a good relationship between tax policy (and tax code) and political will. The success 
of a good tax policy and its concordance with overall economic policy must be attributed at 
least partially to the political will. As conditions mature and the economy comes closer to the 
market economy, tax policy changes that correspond to such conditions must be incorporated 
into the tax code on a need basis, as the Kazakhstan case shows. 
ƒ The code is the essential guide for tax policy. Again, as the experience of Kazakhstan shows, 
its application as well as policy design requires quick capacity building in this area. 
ƒ The code should contain only general principles. Their interpretation, however, should be left 
to regulations and jurisprudence without continuous recourse to the parliament for the 
required changes. 
3.1.4 Recommendations. Considering the Achievements, No Further Technical Assistance 
Should Be Undertaken 
Kazakhstan has successfully put in place a tax code with a well-prepared cadre of staff (thanks to 
USAID assistance). It is recommended, therefore, that no further TA be undertaken on a long￾term basis. 
If and when some specific need arises, USAID may consider providing short-term well-focused 
TA, if the need for and the scope of such TA are well articulated by the Ministry of Finance. 
The analytical capabilities in the Ministry of Finance are well developed and the staff well 
trained in projections, cost-benefit analyses of the proposed changes in the code. However, the 
Tax Analysis Unit in the Parliament and its national staff require further assistance and training. 
This shortcoming may be remedied with a well-designed TA that should not exceed one year. It 
is recommended, however, that the national staff of the Tax Analysis Unit in the Parliament be 
provided with assistance directed to training, so that their analytical capabilities are enhanced. 
This assistance should not exceed one year. 
3.2 TAX ADMINISTRATION 
3.2.1 Current Status. Objectives Are Essentially Achieved; All But One Benchmark Is 
Reached 
It is axiomatic that any tax reform and its implementation via the tax code are as good and 
efficient as its administration. In other words, tax policy and tax administration are inextricably 
related. Hence, in order to implement the tax code and the ensuing tax policy efficiently the 
Ministry has to be organized on a functional basis. This objective was accomplished as one of 
the very first activities, and the output is the Ministry as it is today. 
IMF, in its dealings and negotiations with the Government of Kazakhstan, had suggested that not 
only a new code was necessary, but a new tax administration system had to be put in place, 
reflecting one of its strong recommendations that the Ministry of Finance be organized on a 
functional basis. However, it was USAID who undertook the job and provided the required 
technical assistance for the reorganization of the Ministry. Through its contractor USAID 
proceeded with the necessary manuals and the training to reform the administration and that was 
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fully achieved in 1999. The USAID contractor subsequently concentrated its attention on the 
following aspects: (i) single taxpayer identification number; (ii) comprehensive tax returns; (iii) 
audit process; and (iv) appeals process. 
Considering that the overall management process of the administration also requires the 
installation and functioning of an IT system that would track down a complete process of tax 
payments, a system (hardware and software) was installed with the assistance of the World Bank 
with 8,000 computers and the accompanying software. The required training was completed 
during the 1997-1998 period. Upon the completion of the IT system the contractor undertook 
several activities that produced several outputs.vii
This report concludes that, in terms of benchmarks, the system has all the basic components and 
is operational and functional. It is also expected that the results obtained from the technical 
assistance will be sustainable. All but one benchmark has been achieved. This exception is that 
compliance is not necessarily consistent with international standards. However, Kazakhstan 
should be able to improve further the tax administration with its own resources and emphasize 
further taxpayer education. 
3.2.2 Impact. Assistance Provided by USAID Has Been Effective 
The overall impact is that the Ministry of Finance became considerably more efficient, the tax 
collection has increased, and so did the number of taxpayers. Although it is difficult to 
disaggregate the impact of good tax administration from the expansion of economic activities 
and assign a numerical weight to each, it is undeniable that the substantial increase in the number 
of taxpayers can and must be attributed at least partly to the efficiency of the administration.viii
In the beginning the Government was very receptive to the idea of the single management of 
revenues and expenditures. However, during the last couple of years or so the Government took 
several measures that tarnished this unitary approach. For one, the budget (revenues and 
expenditures) was split. The Ministry of Finance remained essentially a tax collecting agency 
and Ministry of Economy and Budget Planning assumed the remaining responsibilities of the 
budget. Further, the collection of taxes on international trade, i.e., customs, was taken out of the 
Ministry of Finance and entrusted to an agency directly attached to the President’s office. 
Although the consultants of the contractor vehemently opposed and prepared several memoranda 
objecting to this administrative decision and declaring that, among others, thereby cross checking 
of returns would be lost, the Government did not heed this warning. 
Moreover, the SMEs were separated from the overall tax regime (the economics of this 
separation was discussed in Section 3.1.1). Purely from an administrative standpoint, this 
separation can be viewed as a measure of expediency. It is expected that the existing staff of the 
Ministry of Finance can now concentrate its efforts on the verification, audit, appeals, etc. of the 
returns of the taxpayers whose payments are not negligible. 
Also, as suggested by IMF, the Ministry has established a Large Taxpayer Unit whose 
functioning is considered efficient. The USAID contractor contributed to the functioning of this 
Unit. Moreover, every year in June the Government publishes the list of the major taxpayers, 
including those who are classified as large taxpayers, an action that adds to transparency of the 
administration.ix
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In general, it can be concluded, however, that the Ministry of Finance has enough well-trained 
cadre of officials who are able to carry out their mandate, thanks to the concentrated efforts of 
intensive training and availability of manuals. These are all provided by USAID’s well￾programmed technical assistance. 
3.2.3 Lessons Learned. Tax Policy and Administration Are Closely Linked 
Tax administration reform and the training of the administrators should start parallel to the 
codification of the tax system. It appears that this was achieved in Kazakhstan with good results. 
On the other hand, splitting the administration of taxes in general from customs is fraught with 
serious problems, because it may render rather difficult the cross-checking of declarations and 
may be conducive to corruption that may be one of the reasons for the low tax-to-GDP ratio as 
discussed above. 
The success of the training cannot only be attributable to the technical assistance provided, for 
the success of training depends at the start also on the minimum absorptive capacity and 
technical knowledge of the trainees. 
3.2.4 Recommendations. Consider the Mission Essentially Completed 
Taking into consideration that the Ministry of Finance now has a good nucleus of trained staff, 
and assuming that this staff can be retained at the Ministry,x
 which would avoid to a large extent 
the drainage from the public sector to the private one, it is recommended that USAID, 
considering that its mission is essentially completed, the objectives have been achieved, all the 
benchmarks have been reached, and the expected impact has been attained, should not 
contemplate further technical assistance. 
Should particular specific areas occur in which the tax administration may be in need of short￾term and well-focused assistance, and the Ministry of Finance were to articulate and justify such 
assistance, USAID should respond to such a petition through short-term consultancy services. 
3.3 BUDGET REFORM 
3.3.1 Current Status. Budget Reform in Support of Fiscal Policy Management Is in the 
"Effectively Achieving Objectives" Stage of Development 
The USAID evaluation scheme has two benchmark tables, one for Budget and one for Program 
Budgeting. The one for Budget may be conceived as a scheme for evaluating progress toward 
building a budget capacity to manage fiscal policy. Management of fiscal policy requires a 
capacity to establish fiscal policy through a medium-term budget framework, to establish a 
budget within the guidance provided by that framework, and to execute the budget in accordance 
with the guidance so as to protect the deficit/surplus number embodied in the fiscal policy. Given 
this definition of budget capacity, Kazakhstan budget reform has succeeded. Seven of eight 
benchmarks through the Sustainability Stage have been achieved. (See Table 3 in Appendix IV.) 
Using the USAID methodology, this would give 78 percent achievement or a score of 2.33, 
Significant Progress. In fact, budget reform has progressed further and completed one benchmark 
in the "Effectively Achieving Objectives" Stage. 
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On the other hand, progress on Program Budgeting benchmarks has been less impressive. Only 
two of eight benchmarks through the Sustainability Stage have been completed, and reform has 
not yet entered the "Effectively Achieving Objectives" Stage. In fact, program budgeting reform 
is still in the first stage of development, "Basic Components," having focused upon the 
mechanics and procedures of program budget preparation. The substance of program budgeting, 
program analysis and performance analysis is only now beginning in earnest. The mechanics are 
important because they force the line ministries to begin to structure their planning in terms of 
missions, objectives, goals, outputs, etc…; but the major benefits of program budgeting appear 
when service delivery systems are changed based upon program and performance analysis. This 
has not yet happened in Kazakhstan. Using the USAID methodology, progress on program 
budgeting would be rated at 42 percent with a score of 1.27, Reform Initiated. (See Table 4, 
Appendix IV.) 
3.3.2 Impact. USAID Impact Upon Budget Reform Has Been Substantial 
USAID technical assistance has had a substantial impact upon budget reform in Kazakhstan. The 
impact, however, has varied with the type of reform. 
For budget reform in support of fiscal management, USAID came upon the scene after progress 
was made under IMF and World Bank leadership. Establishment of the Single Treasury Account, 
for example, appears to have occurred without USAID assistance. However, in three benchmarks 
of budget reform, USAID has provided important assistance: drafting the Budget Code (in 
conjunction with the World Bank), building capacity to prepare a Medium-Term Budget 
Framework (in conjunction with the World Bank), and preparation of performance indictors as a 
basis for adequate analysis of expenditure plans and budgets. Very importantly, basic budget 
reform has had socio-economic impact: Kazakhstan now has a 2.5 billion dollar development 
fund and no longer relies upon IFI borrowing. 
In program budgeting, USAID has been the exclusive provider of technical assistance. Since 
Kazakhstan now develops its national budget upon programmatic basis and to do so required 
substantial technical assistance, and since only USAID provided such assistance, it may be 
concluded that the impact of USAID assistance on program budget reform has been substantial. 
However, national ministries are just beginning to re-structure programs and to expect socio￾economic impact, i.e., improvements in program effectiveness, now would be premature. A 
recent performance audit conducted by the Accounts Committee concluded that expenditures for 
the Tuberculosis Program had been sufficient but that program results had not been comparable. 
See below. 
USAID has also had a major impact on the work of the Accounts Committee. The Accounts 
Committee is responsible for setting standards for all government audits and for auditing central 
government agencies. USAID provided a consultant to the Committee for eleven months during 
2002-2003, and that consultant produced four documents on how to conduct audits that were 
well received. Additionally, the consultant helped the Committee implement performance 
auditing that is now required by the 2002 law on auditing. The consultant provided training in 
performance auditing and then guided the conduct of two audits, one in health on the 
Tuberculosis Program and one in education on the quality of higher degrees. Both audits 
apparently had substantial impact upon the way that central government officials view the 
effectiveness of their programs and on how they think about their programs and effectiveness. 
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(Nevertheless, it is not recommended that technical assistance to performance auditing be 
continued. First, Accounts Committee staff report that they have already been trained sufficiently 
to fulfill any continuing need for training. Second, additional performance audits in the short￾term would not be appropriate. Audits should be made against standards that the Executive is 
using. The Executive is not yet able to use performance standards; it is still in the process of 
trying to do so. Therefore, any performance audit will reveal a host of deficiencies in Executive 
programs, and everyone will know this before the audit is conducted. It is also highly likely that 
program designers in the Executive will not find such audits very useful in re-designing 
programs. Additional program audits should be delayed. It is undoubtedly true that the two audits 
were helpful in demonstrating to Executive officials that their programs need re-design, but only 
one or two audits for this purpose seem necessary.) 
3.3.3 Lessons Learned. Adapt the Technical Assistance Program to the Needs of the Country 
Major change in all the components requires an Institutional Development approach. Institutional 
Development as a discipline is well established and consists of eight components. These 
components are: mission and policy statements, organizational structures, staffing (numbers and 
types of people), budgets, facilities and supplies, systems and procedures, data, and, in the 
developing world, technical assistance. To succeed, executors of change must ensure that all of 
these eight elements are planned and provided. Because Kazakhstan is relatively developed, it 
entered budget reform with the ability to provide organizational structures, staffing, budgets, and 
facilities and supplies in support of budget reform. USAID could, therefore, focus upon 
providing systems and procedures, training to implement the systems and procedures, data, and 
technical assistance. In short, USAID could offer an abbreviated program for development and 
expect some level of success. For countries less well endowed than Kazakhstan, a full 
institutional development program, in which all eight components are addressed, would probably 
be necessary. 
3.3.4 Recommendation. Consider Technical Assistance to Create Within ME&BP an 
Organization for Promoting Continuing Financial Management Improvement 
As suggested in 3.3.1 above, if the objective of technical assistance is to create capacity to 
manage fiscal policy, the objective has been achieved, and technical assistance may end. If the 
objective is to "…promote sound budget policies and administration…" as defined by program 
budgeting, there is ample room for continued assistance. Since the current Strategic Objective is 
the latter, the objective has not been achieved (indeed the Sustainable stage is not complete), and 
it would be premature to terminate technical assistance in program budget reform. 
However, we understand that the Mission is under budget pressure, may be able to fund only the 
highest priorities in the Central Asian Region, and is seeking assistance in setting priorities. In 
this vein, although it might be premature to terminate technical assistance in Kazakhstan, 
technical assistance need not be delivered in the same way. Kazakhstan has made considerable 
progress in fiscal reform, and USAID could use this progress to re-design its program.
A Deputy Minister in the Ministry for Economy and Budget Planning (ME&BP) has stated that 
ME&BP has been pursuing budget reform long enough that it understands the additional reform 
that is necessary, that it has the resources to continue reform, and that it can and will continue 
reform. He stated further that, if additional technical assistance is needed and USAID is not 
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available to provide it, other donors would. However, in the interview, the Minister did not 
exhibit a clear understanding of program and performance analysis. We believe that the Minister 
underestimates the difficulty of further reform, has an incomplete understanding of what full 
program budgeting entails, i.e., program and performance analysis, and lacks an appreciation of 
the need for comprehensive institutional development if major change is to be effective and 
sustainable. 
Therefore, USAID could draw upon the experience gained by Kazakhstan to re-design and 
reduce its program there. At the same time, to protect past investment in budget reform, it is 
recommended that USAID negotiate with ME&BP to provide technical assistance aimed at 
creating within the ministry an organization designed to promote and lead continuing financial 
management improvement in both the central and local governments. Members of the new 
organization should have a comprehensive understanding of modern financial management and 
institutional development and the capacity to promote and lead change to establish this financial 
management in the governments of Kazakhstan. The new organization could then contract with 
USAID to provide consulting assistance e.g., in program analysis training, in institutional 
development for line ministry program analysis units, on a reimbursable basis. USAID would 
provide the institutional development technical assistance to set up the new unit. 
3.4 INTERGOVERNMENTAL FISCAL RELATIONS 
3.4.1 Current Status. Intergovernmental Fiscal Relations Is in the First Stage of 
Development; Little Has Been Accomplished 
Kazakhstan has made little progress on Intergovernmental Fiscal Relations. Not one benchmark 
has been achieved; and, as a result, development is still in the first stage. Using the USAID 
methodology, this performance equates to 18 percent achievement or a score of 0.5, Reform 
Initiated. (See Table 5, Appendix IV.) 
This lack of progress appears to be related to the process used. The accepted process consists of 
three steps taken in the following order: (1) assignment of expenditure responsibilities to the 
various levels of government; (2) assignment of revenue responsibilities to the various levels of 
government; and (3) establishment of formulae, usually concentrating upon the equalization of 
fiscal capacity among local governments, to transfer funds among governments in a predictable 
and transparent way. Kazakhstan began with the third step in 1999 but has not been able to agree 
upon formulae. In January 2003, a working group of the Government concluded that the 
accepted process should be used and that work should begin upon the assignment of expenditure 
responsibilities. As a result, the environment may now be more hospitable to progress than it has 
been. 
3.4.2 Impact. USAID Has Been the Exclusive Source of Technical Assistance, and Progress 
Has Been Made in Improving Understanding of the Area 
USAID support for Intergovernmental Fiscal Relations has not been substantial because of the 
high risk associated with the area. Nevertheless, USAID has been the sole provider of technical 
assistance. (USAID has now introduced Kazakhstan to the Moscow Center for Fiscal Policy, 
which may now also provide technical assistance.) Therefore, whatever progress the Government 
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has made in understanding and resolving the issues in the area can be said to stem from USAID 
assistance. 
And progress has been made in improving understanding. The fact that the working group 
concluded that work focus should shift from developing formulae to reassignment of expenditure 
and revenue responsibilities is prima facie evidence of progress. Moreover, governmental staff 
exhibited understanding of the characteristics of transfer formulae. 
On the other hand, expenditure and revenue responsibilities have not been reassigned, transfer 
formulae have not been agreed upon, and financial resources are not transferred to local levels on 
a transparent, predictable, and rational basis. 
3.4.3 Lessons Learned. In Selecting Areas in Which to Provide Technical Assistance, 
USAID Could Consider (but Not Be Controlled by) Timing and Whether Contemplated 
Changes Are Politically Acceptable 
USAID has invested technical assistance resources in this area, but little has been achieved. 
Why? Perhaps because intergovernmental fiscal affairs is an area in which it is inherently 
difficult to progress because progress usually involves political agreement and legislative action. 
The area almost certainly requires some political jurisdictions to be financial winners and some 
financial losers. The probability is high that the losers will oppose the proposed 
intergovernmental solution. Therefore, getting agreement can be difficult and the probability of 
progress can be low. 
An important requirement in providing technical assistance is for the client to want the change 
contemplated and to perceive that technical assistance is a precondition for change. If the client 
is not ready for change, USAID could consider whether it is prepared to present assistance to 
promote a change in attitude (as in Parliamentary fiscal analysis). If the client is ready, direct 
technical assistance should suffice. Thus, if the client is not ready for change and USAID 
proceeds with technical assistance, USAID should expect a two-phase process (initially 
preparing the client and then providing direct assistance) and an extended assistance period. 
In the case here, technical assistance began with the first phase. That phase seems to have been 
completed. Both executive branch staff and parliamentary elected officials expressed interest in 
receiving technical assistance. No one, however, indicated that political agreement on 
expenditure and revenue assignments or on transfer formulae would be easily obtained. 
3.4.4 Recommendation. Indirectly Assist ME&BP to Get the Technical Assistance that It 
Needs to Progress in Intergovernmental Fiscal Relations 
A priority of USAID is decentralization. Progress in intergovernmental fiscal relations would 
benefit decentralization. Kazakhstan may now be poised to make progress in the area because it 
is changing its focus from transfer formulae to reassignment of expenditures and some executive 
officials have expressed an intent to progress. Progress in this area would be easier if technical 
assistance were available to the Government. Therefore, it is in the interest of USAID for 
technical assistance to be available. 
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On the other hand, our interviews in the Parliament elicited interest in the area but no strong 
sentiment in favor of progress. Progress in the area is inherently difficult and the likelihood of 
progress low. USAID may, therefore, wish to be cautious. 
As a consequence, it is recommended that USAID offer to help ME&BP acquire any needed 
technical assistance. Kazakhstan has the resources to pay for any technical assistance that it 
receives in the area, and it should do so. However, USAID could assist the ME&BP to acquire 
that assistance. Therefore, it is also recommended that USAID contract for the assistance under 
its existing IQC's and require reimbursement from ME&BP. If the unit recommended under 
Point 3.3.4 above is established, the technical assistance should be planned and managed by that 
unit. 
3.5 FISCAL ANALYSIS 
3.5.1 Current Status. The First Stage of Development Has Been Successfully Concluded, but 
Much Progress Is Needed before Sustainability Will Have Been Reached 
There is no USAID benchmark table for Fiscal Analysis. Therefore, we have postulated a five￾step progression, as follows: (1) establish a recognition within Parliament of its need for 
objective information of professional quality and, therefore, of its need for information separate 
from that provided by the Executive; (2) establish within Parliament a professionally competent 
staff that can provide that information; (3) establish a belief within Parliament that such a staff 
must be non-partisan and free from control by any political party; (4) establish within Parliament 
"ownership" for that non-partisan, professional staff; and (5) establish a fiscal analysis capacity 
within the Executive. 
Using the above progression, our interviews and review of documents indicate that steps 1and 5 
have been accomplished; steps 2, 3, and 4 have not. Since we believe that this activity focused 
primarily upon the Parliament and since steps 2, 3, and 4 have not been achieved, substantial 
progress must still be made before this area reaches "Sustainability." Specifically, we believe the 
following with regard to these five steps. 
• Step 1. The Parliament recognizes that information from the Executive may be tainted, 
from inadequate technical competence or from political purpose. Access to another 
information source is necessary and that source could be a Parliamentary staff. 
• Step 2. The skills of the USAID financed Fiscal Analysis Unit have not been transferred 
to the internal staff of the Parliament. The professional staff of the Parliament uses the 
Unit operationally to fulfill assignments and passes the work product of the Unit on to the 
legislators. 
• Step 3. Parliament has not necessarily concluded that the source of information need be 
non-partisan. An alternative would be for each party to have its own competent staff, 
which it could control. (Political parties receive and issue information. Each wishes to 
issue information that will contribute to its political objectives. If a political party 
receives information from the executive, that political party can assume that the 
information will be issued so as to accomplish the objectives of the executive. If a 
political party receives information from a non-partisan organization that works publicly, 
the party will be constrained in re-issuing that information to suit its objectives by the 
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fact that the basic information is publicly available. The best solution for a political party 
is to receive information for a professional staff that it controls, so that it can control the 
issuance of the information and even the directions under which the information is 
prepared. It can be assumed that, given the choice, a political party will prefer a 
professional staff that it controls to a professional staff that it does not control. Similarly, 
a political party will tend support a non-partisan professional staff only if its need for 
partisan staff has been met and/or creating the needed staff is too expensive for the 
political party. As a note, partisan staffs can be professional and objective, providing 
information to politicians who use it in a partisan way. That is, political parties need not 
rely on non-partisan staffs to get objective information.) 
• Step 4. The Parliament does not feel "ownership" for the USAID Fiscal Analysis Unit 
and has not committed itself to making its internal staff, for which it does feel ownership, 
over in the image of the USAID Unit. In an interview, a representative of the Senate 
expressed no inclination to improve the Senate internal staff if USAID technical 
assistance ends. That is, although the Parliament may recognize that information from the 
executive is tainted, it does not seem to have a firm conclusion as to how far it must go to 
create a satisfactory staff. 
• Step 5. Fiscal analysis staffs of the Executive can produce a Medium-Term Budget 
Framework, expenditure and revenue projections, and other fiscal analyses of acceptable 
quality. 
3.5.2 Impact. The Parliament Does Recognize that Information from the Executive May Be 
Tainted, and that Recognition Is Linked to USAID Assistance
The Parliament, including the head of the internal staff, does recognize that information from the 
Executive may be tainted and that an alternative source of information is needed. The Parliament 
does recognize that alternative, high quality information can be useful to it; and the USAID Unit 
appears to be responsible for developing this recognition. Therefore, the first phase of 
development, recognizing the need to change, has been completed. (Parliament recognizes the 
need to change and not be dependent upon the executive for information. It is not clear that the 
Parliament is agreement on what to change to.) 
Additionally, the USAID unit has directly impacted fiscal operations. Using the unit's work, a 50 
billion tenge positive balance was discovered for 2002, and revenue estimates for the 2003 
budget were raised. However, to be an authentic impact for this component, the impact would 
have had to originate from the Parliament's internal staff. It did not. Technology transfer has not 
occurred satisfactorily. 
In the Executive, fiscal analysis personnel were professionally educated before the arrival of 
USAID assistance. Therefore, they were prepared to absorb the training provided. They have 
done so. The USAID impact on the Executive has been important, particularly in modeling for 
revenue and expenditure projections. 
Parliamentary staff were not adequately prepared, and they have not absorbed training. 
Moreover, although the head of the internal staff originally requested assistance from the US 
Ambassador in 1997, he stated in an interview that initial USAID assistance was not sufficiently 
attuned to conditions in Kazakhstan and that initial consultants turned over too frequently. 
Additionally, although the Memorandum of Understanding establishing the USAID Unit requires 
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the Parliament to provide five counterpart staff, only two have been consistently provided. 
Instead of using the Unit as a model from which to learn, the head has used the Unit on problems 
to provide answers using best international practices rather than requiring his staff to learn those 
best practices. For all these reasons, the impact in terms of technology transfer has been less than 
complete. 
3.5.3 Lessons Learned. Successful Technical Assistance Depends upon the Client Wanting 
and Accepting Responsibility for Change 
Neither the members of Parliament nor the head of the Parliamentary staff appear to have 
accepted responsibility for creating a fiscal analysis capability internal to the Parliament. The 
attitude seems to be that the Unit is to provide service that the internal staff and the Parliament 
may accept or reject. If the Parliament and the head of the staff do not accept responsibility for 
creating an internal fiscal analysis capability, such a capability will not be created. The USAID 
Unit cannot do it. Therefore, future agreements between USAID and a Parliament in other 
Central Asian Republics to provide phase two technical assistance per Point 3.4.3 above should 
be designed to make the Parliament or its agent responsible for creating the internal capacity that 
is needed, with USAID assisting the Parliament or its agent to do so. To do this, that Parliament 
should be clear about the characteristics of the capability that is wants to create, as does not seem 
to be the case in Kazakhstan. If the purpose of the agreement is to create recognition within 
Parliament of its need for objective information of professional quality, i.e., to provide phase one 
technical assistance, then a separate Unit, as used now in Kazakhstan, would be appropriate. 
(Relating Points 3.4.3. to 3.5.1., Step 1 of Point 3.5.1, would be included in Phase 1 of 3.4.3.; 
and Step 2 would be included in Phase 2. Steps 3 and 4 would be a pre-condition for Phase 2 
technical assistance, as just discussed.) 
3.5.4 Recommendation. Continue Technical Assistance to the Parliament at a Greatly 
Reduced Level 
The first phase has been achieved: the Parliament recognizes its need for objective information 
of professional quality. USAID could consider providing technical assistance under phase two. 
In doing so, there are two issues: (1) creating a professional staff internal to the Parliament; and 
(2) ensuring that that staff is non-partisan and free from political control. 
To do this, the Parliament needs to be clear that this is the type of staff that it wishes to create 
and that it will assume responsibility for doing so. Developing this clarity should be a pre￾condition for continuing aid. It would seem that the Parliament has had sufficient experience 
with the USAID unit to make an explicit decision now about whether to create such a unit. For 
this, as a precursor to a new round of assistance (should there be one) USAID should engage the 
leadership of the Parliament in an explicit decision-making process. If the Parliamentary 
leadership should decide to create a unit such as described in (1) and (2) above, USAID could 
consider the following approach. 
To accomplish (1), it is recommended that USAID require a plan for institutionalization of 
Parliamentary fiscal analysis capacity and establishment of a schedule for phasing-out USAID 
assistance. USAID should also require Parliamentary officials to spend from their institutional 
budgets to support meeting the phase-out schedule (so that the Parliament would be investing its 
own resources and expect to see a return on the investment). USAID assistance would consist 
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primarily of an expatriate advisor to the local head of the parliamentary professional staff. 
Existing USAID-funded local staff in the Fiscal Analysis Unit would be terminated (although 
they could be hired by the Parliament). The head of the internal staff would have responsibility 
and authority to use the resources at his disposal, i.e., his parliamentary budget and the expat., to 
institutionalize the capacity. This could include procuring additional contractual technical 
assistance from USAID. It should be clear to USAID, the Parliament, and the public that the 
institutionalization responsibility lies with the head of the parliamentary professional staff. 
To accomplish (2), it is recommended that USAID require that the Parliamentary staff report to a 
multi-partisan commission, so that no political party could control the "non-partisan" staff. The 
parliamentary leadership might not agree to a multi-partisan commission, but this would be a test 
of its commitment to a non-partisan staff. 
4.0 KYRGYZSTAN 
4.1 TAX POLICY 
4.1.1 Current Status. Tax Policy Benchmarks Are Not Fully in Place 
A market-based tax system began to be implemented as of 1992 pursuant to the Constitution 
(Art. 25) which stated that “citizens of the Kyrgyz Republic shall be obliged to pay taxes and 
fees.” The system is in a fledging state and is still not being fully implemented, yet at least in its 
spirit it shows the signs of a genuine desire towards a market system. However, a real market￾oriented tax code came into being in July 1, 1996. Most, if not all, of its articles did not differ 
from that of the tax code of Kazakhstan.xi Drafting of the code was accomplished with funds 
provided by USAID, and its contractor Barents carried out the actual work. 
Originally, the code was meant to be resource allocation neutral, but as will be seen below, 
numerous amendments tarnished seriously its intention. It was to be the prime instrument (with 
its corresponding administration) for raising revenues to finance the state expenditures. The code 
also incorporated all the rules and regulations for a proper tax administration. 
However, from its enactment until now the code was constantly amended. In fact, some 700 
modifications were introduced. Some new provisions were worked in for the purpose of assuring 
economic development and enhancing equity. The major changes in this vein were: accelerated 
depreciation enabling businesses to increase their profit and replacement of fixed assets; 
generous loss carry forward provisions; special treatment of geographically disadvantaged areas; 
reduction of the VAT rate; and special treatment to SMEs in July 1999 in simplifying the tax 
code by subjecting them to the patent and gross receipt tax. In fact, the Government, conscious 
of the very slow pace of economic development in the country, is desirous to stimulate SMEs.xii 
While the above amendments clearly indicate the concern of the Government to encourage 
economic development and to create favorable conditions for investment, several other 
amendments were also introduced with the purpose of recognizing special benefits in terms of 
exemptions, favorable treatments etc. to certain economic subjects and entities. There are some 
500 such provisions in the currently existing code. The end result is that the code has become 
very eclectic and riddled with contradictory provisions. Such frequent changes without having 
undertaken detailed cost-benefit analyses (for which the in-house capacity is inadequate) serve 
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only the benefits of specific taxpayer categories, are conducive to corruption,xiii and undermine 
the stability of the tax system. As a result the code reflects no consistent tax policy, impedes 
proper tax administration, and damages the integrity of the tax structure.xiv
It must be kept in mind that tax collection based on the code has shown a poor picture. Total tax 
proceeds (1996-2002 average) is slightly less than 13% of GDP, which is low by any standard. 
Income taxes are only 2.5% of GDP and the only major source of revenue is VAT (40% of total 
tax revenue) which was about 5% of GDP during the period under consideration.xv Granted, the 
revenue collection is not only a function of the tax code and tax policy, but also of a host of other 
socio-economic conditions. However, it stands to reason that a poor tax code, as it is, has certain 
negative impact on tax collection.xvi
The major activity of the USAID-provided technical assistance, i.e., preparation of the tax code, 
had been completed successfully and the output was at hand free of internal inconsistencies. 
However, as explained above, the changes that have been introduced eroded the effectiveness of 
the tax policy based on the code. 
The report concludes that only the first benchmark, i.e., the basic components of the tax code, 
despite the frequent changes, is essentially at hand. But the system is yet to be operational and 
functional, and certainly the sustainability is questionable. The special provisions for SMEs and 
their sustainability are also question marks, since these provisions are very new and their 
application is yet to be tested. Whether the objectives are effectively achieved is open to 
questioning. The tax code does not discourage foreign investment, but a set of non-fiscal 
conditions in the country are likely to discourage DFI. Despite the fact that originally the tax 
code included provisions for horizontal and vertical equity, numerous exemptions are in fact 
working against the equity principle. It would be premature to say that objectives are effectively 
achieved. 
4.1.2 Impact. USAID's Assistance Was Effective at the Start 
The Kyrgyz Republic is one of the poorest countries in the world (per capita GDP was barely 
US$ 300 in 2002). More than 50% of the population lives below the poverty line. The country is 
sparsely populated and mountainous with very limited arable land (7% of the total). Very many 
agricultural and pastoral villages are barely connected with the rayons to which they belong. 
Natural resources are also limited. Gold and few other minerals and abundant hydropower are 
the only wealth. 
Like many republics of the former Soviet Union, the Kyrgyz Republic also suffered from a 
number of shocks. The early painful transition years and the 1998 economic crisis in Russia 
impacted its economy quite negatively. Its foreign trade was then, and is still now, dependent on 
exports to Russia. The Government undertook a number of reforms and initiatives during the last 
several years, but many of them are yet to bear fruit, and fiscal policy is no exception. The 
technical assistance provided for the design of the tax code was initially effective and positive, 
but this positive impact eroded rather quickly due to constant amendments. Some of these 
amendments were blocked, thanks to USAID’s and the Ministry of Finance’s scrutiny. 
Nonetheless, quite a number of them found their way and tarnished the consistency of the tax
code. This is at least partly due to the staff’s lack of quantitative analysis capability, low 
absorptive capacity of technical assistance, and its high turnover. 
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In short, USAID’s assistance was effective at the start, but the effectiveness evaporated very 
quickly and the intended impact of the assistance to the design of the tax code and tax policy is 
no longer observable. Admittedly, in a country like the Kyrgyz Republic policies to terminate the 
transition period and to move to a market economy is rather difficult, given the socio-economic 
circumstances. It would be unduly optimistic to expect the same success observed in Kazakhstan. 
The Kyrgyz authorities seem not to have paid sufficient attention to the appropriate tax policy, 
partly due to the absence of qualified personnel, and succumbed to the influences of interest 
groups. 
4.1.3 Lessons Learned. Policy Requires Capacity Building and Consistency In Management
The discussion above reveals several lessons. 
ƒ For one, a good tax policy requires capacity building and consistency in management, 
both of which are lacking in the Kyrgyz Republic. 
ƒ Secondly, frequent changes, especially to satisfy pressure groups, are detrimental to a 
consistent tax policy. 
ƒ And finally, good tax policy requires analytical capabilities both in the legislative and 
executive branch to assure the consistencies of the proposed changes with overall policy. 
In the Kyrgyz Republic the capabilities in both branches are lacking. 
4.1.4 Recommendations. Redirect Technical Assistance 
Given the state of affairs in the realm of tax policy, it is recommended that technical assistance is 
still required for some time to come. This technical assistance should be redirected after 
assessing the existing capacity and redesigned in a way that is compatible with the needs of the 
country and the absorptive capacity of the staff of the Ministry of Finance. 
More specifically, it is recommended that the technical assistance should have the following 
form in the next two years: 
ƒ Provide technical assistance to review the code, eliminate inconsistencies, and assure 
simplification. Review the implementing regulations and assist the Ministry to make 
them consistent with the code. This should be completed in six months. Nothing can 
guarantee that what happened during the past will not repeat itself after revising the code, 
unless a political will is in place that will not give in to special interests. 
ƒ Redesign a thorough training program, taking into consideration the level of professional 
preparedness and the absorptive capacity of the staff. 
ƒ Start from elementary levels of statistical knowledge, gradually increase it to the 
quantitative techniques of revenue projections and methods of cost-benefit analysis of all 
forthcoming amendments, as well as to enhancing the capability of conducting studies to 
assess the equity (vertical and horizontal) implications. 
ƒ Review the feasibility of incorporating agricultural incomes into the tax net with the 
administrative staff of the Ministry, in order to incorporate the administrative parameters 
required for taxing the agricultural incomes. 
This technical assistance to train and build capacity should be accomplished within two years. 
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4.2 TAX ADMINISTRATION 
4.2.1 Current Status. Only Basic Components Have Been Partially Completed 
The USAID, through its contractor, initiated the reform of the tax administration concomitantly 
with the codification of the tax system. Following the recommendation of IMF, the Ministry of 
Finance was organized on a functional basis and massive technical assistance was directed in the 
form of required manuals, training, and capacity building. To improve the tax collection further a 
Large Taxpayer Unit was also set up, and a tax identification numbering system put in place and 
lately tax and customs administrations were united under a single agency. Yet, tax administration 
remains essentially weak. In other words, the contractor, as prescribed, has carried out all 
activities, but not all outputs have been achieved, and the intended impact is yet to be observed. 
In other words, there are serious basic weaknesses in the tax administration; these stem from 
various factors. These can be summarized thus: 
ƒ There is a fair amount of turnover among the staff, i.e., there is a leakage in the capacity
that is being built. Those who are trained move to the private sector where the 
remuneration is much more satisfactory. Hence, the capacity that is being built through 
technical assistance is constantly lost to the tax administration. 
ƒ There is a frequent rotation among the higher echelon of managers and decision makers. 
Therefore, the continuity of directive is frequently interrupted. 
ƒ Capacity among the staff who has been subjected to training is very low. Hence, the low 
absorptive capacity does not allow them to use their training efficiently and effectively 
with a larger perspective. 
ƒ Corruption in the administration is endemic and tax evasion is very widespread. The 
means to detect evaders are not in place. 
ƒ Basic tools, such as computers and software, are insufficient.xvii
ƒ Although the IT system is essentially established, including central data base and its hook 
up with pilot offices, the full computerization it is far from being satisfactory. There is 
only preliminary verification. Audits and Arrears Departments are not carrying out their 
functions effectively.xviii There is an overhang of backlog of arrears that indicates 
inefficiency in collection. 
ƒ Hardly any crosschecking is carried out (although there is a single taxpayer unit 
identification number). This stems from the fact that the different IT systems designed 
make it impossible to share information among varying offices. 
ƒ It appears that very few cases are referred from the Audit Department to the Appeals 
Department. This suggests that all disputes are solved in the Audit Department through 
means other than legal. This also suggests some corruption in the administration. 
In conclusion, only part of the first benchmark, i.e., the basic components of tax administration 
are in place. Functional organization is completed, computerization is yet to be completed, and 
the staff needs to be trained adequately. The system is neither operationally functional, nor is it 
sustainable. In short, the objectives are yet to be achieved effectively. 
4.2.2 Impact. The Impact Has Been Limited 
USAID directed considerable efforts to training, but due to the lack of absorptive capacity the 
impact was very limited. Also the absence of necessary tools (hardware and software), makes the 
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efficiency rather low. A good example for this is the incomplete use of tax identification number 
system that is set up in checking and cross checking the income tax declarations them with 
information from customs, VAT offices, etc. This indicates that basic tools are there, but they are 
not fully used. 
It also appears that political will is lacking. Moreover, the constant change in the high level 
management and the fear to make decisions at the mid-level management (a Soviet legacy) are 
impediments for effective improvement in tax administration. 
Many indications suggest that there is a certain amount of corruption that erodes whatever 
effectiveness exists in the administration. 
In short, technical assistance is yet to show fully and satisfactorily the desired impact. 
4.2.3 Lessons Learned. Design Technical Assistance that is Compatible with the Capacity 
Formation in the Country 
Technical assistance should be designed in such a way that it is compatible with the existing 
capacity in the country. The technical assistance extended to the Kyrgyz Republic is similar to 
that of Kazakhstan. Yet, socio-economic conditions, capacity formation and the absorptive 
capacity in both countries are totally different. What is good for Kazakhstan is not necessarily 
good for the Kyrgyz Republic. 
The effectiveness of the technical assistance is also a function of the continuity in upper 
management in order to reach the effective results that technical assistance is expected to yield. 
4.2.4 Recommendations. Provided Redesigned Technical Assistance for Some Time to Come 
The report recommends that technical assistance should continue in the Kyrgyz Republic for 
some time to come. To be discouraged by not obtaining the expected impact so far and to cut off 
the assistance would result in the loss of any results achieved up to date. Otherwise there would 
be no way to sustain even the preliminary advancements that are worth building upon. The 
Kyrgyz authorities perceive USAID as the only dependable assistance giver. IMF puts forward 
prescriptions to increase taxes and reduce expenditures without really assisting the authorities as 
to how to operationalize them. It is recommended, therefore: 
ƒ Engage the tax administration in contributing to the simplification of the tax code to 
enhance the feeling of ownership of technical assistance and understanding the 
administrative implications of the changes. 
ƒ Assist the staff of the Ministry of Finance to come to the technical level for weeding out 
from the tax code those provisions that are working against the principles of vertical and 
horizontal equity. 
ƒ Enhance the capacity of the staff for following the tax provisions for the development of 
SMEs and encouragement of FDIs. These provisions being fairly new, they require a 
proper monitoring for the next couple of years and, depending upon the results of the 
monitoring, certain requirements be added. 
ƒ Provide technical assistance to prepare the ground for the implementation of the property 
tax. 
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The above suggestions are over and above the need to enhance the overall capacity of the staff, 
which will require also the completion of the IT system, provision of all necessary software and 
other amenities. 
4.3 BUDGET REFORM 
4.3.1 Current Status. Budget Reform in Support of Fiscal Policy Management Is Still in the 
First Stage of Development 
As with Kazakhstan, the USAID evaluation scheme has two benchmark tables, one for Budget 
and one for Program Budgeting. Again, the one for Budget may be conceived as a scheme for 
evaluating progress toward building a budget capacity to manage fiscal policy. Given this 
perspective, Kyrgyzstan budget reform is still in the first stage of development, "Basic 
Components." The very first benchmark in Basic Components (relating to passage of the Budget 
Code) has not been completed. The 1998 Budget Law might be considered satisfactory for 
purposes of the Central Government. However, both the Parliament and the Executive seem to 
consider it inadequate for purposes of intergovernmental fiscal relations and local government 
budgeting. Since Kyrgyzstan is a unity system, this evaluation considers that a budget law that 
does not meet the needs of all levels of government is deficient and, therefore, that the first 
component is incomplete. Moreover, only half of the benchmarks through the "Sustainable" 
Stage have been completed; and overall only five of twelve have been completed. Using the 
USAID methodology, this would give 61 percent achievement or a score of 1.88, Reform 
Initiated. (See Table 8, Appendix IV.) Budget capacity to manage fiscal policy has not been 
achieved, but progress has been made. 
Similarly, budget reform in program budgeting is still in the first stage of development. None of 
the benchmarks in the first stage have been completed and only one of eight through the 
Sustainable Stage. Using the USAID methodology, progress on program budgeting would be 
rated at 33 percent with a score of 1.0, Reform Initiated. (See Table 9, Appendix IV.) Building 
budget capacity in program budgeting is just beginning. (As with Kazakhstan, program 
budgeting is defined here to include decision-making based upon program and performance 
analysis and is not limited to producing a budget in a program format.) 
4.3.2 Impact. To Date, USAID Impact Upon Budgeting in the Kyrgyz Republic Appears to 
Have Been Significant but Limited (Extensive but not Deep) 
In budget reform to support fiscal policy management, USAID appears to have assisted in only 
three of the first eight benchmarks, the Budget Code, the Medium-Term Budget Framework, and 
Adequate Analysis of Expenditure Plans and Budgets. However, none of these three have been 
completed. The three benchmarks that have been completed appear to have been completed 
before USAID technical assistance began, under IMF and World Bank leadership, i.e., the Single 
Treasury Account, Budget Group Has Authority, and Budget Group Staffed and Trained 
benchmarks. Moreover, the IMF and World Bank remain as important influences. Both, for 
example, heavily impacted the Medium-Term Budget Framework for 2004-2006, as did USAID. 
Similarly, satisfactory socio-economic impact has not been reached: Kyrgyzstan still requires IFI 
borrowing. 
. 
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In reform for program budgeting, USAID impact has been exclusive (only USAID is providing 
technical assistance) and, therefore, important; but reform is still in the first stage, with only one 
of the first eight benchmarks completed. For example, the 2003 National Budget was prepared 
by ministries and submitted to the Parliament in both line item and program formats. Moreover, 
national ministries are just beginning to re-structure programs and to expect socio-economic 
impact, i.e., improvements in program effectiveness, now would be premature. 
Nevertheless, Kyrgyzstan has moved to program budgeting. This is a significant 
accomplishment. Only USAID provide the technical assistance that would permit this to happen. 
4.3.3 Lessons Learned. For Countries in the Early Stage of Development, Reform Should Be 
Limited, Focused, and Methodically Follow a Broad Institutional Development Agenda 
Kyrgyzstan is in the early development stage. It is not rich in natural resources and does not have 
a thriving economy. As a result, its governments are not richly endowed. They are short of 
management skills, technical staff, financial resources, facilities and equipment, and access to 
state-of-the-art technology. If reform is to occur, it is highly likely that capacity in each one of 
these areas must be developed. To do so requires a comprehensive strategy as to how each these 
components, the components of institutional development, is to be obtained and retained. A long￾term program is required, and the program should be tailored to the capacity of the country to 
progress. 
More specifically, it appears that the USAID budget reform (and fiscal reform) program in 
Kyrgyzstan has pursued too ambitious an agenda. It has attempted to accomplish too much too 
fast. As a result, no stage of development in basic budget reform or reform for program 
budgeting has been completed, although important progress has been made in basic budget 
reform. The usual type of problem, for example, is that people identified for training do not 
appear for training because urgent work has to be finished. Or, a capable staff person trained in 
one area is re-assigned because a capable person is needed in an area that has become a priority. 
Kyrgyzstan is short of good people. To resolve the problem, limited, focused, long-term 
institutional development is necessary. 
To distinguish between Kazakhstan and Kyrgyzstan, Kazakhstan had substantial trained 
technical manpower, computers, facilities, and financial resources. Therefore, an institutional 
development program could focus on developing mission statements and policies, appropriate 
organizational structures, management talent, and systems and procedures. Kyrgyzstan is 
resource deficient in all areas. Therefore, its needs are broad and "massive." However, because 
its resources are limited, a program to improve should be, in the short-term, narrow and focused 
and extend over a long period (to develop resources). The resources that are available should be 
used to build critical masses and functioning institutions that are effective. The problem is to 
decide where to focus in the short-term, given the broad array of needs. 
4.3.4 Recommendation. For a Two-Year Program, Focus Technical Assistance So As to 
Complete Benchmarks Needed to Progress Through Development Stages 
Point 4.3.3 above is most relevant when technical assistance to a country is beginning. USAID 
has been in Kyrgyzstan for a number of years and is now addressing its program for the next two 
years. In this context, it is recommended that USAID: 
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• Focus technical assistance so as to complete benchmarks, and development stages, in an 
orderly fashion; 
• Consider the complete set of institutional development requirements for each benchmark 
and have an approach for acquiring and retaining each requirement for each benchmark 
to be addressed; and 
• Give priority to completing basic budget reform through the Sustainability Stage, i.e., the 
Medium-Term Budget Framework, Adequate Analysis, and, to the extent possible, the 
Budget Code. Analysis should emphasize performance indicators and unit costing within 
the context of program budgeting and budget execution accountability for costing. This 
focus indicates that technical assistance in the short-term should be concentrated in the 
central budget office to develop a complete institution capable of preparing a Medium￾Term Budget Framework and budgets that have good unit cost data and allocate money to 
agencies that keep their spending within unit costs, within the context of a program 
format. Technical assistance to the line ministries would be extended only when all the 
institutional development needs of the central budget office were met and would use the 
same strategy. Ministry budget offices would be developed institutionally and on a 
priority basis, i.e., not all at once. 
4.4 INTERGOVENMENTAL FISCAL RELATIONS 
4.4.1 Current Status. Intergovernmental Fiscal Relations Is in the First Stage of 
Development, although Progress Has Been Made 
Kyrgyzstan has made progress on Intergovernmental Fiscal Relations. Although only one 
benchmark has been achieved through the Sustainable Stage, action has been initiated in nine of 
the eleven total benchmarks. Nevertheless, completion of only one benchmark means that 
development is still in the first stage, Basic Components. Overall, using the USAID 
methodology, this performance equates to 48 percent achievement or a score of 1.45, Reform 
Initiated. (See Table 10, Appendix IV.) 
The draft Law on the Economic and Financial Bases of Local Self-Government obtained 
Parliamentary passage in July 2003. If the President accepts the draft in substantially its existing 
form, the first benchmark under Basic Components will be completed. The Law will make clear 
revenue assignments to all governments. Nevertheless, the third benchmark under Basic 
Components will still not be complete, and Intergovernmental Fiscal Relations will remain in the 
first stage of development. 
Even after passage of the law, one of the three major pillars of Intergovernmental Fiscal 
Relations, intergovernmental transfer formulae will not be established, and substantial work will 
remain on this and supporting benchmarks. 
4.4.2 Impact. USAID, through Its Democracy and Governance Program, Played a Major 
Role in Developing the Draft Law; the Fiscal Reform Program Developed a Training 
Program to Improve Local Government Financial Management 
Initial work in Intergovernmental Fiscal Relations was led by the World Bank in the 1995 to 
1997 period. During this period, work was undertaken on assignment of expenditures and 
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revenues and on transfer formulae. However, under the Budget Law of 1998, oblasts and rayon 
had considerable authority to determine how much revenue was decentralized to cities, villages, 
and settlements. They chose to decentralize far less than needed at local levels. USAID, through 
Barents and the Urban Institute, played a major role in crafting the draft Budget Code to give 
more revenue to local levels. However, because of a change in the Constitution, work on the 
Budget Code has stalled and emphasis has shifted to the draft Law on the Economic and 
Financial Bases of Local Self-Government. The Urban Institute played a major role in design of 
this draft. Although, Barents began work on transfer formulae in October 2002, it did not 
participate extensively in preparing the new draft law. Instead, it reflected the concern of its 
client, the Ministry of Finance, over the capacity of cities, villages, and settlements to manage 
additional monies well. Thus, USAID has had a major impact on recent progress in 
Intergovernmental Fiscal Relations but more through its Democracy and Governance Program 
than through Fiscal Reform. However, in 2001 USAID technical assistance consultants worked 
with MinFin to design a training program for local governments in budget reform, and this 
program will support implementation of the Law on the Economic and Financial Bases of Local 
Self-Government. Thus, major impact of Fiscal Reform technical assistance in intergovernmental 
fiscal relations lies in the future. So, also does socio-economic impact. It remains in the future 
for cities, villages, and settlements to receive the increases in revenue that will allow them to 
provide better local services. 
4.4.3 Lessons Learned. In Kyrgyzstan, the Distribution of Wealth Makes It Particularly 
Important that MINFIN Concerns about Local Financial Management Be Addressed 
In this area, several principles are important. First, local governments should raise most of their 
revenue by taxing themselves. Only by taxing themselves can local citizens decide how 
important local public services are to themselves and how much they are willing to pay. Second, 
grants to local governments, unless they are matching grants, will tend to be used inefficiently. 
Given "free" money, local officials will spend it all, even if this means some of it will be wasted. 
In Kyrgyzstan, the issue is complicated because wealth is concentrated in Bishkek. 
Intergovernmental transfers mean that the citizens of Bishkek will be taxed, their taxes will be 
sent to the central government, and then the money will be transferred to local governments 
throughout the Republic, i.e., it will be the citizens of Bishkek who will finance the transfers 
This raises issues of political viability and justice. Specifically, will the citizens of Bishkek be 
willing to finance transfers if they do not believe that local governments manage their finances 
well? MinFin has a responsibility to the citizens of Bishkek to ensure that the transfers are spent 
efficiently and that the citizens of Bishkek know it. 
4.4.4 Recommendation. As Indigenous Resources Permit, Consider Technical Assistance 
Support to Decentralization and Intergovernmental Fiscal Relations 
Kyrgyzstan has a long history, dating from 1995, in attempting to improve intergovernmental 
fiscal relations. With adoption of the Law on the Economic and Financial Bases of Local Self￾Government, it will make a major improvement. It is recommended that USAID support 
continuation of this improvement. The assistance outlined below presents a comprehensive list of 
the technical assistance opportunities but ranks them in order of priority. Kyrgyzstan is resource 
limited. A lower priority should not be undertaken if indigenous resources are insufficient to 
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allow effective execution of a higher priority. (It is expected that phased planning will allow a 
program through at least Priority 3.) 
Priority 1. Provide assistance to implement the local property tax. It is important that the cities 
demonstrate that they are willing to tax themselves. Barents has prepared a training program 
(train the trainers); but an institutional development approach is needed. Cities are most likely to 
have the resources to make decentralization work in the short-term. This assistance should 
identify the organization units required to operate a property tax effectively, define their 
characteristics, and provide assistance to ensure that these units are put in place. A plan for each 
unit will be required. This assistance would cover the central as well as the local level. 
Assistance to the cities may need to be phased, based upon resource availability. (It is better to 
have a property tax operating well in a few cities than poorly in many.) 
Priority 2. Provide budget reform assistance to local budget offices in support of the local 
property tax. The assistance should be limited to those local governments that implement the 
property tax and should be phased to support the property tax. Local governments seem 
enthusiastic about program budgeting, so this reform should continue. It should be married with 
development of performance indicators, training in costing and cost analysis, and training in 
holding spending agencies accountable for unit costs during budget execution. The assistance 
should follow a broad institutional development approach, calling upon local governments to use 
a portion of property tax revenue for improved financial management. 
Priority 3. Provide technical assistance for transfers. This area holds fairly high risk, for there is 
no assurance that political agreement can be reached upon particular formulae. Therefore, this 
assistance is listed third, even though the Law on the Economic and Financial Bases of Local 
Self-Government has passed the Parliament. This should have three components. 
• Provide assistance to develop grant formulae. Emphasis should be upon equalization 
formulae and matching grant mechanisms. 
• Provide assistance to require that local governments devote a portion of grant money to 
their improved financial management. 
• Provide assistance to establish in MinFin a mechanism to review local government 
finances and ensure efficient local government financial management. 
Priority 4. Provide technical assistance for general local budget reform. An institutional 
development approach should be adopted, one that first creates effective central budget offices 
and then effective budget operations in the line agencies. USAID could link this aid to progress 
made in developing transfer formulae. The program should focus on groups of governments that 
have a reasonable chance of developing the critical mass of resources to be effective. Groups 
should be aided sequentially. No recommendation is made here as to whether oblasts, rayons, or 
lower levels of government ought to be first in the queue. 
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4.5 FISCAL ANALYSIS 
4.5.1 Current Status. The First Stage of Development Has Not Been Successfully 
Concluded, and No Benchmark Seems to Have Been Attained 
There is no USAID benchmark table for Fiscal Analysis. Therefore, we have postulated a five￾step progression, as follows: (1) establish a recognition within Parliament of its need for 
objective information of professional quality and, therefore, of its need for information separate 
from that provided by the Executive; (2) establish within Parliament a professionally competent 
staff that can provide that information; (3) establish a recognition within Parliament that such a 
staff must be non-partisan and free from control by any political party; (4) establish within 
Parliament "ownership" for that staff; and (5) establish a fiscal analysis capacity within the 
Executive. 
Based upon our interviews and review of documents, we believe the following with regard to 
these five steps. 
• Step 1. The Parliament does not seem to recognize the need for objective information of 
professional quality if they have to pay for it. The Parliament seems to be taking no steps 
to improve its own staff in numbers or in quality. It is not requiring quality analysis from 
its own staff. It is, however, eager to use the free assistance provided by USAID. 
• Step 2. The skills of the USAID financed Fiscal Analysis Unit (FAU) have not been 
transferred to the internal staff of the Parliament. The Parliamentary staff is not 
professionally qualified, and no one has been specifically assigned to work with the 
USAID Unit. The internal staff of the Parliament uses the Unit operationally to fulfill 
assignments professionally, not as a training experience, and passes the work product of 
the Unit on to the legislators. Assignments could be executed jointly, but they are not. 
• Step 3. Parliament has not necessarily concluded that the source of information need be 
non-partisan. An alternative would be for each party to have its staff that it could control. 
The existing Parliamentary staff is not immune from political control. 
• Step 4. The Parliament does not feel "ownership" for the USAID Fiscal Analysis Unit 
and has not committed itself to making its internal staff over in the image of the USAID 
Unit. ) Presumably, the Unit is an image of what a proper fiscal analysis staff should be. 
• Step 5. Only a few members of the Executive have absorbed USAID fiscal analysis 
training. The Kyrgyz Republic Executive Branch staff remains heavily dependent upon 
the IMF, the World Bank, and USAID to produce the Medium-Term Budget Framework, 
expenditure and revenue projections, and other fiscal analyses of acceptable quality.
4.5.2 Impact. Internal Capacity Is Undeveloped; and, Consequently, Authentic Impact Has 
Not Begun 
There is sparse evidence that significant progress has been made in developing a fiscal analysis 
capacity in either the Executive Branch or the Parliament. However, it appears that the 
Parliament is beginning to recognize the need for (free) training of the internal staff: the upper 
house staff requested training from the FAU, but the request was reject because of resource 
constraints. To the extent that such advances occur, those advances stem from USAID assistance, 
for only USAID is providing technical assistance in fiscal analysis. 
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There is evidence that the Parliament uses FAU outputs to improve both its original work and the 
work that it receives from the government. Parliamentary representatives reported that USAID￾funded technical assistance improved the draft property tax law that it received from the 
Executive, its own draft on the Road Tax and Emergency Tax, and customs codes, to name 
several. However, for such improvements to be considered authentic impacts for this component, 
the improvements would have had to originate from the Parliament's internal staff; and they did 
not. Technology transfer has not occurred satisfactorily. (One might argue that the program 
budget is a better document than the traditional line item budget, but it would be difficult to tell 
how much such improvements result from better Parliamentary review and how much from 
direct USAID technical assistance to the Executive.) Similarly, authentic socio-economic impact 
has not yet begun. 
4.5.3 Lessons Learned. In An Environment of Limited Resources, the Client Will Tend to 
Use Technical Assistance Resources Operationally 
As stated in Point 3.5.3., successful technical assistance depends upon the client wanting and 
accepting responsibility for change. The Kyrgyzstan experience suggests that, in addition, unless 
the client has sufficient resources at his disposal, he will find it difficult to release those 
resources for absorption of technical assistance. He will be so burdened by accomplishing his 
daily work that he will, to the contrary, use the technical assistance resources in an operational 
capacity, to relieve his workload. Therefore, in designing technical assistance, USAID should 
consider whether a potential client has the minimum level of resources needed to absorb 
technical assistance. 
On the other hand, Kyrgyzstan was a phase one situation. That is, USAID undertook to 
demonstrate to the Parliament the value of fiscal analysis with the expectation that the Parliament 
would develop a desire to develop its own fiscal analysis capacity. Therefore, the logic of the 
situation implied that, in the short-run, technical assistance would not be absorbed. That would 
remain for phase two. However, it appears that, up to now, the Parliament has not recognized the 
value of having an internal fiscal analysis unit, if it has to fund the unit. 
4.5.4 Recommendation. Base Continued Technical Assistance upon a Memorandum of 
Understanding Signed by Leadership of the New Parliament Which Requires that 
Leadership to Create an Appropriate Internal Staff 
The above evaluation could be read to suggest that USAID technical assistance to the Parliament 
should be terminated. However, Kyrgyzstan has a new constitution and will soon have a new, 
unicameral parliament. USAID could regard this as a new beginning. If so, it is recommended 
that an agreement be concluded with the political leadership of the new parliament. That 
agreement would require the leadership to create an appropriate internal staff in return for 
continuing technical assistance, as follows. 
• The director of the staff would report to a multi-party commission that would supervise 
the new unit. 
• The director and all members of the staff would have professional credentials. 
• USAID would make available to the director an expatriate advisor to assist the director in 
creating a non-partisan, professionally qualified fiscal analysis staff. 
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• The director, with assistance from the advisor, would prepare an institutional 
development plan, and could request USAID to assist in execution of that plan (to include 
the provision of training). 
• The plan would include explicit milestones to guide progress. 
• The plan would provide a clear date for withdrawal of the advisor and termination of 
USAID assistance. 
• Periodically, the director would report to a joint meeting of the multi-party commission 
and USAID on progress in execution of the plan. 
Under this approach, personnel currently employed by FAU would be terminated and made 
available to the Parliament for employment. To attract these personnel, USAID could 
recommend to the Parliament that new job titles and pay grades commensurate with the training 
of the ex-FAU personnel be established. In addition, USAID would recommend that: 
• Training be offered to the existing internal staff in return for a guaranteed period of 
service; 
• At least two employees be assigned to each position and that the two be assigned on a 
staggered basis to ensure coverage in case of a vacancy; and 
• Job titles, qualifications, and pay grades consistently reflect the requirements of the 
Parliament for trained staff and be consistent, i.e., if the Parliament needs highly qualified 
staff, the qualifications and pay should reflect this. 
5.0 CONCLUSION
Review of the USAID Fiscal Reform Program over the 1995 to 2003 period leads to two primary 
conclusions. 
5.1 IT IS PREMATURE TO WITHDRAW FROM KAZAKHSTAN, BUT THE 
TECHNICAL ASSISTANCE PROGRAM CAN BE RE-DESIGNED AND 
REDUCED 
The Fiscal Reform Program has been operating in Kazakhstan long enough to reach conclusions 
about its success and the likelihood of future success. These conclusions suggest that: 
• The program has been successful in Tax Policy and Tax Administration. In these areas, 
USAID can declare success and withdraw. 
• The program has not been very successful in Intergovernmental Fiscal Relations and 
Fiscal Analysis to the Parliament. These are high-risk areas without a high probability of 
success. USAID could shift most of the burden for progress in these areas to the national 
government and operate in supporting role. 
• Results in Budget Reform are mixed, as is its prognosis. At the national level, reform has 
not had sufficient time to succeed fully but has a good prognosis; extension of program 
budgeting to the local level is a massive undertaking. Here USAID could work jointly 
with Kazakhstan to prepare for continuing reform under national government control and 
funding. 
Development Associates, Inc. 
Evaluation of USAID Fiscal 31 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
Kazakhstan has the resources to continue the reform process, if USAID should withdraw. It is 
not clear that Kazakhstan has the sophistication to do so. If USAID withdraws abruptly, it runs 
the risk of losing past successes and putting at risk several prospective future advances. 
Therefore, it seems preferable to invest in a two-year transition period in which Kazakhstan 
would be prepared for the termination of technical assistance. Specifically, with USAID 
assistance, a unit would be created in the Ministry of Economy and Budget Planning that would 
be responsible for ensuring continued fiscal reform. That unit could provide contractual technical 
assistance for the Ministry of Finance. (This unit is described more fully in Point 3.3.4.) Such 
contractual assistance could include technical assistance for Intergovernmental Fiscal Affairs, if 
the Ministry of Finance should decide to spend money on such assistance. USAID could also 
provide sharply reduced assistance to the Parliament, if parliamentary leadership should make a 
clear decision to create a professional, non-partisan staff. 
This approach would constitute a re-designed and reduced USAID technical assistance program 
in Kazakhstan. 
5.2 TECHNICAL ASSISTANCE TO KYRGYZSTAN SHOULD PLAN FOR THE 
FULL REQUIREMENTS OF INSTITUTIONAL DEVELOPMENT AND FOCUS 
INDIGENOUS RESOURCES TO MAXIMIZE PROGRESS 
Kazakhstan is resource rich, as developing countries go. As a result, technical assistance can be 
undertaken there in an abbreviated form with a reasonable probability of success. This is not true 
in Kyrgyzstan. Kyrgyzstan is resource poor. Therefore, in planning any technical assistance 
effort in Kyrgyzstan, USAID should consider all eight areas of institutional development and 
have a strategy for ensuring that the requirements in all eight areas will be satisfied. USAID may 
not need to provide all requirements in all eight areas, but it should have a plan as to how the 
requirements will be provided. 
Such an approach implies that the size of the USAID program will be constrained by the 
availability of indigenous resources. It also implies that USAID should focus it efforts so that 
available indigenous resources are directed to those building blocks that, when combined, give 
authentic progress. This has been done in the recommendations above. 
• Budget Reform. Under the recommendation, the USAID program would focus on the 
New Budget Code, the Medium-Term Budget Framework and Analysis of Expenditure 
Plans and Budgets. This will complete capacity to manage fiscal policy. 
• Intergovernmental Fiscal Relations. Under the recommendation, the USAID program 
would focus on implementing the property tax in cities (benchmark: Process Provides 
Local Government with Resources…), budget reform in support of the property tax 
(benchmark: Local Authorities Trained in Basic Budgeting), and developing transfer 
formulae (benchmark: Transfers and Subventions Transparent). This would complete the 
Basic Components and make very important progress on the Operationally Functional 
Stages of development. 
• Taxation. The recommendations for taxation focus on six of twenty-two benchmarks: Tax 
Code, No Internal Consistencies in the Code, Code Consistent with Need for Economic 
Development of SMEs, Code Does Not Discourage Foreign Investment, Fair Horizontal 
and Vertical Equity, and Staff Adequately Trained. 
Development Associates, Inc. 
Evaluation of USAID Fiscal 32 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
• Fiscal Analysis. Under the recommendation, Steps 1, 3, and 4 would be accomplished 
through USAID negotiation and agreement with parliamentary leadership. Step 2 would 
be accomplished through the technical assistance. This would complete the reform. 
These recommendations would reduce the breadth of the USAID program in the sense that fewer 
building blocks within a component would be worked on. However, all components could be 
worked on, and the depth of work within individual building blocks would presumably expand. 
Therefore, the dollar value of the USAID program might increase or decrease, depending upon 
the ability of the Program to mobilize (and focus) indigenous resources, the size of the Mission 
budget, and the level of risk that the Mission could accept. 
Development Associates, Inc. 
Evaluation of USAID Fiscal 33 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
ENDNOTES
 
i
 See UNDP, Millennium Development Goals in Kazakhstan, Almaty 2002. According to this 
report the Gini coefficient was 0.32 in 1996, but rose to 0.35 in 2001. 
ii See, for example, Articles 4 and 5 of the original code; also Article 378 provided special 
provisions for peasant farmers, industrial land, and industrial lands located outside of population 
centers. 
iii The code, as of April 2003, created three SME categories based on turnover and employment 
criteria. These are the patent tax (on single ownerships with gross receipts not exceeding Tenge 
1.5 million) that levies gross receipts at 3%; the coupon tax (coupons are to be purchased very 
90 days) whose rate varies according to type of activity and geographical location; and the tax on 
SMEs whose turnover is Tenge 4.5 million or less with employment of less than 15 workers 
(these pay 3% tax on gross receipts in lieu of income tax, VAT, excise, etc.; if the business is not 
an individual firm and its turnover is Tenge 9 million or less with employment of 25 or less, then 
the rate varies between 4% and 9%.) 
iv In May 2001 the President issued the following decree: “Improvement of the policy of state 
support insuring dynamic development of the small entrepreneurship [is] based on provisions of 
strategy Kazakhstan 2030.” Decree # 597. Subsequently, the Government issued a resolution (# 
969) that reads as follows: “Handover of property complexes, technologies and equipment of 
reorganized and segmented enterprises to small business entities with a view to creating 
favorable conditions for small business infrastructure.” 
v
 One of the indicators is that a special fund set up from petroleum revenues to be used for the 
needs of future generations has already reached the level of US$ 2.5 billion. 
 
vi The ratio of taxes to GDP in 2001 were as follows: Total tax revenue – 11.9%; taxes on 
income - 2.9%; VAT –4.8%. Source: IMF, Government Finance Statistics provided by the 
Ministry of Finance. The statistics obtained from the Ministry of Finance indicate that in 2002 
total tax revenue amounted to T 458,227.1 million. Hence the ratio of total tax revenue to GDP is 
13.9%. Taxes on income were T 209,755.1, representing 6.4% of GDP and domestic taxes on 
goods and services amounted to T 208,453.9, representing 6.3% of GDP. It appears that the 
collection of income taxes (corporate) has improved considerably.
In the document USAID’s Assistance Strategy for Central Asia, 2001-2005, p. 103, the targets 
for 2000, 2001, 2002, and 2003 are given as 14.3%, 14.8%, 15.3%, 15.8, respectively. The IMF 
statistics indicate that tax revenues as percent of GDP were 11.3% in 2000, 11.9% in 2001, and 
according to the statistics provided by the Ministry of Finance for 2002 the ratio was 13.9%. The 
actual figures indicate that there has been an increase in the tax collection, however not as much 
as the targets set by USAID. 
vii The outputs that are available to the staff of the Ministry are as follows: (i) audit manual; (ii) 
training in audit process and selection of desk audit; (iii) training in compliance audit; (iv) 
manual in appeals; (v) training in appeal process; (vi) public education on appeals; and (vii) 
training of the staff on the basis of manuals. 
Development Associates, Inc. 
Evaluation of USAID Fiscal 34 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
 viii Number of income taxpayers: 
Years 1998 1999 2000 2001 2002 
Corp.income 211,241 178,388 196.827 203,194 218,796 
Indiv. Income 190,190 198,822 227,915 265,143 350,516 
Source: Courtesy of Ministry of Finance. (VAT figures were unavailable) 
ix Despite the Ministry’s efforts to increase transparency, different segments of the society 
perceive the tax administration as corrupt. It is interesting to note that of the parliamentarians 
who were interviewed 95% stated that tax inspection and customs are corrupt and 65% stated 
that the Ministry of Finance was corrupt. See, UNDP, Perceptions of Corruption in Kazakhstan, 
Almaty 2003, p. 21. 
x
 The Government is seriously contemplating to raise substantially the pay of the civil servants. It 
is highly likely that this measure will be taken in 2004. 
xi The prevailing thought at the time was that the code of Kazakhstan should be the blue print for 
all other Central Asian Republics. In fact, very many IMF publications also so stated. 
 
xii The code creates two distinct levels for SMEs. An enterprise, whose gross receipt is US$ 
7,000 or less, is subject to a patent tax, whose rate changes according to geographical location 
and type of activities. Enterprises with gross receipts are between US$ 7,000 and US$ 20,000 are 
subject to a gross receipt tax, in lieu of the income tax, VAT, excise and social taxes. Laudable in 
its spirit, it must be kept in mind that the development of SMEs is a function of a host of 
conditions other than tax treatment alone. This measure is fairly new, and the tax authorities do 
not exactly know the number taxpayers who will be subjected to this provision. UNDP is 
currently carrying out a study, and according to the preliminary figures in 1996 there were some 
80,000 SMEs, and in 2002 their number increased to 267,000, a growth of about 33% per year. 
xiii It is interesting to note that while corruption in many FSU countries is on the decline, it is on 
the rise in the Kyrgyz Republic. See The World Bank, Report on Progress under the CIS-7 
Initiative, April 2003, p. 5. 
xiv In an interview a very high tax official expressed his view as “the best help that USAID can 
give us is to advise us how to return to the 1996 tax code.” 
xv Based on figures given in IMF, Government Finance Statistics, 2002. 
xvi This is not only a deduction, but also the appreciation of high-level tax authorities. 
xvii In the Large Taxpayer Unit, for example, there are only 10 auditors who deal with 83 large 
taxpayers, but there is one computer for every three officers. In many rayons the only basic tool 
is the abacus. 
xviii In 2001 total tax arrears amounted 4.3% of the total tax collections. 
Evaluation of USAID Fiscal August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
APPENDICES
Page No. 
Appendix I Scope of Work ......................................................................................................I-1 
Appendix II List of People Interviewed...................................................................................II-1 
Appendix III Materials Reviewed ........................................................................................... III-1
Appendix IV Tax Policy..........................................................................................................IV-1 
Appendix V Fifteen Questions ................................................................................................ V-1
Evaluation of USAID Fiscal I-1 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
APPENDIX I
SCOPE OF WORK
ACTIVITY TO BE EVALUATED
The Fiscal Reform program is currently implemented by the Bearing Point Barents Group 
(formerly KPMG Consulting Barents Group) under contract OUT-PCE-I-822-99-00006 in 
Kazakhstan and Kyrgyzstan. The current contract started in January 2002 and its estimated 
completion date is July 2003. It is envisioned that the Kazakhstan portion of the activity will not 
be extended beyond the current completion date. The Mission seeks an independent evaluation 
of the state of the fiscal reform in Kazakhstan and the Kyrgyz Republic to inform its current and 
future decision making. 
BACKGROUND
The current USAID/CAR strategy aims at expanding opportunities for the citizens of the Central 
Asian Republics to participate in improving their governance, livelihoods, and quality of life. 
Under the Strategic Objective (SO) 1.2 Increased Soundness of Tax and Budget Policies and 
Administration, and later under SO 1.3 Improved Environment for the Growth of Small and 
Medium Enterprises1
, USAID designed and is currently executing its Fiscal Reform activity in 
Kazakhstan, Kyrgyzstan, and, most recently has expanded this program into Tajikistan and 
Uzbekistan. Because more work has been done in Kazakhstan and Kyrgyzstan, this evaluation 
will focus on the state of fiscal reform in these two countries. 
The objectives of the Fiscal Reform activity are: to streamline the tax systems and improve the 
management capabilities of the state tax authorities; rationalize budgetary procedures and 
improve the quality of budgetary and fiscal analysis; further strengthen intergovernmental fiscal 
relations; and build the budget execution capacity of local-level tax authorities. 
This activity has five major components: tax policy, tax administration, budget reform, fiscal 
analysis, and intergovernmental fiscal reform. 
TAX POLICY 
USAID has been assisting both countries in their tax policy reform efforts since 1995, and these 
efforts have achieved substantial progress, which is particularly notable in Kazakhstan. In 2000, 
the USAID Fiscal Reform project helped Kazakhstan to simplify the tax code, eliminate special 
exemptions in the code, and improve its provisions with respect to non-profit organizations. The 
new code came into effect on January 1, 2002. 
However, in order to create an environment more conducive to private sector development, the 
project continues to provide recommendations to the Ministry of Finance that seek to further 
improve this legislative document and its implementing regulations. Similar work is being done 
 
1 SO 1.2 was merged with SO 1.3 in FY 2002 
Development Associates, Inc. 
Evaluation of USAID Fiscal I-2 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
in Kyrgyzstan, where the fiscal advisors helped the country’s legislators to draft and adopt a 
number of positive changes to the tax system. For example, one amendment granted local 
elected powers the authority to set the tax rates on land, and another introduced a mandatory 
patent system for difficult-to-tax sectors to reduce tax evasion. In close collaboration with the 
Parliamentary Tax Committee of Kyrgyzstan, the project worked on developing the new State 
Property Tax, and is currently collecting government support for a city-administered real 
property tax plan. Among other activities over the past two years, the program’s tax policy 
reform component also concentrated heavily on preventing legislation that reduces tax revenues. 
TAX ADMINISTRATION 
The project works closely with the Ministry of Finance in Kazakhstan and the State Tax 
Inspectorate in Kyrgyzstan to improve key areas of relationships between the tax authorities and 
the taxpayer, such as declarations, the appeals process and collecting taxpayer information. 
Over the past years, both countries have made significant progress in organizational development 
of tax administration bodies. The two states have consolidated the customs and tax collection 
functions under a single agency: the Ministry of Finance in Kazakhstan and the Committee on 
Revenues in Kyrgyzstan (Kazakhstan’s Ministry of Revenues was abolished and its functions, 
except for customs, were brought under the Ministry of Finance in September 2002, and the 
Committee on Revenues in Kyrgyzstan was created around the same time). In addition, the 
project helped the Kyrgyz State Tax Inspectorate reorganize its infrastructure to increase 
efficiency of its operations. In Kazakhstan, the fiscal reform consultants helped the Ministry of 
Revenues (now under the Ministry of Finance) in their efforts to improve efficiency of the 
Ministry’s headquarters in Astana, and provided training in audit, collection, and tax treaty 
benefits. 
In Kyrgyzstan, the project’s advisors helped draft an amendment to the country’s tax code that 
introduced a new simplified tax regime for small and medium enterprises, which took effect in 
January 2002. This new system replaces four complex taxes – income, sales, road and 
emergency – with an optional simple calculation based on gross receipts for small businesses, 
reducing both record keeping requirements and the taxpayer-tax official contacts that often result 
in corruption. 
The fiscal advisors have also assisted the tax agencies of Kazakhstan and Kyrgyzstan with the 
development of a centralized computer-based tax processing system. Kyrgyzstan has completed 
its central system and has two pilot regions with direct links to the central system. In 
Kazakhstan, the fiscal reform project also began working with the government to carry out a 
computerization implementation plan. Assistance in this area was then expanded to include a 
computerization strategy for the entire Ministry of Revenues. The positive impacts of these 
reforms included increased tax compliance and a revenue increase. Another significant 
achievement in Kazakhstan was the development of new electronic tax return forms that now can 
be filed directly with tax authorities. 
The project continues to provide training to the government personnel of both countries in 
internal audit processing, and implementation of transfer pricing legislation and tax treaty 
administration, and helps the two agencies in the implementation of their computerization plan. 
Assistance is also continuing to introduce and implement a new appeals system in the two 
Development Associates, Inc. 
Evaluation of USAID Fiscal I-3 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
countries, which will serve as a tool for businesses to request from tax authorities a justification 
of their calculated tax levels. 
BUDGET REFORM 
 
The project assists the Ministry of Finance with formulating budgets with a strong emphasis on 
program budgeting, expenditure control, and transparency of the budget development and 
execution processes. Assistance includes building the capacity to make medium-term economic 
forecasts, developing performance indicators, and improving capital planning. 
During FY 2002, the Government of Kazakhstan introduced regulations under the budget system 
that further institutionalize the requirement for agencies to prepare program budgeting 
documents specifying program and sub-program goals, objectives, legal authority, activities, 
resource allocation and performance measures. These regulations also establish quarterly 
performance reporting of budget programs and thus strengthen the linkage of budgets to program 
performance. Building on its national-level work, the project also provided technical assistance 
on budget reform to two pilot regions – Pavlodar and Ust-Kamenogorsk. A number of regional 
(oblast) and city administrations received training in budget development and execution. 
Complementing efforts to improve the budget process, in May 2002, the USAID Fiscal Reform 
project began working with the GOK Accounts Committee, the fledgling supreme audit 
institution, to help develop its mission and specify short and medium term priorities. One of the 
fiscal experts is helping the Accounts Committee develop policies and procedures for 
performance auditing. The Accounts Committee has committed itself to carrying out its first 
performance audit of a public program in Kazakhstan, and the targeted program has been 
selected in the health area. An additional program will selected in the education area. 
In Kyrgyzstan, the project’s success in promoting program budgeting has also been noteworthy. 
All national level government agencies have adopted program budgeting principles 
demonstrating both the increased capacity and understanding of the methodology developed 
among agency staff by our fiscal advisors, as well as the value placed on this information by the 
Ministry of Finance and Parliament. 
The project continues to provide assistance in developing the automated tax information system 
and streamlining government budget planning at the national and local levels in Kyrgyzstan. 
FISCAL ANALYSIS 
Over the past four years, the project has helped the Ministries of Finance and the Parliaments of 
the two countries to establish their Fiscal Analysis Units, which have primary responsibility for 
conducting baseline receipts forecasts and estimating the revenue impact of tax policy proposals. 
This component of the Fiscal Reform activity seeks to strengthen the capacity of these nascent 
entities through training in areas such as policy analysis techniques and public finance theory, 
and direct technical assistance. Therefore, particular emphasis under this part of the project is 
placed on delivering the training, which includes sessions on revenue forecasting and monitoring 
techniques; tax expenditure analysis; tax burden distribution analysis; the role of tax policy in 
economic development strategies; and budget forecasting. 
Development Associates, Inc. 
Evaluation of USAID Fiscal I-4 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
In addition to the training, fiscal reform advisors also help the units with developing and 
evaluating their quarterly forecasts of revenues and expenditures. 
INTERGOVERNMENTAL FISCAL REFORM 
The Fiscal Reform Project seeks to improve the current state of intergovernmental fiscal finance 
in the two countries by developing a methodology for computing transfers and subventions 
sensitive to changes in economic conditions. The methodology has been developed and is 
expected to increase the transparency of the process that determines transfers and subventions. 
The Government of Kazakhstan has committed to changing its currently non-transparent system 
of allocating revenues to the regions to a rule-based system recommended by Fiscal Reform 
advisors. 
In Kyrgyzstan, there has not been much progress in this area. Most local governments are almost 
completely reliant on subventions, because the majority of economic activity takes place in 
Bishkek and Osh. Currently, the subventions are equalization grants and are not based on the 
economic needs or goals of the local government, and there’s still a need to rationalize the 
system. In October of 2002, the project conducted a needs assessment for assistance in 
intergovernmental finance, and currently this component of the program is in the beginning 
stage. 
KEY INFORMANTS
KAZAKHSTAN: 
- Minister of Economy and Budget Planning; Deputy Minister for Budget Planning 
- Minister of Finance, and Deputy Minister on Tax Policy 
- Head of Administration in the Ministry of Finance 
- Chairman and Deputy Chairman of Parliamentary Committee on Budget Planning and 
Execution 
- Members of the Parliamentary Fiscal Analysis Unit 
- International donors 
KYRGYZSTAN: 
- Deputy Minister of Finance 
- Chief of State Tax Inspectorate 
- Members of Fiscal Analysis Unit in the Parliament 
- Head of the Parliamentary Tax Committee 
- Head of the Parliamentary Budget Committee 
- International donors 
The contractor shall interview key informants specified above. The contractor is not limited to 
this list of informants and is responsible for selecting the interviewees and obtaining the 
necessary documents as appropriate for achieving the tasks outlined in this scope. 
Development Associates, Inc. 
Evaluation of USAID Fiscal I-5 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
EVALUATION OBJECTIVE 
The evaluation conducted by the contractor should seek to inform the Mission of the current state 
of fiscal reform in Kazakhstan and Kyrgyzstan, the impact of USAID assistance, lessons learned 
and provide recommendations where needed to achieve greater program impact. The evaluation 
should answer the following questions: 
1. How has the activity in Kazakhstan and the Kyrgyz Republic contributed to the economic 
development of each country? 
2. What was the contribution of the USAID fiscal reform activities towards increasing the 
soundness of tax and budget policies and administration in the two countries? 
3. What factors explain the differences in the achievements of fiscal reform in the Kyrgyz 
Republic and Kazakhstan? 
4. Did the changes/improvements in the tax legislation bring more transparency, and as a 
result, reduce the potential for corruption in tax authorities? 
5. Have the fiscal reform activities contributed to the growth of private business, 
particularly small and medium enterprises, and if so, how? What can be done to increase 
the positive impact of fiscal reform on SMEs? 
6. Is there a core group of professionals within tax authorities of the two countries that have 
sufficient capacity to continue training and further staff development? If not, are there 
any impediments to developing a core group of professionals? 
7. What steps are necessary to reinforce the role of the Fiscal Analysis units in both 
countries in the overall tax and budget process? How accurate and useful are their budget 
forecasts? Has this component contributed to improved budget transparency, public 
accountability, and democratization? 
8. How effective are the program’s efforts at the local level vs. national level? What can be 
done to strengthen local-level work and reinforce its links with national-level 
developments? 
9. Does the staff of tax collection bodies possess sufficient skills to effectively use the new 
computerized system of tax administration and fiscal data collection? 
10. What are the constraints that impede reform of intergovernmental fiscal finance and what 
could be done to overcome those constraints? 
11. In Kazakhstan, is there sufficient capacity in the Ministry of Finance and Parliament to 
end USAID assistance? If funds are available, would it be advisable to continue fiscal 
reform assistance at the local level while exiting at the national level? 
12. In Kyrgyzstan, what are the priority needs for fiscal reform for the next two years? How 
well does the current and planned assistance address those needs? 
Development Associates, Inc. 
Evaluation of USAID Fiscal I-6 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
13. What are the lessons learned of the tax and budget reform process that can be used in 
other countries of Central Asia? 
The contractor is not limited to this set of questions. Additional questions may be suggested by 
the contractor as appropriate to achieve the overall objective of this evaluation. The final set of 
questions will be discussed and agreed upon with USAID. 
METHODS
The contractor may use a variety and a combination of evaluation methodologies, including, but 
not limited to, focus group discussions, key informant interviews, and mini-surveys. Information 
needs and data collection techniques will be discussed and agreed upon with USAID. The 
contractor will submit a detailed evaluation plan, including a sampling plan to be used for 
evaluation techniques other than key informant interviews. Key informants will include key 
counterparts in the two Ministries of Finance, the Committee on Revenues in Kyrgyzstan, the 
Ministry of Economy and Budget of Kazakhstan, and the two parliaments. The contractor must 
interview or otherwise solicit input from the key government contacts proposed by the Mission 
and the Fiscal Reform program implementer. Data should be disaggregated by country 
whenever possible. 
The contractor is responsible for requesting all necessary project background documentation and 
the list of counterparts from the Mission immediately upon award of this task order. 
SUGGESTED TEAM COMPOSITION
This is a Tier 2 selection, and the qualifications of proposed personnel will determine selection, 
methodology and cost and budget considerations will determine selection. 
The contractor should propose the most effective and cost-efficient team configuration, and must 
describe the role of each team member and explain how the suggested team composition will 
warrant successful completion of the task. 
At the minimum, the team members must possess in-depth knowledge of the tax and budget 
sector issues, namely, tax policy, tax administration, budget development and intergovernmental 
finance. Knowledge of evaluation techniques and methods commonly used in USAID, as well as 
prior experience in USAID evaluations is required. 
The Team Leader shall possess thorough understanding of all of the fiscal reform sectors 
involved, and shall have practical experience in governmental fiscal policy development. Team 
shall have in-depth knowledge of the tax sector with emphasis in tax policy and administration. 
Strong expertise in budget development and execution issues, and extensive knowledge in 
intergovernmental finance matters are also of extreme importance. Practical experience in a 
public sector fiscal institution is essential for all team members. At least two years of prior 
development experience in fiscal/ macroeconomic reform in countries of NIS or Central/Eastern 
Europe is highly desirable. Knowledge of Russian and/or Kazakh or Kyrgyz languages is 
desirable. 
Development Associates, Inc. 
Evaluation of USAID Fiscal I-7 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
TIMEFRAME
The evaluation will start o/a April 28, 2003, and will last for approximately seven weeks, 
including four weeks in the field. Prior to arriving in Kazakhstan, the contractor will become 
familiar with key project documents, such as the project’s statement of work and benchmarks. 
The preliminary schedule of evaluation will be as follows: 
April 28-30 Review of background materials and development of evaluation plan 
May 1 – May 24 Fieldwork 
o/a May 26 Oral presentation of findings 
o/a June 5 Submission of draft report for comment 
o/a June 12 Submission of final report 
The contractor is responsible for ensuring logistical support to conduct this evaluation. 
REPORTING REQUIREMENTS
The contractor shall discuss with USAID staff plans for conducting the evaluation, including 
data collection activities, logistics and staff support, and a tentative outline for the final report. 
The contractor will inform USAID when each stage of the evaluation is begun and completed, 
and report on any problems that may delay completion of the final report. 
Five hard copies and two electronic copies of a final report in English will be submitted to 
USAID on or before June 12, 2003. The report should include the following: 
1. Executive summary of principal conclusions and findings pertaining to the questions stated in 
the scope of work; 
2. A Russian translation of the executive summary; 
3. A brief discussion of data collection methodology (a more detailed presentation of 
methodological issues should be included as an appendix); 
4. A thorough discussion of study findings and conclusions, including supporting evidence such 
as tables or graphics. 
5. Recommendations for program improvements. 
The report should be up to 25 pages long, 12 point. Additional materials, such as copies of field 
notes, interview protocols and questionnaires should be attached as annexes. 
Development Associates, Inc. 
Evaluation of USAID Fiscal I-8 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
EVALUATION CRITERIA
EVALUATION CRITERIA – BEST VALUE 
Selection will be done by the Contracting Officer in consultation with the Enterprise & Finance 
Office at USAID/CAR, Almaty using Best Value criteria as guidance to determine the proposal 
most advantageous to the Government. Technical evaluation factors are more important than cost 
or price. Contract Award shall be made to the responsive and responsible offeror whose 
combined technical and cost factor offer the best value to the U.S. Government. 
Evaluation Criteria 
1. Expertise in tax policy and tax administration issues 
2. Expertise in budget development and intergovernmental finance issues 
3. The team’s solid knowledge of evaluation methods and techniques and practical 
experience in evaluations; USAID experience preferred 
4. Prior experience in a fiscal institution 
5. Prior development experience in fiscal/ macroeconomic reform in countries of NIS or 
Central/Eastern Europe (at least two years) 
6. Evaluation methodology for this task 
7. Familiarity with the Central Asian Region 
8. Spoken Russian and/or Kazakh/Kyrgyz 
The proposal should also include one copy of a previous evaluation report written by the 
evaluators proposed for this task order. 
Evaluation of USAID Fiscal I-9 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan
 
5. PROJECT NO. 
CODE 
7. ADMINISTERED BY 
2. AMENDMENT/MODIFICATION NO. 
CODE 6. ISSUED BY 
8. NAME AND ADDRESS OF CONTRACTOR 
3. EFFECTIVE DATE 4. REQUISITION/PURCHASE REQ. NO. 
9A. AMENDMENT OF SOLICITATION NO. 
9B. DATED 
PAGE OF PAGES 
10A. MODIFICATION OF CONTRACT/ORDER NO. 
10B. DATED 
1. CONTRACT ID CODE 
CODE FACILITY CODE 
 Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: 
The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers 
E. IMPORTANT:
is extended, 
 (a) By completing Items 8 and 15, and returning __________ copies of the amendment; (b) By acknowledging receipt of this amendment of each copy of the 
 offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR AC- 
 KNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY 
is not extended. 
12. ACCOUNTING AND APPROPRIATION DATA 
(REV. 10-83) 
is not, is required to sign this document and return ___________ copies to the issuing office. 
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A. 
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B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES 
SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b). 
 RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made 
 by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour 
 and date specified. 
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: 
D. OTHER 
BY 
Contractor 
16C. DATE SIGNED 
14. DESCRIPTION OF AMENDMENT/MODIFICATION 
16B. UNITED STATES OF AMERICA 
Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect. 
15A. NAME AND TITLE OF SIGNER 16A. NAME AND TITLE OF CONTRACTING OFFICER 
15B. CONTRACTOR/OFFEROR 
STANDARD FORM 30 
(Type or print) (Type or print) 
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(If other than Item 6) 
(Specify type of modification and authority) 
(such as changes in paying office, appropriation date, etc.) 
(If required) 
(If applicable) 
(SEE ITEM 11) 
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X 
X FAR 52-243-3 Changes 
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS,
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
(Signature of person authorized to sign) (Signature of Contracting Officer) 
 1 2 
 02 See Signature Block N/A 
USAID/CAR Regional Mission 
Acquisition and Assistance Office 
Park Palace Building 
41, Kazybek Bi Street 
Almaty 480100 Kazakhstan 
Development Associates, Inc. 
1730N Lynn Street 
Arlington VA 22209-2023 AEP-I-00-00-00023-00 838 
X 
N/A 
N/A 
X 1 
The purpose of this Modification is to amend the Statement of Work of the Task Order. 
Accordingly the following change is made: 
Statement of Work, Evaluation Objectives, - delete in its entirety and substitute with Evaluation Objectives on page 2 
of this Modification. 
 [Continued on page 2] 
John F. Lord 
Contracting Officer 
Evaluation of USAID Fiscal I-10 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan
 CONTINUATION PAGE 
 
Evaluation Objectives 
The evaluation conducted by the contractor should inform the Mission of the current state of fiscal reform in Kazakhstan and 
Kyrgyzstan, identify the impact of USAID assistance, document lessons learned, provide recommendations, where needed, to achieve 
greater program, make recommendations regarding whether and what activities USAID should consider implementing as a follow-on 
to the Fiscal Reform activities in Kazakhstan and Kyrgyzstan. The evaluation should answer the following questions: 
14. How has the activity in Kazakhstan and the Kyrgyz Republic contributed to the economic development of each country? 
15. What was the contribution of the USAID fiscal reform activities towards increasing the soundness of tax and budget policies 
and administration in the two countries? 
16. What factors explain the differences in the achievements of fiscal reform in the Kyrgyz Republic and Kazakhstan? 
17. Did the changes/improvements in the tax legislation bring more transparency, and as a result, reduce the potential for 
corruption in tax authorities? 
18. Have the fiscal reform activities contributed to the growth of private business, particularly small and medium enterprises, and
if so, how? What can be done to increase the positive impact of fiscal reform on SMEs? 
19. Is there a core group of professionals within tax authorities of the two countries that have sufficient capacity to continue 
training and further staff development? If not, are there any impediments to developing a core group of professionals? 
20. What steps are necessary to reinforce the role of the Fiscal Analysis units in both countries in the overall tax and budget 
process? How accurate and useful are their budget forecasts? Has this component contributed to improved budget 
transparency, public accountability, and democratization? 
21. How effective are the program’s efforts at the local level vs. national level? What can be done to strengthen local-level work
and reinforce its links with national-level developments? 
22. Does the staff of tax collection bodies possess sufficient skills to effectively use the new computerized system of tax 
administration and fiscal data collection? 
23. What are the constraints that impede reform of intergovernmental fiscal finance and what could be done to overcome those 
constraints? 
24. In Kazakhstan, is there sufficient capacity in the Ministry of Finance and Parliament to end USAID assistance? If funds are 
available, would it be advisable to continue fiscal reform assistance at the local level while exiting at the national level? 
25. In Kyrgyzstan, what are the priority needs for fiscal reform for the next two years? How well does the current and planned 
assistance address those needs? 
26. What are the lessons learned of the tax and budget reform process that can be used in other countries of Central Asia? 
27. What activities, if any, should USAID consider implementing as a follow-on to the Kazakhstan fiscal reform activity upon its 
termination (expected December 2003)? 
28. What activities, if any, should USAID consider implementing over the next two years as a follow-on for the Kyrgyzstan 
fiscal reform activity after the current contract expires (January 2003)? 
The contractor is not limited to this set of questions. Additional questions may be suggested by the contractor as appropriate to achieve 
the overall objective of this evaluation. The final set of questions will be discussed and agreed upon with USAID. 
Evaluation of USAID Fiscal I-11 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
[End of Modification] 
Evaluation of USAID Fiscal II-1 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
APPENDIX II
LIST OF PEOPLE INTERVIEWED
WASHINGTON DC: 
BEARINGPOINT/USAID: 
Fran Greaney Managing Director 
Howard “Skip” Nester Director, Fiscal Analysis 
USAID/CAR MISSION, ALMATY: 
Mary Norris Director, Office of Enterprise and Finance 
Lewis Tatem Senior Economist, Office of Enterprise and Finance 
Aliya Ishmukhamedova Project Management Specialist, Office of Enterprise and Finance 
KAZAKHSTAN: 
BEARINGPOINT/USAID: 
 
Martin Bowen COP 
Henk Verbrugge FRP, Bishkek 
Gareth Davies Former Chief of Party, Tax Specialist, Customs Administration 
Igor B. Voznessenskiy Institutional Liaison Advisor 
LOCAL COUNTERPARTS: 
Ministry of Economy and Budget Planning: 
Bakyt Sultanov Deputy Minister, Supervision includes budget planning 
Vera Knukh Director, fiscal Policy Department 
Dina Shazhenova Chief, Budget Methodology Office 
Ardak Amangueldiev Chief, Intergovernmental Finance Office 
Ministry of Finance 
Nurlan Rakhmetov Vice Minister, Supervision includes IT and revenue 
analysis/forecasting 
Serikbek Elshibedov Deputy Chairman, Tax Committee, Ministry of Finance 
Ruslan Dalenov Chief, Analysis and current revenue forecasting
Kurman Gozhin Chief Accounting and Audit, Methodology Office 
Victoria Dudnikova Chief, Tax Methodology Office 
Elena Chekaeva Chief, IT Office 
Development Associates, Inc. 
Evaluation of USAID Fiscal II-2 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
Ministry of Industry and Trade 
Vladimir A. Misnikov Chairman, Ministry of Industry and Trade, Committee on Support 
of Small-Scale Business 
Parliament--Senate
Musyrali Utabaev Senator, Chairman, Senate Economy, Finance and Budget 
Committee 
Saken Espaev Chief, Economic analysis Office, Administration Dept, Senate of 
the Parliament of the Republic of Kazakhstan 
Accounts Committee 
Kosylkhan Kakamanov Chief, Administrative Office 
Almagul Mukhamedieva Chief, Budget Execution, Performance Audit 
KYRGYZSTAN: 
BEARINGPOINT/USAID: 
Arnold Hoitink Current COP/Budget Specialist 
Mitch Mohtari Tax Specialist 
LOCAL COUNTERPARTS: 
Ministry of Finance 
Arzybek Kozhoshev Head, Local Governments Section/Intergovernmental 
Kanat Asangulov Head, Budget Policy Department 
Akylbek Kasymaliev Deputy Head of Revenue Committee/Tax 
Representative Head Tax Forecasting Department 
Mr. Usubaliev Head Tax Policy Dep. The entire group was 
Mr. Nazyrbekov Head of Revenue Dep. present at the 
Murat Ismailov Deputy Min Fin revenues interview 
Parliament 
Akylbek Dzhaparov Head of Tax Committee/Parliament 
Mr. Abitov Head of Fiscal Analyses Unit 
Bishkek 
Mr. Kadyrov Head/Large Taxpayer Unit 
Mr. Nishanov Head of Bishkek Finance City Department 
Development Associates, Inc. 
Evaluation of USAID Fiscal II-3 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
-------------------------------------------------------------------------------------------------------- 
DONOR AGENCIES AND NGOS IN KAZAKHSTAN AND KYRGYZSTAN: 
EBRD/Kazakhstan Daniel Berg 
World Bank/Kazakhstan Pedro L. Rodriguez, Resident Senior Economist 
World Bank/Kyrgyzstan Chris Lovelace, Senior Manager 
 Azamat Abdymomunov, Economist 
DFID/Kazakhstan Natasha Kryuchkova 
UNDP/Kyrgyzstan David Akopian 
Urban Institute/Kyrgyzstan Charles Underland, COP Local Government Initiative in 
Kyrgyzstan 
Bill Kugler, Local Government Initiative in Kyrgyzstan 
Confederation of 
Employers 
of the Republic 
of Kazakhstan Ekaterina S. Nikitinskaya, Executive Director 
Evaluation of USAID Fiscal III-1 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
APPENDIX III 
MATERIALS REVIEWED
USAID/CAR Performance Monitoring System 2001-1005 
USAID’s Assistance Strategy for Central Asia 2001-2005. USAID Regional Mission for Central 
Asia, July 2000. 
Government Finance Statistics Yearbook. IMF, 2002. 
Kazakhstan and Kyrgyzstan Assessment of Local Government Programs and Opportunities. 
Revised Final Report. Prepared for USAID CAR Mission in Almaty. Submitted by ARD, Inc. 
KAZAKHSTAN: 
2003 Budget Law. 
Budget Code. 
MEBP Prepared Budget Code Training. 
Training Agendas, Workshops, Seminars. 
Lists of Reports Written by Fiscal Analysis Unit. 
2000 Tax Revenue Data. 
Igor Voznessensky. Fiscal Reform Outputs: Information requested by the Evaluation team. 
Fiscal Reform Project, Astana, Kazakhstan, Bearing Point, USAID. 
Peter Armstrong. Accounts Committee for Control over Execution of the Republican Budget. 
End-of-Assessment Report. USAID, Audit Advisory Component of the Tax/Fiscal Reform 
Project, Astana, Kazakhstan, July 3, 2003. 
Law of the Republic of Kazakhstan. Republican Budget 2003.
Law of the Republic of Kazakhstan on the Budget System. Dated April 1, 1999, No 357-1. (With 
amendments introduced by the Law dated 6 December 2001 No261) 
Analysis of Pavlodar City Budget Programs. 
Draft FY2001 Program Budget Forms Guidelines for Completion of Forms. 
Development Associates, Inc. 
Evaluation of USAID Fiscal III-2 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
The Republic of Kazakhstan RK Parliament Majlis Explanatory Note to the RK Draft Law On 
introduction of amendments and additions into Republican Budget 2003. The Government of the 
Republic of Kazakhstan, April 24, 2003. 
Budget Code Training. USAID Fiscal Reform Project in Kazakhstan, Power Point Presentations. 
Expenditures of the 2003 Republican Budget at the Level of Subprograms. 
USAID Fiscal Reform Project Seminar. Medium Term Budget Planning and Other Modern 
Budget Practices. Bearing Point, Almaty, Kazakhstan March 2003. 
Performance Measures Handbook. Guidelines to Assist Agencies. USAID Fiscal Reform 
Project, Astana, Kazakhstan, March 2003. 
Instructions on Compiling a Budget Program Passport. 
Martin Bowen. Review of the Revised Draft Kazakhstan Budget Code, Prepared Jointly by the 
World Bank and USAID Fiscal Reform Project. 
Martin Bowen. Program Budgeting Basics-Presentations to Agencies. Fiscal Reform Program, 
USAID/BearingPoint. 
USAID Fiscal Reform Project, World Bank. Assessment of the Draft Budget Code of the 
Republic of Kazakhstan. 
Michael Dunn, USAID advisor to the Parliamentary Fiscal Analysis Unit. Some Comments to 
the Explanatory note of the Republican Budget 2003 Draft Law Decree. 
Fiscal Analysis Unit Comments and Suggestions on the Republican Budget for 2001 and 2002. 
USAID Tax/Fiscal Reform Project, Fiscal Analysis Unit. Comments to the Report of the 
Government of the Republic of Kazakhstan on the Execution of the 2001 Republican Budget. 
Astana, June 2002. 
The Removal of Constraints to Investment in Kazakhstan Project: Interim Report. USAID. 
Martin Bowen. Implementing a Medium Term Budget Framework (MTBF) in Easy Steps. Fiscal 
Reform Project, USAID, BearingPoint, Astana, Kazakhstan, March 2003. 
Medium Term Budget Frameworks. A Guide to Preparation for the Republic of Kazakhstan. 
USAID Fiscal Reform Project, August 2001. 
European Bank for Reconstruction and Development Projects in Kazakhstan, 2003. 
Draft Budget Code dated 30 May 2003. Kazakhstan. 
Memorandum of Understanding Between the Apparatus of the Senate of the Parliament of the 
Republic of Kazakhstan and the USAID. 
Development Associates, Inc. 
Evaluation of USAID Fiscal III-3 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
Oblast Budget for 2001. Kazakhstan, Pavlodar Oblast. 
Oblast Budget for 2001. Kazakhstan, Ust-Kamenogorsk Oblast. 
Dr. James H. Wooster. Intergovernmental Fiscal Reform In Kazakhstan: Progress to Date and 
Recommendations for the Future. Astana, Kazakhstan, December 2, 1999. 
Dr. James H. Wooster. Intergovernmental Fiscal Reform in Kazakhstan: The Law on 
Subventions and Budget Withdrawals, a Fresh Perspective. Astana, Kazakhstan, May 22, 2000. 
Dr. James H. Wooster. Intergovernmental Fiscal Reform In Kazakhstan: It is Time to Rethink 
the Direction of Intergovernmental Fiscal Reform in Kazakhstan: Part I of Series. Astana, 
Kazakhstan, January 29, 2001. 
Dr. James H. Wooster. Intergovernmental Fiscal Reform in Kazakhstan: Rethinking the 
Direction of Intergovernmental Fiscal Reform; Designing System of Equalizing 
Intergovernmental Transfers, Part II of Series. Astana, Kazakhstan, March 12, 2001. 
Resolution of the Government of the Republic of Kazakhstan. Intergovernmental fiscal issues. 
The Law of the Republic of Kazakhstan “On Subventions and Budget Withdrawals” 
Round Table on Improvement of the Mechanism of Inter-Government Fiscal Relations 
Organized by: Agency for Strategic Planning and Public Policy Research Center 
Concept for Delimitation of Authorities between Levels of Government and Improvement of 
Inter-Government Fiscal Relations. 
Tax Administration Training Series, Tax Appeals Workshop, Astana, Kazakhstan, June 1998. 
KYRGYZSTAN: 
Mitch Mokhtari. Forthcoming/Underway Institutional Change For Better Performance in 
Kyrgyz Republic 
Work plan of the Committee on Budget and Economic Policy of the PRA and the Parliamentary 
Fiscal Analysis Unit /USAID for 2003-2004. 
Training Course: Economy and State Budget. Seminars for the deputies and members of the 
Peoples’ Representatives Assembly of the Jogorku Kenesh. USAID Fiscal Reform Project, 
Kyrgyzstan. 
Draft Law on Basic Principles of Budget Development and Financial Management in the Kyrgyz 
Republic. May, 2003, Updated working draft. 
Draft Law of the Kyrgyz Republic on Financial and Economic Basis of Local Self-Government. 
July, 2003 
Development Associates, Inc. 
Evaluation of USAID Fiscal III-4 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
Tax Expenditures in Kyrgyz Republic: Concepts and Estimates For Legal Entities. USAID 
Fiscal Reform Project. 
Draft, A Comparative Study of Tax Burdens: Are Kyrgyzstan Taxes Too High? USAID Fiscal 
Reform Project, the Kyrgyz Republic. 
Peter Gusen. An Equalization transfer for the Kyrgyz Republic. October 2002. 
Mitch Mokhtari. Some Policy Options for Stimulating Investment: Reducing Corporate Tax 
Rate, Investment Tax Credit, and Accelerated Depreciation Allowance. Fiscal Reform Project, 
Kyrgyzstan. 
Agenda For Revenue Forecasting Methodologies Seminar. Fiscal Reform Project, 
USAID/BearingPoint, Kyrgyzstan. 
Repealing the VAT exemption and VAT credit for supplies of Agricultural Produce. USAID 
Fiscal Reform Project. 
Tax and Revenue Administration in Kyrgyzstan. 
Revenue Forecasting in the Kyrgyzstan Ministry of Finance. 
Forthcoming/Underway Institutional Change For Better Performance In Kyrgyz Republic. 
Oblast-by-Oblast Tax Revenue Forecast for 2003. Kyrgyzstan. 
Tax Policy Conception in the Kyrgyz Republic. Drafted by the workgroup pursuant to the 
Comprehensive development framework of the Kyrgyz Republic for 2000 – 2010. 
Proposed Draft Law on Export of Services: Revenue Estimates and Related Discussions.
Kyrgyzstan. 
Economics and Government Finance. (in Russian) 
Mamak Ashtari, Selcuk Caner, Mitch Mokhtari. International Seminar on Forecasting, Fiscal 
Reform Project, USAID, Almaty 2002. 
Tax Expenditures in Kyrgyz Republic: Concepts and Estimates for Legal Entities. USAID Fiscal 
Reform Project, the Kyrgyz Republic. 
Summary of Major Papers of Work Products. Fiscal Reform Project, Bishkek, Kyrgyzstan, 
Bearing Point, USAID. 
Planned Training, August – December 2003 – Strategic Sub-National Training Initiative – 
Public Expenditure, Budget and Financial Management. Fiscal Reform Project, Bishkek, 
Kyrgyzstan, Bearing Point, USAID. 
Development Associates, Inc. 
Evaluation of USAID Fiscal III-5 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
Arnold Hoitink, Mitch Mokhtari. Fiscal Reform Outputs: Information requested by the 
Evaluation team. Fiscal Reform Project, Bishkek, Kyrgyzstan, Bearing Point, USAID. 
Review of Fiscal Reform Program, Kyrgyzstan. Bearing Point Memoir. 
Budget Projections for 2003, Kyrgyzstan. Program Budgeting, Ministry of Health, Kyrgyzstan. 
The Resource Agreement Between the Ministry of Education and Culture and the Ministry of 
Finance of the Kyrgyz Republic. Approved by the Decree of the Government of the Kyrgyz 
Republic as of September 3, 2002. 
Kyrgyz Republic Ministry of Finance. Medium-Term Budget Framework, 2004 – 2006. 
Bishkek, March 2003. 
The Budget Code of the Kyrgyz Republic. Updated working Draft, May, 2002. 
Arnold Hoitink. Excerpt From World Bank Public Expenditure Review. Fiscal Reform Project, 
Bearing Point, USAID, August 2003. 
The Tax Law of the Kyrgyz Republic. Amended by all known subsequent amendments up to and 
including July 1, 1999. Bishkek 1996. 
Urban institute
Law of the Kyrgyz Republic on Financial and Economic Basis of Local Self-Government. Draft, 
June 2003. 
T.E. Omuraliev, Minister of Local Self Government. Concepts of Reform Contained in the Law 
on Financial and Economic Basis of Local Self Government. Urban Institute. 
Bill Kugler, email on Law on Financial and Economic Basis of Local Self Government. Urban 
Institute. 
Urban Institute Bishkek. Local Government Initiative in Kyrgyzstan: Summary of Activities. 
USAID. 
UNDP, Perceptions of Corruption in Kazakhstan, Almaty 2003. 
World Bank, Report on Progress under CIS-7 Initiative Washington, D.C., April 7, 2003. 
IMF, Kyrgyz Republic: Selected Issues and Statistical Appendix February 2003. 
Andic, Fuat and A. Shapleigh, Transition Economies and Fiscal Reforms, USAID, Washington, 
D.C. 1999. 
Evaluation of USAID Fiscal IV-1 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
APPENDIX IV 
TAX POLICY
Table 1 
Kazakhstan: Tax Policy 
Stage Building block Comments 
Tax Code. Tax Code was prepared essentially with the efforts 
of the contractor, adopted by presidential decree in 
1995. Task completed. Score: 3 
No internal 
consistencies in 
code. 
Basic No internal inconsistencies observable. Score: 3 
Components 
Implementing 
regulations 
consistent with 
code. 
Regulations are not inconsistent with the code. 
However, interpretation of regulations is 
problematic for tax payers. Not enough 
jurisprudence accumulated as yet. Score: 3 
Amendment 
review period 
established. 
There is no specific period established. 
Amendments are made on the need basis. Score: 
2.5 
Judicial appeals 
process reflects 
intention of the 
code. 
Judicial appeal system reflects the intention of the 
code. However it is a long process and it is not 
free from corruption. Score: 2.5 
Operationally 
Functional 
Consistent with 
laws and 
regulations. 
It is consistent with the constitution. Consistency 
with other laws cannot be ascertained. Score: 3 
Process 
established to 
prevent bills from 
being established 
without 
quantitative 
analysis. 
The process is established in the Ministries of 
Budget Planning and Economy and Finance. 
Sufficient capacity is built in both ministries with 
sufficient staff. In parliament, an office for that 
purpose is also recently established, but the 
capacity to accomplish that purpose is yet to be 
formed. Score: 2.75 
Sustainable 
Consistent for 
SME 
development. 
Recent legislative amendments worked into the 
code are consistent with the government’s overall 
policy for SME development. Score: 3 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-2 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
Does not 
discourage 
foreign 
investment. 
It does not, and it is consistent with the overall 
policy of the Government to encourage FDI. 
Score: 3 
Consistent with 
international 
norms, rates bases 
and depreciation. 
In general, they are. Rates may be considered too 
high for the economic reality of the country. 
(There are some intentions to lower them.) 
Depreciation rules are in accordance with the 
importance of the sectors. Score: 3 
Effectively 
achieving 
objectives 
Fair 
horizontal/vertical 
equity. 
The code does have provisions for horizontal 
equity (exemption on agricultural earning is an 
anomaly); it also has provisions for vertical equity. 
However, equity generally declined. The reasons 
can be found in weak income tax performance and 
heavy reliance on VAT. Score: 2.5 
Score 2.75 = Close to achievement 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-3 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
Table 2 
Kazakhstan: Tax Administration 
Stage Building Block Comment 
Functional 
organization. 
Completed in the early stage of TA. Score: 3 
Computerization 
completed. 
Computerization completed; software, as the need 
arises, can be purchased by the respective 
ministries. Score: 3 
Basic 
Components 
Staff adequately 
trained. 
In general, yes. However, due to high turnover 
among the staff, there is a loss of capacity. But 
the ministries should remedy it internally. Score: 
2.5 
High quality 
sufficient staff. 
There is sufficient staff, but quality varies. 
Retention is problematic due to low remuneration. 
 Score: 2.5 
Rules and 
regulations 
adequately 
disseminated to 
field. 
Rules are disseminated. Whether the rules can be 
understood in the field cannot be ascertained. 
Score: 3 
Operationally 
functional 
Non-judicial 
appeals process 
completed. 
Process in terms of legal provisions is complete. 
Tax payers’ dissatisfaction with the process 
continues. Score: 2.5 
Certification 
program 
financially 
sustainable. 
Sustainable Sustainable. Score: 3 
Tax 
administration 
consistent with 
code regulations. 
Consistent. Score: 3 
Effectively 
Tax compliance 
consistent with 
international 
standards. 
There is increasing compliance as attested by the 
increasing number of tax-payers (VAT, Personal 
Income Tax and corporation tax.). However, the 
prevailing view in Ministry of Finance is that 
there is considerable evasion. Score: 2.5 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-4 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
Fair, consistent 
application of 
law. 
There is no hard evidence that the law is applied 
fairly and consistently due to high degree of 
corruption, underreporting and evasion. Score: 2.5 
achieving 
objectives 
Compliance 
consistent with 
international 
standards. 
No, It is not, nor should it be expected as yet. To 
comply with taxes is a new notion in the country. 
It does not depend only on administration but 
upon taxpayer education as well. Score: 2.5 
Score 2.7 = Close to achievement 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-5 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
TABLE 3 
KAZAKHSTAN: BUDGET REFORM/BUDGET 
Stage Building 
Block 
Comment 
Basic 
Components 
Modern 
budget 
systems law 
Complete. The final version of a draft Budget Code is 
dated 30 May 2003. The Code has been submitted to the 
Parliament. Score: 3 
 Unified 
treasury 
system 
Completed, under IMF guidance. The treasury has 
installed a Financial Management Information System, but 
a project is being prepared to modify the existing system. 
Score: 3 
 Budget 
group has 
authority 
Complete. ME&BP has the authority that it needs to 
produce an annual budget, which it does produce. Score: 3 
Operational￾ly functional 
Budget 
group 
staffed, 
trained 
Complete. ME&BP central budget staff can, and does, 
fulfill the central responsibility of a budget staff: it 
produces an annual budget. Score: 3 
 Medium and 
long-term 
expenditure 
plans 
Complete. ME&BP has been working on a Medium-Term 
Fiscal Framework since 1999. USAID produced a manual 
for preparing one in August 2001. The draft Budget Code 
requires one. ME&BP produced a draft Mid-term Fiscal 
Policy, 2004-6, in June/July, 2003. MinFin officials say 
that they will continue to improve their planning 
methodology but that they could/would do so without 
USAID assistance. Score: 3 
 Adequate 
analysis of 
expenditure 
plans and 
budgets 
Not complete. USAID is now concentrating technical 
assistance upon improving performance indicators. 
Without good performance indicators, analysis cannot be 
adequate. Original training on development of indicators 
began two years ago. Score: 1 
Sustainable Annual 
budget 
executed 
Complete. The Government produces an End-of-Year 
Report. The Accounts Committee, a joint 
executive/legislative group, reviews the Report. Score: 3 
 No IFI 
borrowings 
required 
Complete. The Government now has a USD 2.5 billion 
investment fund, built from oil revenues. Score: 3 
Effectively 
Achieving 
objectives 
Expendi￾tures match 
targets 
Complete. On an aggregated basis, the budget execution 
system, including the Single Treasury Account, keeps 
expenditures within collected revenue and expenditures 
within appropriations. Score: 3 
 Capital 
spending 
goals met 
Not complete. Investment is integrated into main budget in 
draft Budget Code and is sectoral specific. USAID 
consultants are only beginning to emphasize sectoral 
specific technical assistance in this area. By implication, 
the benchmark has not been met. Score: 1 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-6 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
 Social safety 
net funding 
goals met 
Not complete. The use of a Mid-Term Fiscal Framework 
as a basis for budget preparation should give sectoral 
allocations that reflect governmental priorities. However, 
without good performance indicators, the Government 
cannot properly set goals. The international community is 
recommending that the government spend from its 
investment fund on social needs. Score: 1 
 Education 
funding 
goals met 
Not complete. The use of a Mid-Term Fiscal Framework 
as a basis for budget preparation should give sectoral 
allocations that reflect governmental priorities. However, 
without good performance indicators, the Government 
cannot properly set goals. The international community is 
recommending that the government spend from its 
investment fund on social needs. Score: 1 
Score 2.33 = Significant progress (78%) 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-7 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
TABLE 4 
KAZAKHSTAN: BUDGET REFORM/PROGRAM BUDGETING 
Stage Building 
Block 
Comment 
Basic 
Components 
ME&BP 
staff trained 
in program 
budgeting 
Not complete. Training has, until very recently, 
concentrated upon the mechanics of budget preparation, 
e.g., the completion of forms and the procedure. Training 
is now emphasizing the definition of performance 
measures, which provides the basis for program budget 
analysis. As a result, training in efficiency analysis is just 
beginning. Training in effectiveness/policy analysis has 
not begun. Score: 1 
 Local 
government 
trained in 
program 
budgeting 
techniques 
Not complete. Training has been provided only to two 
cities and two oblasts. Score: 1 
 Ministries 
trained in 
program 
budgeting 
techniques 
Not complete. Since at least June 2000, training has been 
provided to ministries in the mechanics of program 
budgeting. As a result, ministries do now submit budgets 
in a program format and receive program budget 
"passports" for budget execution. However, concentrated 
training for ministries is just beginning in performance 
indicators and, therefore, efficiency analysis. It has not 
begun in effectiveness/policy analysis. Score: 2 
Operational￾ly functional 
Budget 
development 
forms 
designed for 
program 
budgeting 
Complete. Forms were designed at least as early as 2000 
for the 2001 Budget. A program budget format is now 
used to produce the budget. Score: 3 
 Ministries 
develop 
budget on 
program￾matic basis 
Complete. Ministries now develop their budgets on a 
programmatic basis. Program budget "passports" were 
used as the basis for budget execution in FY2002. Score: 3 
 Oblast 
budget 
development 
on program￾matic basis 
Not complete. The central government has required all 
governments to submit budgets in a program format. As a 
consequence, they do. However, as a Barents's local 
economist pointed out in his review of the Pavlodar 
budget, cities seem to be more knowledgeable about 
program budgeting than the oblasts. Oblasts need more 
training and experience in developing a program budget. 
Score: 1 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-8 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
Sustainable Effective 
program 
budget 
indicators 
Not complete. USAID technical assistance is beginning to 
emphasize the development of good performance 
indicators. The Performance Measures Handbook was 
revised and re-issued in March 2003 to guide further 
development in this area. Score: 1 
 Program 
budgeting 
process 
adjusts for 
program￾matic 
changes 
Not begun. In interviews, no one indicated that re￾programming has been a topic of technical assistance or 
training. Score: 0 
Effectively 
Achieving 
objectives 
Program 
budgeting 
used in all 
local 
governments 
Not complete. Government instructions for preparing 
budgets require that all governments prepare program 
budgets, and all are. However, training in preparing a 
program budget has been given to only two cities and two 
oblasts. Effective program budgeting requires that training 
be given to all local governments. Score: 1 
 Program 
budgeting 
meets 
spending 
goals 
Not complete. The use of a Mid-Term Fiscal Framework 
as a basis for budget preparation should give sectoral 
allocations that reflect governmental priorities. However, 
without good performance indicators, the Government 
cannot properly set spending goals for program budgeting. 
Score: 0 
 Budget can 
be used as a 
performance 
measure￾ment tool 
Not complete. The use of a Mid-Term Fiscal Framework 
as a basis for budget preparation should give sectoral 
allocations that reflect governmental priorities. However, 
without good performance indicators, the Government 
cannot properly set goals for program budgeting. In spite 
of this, the Accounts Committee recently completed a 
performance audit with USAID assistance. Score: 1 
Score 1.27 = Reform initiated (42%) 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-9 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
TABLE 5 
KAZAKHSTAN: INTERGOVERNMENTAL FISCAL RELATIONS 
Stage Building 
Block 
Comment 
Basic 
Components 
Clear 
expenditure 
and revenue 
assignments 
Not complete. The Government focused work in this area 
on a grant allocation formula and delayed work on 
expenditure and revenue assignments. Recently a 
Government committee concluded that a satisfactory 
grants formula cannot be concluded until proper 
expenditure and revenue assignments are made. The 
Government may soon seek technical assistance to develop 
clear assignments. Score: 1 
 Important 
basic 
functions￾education 
and health 
assigned to 
local 
government 
Not complete. The draft Budget Code includes 
assignments of some education responsibilities to all levels 
of government. Health responsibilities are assigned to the 
central, oblast, and capital city budgets; no health 
responsibilities are assigned to rayon budgets. It appears 
that these expenditure assignments are not based upon 
proper analysis. Score: 1 
 Local 
authorities 
trained in 
basic 
budgeting 
Not complete. Budget training has been provided only to 
two cities and two oblasts. Score: 1 
Operational￾ly functional 
Transfers 
and 
subventions 
transparent 
Not complete. The draft Budget Code addresses 
intergovernmental transfers but does not include an 
explicit formula. Work on a transparent formula has been 
delayed until proper revenue and expenditure assignments 
have been accepted by the Parliament. Score: 0 
 Transfers 
and 
subventions 
adjust for 
changes in 
economic 
conditions 
Not complete. Without an explicit formula, or at least an 
explicit and transparent methodology, there is nothing to 
"adjust." Score: 0 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-10 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
 Process 
provides 
local 
government 
with 
resources 
necessary to 
carry out 
local 
spending 
plans 
Not complete. Without an explicit assignment of 
expenditure responsibilities to local levels, one cannot 
know whether the resources provided are equal to those 
"necessary to carry out local spending plans." (It is 
predictable with a high degree of confidence that local 
spending plans will always exceed the availability of 
resources, especially if those resources do not have to be 
raised from the local electorate by locally elected 
officials.) Score: 1 
Sustainable Process can 
adapt to 
increased 
decentraliza￾tion 
Not complete. By consensus, a satisfactory process that 
could be adapted is still to be determined. Score: 0 
 Process 
meets the 
spending 
goals of 
local 
governments 
Not complete. Without performance indicators, still being 
developed under program budgeting, the spending goals of 
local government are ill-defined and do not provide a 
reliable basis for providing revenue. Score: 0 
Effectively 
Achieving 
objectives 
Local 
government 
spending 
reflects 
priorities of 
citizens 
Not complete. By inference, the movement to local 
program budgeting suggests that the international 
community believes that local spending does not now 
reflect priorities of citizens; and implementation of 
program budgeting at local levels is only beginning. Public 
hearings on the budget are a part of program budget 
training for local governments. Score: 1 
 Local 
governments 
have 
revenue 
generating 
authority 
Not complete. Local governments may generate a portion 
of their revenue, e.g., from the sale of property; but such 
revenue can probably satisfy only a portion of their need 
for revenue. Depending upon which expenditure 
responsibilities are eventually assigned to local 
governments, additional revenue generating authority will 
probably be needed to meet the requirements of 
decentralization. Score: 1 
 Decentraliza
tion 
Not complete. Without expenditures and revenue 
assignments, decentralization is not complete. Score: 0 
 
Score 0.5 = Reform initiated (18%) 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-11 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
Table 6 
Kyrgyzstan: Tax Policy 
Stage Building Block Comment 
Tax Code. A comprehensive tax code was prepared and 
approved in 1996. Subsequent changes reduced its 
effectiveness. Score: 2 
No internal 
inconsistencies in 
the code. 
From 1996 to 2003 the code was revised 700 times, 
bringing special treatments to interest groups in the 
form of exemptions, deductions etc. Latest revisions 
brought special treatments for SMEs and FDIs. 
Internal consistency is lost. Score: 2 
Basic 
Compon￾ents 
Implementing 
regulations 
consistent with 
code. 
Regulations are frequently changed. Contradictory 
regulations are issued. Consistency is lost from time 
to time. Score: 1 
Amendment 
review period 
established. 
No such period is established. Frequent reviews 
usually follow special groups’ pressure. Score: 1 
Judicial appeals 
process reflects 
intention of the 
code. 
Judicial appeals are very rare due to poor auditing. 
Taxpayer prefers to settle out of court. However, 
appeal system as it is incorporated into the code is 
consistent with the intention of the code. Score: 1 
Operational
-ly 
Functional 
Consistent with 
other laws and 
regulations. 
The original design of the code was consistent with 
other laws, including the constitution. However, 
frequent changes create inconsistencies. Score: 1 
Process established 
that prevents bills 
from being 
established without 
quantitative 
analysis. 
No such process is established. There is no capacity 
to carry out such quantitative analysis. Whenever 
parliament requires such analysis the recourse is the 
consultants of the Barents group. Score: 1 
Sustainable 
Consistent with 
need for economic 
development of 
SME. 
Special provisions for SMEs are in place and appear 
to be consistent with the intention. It is impossible 
to measure its effectiveness. No quantitative data 
exists. Min Fin does not even know the number of 
SMEs that exist in the country. Score: 1 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-12 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
Does not 
discourage foreign 
investment. 
Tax code does not. There are provisions to enhance 
it. But there are other non-fiscal conditions that 
discourage DFI. Score: 2 
Consistent with 
international norms 
in rates, basis and 
depreciation. 
Rates are basically consistent with accepted norms 
(progressive income tax for example); tax base is not 
(major agricultural incomes are exempt); 
depreciation provision are not standardized. Score: 
2 
Effectively 
achieving 
objectives 
Fair horizontal and 
vertical equity. 
The code contains provision for equity both 
horizontal and vertical. But numerous exemption 
work against the equity principle. Score: 1 
Score 1.5 = Reform initiated 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-13 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
Table 7 
Kyrgyzstan: Tax Administration 
Stage Building Block Comment 
Functional 
organization. 
Complete. Score: 3 
Computerization 
completed. 
Not complete. There are scarcity of computers 
and the lack of software. Score: 2 
Basic 
components 
Staff adequately 
trained. 
Due to high turnover among the staff and the lack 
of necessary tools the present staff is not 
adequately trained. Score: 2 
High quality 
sufficient staff. 
Staff quality is not very high. Due to very low 
remuneration staff turnover is high, in many 
departments (such as audit there is staff shortage). 
Score: 1 
Rules and 
regulations 
adequately 
disseminated to 
field. 
Rules and regulations are frequently changed, 
hence there is some confusion at the headquarters. 
No field visit was possible but one deduces that in 
the field there must be the lack of information and 
confusion. Score: 1 
Operationally 
functional 
Non-judicial 
appeals process 
completed. 
The system is in place; but, in general, tax payers 
prefer to settle with auditors so very few cases go 
to appeal. Hence the functioning of non-judicial 
appeal process can not be ascertained. Score: 1 
Certification 
program financially 
sustainable. 
No, it is not sustainable. Score: 1 
Sustainable Tax administration 
consistent with 
code regulations. 
In essence, administration is consistent with the 
code; and there are further efforts (such as uniting 
tax administration with that of customs) making it 
consistent. Score: 2 
Tax compliance 
consistent with 
international 
standards. 
No, it is not. There several exemptions of dubious 
nature and tax evasion are prevalent. Score: 1 
Effectively 
achieving 
objectives 
Fair consistent 
application of law. 
Application is neither fair nor uniform due to high 
level of corruption. Score: 1 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-14 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
 Compliance 
consistent with 
international 
standards. 
Compliance is not consistent with international 
standards. Score: 1 
Score 1.5 = Reform initiated 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-15 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
TABLE 8 
KYRGYZSTAN: BUDGET REFORM/BUDGET 
Stage Building 
Block 
Comment 
Basic 
Components 
Modern 
budget 
systems law 
Not complete. There is a Budget Law from 1998, but it is 
considered unsatisfactory by the Parliament and the 
executive as a mechanism for providing revenue to local 
government. A Budget Code was drafted in 2002, but the 
new Constitution will require that the draft be changed. 
Work has stopped on the Budget Code, and focus has 
shifted to the Law on the Economic and Financial Basis of 
Local Self-Government. Score: 2 
 Unified 
treasury 
system 
Completed, under IMF guidance. Score: 3 
 Budget 
group has 
authority 
Complete. MinFin has the authority that it needs to 
produce an annual budget. Score: 3 
Operational￾ly functional 
Budget 
group 
staffed, 
trained 
Complete. MinFin central budget staff can, and does, 
fulfill the central responsibility of a budget staff: it 
produces an annual budget. Score: 3 
 Medium and 
long-term 
expenditure 
plans 
Not complete. MinFin produced a Medium-Term Budget 
Framework for 2004-2006 but was heavily dependent 
upon IMF, the World Bank, and USAID to do it. Score: 1 
 Adequate 
analysis of 
expenditure 
plans and 
budgets 
Not complete. Performance indicators are just beginning to 
be developed in earnest. Without performance indicators 
adequate analysis of plans and budgets is not possible. 
Indicators have not been developed for all programs, and 
those that exist are being improved. Score: 1 
Sustainable Annual 
budget 
executed 
Complete. The Government produces an End-of-Year 
Report. The Parliament reviews the Report and, if it is 
acceptable, passes an acceptance law. Score: 3 
 No IFI 
borrowings 
required 
Not complete. The Republic continues to borrow to offset 
its budget deficit. Score: 1 
Effectively 
Achieving 
objectives 
Expend￾itures match 
targets 
Complete. On an aggregated basis, the budget execution 
system, including the Single Treasury Account, keeps 
expenditures within collected revenue and expenditures 
within appropriations. Score: 3 
 Capital 
spending 
goals met 
No data. Score: 0 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-16 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
 Social safety 
net funding 
goals met 
Not complete. Under World Bank leadership, the 
Government is initiating a poverty reduction program. The 
movement to program budgeting suggests that social 
safety net funding goals are only now being defined. 
Score: 1 
 Education 
funding 
goals met 
No data, but the movement to program budgeting suggests 
that education funding goals are only now being defined. 
Score: 1 
Score 1.8 = Reform initiated (61%) 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-17 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
TABLE 9 
KYRGYZSTAN: BUDGET REFORM/PROGRAM BUDGETING 
Stage Building 
Block 
Comment 
Basic 
Components 
MoF staff 
trained in 
program 
budgeting 
Not complete. MinFin staff trained in the mechanics of 
preparing a budget in a program format. (Nov.-Dec. 2002.) 
2003 National Budget organized secondarily in a program 
format. Training in efficiency just beginning. Training on 
effectiveness/policy analysis not begun. Score: 1 
 Local 
government 
trained in 
program 
budgeting 
techniques 
Not complete. Training has just begun with pilot projects 
in three cities. MinFin has planned to extend training to 
460 local governments and 23 cities. Training in three 
cities concentrated upon mechanics of preparing a budget 
in program format. Score: 1 
 Ministries 
trained in 
program 
budgeting 
techniques 
Not complete. To date, training for ministries limited to 
mechanics of preparing a budget in program format. 
Training in efficiency and effectiveness not begun. Score: 
1 
Operational￾ly functional 
Budget 
development 
forms 
designed for 
program 
budgeting 
Complete. The 2003 National Budget was prepared by 
ministries and submitted to the Parliament in both line 
item and program formats. A bound version of the 
program budget submission was prepared for public 
hearings (with USAID logo on the cover). The forms have 
been developed and are being used. Score: 3 
 Ministries 
develop 
budget on 
program￾matic basis 
Not complete. Ministries seem able, in general, to present 
data in program format. However, review of National 2003 
budget shows numerous blanks in ministry budget 
descriptions indicating more experience needed. Much 
more training and experience needed in defining and using 
performance indictors to improve efficiency. No training 
yet to improve effectiveness through policy and program 
analysis. Score: 2 
 Oblast 
budget 
development 
on program￾matic basis 
Not complete. Pilot projects on program budgeting have 
been undertaken in only three oblasts. Score: 1 
Sustainable Effective 
program 
budget 
indicators 
Not complete. Central ministries are in early stages of 
developing effective indicators, although the subject was 
introduced about two years ago. Score: 1 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-18 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
 Program 
budgeting 
process 
adjusts for 
program￾matic 
changes 
Not begun. In interviews, no one indicated that re￾programming has been a topic of technical assistance or 
training. Score: 0 
Effectively 
Achieving 
objectives 
Program 
budgeting 
used in all 
local 
governments 
Beginning. Training has been provided only to three cities. 
Score: 1 
 Program 
budgeting 
meets 
spending 
goals 
Not begun. The process is still defining spending goals. 
Score: 0 
 Budget can 
be used as a 
performance 
measure￾ment tool 
Not begun. Performance indicators are still being 
developed. Score: 0 
Score 1.0 = Reform initiated (33%) 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-19 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
TABLE 10 
KYRGYZSTAN: INTERGOVERNMENTAL FISCAL RELATIONS 
Stage Building 
Block 
Comment 
Basic 
Components 
Clear 
expenditure 
and revenue 
assignments 
Not complete. The Law on Economic and Financial Basis 
of Local Self-Government is intended to provide clear 
assignments. The draft law passed both houses of the 
Parliament in July 2003 and is awaiting presidential action. 
(Some MinFin officials seem to believe that the 
assignments are already clear enough.) Score: 2 
 Important 
basic 
functions￾education 
and health 
assigned to 
local 
government 
Complete. Clear assignment of responsibilities to cities, 
villages, and settlements has been made. The Law on 
Economic and Financial Basis of Local Self-Government 
is intended to provide revenue sources to local government 
to match the responsibilities. Score: 3 
 Local 
authorities 
trained in 
basic 
budgeting 
Not complete. Training has been given only to three pilot, 
local governments. A sub-national training program has 
been developed to provide a "threshold of public 
expenditure management" to 483 local governments below 
oblasts and rayons. USAID has funded three regional 
centers to training local government personnel. Score: 1 
Operational￾ly functional 
Transfers 
and 
subventions 
transparent 
Not complete. The are equalization and categorical grants, 
and MinFin is working on a matching grant system. 
Apparently, a formula does exist, but the formula provides 
funding only to the oblast and, perhaps rayon, level. 
Explicit grants dedicated to local governments below the 
rayon and that are developed transparently through a 
formula do not exist. Development of such a formula after 
passage of the Law on Economic and Financial Basis of 
Local Self-Government is needed. Score: 1 
 Transfers 
and 
subventions 
adjust for 
changes in 
economic 
conditions 
Not complete. A satisfactory, transparent formula that 
could adjust does not exist. Score: 0 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-20 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
 Process 
provides 
local 
government 
with 
resources 
necessary to 
carry out 
local 
spending 
plans 
Not complete. It is reported that oblasts and rayons 
arbitrarily keep resources beyond their service needs, 
meaning that cities, villages, and settlements do not get 
necessary funding. This situation provides part of the 
rationale for the new law. Score: 2 
Sustainable Process can 
adapt to 
increased 
decentraliza￾tion 
Not complete. If the new law passes as currently drafted, a 
new "process," i.e., a new, transparent formula, will be 
needed. Score: 2 
 Process 
meets the 
goals of 
local 
governments 
Not complete. Local governmental officials complain that 
they do not get enough resources, including financial 
officials in Bishkek, the source of most of the funds that 
are transferred to other local governments. Score: 2 
Effectively 
Achieving 
objectives 
Local 
government 
spending 
reflects 
priorities of 
citizens 
Not complete. By inference, the movement to local 
program budgeting suggests that the international 
community believes that local spending does not now 
reflect priorities of citizens; and implementation of 
program budgeting at local levels is only beginning. Public 
hearings on the budget are a part of program budget 
training for local governments. Score: 0 
 Local 
governments 
have 
revenue 
generating 
authority 
Complete. Local governments have recently been given 
authority to impose a real property tax. Outside of 
Bishkek, local governments do not have much wealth on 
which to base revenue generation. Giving local 
governments authority to impose a property tax may be all 
that is required for the foreseeable future. Score: 2 
 Decentraliza
tion 
Not complete. Score: 1 
 
Score 1.45 = Reform initiated (48%) 
Evaluation of USAID Fiscal V-1 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
APPENDIX V
FIFTEEN QUESTIONS
QUESTION 1: How has the activity in Kazakhstan and the Kyrgyz Republic contributed 
to the economic development of each country? 
The Fiscal Reform Project for taxation has had a good impact on the economic development of 
Kazakhstan. The tax code adopted in 1995 was economically neutral, meaning that the 
governmental tax structure did not distort allocation of resources in the economy and, as a result, 
protected economic efficiency and, thereby, promoted development. Since then the tax code, 
which shapes the fiscal policy, has been amended in ways that are favorable to SMEs and DFI. 
In Kyrgyzstan the Project’s impact is much less appreciable due to the conditions beyond the 
Project’s sphere of influence. In this context the lack of political commitment, weak institutions, 
low human development, very small base of sufficiently trained personnel, and high turnover of 
staff due to low salaries in the public sector may be mentioned. 
QUESTIONS 2: What was the contribution of the USAID fiscal reform activities towards 
increasing the soundness of tax and budget policies and administration in the two 
countries?
In both countries USAID’s fiscal reform activities contributed greatly to the efforts towards 
increasing the soundness of tax policies and administration. While in Kazakhstan the impact was 
appreciable, in Kyrgyzstan the impact is yet to be felt. 
In Kazakhstan budgeting, USAID: (1) helped MinFin to nearly complete the capacity needed for 
budgetary management of fiscal policy; (2) introduced MinFin and pilot local governments to 
and provided virtually all technical assistance used on the mechanics of program budget 
preparation; and (3) assisted Parliament to become aware of its need for quality information 
(and, therefore, of its need for a staff that can produce such information) separate from that 
provided by the Executive. 
In Kyrgyzstan budgeting, USAID: (1) helped MinFin to initiate development of the capacity 
needed for budgetary management of fiscal policy; (2) introduced MinFin and pilot local 
governments to the mechanics of program budget preparation: and (3) assisted Parliament to 
become aware of its need for quality information (and, therefore, of its need for a staff that can 
produce such information) separate from that provided by the Executive. 
QUESTION 3: What factors explain the differences in the achievements of fiscal reform in 
Kyrgyz Republic and Kazakhstan? 
Resources and strong leadership. Kazakhstan has strong executive leadership that listens to the 
international community but acts independently. After deciding what it wishes to accomplish, 
Kazakhstan has the resources (money, trained personnel, facilities, etc…) and discipline to 
execute the decision in a timely manner. Kyrgyzstan does not have the resources or consistent 
leadership and political consensus. 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-2 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
QUESTION 4: Did the changes/improvements in the tax legislation bring more 
transparency, and as a result, reduce the potential for corruption in tax authorities? 
There are appreciable improvements with respect to transparency in Kazakhstan and Kyrgyzstan. 
In Kazakhstan, by publishing a major taxpayers list and the amount of tax paid by them, the one 
stop-shop principle was established and contributed to transparency. However, continuous 
contact between the taxpayers and tax officials is very conducive to corruption. It is impossible 
to state that the project contributed to the reduction of corruption. In fact, according to the 
World Bank, overall corruption in Kyrgyzstan is on the rise. Tax administration in both 
countries is designed in such a way that it aims to reduce corruption. 
QUESTION 5: Have the fiscal reform activities contributed to the growth of private 
business, particularly small and medium enterprises, and if so, how? What can be done to 
increase the positive impact of fiscal reform on SME's? 
Some fiscal reform activities have aimed to contribute to the growth of private sector activities. 
Provisions for SMEs and for FDI are two good examples. In the future, SME provisions must be 
revised to reflect economic realities. As the economies expand and inflationary pressure is felt, 
the rules determining SME status must be changed. Otherwise, SMEs may curtail their activities 
so as not to find themselves in tax categories that increase their tax burdens disproportionately. 
In Kyrgyzstan, none of the economic institutions have capacity to provide sufficient fiscal 
analysis, which is a major impediment for the formulation of economic policy. Hence, rational 
future revisions of fiscal policy vis-à-vis SMEs and DFI is in doubt. 
However, the Governments appear not to have given priority to economic development in their 
fiscal reform activities. In the tax area, where most of the contribution would have been made, 
priority seems to have been given to following prescribed international agendas, i.e., the standard 
tax code, and to creating a tax structure that would generate revenue. There appears to have been 
little or no effort to produce analyses from which a comprehensive tax structure could be 
selected. As a result, the approach to economic development in both countries appears to have 
been ad hoc and political. That is, it was determined by interested parties bringing proposals to 
the Parliament and pleading their causes. As a result, special breaks were given; and the standard 
tax code concept deteriorated. (The standard tax code embraces economic neutrality.) 
To increase the impact, the Governments could undertake more analyses of proposals to modify 
the Tax Code based upon the criteria of yield/adequacy, equity, economic development, and 
administrative ease. Given the political importance of taxes, it would probably be preferable if 
the analyses were undertaken as a joint exercise of the Executive Branch and the Parliament. 
Parliamentary leaders need to be part of the analytical and decision-making process, invest in it, 
and be committed to defending its results. 
QUESTION 6: Is there a core group of professionals within tax authorities of the two 
countries that have sufficient capacity to continue training and further staff development? 
If not, are there any impediments to developing a core group of professionals? 
In Kazakhstan, such a core group exists, and further staff development with internal resources is 
feasible. In Kyrgyzstan, the core group is disproportionably small and is in dire need by capacity 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-3 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
enhancement. The basic impediment in Kyrgyzstan is that there are few tax professionals who 
are good enough to train others. 
QUESTION 7: What steps are necessary to reinforce the role of the Fiscal Analysis units in 
both countries in the overall tax and budget process? How accurate and useful are their 
budget forecasts? Has this component contributed to improved budget transparency, 
public accountability, and democratization? 
Accuracy and usefulness. Methodologies introduced are of professional quality and employ 
standard techniques. In practice, the methodologies yield different results; but the range in 
variation is acceptable, given the status of data. Executive and legislative branch officials in both 
countries report satisfaction. For the Parliament, the key is to have an alternative forecast to 
challenge the forecast of the Executive. 
Transparency, public accountability, and democratization. Yes, this component has contributed 
to transparency, public accountability, and democratization. The Parliament is the agent of the 
voting public. By giving the Parliament an alternative view, the people's representatives are able 
to challenge the executive and hold the executive accountable. This is a contribution to 
democracy. If the public wishes, it can observe the process of challenging. Thus, the decision￾making process has become more transparent. 
Steps. In both countries, in return for continuing assistance, USAID could require a plan for 
institutionalization of Parliamentary fiscal analysis capacity and establish a schedule for phasing￾out USAID assistance. As part of the agreement, USAID could require Parliamentary officials to 
spend from their institutional budgets to support meeting the phase-out schedule (so that each 
Parliament would be investing its own resources and expect to see a return on the investment). 
USAID assistance could consist primarily of an ex-patriate advisor to the head of the 
Parliamentary professional staff; and the head would have responsibility and authority to use the 
resources at his disposal, i.e., his Parliamentary budget and the expat., to institutionalize the 
capacity. It should be clear to USAID, the Parliament, and the public that institutionalizing the 
capacity lies with the head of the Parliamentary professional staff. Finally, as part of the 
agreement, USAID could require that the Parliamentary staff report to a multi-partisan 
commission, so that no political party could control the "non-partisan" staff. 
QUESTION 8: How effective are the program's efforts at the local level vs. national level? 
What can be done to strengthen local-level work and reinforce its links with the national￾level developments? 
In budget reform, the mechanics of program budgeting have been introduced locally in both 
countries, but the process is only beginning. In fiscal analysis, virtually nothing has been 
accomplished at the local level. In Intergovernmental Fiscal Relations, the only accomplishment 
to date is institution of the local real property tax in Kyrgyzstan. (A draft law with important 
implications for local government is pending in Kyrgyzstan.) 
Overall, then, the program has not been very effective at the local level. However, relatively few 
resources have been directed to the local level. The prognosis for impact at the local level is now 
much better in both countries. In Kyrgyzstan, the plan is to direct more resources to the local 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-4 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
level. In Kazakhstan, the Intergovernmental Fiscal Relations procedure now seems to be on track 
with immediate priority being given to reassignment of expenditure responsibilities. 
The major requirement is to alter the intergovernmental fiscal relationships so local governments 
have responsibility for providing local services and have more resources for executing these 
responsibilities. The mechanism providing the resources could require that some (small) portion 
of them be designated every year to financial management improvement. Then, at the national 
level, a MinFin body to encourage and guide local level financial management improvement 
(and review results) could be established. 
QUESTION 9: Does staff of tax collection bodies possess sufficient skills to effectively use 
the new computerized system of tax administration and fiscal data collection? 
In Kazakhstan tax collection bodies possess sufficient skill as well as access to hardware and 
software. In Kyrgyzstan the reverse is the case (in the audit department, for examples, every 
third auditor has a computer. In the oblasts, the situation is much worse.) 
QUESTION 10: What at the constraints that impede reform of intergovernmental fiscal 
finance and what could be done to overcome those constraints? 
Constraints. (1) Desire for political flexibility: political decision-makers don't want transparent 
and established rules. They want the political flexibility given by making ad hoc political 
agreements. (2) In reform, some governments will lose power/money, and some governments 
will gain power/money. The losers resist the change. 
Actions. The best strategy is to rely upon a democratic political process. Develop explicit 
expenditure and revenue assignments, and develop explicit transfer formulas with results 
estimated. Place the assignments and formulas with results in the public domain, and let the 
political process determine the outcome. Parliamentary leaders should first strive for common 
agreement upon principles, e.g., that some degree of equal fiscal capacity among local 
governments is a good thing, and then let the politicians negotiate an acceptable definition of 
degree. 
Caveat. In a country where it is difficult to develop a stable political consensus, as Kyrgyzstan 
apparently is, reducing the political flexibility of decision-makers may contribute to deadlock. 
Moreover, in a country where fiscal capacity is centralized, as Kyrgyzstan is with Bishkek, 
intergovernmental transfers consist of transferring wealth from only one local government, i.e., 
Bishkek, to other localities. This raises questions of political practicality and justice. 
QUESTION 11: In Kazakhstan, is there sufficient capacity in the Ministry of Finance and 
Parliament to end USAID assistance? If funds are available, would it be advisable to 
continue fiscal reform assistance at the local level while exiting at the national level? 
Capacity. The MinFin position seems to be that reform has progressed far enough that MinFin 
officials understand the process and its objectives and could continue it. They have the money; 
and, if they need technical assistance, they believe that other donors would provide it. The 
Parliament, on the other hand, does not seem to be in position to progress without continuing 
technical assistance. USAID could consider continuing a technical assistance program that is 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-5 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
built around a schedule for USAID withdrawal and placing clear responsibility for building a 
fiscal analysis capability upon the head of the professional Parliamentary unit. 
Local. USAID should work at MinFin to create an institution dedicated to continuing financial 
management improvement, and that institution should be responsible for supporting reform at 
local and national levels. 
QUESTION 12: In Kyrgyzstan, what are the priority needs for fiscal reform for the next 
two years? How well does the current and planned assistance address those needs? 
First Priority: Technical assistance to Intergovernmental Fiscal Relations. 
• Assistance to help local governments implement the local property tax. 
• Assistance to develop acceptable transfer formulae. 
• Assistance to ensure that at least a portion of increased local revenue is dedicated 
to improving continually local financial management. 
• Local budget training in costing and accountability (for unit costs), in a program 
budget format. 
• Assistance to develop a MinFin mechanism for monitoring local spending. 
Second Priority: Technical assistance to tax policy and administration. 
• Assistance for revising the tax code. As it is, the code is inconsistent, containing 
too many contradictory clauses. 
• Redesign the training program after a careful need assessment and tailor the 
training to remedy the basic weaknesses of the staff. 
Third Priority: Technical assistance to budget reform. 
• Focused budget reform, e.g.., the Medium-Term Budget Framework, so as to 
complete each stage in succession until "Sustainability" is complete. 
• Undertake institutional development in conjunction with focused reform. 
Fourth Priority: Technical assistance to program budgeting. 
• Allow national budgeters to absorb and operationalize past program budget 
training. 
• Introduce program budgeting to local levels in conjunction with costing and 
accountability. (Budgeters should know that they are budgeters and not program 
planners.) 
As we understand it, there is no plan to give Intergovernmental Fiscal Relations a priority. We 
think that a priority in this area is necessary to support a USAID priority, decentralization. 
Moreover, with the passage of the new law, the time will be right. 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-6 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
At the same time, we believe that technical assistance priority on program budgeting at the 
national level can be reduced. Program budgeting at the local level should continue because it 
has been "sold" well, and the Government is enthusiastic about it. Therefore, budget technical 
assistance at the local level should follow a two-stage path. 
• Stage 1: Program budgeting mechanics and procedures. 
• Stage 2 (to follow quickly after Stage 1): Unit costing and accountability. 
The priorities given here are based upon need (the need for better operating performance and the 
need for technical assistance to get that performance) and do not consider the probability of 
successful and sustained operating performance. 
QUESTION 13: What are the lessons learned of the tax and budget reform process that 
can be used in other countries of Central Asia?
No technical assistance for tax policy and administration should be provided without needs 
assessment taking into consideration the differences in economic preparedness, resource 
endowment, staff’s existing capacity, and absorption potential. 
Program budgeting is primarily for program planners. However, if the results of program 
planning are to be effective and operationalized, the budget format should be compatible with the 
program plan, i.e., there should be a program format in the budget. Therefore, comprehensively, 
program planning for the ministries and program budgeting for the central budget office should 
be undertaken simultaneously. (This project does not recognize the need for program planners, 
separate from budgeters, in the line ministries. It seems to assume that program budgeting is only 
for budget offices.) 
Major reform requires institutional development, not just training; and it must be long-term, with 
a plan to overcome obstacles, e.g., the absence of professionally educated people in Kyrgyzstan. 
Institutional development is a discipline and requires putting in place: 
• Missions statements and policies 
• Organization structures 
• Staffing (numbers and types) 
• Budgets 
• Facilities and supplies 
• Systems and procedures 
• Data 
• Technical assistance 
With institutional development, change will not be effective, sustainable, or continuing. 
QUESTION 14: What activities, if any, should USAID consider implementing as a follow￾on to the Kazakhstan fiscal reform activity upon its termination (expected December 
2003)? 
Development Associates, Inc. 
Evaluation of USAID Fiscal V-7 August 29, 2003 
Reform Program: Kazakhstan 
and Kyrgyzstan 
For tax policy and administration, USAID can now exit from Kazakhstan at the national level. 
Short-term well-focused technical assistance may be considered if Kazakh authorities are willing 
to formulate the need. 
For budget reform and intergovernmental fiscal relations reform, USAID could consider 
technical assistance to create a Ministry of Economy and Budget Planning (MEBP) organization 
dedicated to on-going reform, per Point 3.3.4. MEBP would use the new organization to 
institutionalize the reform process and ensure continued financial management improvement, 
including extending financial improvement into local government and providing short-term 
expertise in Intergovernmental Fiscal Relations. USAID could also consider a very reduced 
technical assistance program to the Parliament. The assistance would provide one expatriate 
advisor to help the head of the Parliamentary professional staff to develop an internal fiscal 
analysis capability. See the answer to Question 7 above. 
QUESTION 15: What activities, if any, should USAID consider implementing over the next 
two years as a follow-on for the Kyrgyzstan fiscal reform activity after the current contract 
expires (January 2003)? 
Kyrgyzstan is in dire need of assistance for tax policy and tax administration. For the next two 
years, the need for assistance and capacity enhancement in these two areas will remain high. 
Without additional technical assistance in these areas, progress achieved to date probably cannot 
be sustained. 
Priority should be given to Intergovernmental Fiscal Relations and Basic Budget Reform. 
Reform for Program Budgeting should play a supporting role over the next two years. Reform 
for the Parliament should be continued only if the Parliament will provide an explicit agreement 
to: 
• Create a multi-partisan commission as the governing body of the non-partisan fiscal 
analysis staff. 
• Clearly place responsibility for creating a capable internal fiscal analysis staff upon the 
director of the non-partisan staff rather than upon the USAID advisor. 
• Devote some of its own resources to creating the internal capability. 
For specific activities to execute the above, see the answer to Questions 7 and 12. 
Evaluation of USAID Fiscal Reform.doc/EvalQC-32