Budget system of Turkmenistan

 

MINISTRY EDUCATION AND SCIENCE, YOUTH AND SPORTS OF UKRAINE

BYKOVINA STATE UNIVERSITY OF FINANCE AND ECONOMY

DEPARTAMENT OF FINANCE AND ECONOMY

 

 

 

 

 

 

 

 

ESSAY

 

on the topic:

 

“Budget system of Turkmenistan”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepared by the student  Bohdanna Shatruk group FC-31

 

 

 

 

 

 

 

 

 

Chernivtsi

2013

The state budget of Turkmenistan as the tool for economic management of financial resources of the country is being worked out in line with the Law of Turkmenistan “ On Budget System”  which determines new approaches of budget formation. As from 1997 its structure is being improved according to international standards.

This Law fixes legal foundations of organizing management and operating budget system, regulates interrelations between budgets of all levels.

The budget – financial policy pursued by the supreme bodies of state power and management of Turkmenistan, fiscal, price, monetary and currency policy is directed at the provision of state budget balance.

The single budget system of Turkmenistan is composed of State Budget of Turkmenistan and other financial resources of the country, its formation and use are defined by the legislature of Turkmenistan.

The State budget in Turkmenistan is the main fund of money resources which includes stock of centralized stock and local budgets.

The State budget of Turkmenistan consists of funds of special target funds and financial resources of economic entities based on state forms of property. Turkmenistan State budget revenues are comprised within one financial year from tax, collections and other compulsory payments by physical and juridical persons, receipts from other sources stipulated by law and other rules and regulations of the legislature of Turkmenistan.

Turkmenistan State budget revenues are distributed between centralized budget, budgets of velayats and Ashgabat in accordance with the Law on The State Budget of Turkmenistan adopted for the financial year.

The budget expenditures consist of current expenditures providing functioning state power bodies and management and local self - governing and expenditures for financing investment and innovation activity.

The Ministry of Economy and Finance of Turkmenistan organizes preparation and compiling of the State draft budget of Turkmenistan. 5 months prior to the beginning of the financial year the Ministry of Economy and Finance informs the Boards of specialized target funds, ministries and agencies, other bodies of state power and management, mayors of velayats, mayor of Ashgabat on the beginning of preparation of the budget draft and the main guidelines of the economic development of the country, priorities of branches of national economy development and administrative – territorial units, provides with methodical recommendations on building up the draft budget and informs about preliminary limits of allocations for their maintenance and execution of target programs.

Prior to 4 months of the beginning of the financial year Ministries and agencies, Boards of specialized target funds, other bodies of state power and management, khyakims of velayats, mayor of Ashgabat submit drafts of summary financial plans and estimates in accordance with the recommendations from the Min. of Economy and Fin.

The Min. of Ec. and Fin. makes an economic assessment and adjusts the submitted drafts of summary financial plans and estimates. The Min of Ec. and Fin. together with the Central

Bank of Turkmenistan and other interested bodies of state management analyzes macroeconomic situation, develops financial strategy for the financial year, estimates real sources of revenues and gives a resolution on all articles of the budget.

Prior to 2 years before the beginning of the financial year The Min. of Ec. and Fin. submits the State budget draft with a notification to the Cabinet of Ministers of Turkmenistan for consideration and informs ministries and agencies, other state power bodies, leaders of velayats and Mayor of Ashgabat of appropriate indices stipulated for them by the State budget draft.

The Cabinet of Ministers of Turkmenistan discusses the State budget draft and submits it to the President of Turkmenistan. Prior to one month of the beginning of the financial year the President of Turkmenistan submits to the Medjlis of Turkmenistan (Parliament) the State budget draft for consideration and adoption.

The submitted State budget draft is accompanied by the notification with evaluation of the prior and current financial years performance and must contain the following materials:

the draft of the Law of Turkmenistan on the State budget of Turkmenistan for the financial year;

report of Minster of Economy and Finances of Turkmenistan on main theses of the draft and economic position of the country;

information on revenues and expenditures of the State budget, centralized budget, local budgets of velayats and the city of Ashgabat;

information on state loans;

summary financial plans of ministries and agencies, specialized targeted funds.

The Medjlis of Turkmenistan is authorized to introduce amendments on cutbacks or increasing of expenditures into the draft only in case the sources of financing are available. The Medjlis of Turkmenistan approves the Law on the State Budget of Turkmenistan for the financial year containing the following items:

total amounts of The State budget revenues and expenditures;

marginal sizes of state internal and external debts and State budget deficit. The State budget deficit can be allowed only in centralized budget;

sources of financing deficit;

total amounts of centralized budget revenues and expenditures with distinguishing the main sources of revenues and directions of expenditures;

payments to centralized budget and allocations from centralized budget to ministries and agencies;

total budget volumes of velayats and Ashgabat and sizes of subsidies and subventions;

standards of allocations from centralized budget to the budgets of velayats and Ashgabat;

list of protected articles when introducing the regime of reducing expenditures;

The Law on the State Budget of Turkmenistan comes into force from the beginning of a fiscal year. If the Law on the State Budget of Turkmenistan for the fiscal year is not approved prior to the beginning of a fiscal year, government and management bodies, local executive and managerial authorities are authorized to spend amounts totaling 1/12 of the previous year volume during every month prior to the adoption of the Law.

After the Law on State Budget for the fiscal year is approved, khyakims of velayats and Ashgabat adopt corresponding decrees on velayats and Ashgabat budgets. The Cabinet of Ministers of Turkmenistan organizes the outturn of the State budget through the Ministry of Economy and Finance, ministries and agencies, other state management bodies, local executive power and local self – governing bodies. The bank services of treasury accounts are provided by authorized banks.

The cash execution of the centralized and local budgets is carried out by the Treasury Department of the Ministry of Economy and Finance, ministries and agencies, local executive and self –  governing bodies. The centralized and local budgets are executed in the order outlined by the Rules and Regulations for budgeting and execution of the State Budget of Turkmenistan.

The budget expenditures are performed by ministries and agencies within the boundaries of norms and limits for every type of expenditures. The balance of unused budget funds for the end of fiscal year is included into the appropriate budget revenues.

During a fiscal year the President of Turkmenistan is authorized to introduce changes into the State Budget of Turkmenistan within the limits of the deficit of the budget approved by the Law. The mayors of the velayats and Ashgabat are authorized to specify the indices of local budgets under the condition of preserving balancing of their revenues and expenditures.

The revenues earned additionally when executing the centralized budget, as well as amounts of exceeding revenues over expenditures formed on the outcome of the fiscal year, are used by the Cabinet of Ministers of Turkmenistan for financing measures on economic and social development.

Revenues earned additionally when executing local budgets, as well as amounts of exceeding revenues over expenditures formed on the outcome of the fiscal year, remain at the disposal of local executive authorities and local self – governing bodies.

In case in the process of centralized budget execution during two years a positive balance is preserved on treasury accounts, then not less than 50% of these funds are directed at withdrawing securities out of circulation or repayment of credits.

The Ministry of Economy and Finance submits for consideration to the Cabinet of Ministers of Turkmenistan overview of the State Budget execution by the 1-st August of every fiscal year.

Budget financed organizations and agencies submit reports on expenditures estimate execution on a quarterly basis in the order fixed by the Rules and Regulations of budgeting and execution of the State Budget of Turkmenistan.

Ministries and agencies submit to the Ministry of Economy and Finance of Turkmenistan summarized accounting and financial reports on a quarterly basis; economic entities with a public form of property and subordinate to the local executive bodies, submit reports on their economic activities to the local economic and financial bodies on a quarterly basis.

Ministry of Economy and Finance of Turkmenistan prepares the report on the State Budget Execution on the outcome of the fiscal year and the report on the results of financial activities of economic entities with a public form of property and by April 30 of the year following after the accounting period of the fiscal year submits them to the Cabinet of Ministers.

The President of Turkmenistan submits the report on the State budget execution for the previous fiscal year to the Medjlis of Turkmenistan a month prior to the beginning of the new fiscal year.

The report on the State budget execution is approved by the Medjlis of Turkmenistan. The mayors of velayats and Ashgabat approve reports on local budget execution accordingly. For the execution of the State budget of Turkmenistan the Ministry of Economy and Finance does the following:

develops Rules and Regulations of budgeting and execution of the State budget of Turkmenistan;

develops and approves the structure and composition of budget classification;

holds accounting of government operations and state plan of accounts of accountancy;

prepares proposals on budget expenditure cutbacks;

elaborates measures on raising the efficiency of budget expenditures

controls the state of treasury accounts of the centralized budget;

introduces in concordance with the Cabinet of Ministers of Turkmenistan the mechanism of expenditure cutbacks in case coming revenues are not sufficient for the expenditure provision of the State budget of Turkmenistan.

For the purpose of efficient public expenditure management under market conditions, along with control and budget management and the size of deficit for the time of budget execution the Treasury Department was set up.

The Treasury Department of the Ministry of Economy and Finance is an independent structural division of the Ministry of Economy and Finance; the main objectives of its activity are: execution of the state budget policy, increasing of the efficiency and operativeness of the

state budget execution, controlling the targeted and economical use of budget funds servicing internal and external debt of the country.

In accordance with the responsibilities laid upon it, the Treasury Department performs the following functions:

provides conducting accounts of central accounting office, Treasury book and state plan of accounts of accountancy

approves terms and forms of submitting monthly and annual reporting on budget execution;

obtains monthly and annual reports on the execution of local budgets of velayats and Ashgabat, together with budgets of ministries and agencies;

processes and analyses information on the condition of the State budget of Turkmenistan, submits reports on the State budget execution to the supreme bodies of state power;

sets up standards for accounting procedures and reporting for centralized and local budgets and off budget funds;

considers proposals on changes in the State budget and registers these changes;

arranges management of public bank deposits, financial funds transfer between the Centralized and local budgets and off budget funds;

manages internal and external assets of the country;

furnishes timely servicing of internal and external debt of the country;

manages potential internal and external debt of the country;

carries out auditing of the State budget execution in ministries, agencies, local executive power and public management bodies, enterprises, organizations, banks irrespective of forms of property and development of proposals on eliminating discovered violations, etc.

Proceeding from the tasks and goals defined in government programs, the policy envisages continuation of the work on budget coverage and expanding its base, restricting budget deficit on the level of tasks set in the area of inflation, further restructuring of the structure of expenditures in the interests of satisfying social needs and investment. Simultaneously it is aimed at enhancing control over public expenditures including financial resources remaining off budget.

The policy concerning the budget revenues is directed at stirring up investment activity, development of small and medium businesses and improving methods of enhancement over financial control of tax collection.

The policy of public expenditures accounts for the package of measures on distinguishing the priority of expenditures, enhancing efficiency and further improvement of their structure. The State budget draft is being formed with the participation of ministries, agencies and local government who present their applications, proposals and grounds to the Ministry of Economy and Finance. The budget coverage is being substantially expanded, its revenue and expenditure parts are being reconsidered.

The State budget draft for 2000 was elaborated on the basis of the draft of the Program “ The Strategy of Social – Economic Reforms for the Period up to 2010” which embodies scientific and theoretical ideas of President of Turkmenistan Niyasov S.A., his practical recommendations on economic restructuring embracing all directions of the life in Turkmenistan.

Proceeding from the goals and objectives envisaged by the draft of the Program, further social – economic development of the country, heightening of the economic reform will be directed at stirring up the process of structural transformations, improving market relations, providing the appropriate standard of living of the population.

One of the most important elements of the economic policy is the fiscal – budget policy. To increase the efficiency of the State budget as the major tool of the macroeconomic management of the country’s economy the following measures are envisaged:

upgrading of normative – legal base in the structure of the budget system in conformity with the international standards;

drawing up the real budget compulsory for execution on the basis of economic analysis of branch programs and balanced development of the economy;

continuation of the work on budget coverage, expanding of its base, restriction of its deficit on the level which would correspond to achieving the goals in the inflation area and simultaneous reconstruction of the expenditure structure for satisfying social needs and investment;

provision of the complete payment receipts into the revenue part of the budget from all organizations – taxpayers, gradual restriction of inter offsets to the minimum, refusal of barter operations in foreign trade and transfer to the operations only with cash for the purpose of increasing receipts to the budget;

creating the efficient system of registration and control on the basis of setting up computer net and database, further development of audit embracing all parameters of economic activity connected with the use of public funds.

The policy concerning the revenue part of the budget will be, on the one hand, carried out not to admit the enhancement of tax burden on enterprises, creating incentives for stirring up the investment activity and development of small and medium businesses, and, on the other hand, to improve methods of heightening the financial control over the tax collection.

The developed State budget draft takes into account the listed approaches, it is consolidated and consists of two main parts:

Tax receipts and other payments into the budget and channelling these funds for financing the budget sphere expenditures. The money from the State funds and complexes formed at the expense of own profits (with tax and budget payments withholding) and directed for the provision of the manufacturing process, support of economic restructuring of branches, investment projects financing.

The mentioned funds are formed and spent by the State funds, ministries and agencies in accordance with the Rules and Regulations on their activities in the State budget. The budget draft has been worked out with the direct participation of ministries, agencies and local government on the basis of the production volume, envisaged for the year of 2000 in the draft of the Program “Strategy of Social –  Economic Reforms in Turkmenistan for the period up to 2010”, along with the prognosis for the budget execution in 1999.

According to the statistics of public finances adopted by the International Monetary Fund, the new Budget classification of Turkmenistan directed at the international comparability of budget data. The new budget structure of Turkmenistan has the following structure:

Classification of revenues of Turkmenistan budgets

The functional classification of Turkmenistan expenditures

Supplement to the functional classification –  classificatory

Three levels of classification structure are adopted in the new classification of the revenues of the Turkmenistan budgets; they are – the main group, the group, the subgroup. The total revenues of the budgets are formed from five categories – current profits, profits from operations with the capital, credit repayments, obtained official transfers and borrowings. Two criteria are used for the classification of expenditures:

Expenditure goals or their functional purpose

Economic characteristics of operations with which these expenditures are incurred. The functional classification of expenditures represents classification by functions or goals for which budget funds are spent and contains four levels of detailed elaboration: the main group, groups, subgroups and targeted articles.

According to the budget classification of Turkmenistan, the State Tax Inspectorate worked out the form of reporting on tax and payments receipts to the State budget of Turkmenistan including the corresponding (centralized and local) budgets.

In line with the data for 2000 in accordance with the approved, and further on adjusted State budget of Turkmenistan the amount of tax receipts to the State budget for 2000 was planned as 5446.6 billion manats. The real tax receipts made up 5848.9 billion manats, i.e. the State budget was executed for 107.4%.

Fiscal transparency is one of the key aspects of good fiscal management and governance, because it requires policy makers to be open about the structure and functions of government, fiscal policy intentions and projections, and the public sectors accounts. Fiscal transparency strengthens accountability and can enhance policy credibility, the benefits of which will be

reflected in lower borrowing costs and stronger support for sound macroeconomic policies by a well-informed public.

At this stage Turkmenistan appears to have a somewhat mixed experience in adhering to the principles of transparency. With regards to the roles and responsibilities within government sector, while there is some clarification of roles between different levels of governments, there is considerably less of a distinction vis-à-vis the government and private sector. The government’s involvement in the economy is considerable and not well defined.

Turkmenistan fiscal authorities publish fiscal execution information through monthly statistical bulletins, and year-end reports are forwarded to the legislature and the auditor within six moths of the year-end. Thus, some deal of public information concerning fiscal activity of the government is made available to the public. However, this information is incomplete in a number of respects. The information on contingent liabilities is not available; the government’s equity participation on private companies is not clearly reported in public statements.