Accrual Budgeting in Kazakhstan


Posted by John Zohrab[1]

From the perspective of fiscal transparency, accrual budgeting (AB) is superior to cash budgeting, because it facilitates the management of the budget in terms of the full resource implications of policies and programs and provides a much wider set of fiscal indicators. A cash budget is managed in terms of cash flows and balances whereas, in addition, an accrual budget takes into account accrued expenses and revenues, as well as the full range of assets, and liabilities and net worth.[2]

However, implementing AB is generally perceived to entail risks and complexities. This is presumably why, starting in 1989, only a handful of countries have so far implemented it in central government: Australia, Austria, Canada, Denmark, Iceland, New Zealand, Switzerland and the United Kingdom. It is also presumably why most countries prefer to stick with cash budgeting. So why is Kazakhstan considering the introduction of AB?[3]

Kazakhstan has given priority to improving public sector transparency and accountability, for which increased fiscal transparency and stronger PFM generally are seen as crucial. The government has decided to improve the efficiency and effectiveness of its expenditure programs by executing more of them via long-term contracts with private sector entities, including PPPs. However, the government is concerned that cash budgeting is an inadequate framework for making decisions on long-term contracts and controlling their execution. They concluded that AB offers a systematic framework for incorporating information on projected accrued expenses, assets and liabilities relating to long-term contracts, as well as for assessing and disclosing their risks.

AB also offers an answer to another problem, which is how to incorporate ex post information on accrued revenues, expenses and assets and liabilities into budgetary decision-making. In recent years, Kazakhstan has modernized its system of financial reporting in the budget sector, following IPSAS principles wherever practical and material. However, whole-of-government financial statements have not yet been produced and the existing consolidated accounts of the central government are missing important elements such as tax revenues, the TSA[4] and pension liabilities, and have not yet been audited according to international standards. This is partly why the accrual financial statements currently being produced by budget agencies are not used systematically or extensively in decision-making.

Kazakhstan is considering implementing AB in two stages: (i) introducing ex ante (projected) accrual financial statements and using them in budget management while retaining the existing cash appropriation system; and (ii) depending on the lessons learned in Stage 1, possibly changing the appropriation system to an accrual basis. One of the reasons for not changing the appropriation system in Stage 1 is to limit the risk of a reduction of expenditure control while officials gain the necessary skills and experience, and the accuracy of the estimates improves. 

The challenges of Stage 1 include:

It is unlikely that Stage 1 could be implemented before 2020, and it could be limited to central government, with the application of AB to local governments being implemented subsequently.

Countries that have not yet introduced AB but which have the potential to do so will be eager to learn from Kazakhstan’s experience. Among the issues of most interest could be:

In interpreting Kazakhstan’s experience, other countries should take into account the government’s strong political will, its commitment to financial discipline, and substantial capacity. AB will not be a suitable PFM reform for other countries in the absence of such high level political support.

[1] IMF Regional PFM Advisor for Central Asia and the Caucasus.

[2] See A. Khan, Accrual Budgeting: Opportunities and Challenges, in M. Cangiano, T. Curristine and M. Lazare (eds.), Public Financial Management and its Emerging Architecture, IMF (2013), pp. 339-359.

[3]Presidential Decree of June 26, 2013 № 590, and the Action Plan for 2014-2020 on the Implementation of the New Budget Policy Concept for the Republic of Kazakhstan, approved by the Government Decree of March 5, 2014 № 179 provide for the transition to AB.  

[4] This is partly because Kazakhstan does not yet have a unified chart of accounts; as result, it is difficult at present to consolidate the Treasury’s balances and flows with those of other budget agencies.

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