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: / Strategies / Comprehensive Development Framework for the Kyrgyz Republic (2001)




Kyrgyzstan Review, 10 years ago




6. FINANCIAL RESOURCES

Financial resources for implementing the CDF strategy must be provided largely through the country's own economic potential (such as the state budget resources and private investment from domestic private savings), as well as from external sources of finance (foreign direct investment, investment within the PIP, program loans, grants and humanitarian aid).
During the projected period the state budget revenue will increase (see chapter 5) - the result of the broader and more efficient tax base and non-tax revenue (e.g., from privatization) thus strengthening the resource base of CDF. Taxes will continue to play the most important role for the state budget.
The public sector will continue to attach importance to external borrowing, the level of which, however, will need to be considerably reduced due to a critical situation of the external debt. This will lead to reduction of the budget deficit. In light of this, active efforts will be made in order to find and promote soft loans, grants and humanitarian aid. NGOs will be involved to the maximum extent and their role in use of grants and humanitarian aid will expand while the participation of the state will decline. As a result, the share of grants and humanitarian aid, accounted in revenues of the state budget and used for current expenses of the state will be reduced from 1,0 per cent of GDP in 2000 down to 0,2 per cent of GDP in 2010. (see Table 2).
Domestic private savings and foreign direct investments will serve as one of the main sources of funding for CDF. Active promotion of FDI to the extent required for the economy must provide a substitution for relative reduction of the state investments.
CDF financial resources will be distributed through the current state budget, development budget and private investments.
 
Current state budget. Program based budgeting will provide for rational planning and spending of resources to finance the priority CDF areas.  
As a result of the state governance reform and subsequent improvement of its efficiency, public expenditures for institutional development woud decrease from 2.9 per cent of GDP in 2000 to 0.9 per cent of GDP in 2010.
Considering the key role human development plays in the CDF strategy, the state will increase the volume of financing allocated to the social sector from 7.3 per cent of GDP in 2000 to 10.3 per cent of GDP in 2010.
Due to the growing role of the private sector in the economy, state budget expenditures for development of production infrastructure will be reduced from 1.0% of GDP reaching 0.9 of GDP in 2010.
While the share of expenses for secure development will reduce from 2.7 per cent of the GDP in 2000 to 1.6 per cent in 2010, environmental expenditures will continue to increase.
The state budget makes provisions to finance activities designed to promote development of the regions through implementation of regional programs. These arrangements will provide for development of material and technical foundation of the real sector, social sphere and regional infrastructure, thus ensuring their gradual shift to self-financing.
As a result of improvement of the foreign debt management, share of the state budget expenditures allocated for payment of interest on foreign debt will decline from 1.8 per cent of GDP in 2000 to 1.1 per cent in 2010.
 
Development budget (PIP). Decrease in the volume of public investment (see Chapter 5) would call for, and simultaneously be the result of, greater efficiency in the selection of public sector projects. PIP is expected to be oriented to support only strategically important social and productive infrastructure.
Public sector investment will continue to be financed largely from official concessional external borrowing. Projections based on the CDF strategy indicate that official borrowing abroad will represent about 2.9 per cent of GDP by the year 2010 compared to 6.9 per cent in 2000.
Public investment will be aimed at institutional and social development and economic growth.
PIP projects that meet these tests would then be prioritized according to the following key criteria:
compliance of projects objectives with the objectives of the CDF;
strategic importance of the project;
inter-linkages with other projects;
internal rate of return not less than 12% and rate of economic return not less than 10%;
simplicity of implementation;
environmental considerations;
low investment risk.
 
 
Table 2. FUNDING SOURCES UNDER THE CDF
(% of GDP)
 
2000
2001
2004
2007
2010
 
I. Total State Budget Expenditures 
16.5 
17.7 
16.8 
17.2 
16.8 
 
Of which: 
 
 
 
 
 
 
For institutional development
2.9
2.3
1.2
1.1
0.9
 
For social development
7.3
7.7
8.6
10.1
10.3
 
For economic development
1.0
1.3
1.2
1.0
0.9
 
For development security
2.7
2.0
1.5
1.5
1.6
 
Payment of interests on external debt
1.8
2.3
2.5
1.6
1.1
 
Other
0.9
1.9
1.9
1.9
2.0
 
To be financed from: 
 
 
 
 
 
 
Domestic sources
15.6
16.0
15.7
16.6
16.6
 
- Taxes
11.6
12.7
13.8
14.1
14.5
 
- Others (incl. Domestic borrowings)
4.1
3.3
2.0
2.5
2.0
 
Foreign sources (grants)
1.0
1.8
1.0
0.6
0.2
 
II. Development budget (PIP) 
8.5 
7.0 
4.2 
3.1 
3.5 
 
Of which: 
 
 
 
 
 
 
For institutional development
0.1
0.3
0.1
0.1
0.1
 
For social development
0.4
0.8
0.9
0.9
1.4
 
For economic development
7.6
5.5
3.2
2.1
2.0
 
For development security
0.4
0.4
0.03
0.04
0.03
 
To be financed from: 
 
 
 
 
 
 
Domestic sources
1.6
1.0
0.3
0.2
0.6
 
- Taxes
0.9
0.6
0.2
0.1
0.4
 
- Domestic borrowing
0.7
0.4
0.1
0.0
0.1
 
Foreign sources(1)
6.9
6.0
3.9
2.9
2.9
 
III. Total Private Investments
7.5 
9.7 
14.4 
15.9 
16.7 
 
To be financed from: 
 
 
 
 
 
 
Domestic private savings
5.3
5.1
9.4
11.4
12.8
 
Foreign direct investment
2.2
4.6
5.0
4.5
3.9
 
 
 
 
 
 
 
 
Total 
32.5 
34.4 
35.4 
36.2 
37.0 
 
 
Private investments. The growing volume of private investment (from 7.5 per cent of GDP in 2000 to 16.7 per cent in 2010) will be directed mainly at economic and social development. For the most part, these will be financed through the foreign direct investments.


(1) Net official borrowing.