Kyrgyz Republic: Reassessment Report on the Observance of Standards and Codes (ROSC) Fiscal Transparency Module

This report provides a reassessment of fiscal transparency practices in the Kyrgyz Republic against the requirements of the IMF Code of Good Practices on Fiscal Transparency. It gives a description of practice on the basis of discussions with the authorities and their responses to the fiscal transparency questionnaire. It also provides the details of a staff report on fiscal transparency in the Kyrgyz Republic, and includes an assessment of practices against the Guide on Resource Revenue Transparency.


This report provides a reassessment of fiscal transparency practices in the Kyrgyz Republic against the requirements of the IMF Code of Good Practices on Fiscal Transparency. It gives a description of practice on the basis of discussions with the authorities and their responses to the fiscal transparency questionnaire. It also provides the details of a staff report on fiscal transparency in the Kyrgyz Republic, and includes an assessment of practices against the Guide on Resource Revenue Transparency.

III. IMF Staff Commentary

69. Since the initial fiscal transparency ROSC was published in 2002, the Kyrgyz Republic has undertaken a series of actions leading to improved transparency of fiscal policy and fiscal management. The availability to the public of fiscal information, including on public debt, has strengthened and there is now a formal commitment for more regular publication, including through the announcement of advance release calendars. The Kyrgyz Republic subscribed to the IMF’s SDDS in 2004 and met SDDS requirements in 2006. Most of the extrabudgetary funds and special means have been integrated into the budget. The integration of policy choices into the budget process has improved through the preparation of rolling three-year MTBFs with expanding sectoral coverage. Budget outturns and forecasts for prior and future years are now clearly presented in the budget. Budget presentation has improved with the introduction of a new budget classification based on GSFM 2001. The 2004 Procurement Law provides a legal framework for procurement by government agencies in line with international best practice. The relations between the MoF and the NBKR have been clarified, and there have been efforts to quantify and document the extent of QFAs in the energy sector. Resource revenue transparency has been enhanced through a commitment to implement the EITI.

70. At the same time, there are several areas where further progress in transparency is needed:

  • The definition of government activities is complicated by the use of special means, the creation of a development fund with a mandate to undertake some public policies through transfers from the budget, and the lack of a detailed statement of QFAs in (financial and nonfinancial) areas where the government continues to have substantial involvement. This is exacerbated by a general lack of oversight of state-owned joint stock companies.

  • Transparency in intergovernmental fiscal relations has been affected by lack of a consistent and stable legal framework, while the revenue and expenditure assignments are effectively decided on an annual basis.

  • Coordination of fiscal management could be adversely affected by the transfer of some responsibilities of the MoF to the ministry of economic development and trade.

  • Fiscal reporting lacks comprehensive statements on medium- and long-term fiscal policy objectives, fiscal risks, QFAs, tax expenditures, and financial assets.

  • Transparency in budget execution is undermined by the lack of a clear framework to introduce changes to the budget, differing accounting practices, and weak commitment controls.

  • Internal control and audit practices are still not consistent with international standards.

  • Policy with respect to the pay structure and terms and conditions for employment of government staff is fragmented. Management of personnel and payroll is not integrated, which undermines payroll control and runs the risk of ghost workers.

71. The following are key recommendations to further improve fiscal transparency in the Kyrgyz Republic and help meet the standards of the fiscal transparency code in the areas of clarity of roles and responsibilities, openness of the budget process, and assurances of integrity of fiscal data.

Clarity of roles and responsibilities

  • Clearly demarcate the boundaries between the general government sector and the broader public sector. The Kyrgyz Republic should continue recent efforts to identify the actions of general government and integrate them into the budget, in line with the GFSM 2001. Initiatives like the creation of a development fund could dilute such a demarcation. The proper and comprehensive identification of government functions (i.e., those related to the implementation of public policy through the provision of nonprofit/nonmarket services) helps to establish clear accountability and facilitates assessment of the macroeconomic impact of fiscal policy.

  • Ensure a strong central role by the MoF in fiscal management and fiscal policy formulation. The recent restructuring of the government structure and the reassignment of some key responsibilities away from the MoF run the risk of fragmenting fiscal policy design and of reducing coordination in its implementation.

  • Develop a comprehensive framework for overseeing state-owned joint stock enterprises. The SPC, which has focused more on the design and implementation of privatization programs, should (i) ensure that companies with state equity participation publish audited financial statements consistent with international standards and including auditors’ comments, and (ii) prepare consolidated financial statements and reports on state-owned companies for the government and parliament. This should help to inform policy makers and the public of the extent of the government’s participation in the economy, to identify QFAs undertaken by these enterprises, and to allow for assessment of potential fiscal risks.

  • Elaborate a consolidated legal framework to overcome the inconsistencies and fragmentation that has characterized intergovernmental fiscal relations. Such a framework should lead to a more permanent system for revenue sharing, intergovernmental transfers, and assignment of expenditure responsibilities across different levels of government. This might be a gradual process requiring broad political consensus.

  • Adopt clear virement rules for reallocation of budgetary appropriations from one category to another during the year.

Budget preparation and presentation

  • Enhance the link of the MTBF with the annual republican and social fund budgets by: (i) advancing the timing of preparation and dissemination of macroeconomic forecasts and their underlying assumptions; and (ii) incorporating a consolidated presentation of revenue and expenditure outcomes and forecasts of both the republican and social fund budgets.

  • Strengthen the preparation of the MTBF and the reliability of forward budgetary estimates by detailing the cost of new initiatives and of ongoing government policies, and by improving the costing of government policies and programs.

  • Introduce a functional classification for budget presentation and reporting, and apply the economic classification consistently across all ministries and budget units.

  • Improve budget documentation by: (i) adding a statement on medium-term fiscal policy objectives; (ii) including an assessment of the fiscal risks arising from potential changes in the main macroeconomic assumptions underlying the submitted budget; (iii) detailing contingent liabilities and individual quasi-fiscal operations; (iv) providing an estimate of tax expenditures; (iv) reporting the size and composition of government assets; and (v) including a report assessing the fiscal impact of medium-to long-term policy commitments, such as public pension programs.

Budget execution control, accounting, and reporting

  • Strengthen the expenditure control function by designing and implementing a comprehensive commitment control system through the treasury. Box 6 provides further details about the concept of commitment control.

  • Develop systematized schedules of expenditure payments (at least for major value cash payments to be made in the week ahead) based on the treasury’s financial plan to contribute to the NBKR’s liquidity forecasting system.

The Concept of Commitment Control

Commitment means an obligation to effect a future payment subject to the fulfillment of certain conditions (contractual or otherwise).1 There are two main types of commitments: (i) specific commitments; and (ii) continuing/running commitments. Specific commitments are those that will require a single payment or a definitive series of payments over a determinate period of time. These include contracts for goods and services, or any similar arrangement, and occur when a formal action is taken by a line ministry/agency, such as placing an order for supply of goods and services, issuing a local purchase order, or awarding a contract. Continuing commitments are those that will require a series of payments or settlement actions over an indeterminate period of time, and might not involve a specific contract. These include wages, utilities, scholarships, entitlement payments, and other similar arrangements.

Commitment is the critical stage of the expenditure process. Controlling commitments is essential for controlling expenditure. The key objective of commitment control is to manage the initial incurrence of obligations, rather than the subsequent cash payments, in order to enforce expenditure ceilings and avoid expenditure arrears. To this end, the commitment control system imposes limits on commitments. The limits on commitments can be based on budget appropriations or on cash plans. Ideally, commitments should be regulated by annual budget appropriations. However, this approach proves to be insufficient in preventing the incurrence of arrears, in case of revenue and financing shortfalls. Commitment control based on expenditure ceilings or cash limits reconciles the availability of resources with commitments, thus ensuring that spending units enter only into contracts or other arrangements for which sufficient unencumbered balances are available or are likely to be available at the time of their payments. It is necessary that expenditure ceilings are guided by a well functioning cash management system.

1 Sometimes, what is interpreted as a “commitment” is at best a reservation, that is, the request from a spending unit to put aside an allotment for a future expenditure. This cannot be considered a commitment in accounting terms, because no contract is signed at this stage. Commitments need also to be distinguished from payables that arise at the verification stage when goods have been delivered or the service has been rendered according to the contract and the invoice for payment to the supplier has been received.
  • Introduce an internal audit function in line with accepted international internal auditing standards and integrate this carefully with other public financial management and public administration reforms.

  • Adopt a comprehensive cash accounting system, incorporating an unified chart of accounts (for use by the treasury as well as budget institutions) consistent with the budget classification, in a double-entry based general ledger.

  • Expand the coverage of fiscal reporting by including operations that still remain outside the treasury control, such as foreign-financed development spending, as well as the information on commitments and the outstanding stock of arrears in the context of the preparation of monthly and quarterly budget execution reports.

  • Prepare consolidated annual financial statements within six months of the close of each fiscal year. These should include inter alia full information on the stock of public debt, financial assets, receivables, payables, fixed assets, and contingent liabilities, and should be subject to audit and certification by the COA.

  • Introduce a harmonized framework for regulating the pay structure and terms and conditions of employment of government staff. Integrate personnel and payroll management systems to eliminate the risk of ghost workers.

Assurances of integrity

  • Strengthen the external audit function by upgrading the capacity of the COA staff in modern auditing approaches and techniques and by making available COA reports and findings to the general public.

72. This report includes the first assessment of practices against the Guide on Resource Revenue Transparency in the Kyrgyz Republic.

  • Roles and responsibilities are partially but not completely clear. The Constitution of the Kyrgyz Republic states that subsurface resources are the property of the state. A number of laws and regulations define the legal framework for exploration and development of subsurface resources. The government owns shares in a number of resource companies through state-owned, joint stock companies. Extrabudgetary funds generally are not used. On the other hand, the degree of discretionary authority held by the government in licensing is significant, and the process of tendering is not sufficiently transparent. Legislation does not require full disclosure of resource-related revenue, loan receipts and liabilities, and asset holdings.

  • The budget process generally does not include explicit consideration of resource revenues in budgeting, managing assets, and assessing fiscal risks. This omission may partly stem from the smaller role that resource revenue plays in government financing in the Kyrgyz Republic compared to a number of other countries whose governments are highly dependent on oil and/or mining revenue.

  • There is mixed but growing public availability of information. Resource revenue-related transactions are reported, but only some are clearly identified and described in the budget process and final accounts documents. The Kyrgyz Republic committed to implement the EITI, but implementation progress has been slow.

  • In the area of assurances of integrity, international resource companies comply with internationally accepted standards of accounting, auditing, and publication of accounts; Kyrgyzaltyn does not. With the approval of the government of the Kyrgyz Republic, the NSC reports regularly on revenue flows between international and national companies based on the data of companies and as part of the EITI implementation process. However, it does not reconcile differences between the data of companies and the government, and the information is not audited independently.

73. In the context of these findings, the following recommendations should help improve transparency in this area:

  • Further review the licensing procedures for exploration and development, beyond the clarifications of Decree 336 issued in 2007, to reduce government’s still significant discretionary authority in, for example, granting a license, defining its length, extending an existing license, or converting an exploration license to a production license. Similarly, tendering procedures should be clarified to reduce the degree of government’s discretionary authority. In particular, it would be important to better articulate when a tender needs to occur and to make public the terms of winning offers. In the case of both licenses and tenders, procedures for dispute resolution should be clarified.

  • Prepare and publish comprehensive, audited financial statements consistent with international accounting standards for Kyrgyzaltyn and the other state-owned companies in the resource sector, as part of the overall recommendation that clear monitoring systems be established for managing state-owned companies.

  • Fully implement the EITI. At present, there is only partial implementation—collecting data from both companies and the government, and publishing the information from companies without reconciling any differences with government data. Full implementation of the EITI will require independent reconciliation and auditing of the data.

  • Consider a more systematic integration of resource revenue issues in budget preparation and reporting. Even though resource-related revenues do not yet represent a large share of total government revenue, a case could be made to: (i) introduce an explicit policy statement on management of resource revenues in budget documentation; (ii) identify explicitly resource-related revenue; (iii) include medium-term resource revenue projections; (iv) introduce the (primary) nonresource fiscal balance as an additional fiscal indicator to assess the fiscal stance and help undertake fiscal sustainability analysis; and (v) explicitly discuss the fiscal risks associated with resource revenues.

Appendix I. Resource Revenue Transparency

Clarity of roles and responsibilities

The government’s ownership of resources in the ground is clearly established in the constitution.


1. The 2003 Constitution of the Kyrgyz Republic states that mineral resources are the property of the Kyrgyz Republic. One exception is identified in the 1997 Law of the Kyrgyz Republic on the Subsoil (as amended) which states that minor deposits at the surface may be in communal or private ownership.

2. The power to grant rights to explore, produce, and sell these resources is established in laws, regulations, and procedures that cover all stages of resource development.1 However, the government has a large degree of discretion in licensing, and the tendering process is not as transparent as it should be.

  • Various laws and a number of supplementary regulations define rights and responsibilities in this area, including the Law on the Subsoil, Law on Oil and Gas, Law on Coal, and Law on Agreements on Production Sharing. All these laws have been developed and implemented since the mid-1990s. The Law on Subsoil has been amended three times, most recently in 2006. While generally clear, they are not without ambiguity. For instance, there are inconsistencies in how terms are defined that could cause confusion and misunderstanding in the future.2 Private and public companies, domestic and foreign, are authorized to conduct exploration and production, as long as they are registered in the Kyrgyz Republic. The Kyrgyz Republic retains the priority right to buy precious metals and oil and gas produced within the country. Any international agreement that establishes rules other than those in the Law on Subsoil supersedes this law.

  • The 2003 Investment Law defines terms under which foreign investment occurs and includes the provision that foreign and domestic investors will receive equal treatment. The 2002 Concessions Law defines procedures for granting concessions to foreign investors that generally are more difficult to obtain than the licenses described below, but which also have more limited grounds for termination by the government. The Kumtor mine, described below, operates under a concession.

  • Licensing for subsoil resources is regulated by Decree 336 issued in 2007, which establishes that rights to deposits of national importance, as determined by the government, will be granted through tenders and auctions. For all other properties, most importantly for properties to be prospected and explored, licenses are awarded through direct negotiation with the government. In both cases, the state agency for geology and mineral resources (SAGMR) is responsible for the licensing process. There is no standard investment agreement.

  • The SAGMR has a large degree of discretion in whether to grant a license, in defining its length, and in deciding whether to extend a license. The granting of a license depends on preparation of a work plan approved by the agency. The length of a license for prospecting and exploration is initially for two years with possible extension up to ten years when the work plan established in the license agreement is completed to the satisfaction of the agency. For a development (mining or production) license, the length is determined by the agency. A license is only transferable with approval of the agency. Dispute resolution is defined only in general terms. The rules do not clearly describe the process for converting an exploration license into a production license or the criteria used to determine whether to approve the conversion.

  • The SAGMR administers the tendering process, appointing a separate commission for each tender. The commission, in turn, defines the terms of the tender and invites offers. It reviews the tender offers and selects the winner based on simple majority. The winner is publicly announced, but—significantly—not the terms of the winning bid.

  • The SAGMR is responsible for monitoring and reviewing the activities of mining operations, along with the environmental protection agency and the commission on security (which is responsible for worker health and safety). The agency’s authority relative to regions and local communities is clear, although some regions and local communities would like relatively greater authority.

The government’s policy framework and the legal basis for taxation or production sharing agreements with resource companies are presented to the public clearly and comprehensively.


3. The fiscal regime governing resource extraction is mainly defined by the 1996 General Tax Code, the 1997 Foreign Investment Law, and the Law on Subsoil.3

  • There is no specialized tax regime for the extractive industries. As such, extractive industries are subject to profit tax, revenue-based taxes (including road and emergency fund taxes), and several production and input taxes (including land, withholding, customs, value-added, and contributions to the social fund, which goes toward medical care and pensions). In addition, Decree 198 issued in 1997 defines a charge that companies have to pay for the replenishment of the minerals and raw materials base, which is effectively a royalty based on gross revenues with rates ranging from 2 to 10 percent.4

  • The 2002 Law on Agreement of Production Sharing permits the government to enter into production-sharing agreements with private companies. To date, it has not been used.

  • The main tax incentives and rules that apply to the extractive industries are depreciation, carryover of losses, and tax exemption for dividend income received by legal entities that are resident in the republic. Tax holidays and tax stability (or stabilization) are not part of the general tax system, although they were negotiated in the past for at least one project, the Kumtor mine (see Box 7). Ringfencing exists in the sense that exploration expenditures only within the boundaries of a specific license are deductible expenses.

  • The Kumtor gold mine operates under a fiscal regime linked to the general tax rules, but one that was negotiated directly with the government, and significantly, will become essentially independent of general tax rules if a proposed new agreement is approved. This mine is the largest foreign investment in the Republic. The mine is about to enter its third ownership and operating structure. The renegotiated agreement needs to be approved by the Kyrgyz Parliament, as well as the boards of directors of both Centerra and Cameco.

Fiscal authority over resource-related revenue and borrowing is clearly specified in the law. Legislation does not include a requirement for full disclosure of all resource-related revenue, loan receipts and liabilities, and asset holdings.


4. The state tax inspectorate collects all resource-related revenue. Government participation in the mining sector is mainly channeled through joint stock companies. In principle, shareholders of a joint stock company are not responsible for any obligations of the company, and conversely, the company is not responsible for obligations of its shareholders. However, the government can decide to assume or guarantee debt by those companies. The Law on Joint Stock Companies requires public disclosure of financial statements only when the number of shareholders is more than 500; thus, Kyrgyzaltyn and other fully state-owned mining companies in the Kyrgyz Republic are not legally required to publicly disclose financial information. Joint stock companies are required to prepare audited financial statements and submit them to shareholders and to the Kyrgyz authorities. Although there is no legal requirement for complete transparency of revenue flows and borrowing, the Kyrgyz Republic committed in 2004 to implement the EITI with Resolution 361, On Measures for Mining Sector Activity Transparency Improvement (see paragraph 16).

Kumtor Mine

A major gold deposit was developed in the 1990s with production beginning in 1997 by Kumtor Gold Company, in which Cameco, a Canadian company, had a one-third interest and Kyrgyzaltyn, a Kyrgyz state-owned company, owned the remaining interest. Cameco operated the mine under a master agreement completed with the government in 1992 prior to the enactment of most existing legal and fiscal rules of the Republic. The parties to this agreement were Cameco, the Kyrgyz Republic, and Kyrgyzaltyn. The terms of this agreement were publicized, although it does not appear that the actual agreement is public information. The terms included an initial tax holiday of five years on profit tax.

In December 2003, Cameco and Kyrgyzaltyn announced their agreement to restructure the company so that it became a wholly owned subsidiary of a new company, Centerra Gold, based in Canada and listed on the Toronto Stock Exchange. At present, Cameco owns slightly more than half the shares in Centerra, Kyrgyzaltyn holds about one-sixth of the shares, and public investors worldwide own the remaining shares. The mine operates under an investment agreement the parties to which are Cameco, Kyrgyzaltyn, and Kumtor Gold Company. The main elements of the original master agreement continue in the investment agreement. Although the investment agreement itself does not appear to be public information, Centerra Gold described many of its features in the prospectus associated with the initial public offering of Centerra shares in 2004. In particular, the investment agreement states that Kumtor Gold Company will be subject only to taxes in existence on December 31, 2003. The agreement calls for all gold doré produced at the mine to be sold to Kyrgyzaltyn for refining, based on the price of refined gold on the London Bullion Market. Kyrgyzaltyn receives a management fee for services rendered of US$1.50 per ounce of gold produced, after an initial payment of US$1 million. As part of this restructuring, Kyrgyzaltyn reduced its shareholding in the company and received payment of more than C$100 million.

In August 2007, the Kyrgyz government and Centerra Gold announced that they had reached a new agreement for the Kumtor mine. Negotiations were in response to public concern that the Kyrgyz Republic does not receive sufficient benefits from the mine and to threats in parliament earlier in the year to nationalize the mine. The proposed agreement has three major elements. First, the ownership structure will change so that Kyrgyzaltyn’s share increases to about 30 percent and Cameco’s share falls to about 40 percent. Kyrgyzaltyn will receive its additional shares by means of a free transfer of shares from Cameco, as well as through the issue of additional shares by Centerra, diluting the value of existing shares by about 5 percent. Second, the existing tax regime will be replaced with a simpler scheme consisting of only one type of payment—a tax on gross revenues at rates of 11 percent in 2008, 12 percent in 2009, and 13 percent thereafter. Third, Kumtor’s concession will be enlarged to include prospective areas adjacent to the existing concession area.

While government involvement in the resource sector through equity participation is fully disclosed, the implications are not explained to the public.


5. There are a number of resource-related companies owned totally or in part by the Kyrgyz Republic. Among the more important are: Kyrgyzaltyn, primarily active in gold mining; Khaydarkan Mercury Enterprise; Kyrgyzneftegas, oil and natural gas; Ak-Ulak, coal; and Sulyuktakomur, coal. They are organized as joint stock companies under the Law on Joint Stock Companies. Government ownership is disclosed by the SPC. However, in practice there is no clear monitoring system for state-owned enterprises. Wholly owned joint stock companies, such as Kyrgyzaltyn, are required by the Law on Joint Stock Companies to pay no less than 25 percent of net profits as dividends, unless another arrangement is made with the unanimous approval of shareholders at the annual general meeting.

Ownership structures of national resource companies and their fiscal role vis-à-vis the resource sector ministry and the finance ministry are clearly defined; however, it is not clear the extent to which commercial responsibilities are distinguished from policy, regulatory, and social obligations.


6. As noted in paragraph 5, several important resource companies are organized as joint-stock companies with significant government ownership. Legally, they operate as holding companies and do not have fiscal responsibilities beyond adhering to the tax code and paying dividends at least equal to 25 percent of profits. Legally, the shareholders provide strategic direction and broad oversight of their companies. When the state is the sole shareholder, however, there is room for it to instruct the company to pursue noncommercial objectives. Kyrgyzaltyn has a stated objective of increasing gold output in the Republic.

There are no formal requirements that international or national resource companies undertake social or environmental expenditure or provide subsidies to producers or consumers without explicit budget support from government.


7. In some cases, however, companies undertake such activities, often motivated by either pressure from local communities or the desire to foster good relations with the communities in which they operate. Kumtor Gold Company, for example, has a number of initiatives to support the mine region, including support for local craftsmen, a commitment to purchase agricultural produce locally, and the establishment of a microcredit fund to provide credit to small agricultural and business initiatives. The annual EITI reports noted in paragraph 16 contain data on company expenditures for infrastructure improvements and environmental protection. It is not clear, however, whether these expenditure are voluntary or required by government (or both).

Arrangements to assign or share resource-related revenues between central and subnational levels of government are limited and well defined, but not explicitly linked to resource revenues.


8. The tax code includes an annual transfer of a percentage of profit tax revenues (including resource-related) from central to subnational levels of government. The percentage transferred is determined annually during budget discussions. The tax code does not refer specifically to resource revenues. The Kumtor Gold Company also pays 2 percent of profits to the Issykul Development Fund, administered by local authorities.

Open budget process

The budget framework does not incorporate a policy statement on the rate of exploitation of natural resources or the management of resource revenues, including long-term fiscal sustainability.


9. This partly stems from the fact that, despite the relative importance of mining exports in total exports, mining-related revenue currently represents only some 7-10 percent of total government revenue.

Although extrabudgetary funds for managing resource revenue are generally not used, there are not clear rules as to the accrual of the resources, either to local governments or to an extrabudgetary fund.


10. An example might be the Issykul Development Fund to which Kumtor pays 2 percent of profits. This fund is not administered by the national government, but rather by the local authorities. The proceeds of the sale of Centerra shares in 2004 were put into a special government account. They were to be used to fund priorities in the medium-term national poverty reduction strategy under the budget.

The overall framework for fiscal policy does not explicitly consider resource-related funds.


11. However, examples of resource-related funds are the Issykul Development Fund (see paragraph 10) and the Development Fund (see footnote 6).

The investment policies for assets accumulated through resource revenue savings are not clearly stated, although there are few examples of such savings.


12. One such example is the revenue from sale of Centerra shares. These proceeds are in a special account and do not appear to have been invested. These funds do earn interest.

The treasury publishes monthly revenue reports, which include but do not explicitly separate resource revenues from other revenues.


13. The reports are prepared on a cash accounting basis.

Public availability of information

Most resource revenue-related transactions are reported but only some are clearly identified and described in the budget process and final accounts documents.


14. Profit-tax revenues and dividends from resource-related industries are reported but not separately identified in the draft budget or final accounts. Taxes on the subsoil (the charge for replenishment of the minerals and the raw materials base) are reflected separately in budget execution documents but not in the draft budget, where they are included but not shown separately. Almost none of these receipts are earmarked, and thus they do not appear in isolation in expenditure accounts. The exception is proceeds from Centerra shares, which are set aside for the centralized fund for poverty reduction. The annual budget law states the amount to be withdrawn from this fund, as well as the projects these moneys will fund. Government-guaranteed debt is presented along with debt from other sectors on the website of the MoF; it is not reported in the budget process and final accounts documents.

Reports on government receipts of company resource revenue payments are only partially made public as part of the government budget and accounting process.


15. Government receipts of profits and other general taxes are published in aggregated form (that is, receipts from resource companies are not presented separately). The mineral-specific charge that mining companies pay (described above in paragraph 3) is published separately.

16. Although the Kyrgyz Republic committed to implement the EITI, implementation has been only partial and delayed by changes in government.5 To date, the Republic has: appointed an implementation committee (government officials) and an advisory council (comprising representatives from government, industry, civil society, and international organizations); agreed on a template for data collection and identified the six large companies from which data are to be collected; appointed the NSC to collect data from both companies and government; and collected and published some data for 2004, 2005, and 2006 ( These actions fall short of full implementation in that the NSC is a governmental entity, although it is independent of any ministry; there has been no reconciliation of differences between company and government data; the NSC has published only the company data with a footnote that these data are subject to change once they have been reconciled and audited; and there has been no independent audit of the data.

The (primary) non-resource fiscal balance is not presented in budget documents as an indicator of the macroeconomic impact and sustainability of fiscal policy, in addition to the overall balance and other relevant fiscal indicators.


17. As discussed above, this is partly because of the low incidence of mining-related revenue on total government revenue.

Government reporting formats do not make provision for collateralized resource-revenue borrowing.


18. Government debt reports do not include a US$4.4 million loan reported in Centerra’s financial statements.6 On the other hand, government reports do indicate that the government is guaranteeing a loan to Kyrgyzaltyn by a foreign bank.

Financial assets held by the government domestically or abroad as a result of resource-related savings are not fully disclosed in government financial statements.

19. There is no proper disclosure of government’s financial assets, whether or not these assets result from resource-related saving. As for state-owned joint stock companies, there are no comprehensive statements of their financial assets.

Estimates of resource asset worth based on probable production streams, clearly disclosing assumptions, are not prepared as a basis for fiscal policy.


20. The state geology agency is the government entity in charge of estimating reserves. However, the government does not include estimates of resource asset worth in budget documentation or in its financial statements.

Government contingent liabilities and the cost of resource company quasi-fiscal activities arising from resource-related contracts are not reported in budget accounts or other relevant documents in a form that helps assess fiscal risks and the full extent of fiscal activity.


21. Government reports suggest that there are no loans to state-owned mining companies guaranteed by the government, other than the loan to Kyrgyzaltyn guaranteed by the government noted above in paragraph 18. Government reporting formats do not make provision for collateralized resource-revenue borrowing. The annual EITI reports noted in paragraph 16 contain data on company expenditures for infrastructure improvements and environmental protection; there is no explanation, however, of whether these expenditures are voluntary or required by government (or both).

Risks associated with resource revenue, particularly price risks and contingent liabilities, are not explicitly considered in annual budget documents.


22. As noted in paragraph 34 of the main ROSC text, budget documents do not include sensitivity analysis of budget estimates to changes in the underlying assumptions and do not contain information on fiscal risks.

Assurances of integrity

The internal audit function in government generally is yet to be fully developed, although some progress has been made.


23. See paragraph 39 of the main ROSC text.

Tax administration is conducted in a way to ensure that resource companies understand their obligations, entitlements, and rights.


24. The large taxpayer unit, with which most mining enterprises interact, was established several years ago and is working to enhance its effectiveness. On a specific issue, the price Kyrgyzaltyn pays for Kumtor gold doré, which is not priced on a (transparent) world commodity exchange, is nevertheless based on the London Bullion Association price for refined gold.

International resource companies comply fully with internationally accepted standards for accounting, auditing, and publication of accounts. Kyrgyzaltyn does not comply fully with internationally accepted standards. Centerra Gold, which operates the Kumtor mine, fully complies with international standards.


25. In its 2006 Annual Report (, the accounting firm KPMG found that Centerra was in compliance with Canadian generally accepted accounting principles. It audited Centerra’s consolidated balance sheets and consolidated statements of earnings, retained earnings and cash flow. In addition, Centerra presented operating results and reserve and resource estimates for its wholly owned subsidiary Kumtor Gold Company. By contrast, Kyrgyzaltyn is not required by the Law on Joint Stock Companies to publish accounts for public viewing. On July 13, 2007, however, it did publish brief financial statements for calendar years 2005 and 2006 on the business page of the local newspaper Slovokyrgyzstana. The statements included a balance sheet and an income statement, audited by the local firm Hitech Audit Company, which concluded that Kyrgyzaltyn is “in compliance with International Standards of Financial Reporting.” The statement did not include full financial accounts or the auditing comments of the audit firm. The Law on Joint Stock Companies does not give specific instructions on how an auditor is to be selected, and there is no comprehensive monitoring framework on state-owned companies by the SPC.

The NSC reports regularly on the revenue flows and other substantial payments between international and national companies and the government under EITI monitoring, but not on any discrepancies between different sets of data on these flows.


26. Estimates of resource revenues received by government have been published for 2004, 2005, and 2006, under the EITI. At present, the NSC collects information from statistical reports of companies and the government, but does not reconcile any differences between different sets of data as the NSC lacks clear guidelines to compare them. It publishes only the data on resource revenues submitted by the companies.

Appendix II. Summary of Key Findings from Past Fiscal Transparency Assessments

A. 2002 Full ROSC


  • Important steps taken to improve fiscal transparency in recent years, particularly in the area of budget preparation and execution.

  • Internationally accepted standards of general government used as a basis for defining fiscal activities. However, there are difficulties in delineating private and public activities in practice.

  • The fiscal relations between different levels of government are still emerging.

  • Fiscal management is defined by a legal framework that is relatively complete.

  • The public availability of past, current, and projected fiscal activity of the government is limited. Information on public debt is not systematically published.

  • The annual budget document is rudimentary and with limited coverage.

  • Some problems with treasury reporting and expenditure control remain.


  • The role and responsibilities within government and between government and the rest of the economy need to be further clarified.

  • QFAs need to be identified comprehensively and reported as part of government activity.

  • A review of budget documentation should be initiated, with a view of more systematically and comprehensively presenting fiscal information in budget documents that are provided to the parliament for the budget discussion.

  • Annexes covering contingent liabilities, tax expenditures, and QFAs should be provided as part of the budget documents.

  • A comprehensive presentation of forecasting assumptions and fiscal risks should be provided in the budget supporting documents.

  • A mid-term budget review should be undertaken and a mid-year budget report should be presented to parliament within three months of the mid-year.

  • Regular reporting standards should be established covering original and revised budget estimates for revenue, expenditure, and financing.

  • The coverage and presentation of fiscal information available to the public should be improved. The public should be provided with full information on the past, current, and projected fiscal activities. Much of it could be done in the short-term since a sizable amount of information is already available at the MoF, but not published.

  • Fiscal data should better meet accepted data quality standards and independent scrutiny of fiscal data needs to be improved.

B. November 2004 ROSC Update

  • The authorities have regularized financial relations between the NBKR and the MoF based on a decree that took effect in June 2002. A scheme to restructure NBKR-held government bonds was developed, under which both government deposits at NBKR and NBKR claims on government carry positive interest rates.

  • A new regulation expected to take effect in late 2004 would require that license fees, fines, penalties and other obligatory payments received by ministries and government agencies (“special means”) are transferred to the budget and be processed directly through the treasury system and credited to the single treasury account. Since 2002, the central treasury holds a separate account at NBKR (and transit accounts at agent banks for the regional offices of the treasury) for “special means” that are not yet credited to the Treasury Single Account to manage operations under “special means.”

  • Four large extrabudgetary funds are gradually integrated into the treasury system, following the government action plan approved in June 2004.

  • Pending the full automation of the treasury system, the cash forecasting function of the treasury has been improved. A cash forecasting unit was created within the central treasury in 2003.

  • Significant improvements were made by the government in the publication of fiscal information. A monthly budget implementation report is available on the MoF website. The NSC subsequently publishes this information in its monthly statistical bulletin. The quarterly bulletin published monthly by the MoF since 2003 discusses issues related to budget preparation and execution and includes information on government debt.

  • The budget planning process has improved significantly with the annual publication, beginning in 2003, of rolling three-year MTBFs.

  • Little progress has been made to improve the reporting of the government QFAs. Publication of the electricity sector quasi-fiscal deficit in the MoF quarterly bulletin is a welcome exception.


At the time this assessment was prepared, a broad-based group of business leaders and government officials was working to prepare a proposal for reforming mining legislation and regulation in the Kyrgyz Republic with the aim of clarifying roles and responsibilities of the various parties and improving the functioning of activity in the mining sector.


In places, these laws refer to terms and practices that were part of the legal and operating environment during Soviet times—for example, the Soviet system of reserve classification, the need for the government to evaluate the economic feasibility of a project prior to issuing a license, and the requirement that a deposit be exploited optimally in a technical rather than in an economic sense.


At the time this report was written, there were discussions and proposals to revise the tax code.


This mineral and raw materials tax is not earmarked for any particular use, despite the reference to “replenishment” in its name.


Full EITI implementation requires most importantly that: (i) companies and government both submit information on resource-revenue payments and receipts to an independent third party, (ii) the third party reconciles any differences between the two sets of data to international audit standards, and (iii) the third party publishes and discusses the data, including any discrepancies between company and government data.


In December 2006, Centerra agreed to loan (interest free) the Kyrgyz Republic C$4.4 million to help the government make payments “to assist the government in fulfilling its responsibilities” in compensating members of local communities. C$3 million was disbursed in 2006, with the remainder to be loaned in 2007. C$2.2 million is repayable in 2010, with the remaining C$1.4 forgivable in 2012 if there is no default. The loan is secured with Centerra shares owned by Kyrgyzaltyn.