KYRGYZSTAN

Kyrgyzstan is a unitary country. Its Constitution was adopted in 1993 and amended several times (last in 2021). Following the 2010 amendment, Kyrgyzstan’s form of government was changed from presidential to parliamentary. Since 2007, the Supreme Council is the country’s unicameral parliament. A constitutional referendum in 2010 led to an increase in the number of seats to 120. Membership of the parliament is not regulated by regional or local representation criteria. Also, as a result of the 2010 referendum, the president, who is directly elected, may only stay in office for a single six-year term.

The Kyrgyz Republic was one of the first former Soviet countries to set forth a decentralisation initiative. The Constitution recognises local self-governance and the principle of its autonomy. Local self-governance was initially regulated by the 1991 Local Self-Governance Act that gave local councils (keneshes) the authority to oversee local executive bodies. In 1992, the 1991 Act was revised as the Local Self-Government and Local State Administration Act, which further reinforced keneshes’ autonomy. In 1994, the system of local self-governments was introduced in the capital city of Bishkek. In 1996, the government adopted a decree establishing local governments (aiyl okmotus), and in 1999 a decree gave the local self-governments authority to hold budget hearings.

In 2002, the government adopted the National Strategy on Decentralisation (2002–2010) and the parliament adopted a law allowing transfer of control over state property to local self-governments. In 2001, all localities adopted the principles of local self-government. The 1992 Local Self-Government and Local State Administration Act was modified in 2011 into the Local Self-Government Act to outline the operational and legal foundations of local self-governance, as well as the principles of interaction with the national level. A national strategy for administrative and territorial reform was adopted in 2012, followed by a strategy of intergovernmental fiscal relations reform for the period of 2016-2019 which has only been partially implemented.

In 2017 the government highlighted the importance of regional development in the programme “40 Steps to a New Era” stressing that citizens of the regions will receive an equal level of access to guaranteed social services, primarily in education and healthcare. In late 2018, the programme for the development of local self-government for 2018- 2023 was adopted. It includes steps towards a clear allocation of functions between the levels of government and transparent fiscal equalisation. In October 2021, a new Act on Local State Administration and Local Self-Government replaced the former Local Self-Government Act. Besides cities and rural communities, it prescribes the creation of a representative body at the intermediate district level, while district chief executives are still appointed by the upper level of government. It also introduces district-level budgets, which have to be approved by a district representative body.

In 2017 the central government also adopted the regional policy of the Kyrgyz Republic for 2018–2022. The programme aims to narrow the gap between the more prosperous regions and economically deprived regions.

TERRITORIAL ORGANISATION
Municipal Level [1]	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
452 rural communities (айылдык аймак), 18 cities (шаар) of district significance, 12 cities of regional significance, 2 cities of national significance (Bishkek and Osh)
Average municipal size: 13 619 inh.
484			484

[1] Name and number of sub-municipal entities:
1948 айыл /iyl

OVERALL DESCRIPTION: Kyrgyzstan has a single tier of subnational government consisting of different types: elected local self-governments (municipalities) exist in 452 rural communities, 18 cities of district significance, 12 cities of regional significance and 2 cities of national significance, namely Kyrgyzstan’s two largest cities: Bishkek (1 074 100 inhabitants) and Osh (322 200 inhabitants). The first direct elections of local councils were held in 2001, the latest in 2021.

There are two layers of deconcentrated national government units at the subnational level, namely districts (raion) and regions (oblast).

STATE TERRITORIAL ADMINISTRATION: The regional level in Kyrgyzstan comprises seven regions. Those represent deconcentrated territorial bodies of the national government. The regions are managed by a governor (akim) appointed by the national government. Unlike in Tajikistan and Uzbekistan, there are no elected councils at the regional level.

The intermediate level in Kyrgyzstan is comprised of 40 districts (raions). District executive bodies are directly subordinate to the president and the national cabinet of ministers. The chief executive of a district is appointed and dismissed by the president. The Local State Administration and Local Self-Government Act of 2021 introduced representative bodies of government at the district level. These bodies are formed with equal representation as council members from rural communities and cities of district significance which are located within the territory of the respective district. This legal provision is to be enacted starting in 2023. The number of deputies to district councils will vary from 20 to 60 depending on the number of district inhabitants. Also, starting in 2023, districts will adopt and execute their own budgets.

MUNICIPAL LEVEL: Local communities execute their right to local self-government within the administrative territories of cities and rural communities (ayil aymak). For this purpose, two and more rural settlements can be united into one rural community. Local self-government bodies have an executive and a legislative body (council).

Local councils are formed in rural communities and cities upon a direct suffrage for the term of four years. The number of deputies to municipal councils vary from 11 to 45 depending on the number of inhabitants.

In accordance with the Local State Administration and Local Self-Government Act (2021), the members of the municipal representative body have been deprived of the right to elect municipal mayors. From now on, the mayors of Bishkek, Osh and the cities of regional significance are appointed and dismissed by the president. Mayors of cities of district significance as well as the heads of rural communities are appointed and dismissed by the chief executive (akim) of their respective districts. The mayors are appointed for the term of five years.

HORIZONTAL COOPERATION: Both, the former Local Self-Government Act (2011) and the new Local State Administration and Local Self-Government Act (2021) promote inter-municipal collaboration in the area of social, economic and cultural programs and protection of common interests through associations and unions. Still, to date there is no specific regulation for such arrangements. In practice cases of inter-municipal cooperation were not found. However, there exist a number of regional associations of municipalities and the Union of Local Self-Governments at the national level.

Local self-governments’ competences have been initially established by the 2011 Local Self-Government Act and have been slightly modified by the Local State Administration and Local Self-Government Act of 2021. According to legislation, self-government responsibilities or issues of local importance appear to be the same for all kinds of local self-government bodies. They include own responsibilities and responsibilities which can be delegated to local governments by the central government, either by law or bilateral agreements.

The law provides a list of 19 own responsibilities, the major ones concerning the provision of drinking water, libraries, local roads, parks and green areas, street cleaning and lights, recreation and sports, and cemeteries. Delegated responsibilities include marriage regulation, birth and death registration, as well as provision and maintenance of educational and healthcare facilities. Delegation of responsibilities is regulated by a separate Act on Delegation of National Government Responsibilities to Local Self-Government Bodies (2013). They are to be followed by simultaneous provision of adequate targeted transfers from the central government.

However, the legislation does not clearly allocate functions and tasks between the different tiers of government. Moreover, the delegation of responsibilities often appears implicit and masked, and is not followed by adequate transfers.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Municipal level
1. General public services (administration)	Own: Administrative services; Local budget; Public buildings and facilities Delegated: Marriage; Birth; Notary; Particular taxes collection
2. Public order and safety	Own: Assistance to police forces; Domestic violence response
3. Economic affairs / transports	Own: Economic development; Local roads; Parking spaces; Urban transport; Student transport; Local tourism; Delegated: Veterinary and agriculture control
4. Environment protection	Own: Parks and green areas; Street cleaning; Delegated: Environment protection
5. Housing and community amenities	Own: Distribution of drinking water; Water treatment and sewage facilities; Waste management; Cemeteries; Public lighting; Urban and land-use planning; Delegated: Heating provision
6. Health	Delegated: Facilities for hospitals and ambulances (management and maintenance)
7. Culture & Recreation	Own: Local libraries; Cultural events; Folk arts; Recreation areas; Local sports
8. Education	Delegated: Facilities for kindergartens and school buildings (management and maintenance). Bishkek is being delegated this function in full amount.
9. Social Welfare	Own: Social care for children and youth; Support services for families Delegated: Support to low-income families

Scope of fiscal data: All municipal governments -cities of national significance (Bishkek and Osh), cities of regional significance, cities of district significance, and rural settlements-

SNA 2008

Availability of fiscal data: High

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: Initially, local self-government finance was governed by the Financial and Economic Principles of Local Self-Governance Act (2003) which strengthened financial autonomy of local self-governments. However, after 2014, public resources in Kyrgyzstan were highly recentralised at the central government level, as regional and district budgets were eliminated and integrated within the central government budget. In 2017, all regulations regarding local finance and intergovernmental fiscal relations were integrated into the adopted Budget Code (last amended in 2021).

The Budget Code recognises local self-government budgets. District budgets are not yet recognised by the Budget Code (as of December 2021). The Budget Code establishes in general terms the revenue and expenditure of local budgets and provides general regulations of municipal borrowing, debt and deficit. It also establishes the general principles of intergovernmental fiscal relations and transfer allocation. National legislation does not allow the central government to interfere in the budget decisions of local governments, although, de facto, local governments’ revenues and expenditures depend significantly on the central government’s general fiscal policy.

Subnational government expenditure by economic classification
2019	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	189	3.5%	10.8%	100.0%
Inc. current expenditure	148	2.7%	10.1%	77.9%
Compensation of employees	59	1.1%	9.7%	30.9%
Intermediate consumption	62	1.1%	26.3%	32.6%
Social expenditure	5	0.1%	0.9%	2.5%
Subsidies and current transfers	22	0.4%	43.9%	11.4%
Financial charges	1	0.0%	1.9%	0.5%
Others	-	-	-	-
Incl. capital expenditure	42	0.8%	14.5%	22.1%
Capital transfers	-	-	-	-
Direct investment (or GFCF)	42	0.8%	14.5%	22.1%

EXPENDITURE: After 2014, subnational expenditure levels have shrunk considerably as districts and regions were deprived of budgetary rights and their spending started to be counted as national expenditures. They remained relatively stable since then with only a slight increase in 2019. As of FY 2019, subnational government expenditure in Kyrgyzstan represented 10.8% of total public expenditure and 3.5% of GDP. 78% of total expenditure incurred at the subnational level is devoted to current expenditures, mainly for the provision of services and staff expenditures. In practice, the list of own local responsibilities as well as that of delegated powers are being expanded over time, yet this is not matched by an expanded local resource base.

The share of staff expenditures, which constitutes 30.9% of total subnational expenditure, is rather low compared to other Eurasian countries (40% in Uzbekistan and about 60% in Tajikistan). Out of all expenditure items staff expenditure and communal services are considered to be priority spending items, which means that arrears in these payments are unacceptable.

DIRECT INVESTMENT: The share of local government investments corresponds to 14.5% of general government investments and 0.8% of GDP. While the share of GDP has raised only marginally since 2016 (from 0.7%), the share of general government has increased due to reduced central government investment. At the subnational level, capital expenditures represent 22.1% of total expenditures, which is a quite significant figure compared to other Eurasian countries (only Kazakhstan and Tajikistan report higher figures). Local governments invest mostly in reconstruction and renovation of local social and common infrastructure. They invest directly in the construction of school buildings and water-treatment facilities (their delegated functions). Local investments are funded by earmarked transfers from the central government through the local development fund (made up of compulsory contributions from mining enterprises). However, the allocation of investment funds is not transparent and local self-governments are not aware in advance of the amounts of these transfers and, consequently, the scope and purpose of the investments. The central government envisages that local governments will receive a positive financial return on these investments, which would eventually reduce their need for equalisation transfers.

PPP projects at the municipal level are implemented only in Bishkek. One project that is currently operational concerns electronic ticketing in public transport. Several projects are currently under development. They cover municipal car park, construction of kindergartens and construction of a sports complex.

Subnational government expenditure by functional classification
2019	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	189	3.5%	-	100.0%
1. General public services	40	0.7%	7.7%	21.3%
2. Defence	-	-	-	-
3. Security and public order	-	-	-	-
4. Economic affairs/transports	10	0.2%	4.6%	5.4%
5. Environmental protection	-	-	-	-
6. Housing and community amenities	56	1.0%	77.7%	29.4%
7. Health	2	0.0%	1.4%	1.2%
8. Recreation, culture and religion	10	0.2%	25.3%	5.5%
9. Education	63	1.2%	18.0%	33.3%
10. Social protection	6	0.1%	1.2%	3.4%

Education is currently the largest expenditure line by economic function at 33% of subnational government spending. This is a delegated responsibility which includes only maintenance of kindergarten and school premises. Only Bishek is being delegated with the responsibility to pay also wages to teachers. Still, this expense is not funded by earmarked transfer from the central government. Local governments that are financially better-off and do not receive equalisation grants, currently have to provide funding for delegated responsibilities from the shared taxes assigned to them by the central government, following per capita norms established by the central government. To prevent the risk of per capita norms underfunding, the central government is considering centralising all education expenditure in its budget. The second largest item of expenditure is housing and community amenities (29%). Local governments cover about one-third of costs on housing and community services, thus subsidising the tariffs for citizens. The third largest item of expenditure includes general public services (21%). Culture (5.5% of total subnational government spending) and social protection (3%) spending per capita is very low: respectively 10 and 6 dollars PPP per capita in 2019. Municipal governments only provide funding for the management and maintenance of health care facilities and this spending item is also low.

Subnational government revenue by category
2019	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	193	3.5%	10.9%	100.0%
Tax revenue	137	2.5%	12.9%	70.8%
Grants and subsidies	29	0.5%	-	15.0%
Tariffs and fees	13	0.2%	-	6.8%
Income from assets	14	0.3%	-	7.3%
Other revenues	-	-	-	-

OVERALL DESCRIPTION: Subnational government revenue constitutes 10.9% of total public revenue. However, half of this figure is accounted for by the largest cities of Bishkek and Osh. Tax revenue is the most important source of income for local governments; corresponding to 12.9% of public tax revenue and 2.5% of GDP in FY 2019, and accounting for 70.8% of subnational government total revenue. Tariffs, fees and property income play less important roles, accounting only for 6.8% and 7.3% of total subnational government revenues respectively while grants and subsidies account for 15%. Local bodies are nominally independent but rather reliant on central government grants: 6% of cities and more than 80% of rural settlements receive financial assistance in the form of grants, directly from the central government.

TAX REVENUE: Taxes to be retained by local governments are established by the National Tax Code. Most local tax revenue originate from shared taxes. Particular shares of PIT, CIT and the sales tax assigned to each local government are defined by the central government in its yearly budget law. The PIT appears to be the largest tax resource of local governments in FY 2019. It constitutes 48.2% of tax revenues and 34.1% of total revenues, followed by the shares of the CIT, which accounts for 19.1% of tax revenues and 13.5% of total revenues. The third category of shared taxes is the sales tax. Its share in tax revenues constitutes 13.7% and 9.7% of total revenues. The Budget Code prescribes that the rates of shared taxes assigned to municipal governments must be fixed for a period of no less than five years. However, this rule is not enforced in practice. The central government changes the rates of shared taxes yearly in the budget law for the next fiscal year. In these circumstances, local revenues cannot be projected beyond the next fiscal year and this situation annihilates local governments’ fiscal incentives.

The Tax Code identifies the property tax as the only local tax. However, all the parameters of the property tax are established by the Tax Code (objects of taxation, tax base, tax rates etc.). The property tax includes taxes on buildings, agricultural land and vehicles. The share of the property tax is quite significant, making up 9.7% of total revenues and 13.7% of tax revenues.

Local governments cannot introduce new taxes, but can provide tax exemptions. These include full or partial exemptions such as exemptions from property tax for up to three years in cases where the taxpayer has suffered material losses due to “force majeure”, and exemption from property tax for a period of up to 5 years for newly created businesses if they guarantee a turnover of more than KS 30 million (USD 1.7 million PPP) per year. All local governments taxes are collected by the National Tax Service.

GRANTS AND SUBSIDIES: According to the legislation, local governments are eligible for two kinds of grants: equalisation grants and targeted grants. There are also intergovernmental transfers called “mutual settlements” which are in fact the transfers in both directions to offset or balance earlier intergovernmental transactions.

Equalisation grants are aimed at balancing local expenditures and revenues. Since 2011, they have to be calculated based on the per-capita budget capacity of local governments. In 2018, the transfer formula was amended. The new, rather sophisticated formula takes into account the revenue capacity and expenditure needs of a local self-government body and applies adjustment coefficients on the side of expenditure needs using official statistical data. Fiscal equalisation formula is applied separately for cities of regional significance, for cities of district significance and for rural settlements. The equalisation formula guarantees each local self-government the achievement of the average for the group level of per capita budget capacity. At the same time, the central government strategic documents state that the number of subsidised local governments should be reduced.

Targeted transfers are aimed at funding the functions delegated from the central government to local governments, co-financing specific local responsibilities and compensating for additional spending mandates received from the central government. However, these grants are not de facto provided and are not reflected in budgetary reporting. Another kind of targeted transfers are so-called “stimulating grants”, for which local governments apply on a competitive basis to receive additional funds. These grants are used mainly for the renovation of social infrastructure.

The Development Programme of the Kyrgyz Republic for the period 2018-2022 states that central government funds should be redirected from fiscal equalisation to specific investment grants. The draft of the new strategy of intergovernmental fiscal relations until 2025 aims to increase transparency in the allocation of all intergovernmental transfers.

OTHER REVENUE: Other revenues amount to 29% of subnational government revenue. They include property income (USD 14 PPP per capita), tariffs and fees (USD 13 PPP per capita) and other revenue. Put together, they represent 0.5% of the GDP. Tariffs and fees include land-use license fees, waste management fees, pasture lease fees, revenues from paid services, revenues from lotteries, parking fees, hunting fees, fines and penalties. Local governments property income includes profits from locally-owned enterprises and local property lease.

Subnational government fiscal rules and debt
2019	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt	17	0.3%	0.6%	100.0%	-
Financial debt	9	0.2%	0.4%	53.4%	100.0%
Currency and deposits	-	-	-	-	-
Bonds / debt securities	-	-	-	-	-
Loans	9	0.2%	0.4%	53.4%	100.0%
Insurance pensions	-	-	-	-	-
Other accounts payable	8	0.1%	2.5%	46.6%	-

FISCAL RULES: According to the Budget Code, local governments are subject to a balanced-budget rule and current expenditures cannot exceed revenues of the same fiscal year.

DEBT: Local governments are permitted to issue local securities and borrow from the central government (budget loans) for investment purposes, for balancing the current deficit and for refinancing the current debt. They are not allowed to issue guarantees on loans of third parties. Local governments are allowed to borrow (both in the form of securities and budget loans) only in case debt repayment and debt service obligations do not exceed 20% of local annual revenues (excluding grants). All borrowing decisions must be approved by the local council.

Local self-government bodies can also apply for central government loans. These loans are provided by decision of the central government and must be repaid before the end of the fiscal year. However, they are frequently overdue and de facto extended.

The Bishkek city government issued its first municipal bonds in the late 1990s. Since then, Bishkek has been extending its loans by refinancing them and issuing new debt to finance city infrastructure, such as public transport. Currently, the city government is considering issuing "green" and "social" bonds.

TERRITORIAL MANAGEMENT OF THE CRISIS: On 25 January 2020, the government of the Kyrgyz Republic established the Republican strategic headquarters (coordination centre) to combat coronavirus, chaired by the prime minister of the Kyrgyz Republic. The Republican headquarters included authorised representatives of the government of the Kyrgyz Republic in Osh, Batken, Jalal-Abad, Issyk-Kul, Naryn, Talas and Chui regions, as well as the mayors of the cities of Bishkek and Osh. Local state administrations and local self-government bodies are required to promptly provide the necessary information at the request of the Republican strategic headquarters and assist its activities. The activities of the Republican headquarters are supported by two special headquarters for health and socio-economic response measures.

To develop proposals for the implementation of measures and attract external assistance to overcome the impact of COVID-19 on the economy, the government of the Kyrgyz Republic also established expert working groups.

The Response Plan for the Coronavirus Infection entrusts local authorities with the implementation of a number of measures, which are funded by international donors. These include: providing of transport and meals to Republican headquarters activities on site, including activities of the mobile medical brigades; informing citizens; providing food for vulnerable groups of the population; disinfection of healthcare facilities; taking care of quarantined passengers at the international airport (Bishkek), etc.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: Local authorities have undertaken only limited support measures at their own expenses: they managed small amounts of direct assistance to households (distribution of food packages to vulnerable households) and financed some public works (repair of schools, agricultural and irrigation works, water, gas, sewage systems, etc.) In addition, local authorities have asked organisations working with the homeless to open their shelters during the state of emergency for all homeless people, committing themselves to providing food to shelters.

On its end, the central government supported local governments by providing disinfectants for the decontamination of local public facilities and organisations, including schools, social care facilities and municipal institutions as well as essential supplies and first aid care products to help contain localised outbreaks. It also organised training for local government employees in the disinfection of public places.

In addition, the central government imposed specific crisis response obligations on subnational governments which turned out to be unfunded mandates. For example, at the very beginning of the pandemic, the central government made a verbal statement that no household in Kyrgyzstan would be deprived of utility services over the next three months due to non-payment and asked local governments not to impose fines for late payment. Local utility providers have fulfilled this promise at their own cost and have not deprived households of access to utilities.

Finally, the central government has strictly "recommended" that local governments postpone the payment of rents for municipal property by three months from 1 April 2020 and limit the payment of rents or bills for municipal services by companies to 20% of the full amount.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: The unprecedented crisis caused by the COVID-19 pandemic in Kyrgyzstan has led to massive impoverishment and economic recession in the country, which the government has been unable to curb. Kyrgyzstan's real GDP fell by 8.6%, sending the country into the largest economic downturn in Central Asia.

Based on data from the national statistics agency, in 2020, expenditures and revenues of local governments decreased in nominal terms (revenues decreased by 7.3%, expenditures by 6.1%), as well as in percentage of GDP (both revenues and expenditures decreased from 3.5% to 3.4%). Due to the economic slowdown, the largest declines were in revenue from taxes on goods and services (from 10.4% of total revenues in 2019 to 4.7% in 2020) and revenue from the sale of goods and services (from 6.8% to 3.7%). Intergovernmental transfers from the central government decreased very slightly both in nominal terms and as a share of GDP, however their share in total subnational government revenues did not change.

The COVID-19 crisis affected the composition of local current expenses: spending on general public services increased from 18.3 % to 20.6%, while spending on education decreased from 30% to 27.7%. In contrast, current expenses on housing and utilities increased from 16.8% to 19.8% of the total. The coronavirus forced local authorities to cut back on capital expenditure: in nominal terms, this fell by 21.2% from 0.8% to 0.6% of GDP.

ECONOMIC AND SOCIAL STIMULUS PLANS: The central government’s regional policy of the Kyrgyz Republic 2018–2022 was adopted before the pandemic. It is an integrated development programme for targeted regions over the medium to long term. The objective is to develop economically competitive clusters of small and medium-sized enterprises that use locally available raw materials in their regions. The programme aims to narrow the gap between the more prosperous regions of Bishkek, Chui, and Issyk-Kul and other economically deprived regions: Batken, Jalal-Abad, Naryn, Osh, and Talas. 20 regional development centres or growth points have been identified, five or six of which are to be developed initially.

The Russian-Kyrgyz Development Fund and the Guarantee Fund of the Kyrgyz Republic have developed mechanisms to support businesses in the regions. Decentralisation will be pursued. The government will undertake infrastructure development directly and encourage private enterprise, notably in manufacturing, through public–private partnership.