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Fiscal decentralization in the Republic of Tajikistan: Progress made, key considerations, and the way forward Prepared by Paul Bernd Spahn Dushanbe - 2014 Fiscal Fiscal decentralization in the Republic of Tajikistan T The World Bank Table of Content Preface ..................................................................................................... 4 A. Introduction ......................................................................................... 4 B. The structure of the public sector in Tajikistan ......................................... 5 C. Political deconcentration of State powers ................................................. 7 1. Executive and legislative authorities at local levels ................................. 7 2. The assignment of functions to lower tiers of government ..................... 11 a. Expenditure functions .................................................................... 11 b. Revenue functions ......................................................................... 13 c. Equalization .................................................................................. 18 3. Summary of section ......................................................................... 22 D. The budget process: decentralization or deconcentration? ....................... 23 1. The structure of the Republican budget ............................................... 23 4. Public financial management (PFM) .................................................... 26 5. Preparing the budget ........................................................................ 27 a. Revenue forecasting ...................................................................... 27 b. Estimating expenditures ................................................................ 29 6. Budget execution ............................................................................. 31 a. The revenue structure ................................................................... 32 c. The expenditure structure .............................................................. 34 d. Tax “incentives”, subventions, and borrowing ................................... 39 7. Summary of section ......................................................................... 40 E. Key considerations, and the way forward ............................................... 42 1. Premises ......................................................................................... 42 2. Ready for a change of paradigm? ....................................................... 43 3. Intermediate steps toward reformed local governments ........................ 45 4. Summary of section and proposed work program ................................. 53 Appendix 1: Review of the Law on Local Self-Government of Towns and Townships ............................................................................................... 58 Appendix 2: Budget data 2010 and 2011..................................................... 68 2 Tables Table 1: The structure of realized revenues of oblasts, Dushanbe City, and the Region of Republican Subordination, 2011 .................................. 32 Table 2: The structure of realized expenditures of oblasts, Dushanbe City, and the Region of Republican Subordination, 2011 .................................. 34 Table 3: City/district spending by categories in the Region of Republican Subordination, somoni per inhabitant, mean, standard deviation, and variation coefficient, 2011 ............................................................. 38 Table 4: Local expenditures on transportation and communication in percent of total local expenditures, 2011 ............................................ 39 Figures Figure 1: The structure of government in Tajikistan ........................................ 6 Figure 2: Structure of local expenditures deconcentrated by local budgets, 2011 ................................................................................................. 24 Figure 3: Local budgets per capita spending (in TJS), 2011 ........................... 25 Figure 4: Actual tax collections minus projected tax collections of local budgets as percentage of tax projections, 2010 and 2011 ............. 29 Figure 5: The excess of subnational taxes transferred to the Republican budget, 2011 ............................................................ 33 Figure 6: The structure of local expenditures (except housing, utilities and other spending) by subnational entities, 2011 ....................... 35 Figure 7: Local spending by categories and by local entity, somoni per inhabitant, 2011 ................................................................ 36 Figure 8: The relationship between per capita administration costs and population for the entities of the Region of Republican Subordination, 2011 ................................................................................................. 37 Figure 9: City/district spending by categories in the Region of Republican Subordination, somoni per inhabitant, 2011 ........................................... 38 Figure 10: Subventions as a share of total subnational income, 2010 and 2011 ................................................................................... 40 Boxes Box 1: Mahallas ......................................................................................... 7 Box 2: Dual subordination of local executives .............................................. 10 Box 3: The assignment of functions to Polish local governments ..................... 12 Box 4: Taxonomy of local tax autonomy ...................................................... 14 Box 5: On the regional apportionment of VAT .............................................. 17 Box 6: The Swiss approach to equalization .................................................. 21 Fiscal Fiscal decentralization in the Republic of Tajikistan T The World Bank Preface Tajikistan’s National Development Strategy (NDS) for 2007-20151 puts reforms in public administration and public financial management high on the agenda. The important issue of fiscal and interbudgetary relations between levels of gov- ernment is considered to be a prerequisite for an efficient and effective fiscal sys- tem for the country. The Tajik Parliament’s Committee for Economy and Finance has marked a clear interest in undertaking an assessment of the existing reve- nue and expenditure allocation system as well as interbudgetary relations as seen from the standpoint of the European Charter of Local Self-Government (CLSG). The mandate comprises benchmarking the effectiveness of Tajik public finance management, including the role of Parliament in the process, against ex- periences in other countries and the development of proposals for reforms to im- prove Tajik intergovernmental and interbudgetary relations in the short and longer-term. The objective of the present report is to provide (i) an analysis and assessment of the existing system for allocating responsibilities and functions between differ- ent levels of government in the area of budget resource management (revenues and expenditures) as well as an assessment of ongoing government reforms in this area; (ii) a review of inter-budgetary relations and comparisons with best practice in other countries and specific recommendations for improvement; and finally (iii) a detailed plan of reforms for improvement of interbudgetary fiscal relations, including necessary changes in legislation and recommendations for effective collaboration between executive and legislative branches increasing the role of Parliament in interbudgetary relations. This study is based on a number of interviews held in Tajikistan with several rep- resentatives of Tajik public authorities at all levels of government during the week of December 2-7, 2013, as well as on a set of documents provided by the authorities. The author is grateful for the support given to him by his interlocu- tors and by the Secretariat of the Parliament’s Committee for Economy and Fi- nance established under the Program “Strengthening the elements of governance in Tajikistan” of the World Bank in Dushanbe. A. Introduction Intergovernmental fiscal relations are shaped by the existing political and admin- istrative organization of a State, which reflects historic experiences, relative powers and functions of public entities, managerial convenience (and, alas, iner- tia), efficiency considerations, and, last not least, the role of parliaments and the closeness and efficacy of relations between citizens and their governments. Ta- jikistan as a successor State of the Soviet Union still reflects much of her former organizational features despite the various reforms that have been instigated so far. The decentralization model of Tajikistan is still significantly at variance with the “standard decentralization paradigm” (if there is such a thing) as reflected, 1 Republic of Tajikistan, National Development Strategy of the Republic of Tajikistan for the Period Up to 2015, Dushanbe 2007. 4 Fiscal Fiscal decentralization in the Republic of Tajikistan T The World Bank for example, in the principles established in the European Charter of Local Self- Government (CLSG) of the Council or Europe2. Given the perseverance of attitudes as regards the existing set of institutions and rules, governance structures can be changed only slowly and marginally. What is more, reforms that touch upon the basic philosophy of State organization must be futile where the mindset of politicians, administrators,

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