Local Government Administration

Local Government Organization and Finance: Kazakhstan 289

From 1999 to 2002,banks and pension funds were the major holders of securities oflocal executive agencies.In 2002,the Ministry ofFinance announced that the government would reduce the level ofborrowing by local authorities.In 2003,in accordance with new regulations,pension funds were advised to limit investments in securities oflocal executive authorities to no more than 5 percent oftheir assets.This change influenced the decrease in the activities oflocal executive agencies related to capital issues.

International rating agencies have awarded investment ratings to all oblasts except East Kazakhstan.The oblasts received ratings that varied between B+ and BBB–.East Kazakhstan was excluded because ofthe strong dependence ofits local budget income on the KazZinc enterprise:a considerable amount oftaxes and payments are received from (ensured by) this enterprise.

On the whole,the government strictly controls the growth oflocal borrowing.The major obstacle to local borrowing is the absence ofreliable medium-term and long-term budget planning at the local level,because of the uncertainty surrounding the government policy concerning the allocation oftaxes between the national and local budgets and the rate ofbudget withdrawals.

In general,local borrowing for capital investments will be expedient only iflocal agencies have actual instruments for managing local budget revenues.

Article 202 ofthe Budget Code prohibits local borrowing from the capital market.Local executive bodies ofthe oblasts and the cities ofAlmaty and Astana can obtain loans from the government ofKazakhstan to finance budget deficits and to cover cash gaps.Rayons that need to borrow to finance a budget deficit,cover a cash gap,or implement an investment project can obtain loans from the oblast authorities.

The Budget Code defines the fundamental rules ofborrowing by local executive bodies and controls the volumes ofborrowing as follows:

The debt limit ofa local executive body may not exceed 25 percent oflocal budget income for the appropriate financial year. The volume ofexpenses in connection with paying offthe debt service of local executive bodies may not exceed 10 percent oflocal budget income for the appropriate year.

Local Government Administration

The Law on Civil Service,which was enacted in 1999,provides for the categorization ofcivil servants into political and administrative employees.4