RESOLUTION OF THE CABINET OF MINISTERS OF THE KYRGYZ REPUBLIC

of August 21, 2023 No. 417

About modification of the order of the Government of the Kyrgyz Republic "About organizational matters of forming of the project of revenues of the government budget" of August 26, 2015 No. 604

For the purpose of reduction in compliance with presidential decrees of the Kyrgyz Republic "About the Cabinet of Ministers of the Kyrgyz Republic" of May 5, 2021 114, "About structure and structure of the Cabinet of Ministers of the Kyrgyz Republic and structure of Administration of the President of the Kyrgyz Republic" of October 12, 2021 No. 425, and also according to articles 13, of the 17th constitutional Law of the Kyrgyz Republic "About the Cabinet of Ministers of the Kyrgyz Republic" the Cabinet of Ministers of the Kyrgyz Republic decides No.:

1. Bring in the order of the Government of the Kyrgyz Republic "About organizational matters of forming of the project of revenues of the government budget" of August 26, 2015 No. 604 the following changes:

1) in the Technique of forecasting of the income of the government budget approved by the above-stated resolution:

- add item 4 with the subitem 9 of the following content:

"9) the principle of interdependence provides influence of changes in the forecast of one income type on change of forecasts for other income types.";

- in Item 13:

add with subitem 6-1 of the following content:

"6-1) accomplishment of the specification and check of hypotheses due to testing of variables and equations in econometric model;";

in subitem 10 the word "Government" in different cases shall be replaced with words "Cabinet of Ministers" in the corresponding cases;

- add Item 14 with the subitem 12 of the following content:

"12) results of financial programming.";

- add with Item 20-1 of the following content:

"20-1. Instead of the listed methods or in addition to them (for receipt of more exact results) the econometric model of long-term, mid-term and short-term forecasting of budget receipts can be used.

Modeling and forecasting of the income of the government budget and methodology of forecasting of the income of the local budget are performed according to step-by-step managements according to appendices 1, 2 to this Technique.";

- to state paragraph two of Item 32 in the following edition:

"-the acreage on categories represented by Service of land resources under the Ministry of Agriculture of the Kyrgyz Republic and its territorial subdivisions;";

- add with appendices 1, 2 in edition according to appendices 1, 2 to this resolution;

2) according to the procedure of forming of revenues of the government budget, approved by the above-stated resolution:

- in Item 23 shall be replaced with words the word of "Government" "Cabinet of Ministers";

- in appendix to the above-stated Procedure:

in Item 51 "Government" shall be replaced with words the word "Cabinet of Ministers";

Appendix 1 to the above-stated Management to state 3) in the Management on accomplishment of functions of administrators of resources of the budget of the Kyrgyz Republic approved by the above-stated resolution in edition according to appendix 3 to this resolution.

2. This resolution becomes effective after ten days from the date of official publication except for of the regulations regulating other non-tax income established by the legislation of the Kyrgyz Republic which becomes effective since January 1, 2022.

Appendix 1

"Appendix 1

to the Technique of forecasting of the income of the government budget

User's guide to modeling and forecasting of state revenues (central level)

1. General characteristics

1.1. Specification

TZ (result of I.b) determines creation of econometric model for forecasting of the income (short-term, medium-term, long-term) and the database used in model; instructions for use and application of forecasting model of the income (User's guide).

Econometric models determine statistical interrelation which as it is considered, exists between the different economic sizes relating to specific economic event.

The additional information about approach to modeling contains in the analytical report (result of I.a).

1.2. Types of the received models of the income

In TZ two criteria of modeling of the income are also established: (1) the time horizon and (2) the forecasting level used when modeling:

1) the received models carry out distinction between:

- mid-term or long-term forecasting for the purpose of receipt of financing or implementation of mid-term investment projects;

- long-term forecasting (4 years and more) for large-scale investment projects or planning;

2) the Level of forecasting is:

- central budget (republican);

- local budget;

- general level (state) (1).

For the purpose of compliance to above-mentioned criteria two models were developed, is as shown lower in the drawing, on three working files of EViews.

Drawing.

Average and Long-term General level

S-D-srochny Central level

S-D-srochny Local level

The present manual of the user belongs to forecasting of the income at the central level in the medium and/or long term. Other methodology at the local level in the medium and long term is considered in the separate document.

1.3. Tax structure

The offered structure includes all types of tax simulated by means of econometric methods. In the stated below tables the type of tax, source of information and abbreviation for their identification are shown in the working EViews file.

Direct taxes

Type of tax	Information source	Abbreviation in EViews
Income tax	Ministry of Finance	Cit
Other direct taxes	Ministry of Finance	Td_mis
Total direct taxes	Estimated	Td_tot = cit + td_mis

The direct taxes can be found in the following group of data:

Drawing.

Indirect taxes

Type of tax	Source of information	Abbr. in EViews
Excises internal	Ministry of Finance	Exc_d
Excises external	Ministry of Finance	Exc_e_tot = exc_e + exc_eaeu
- Third countries	Ministry of Finance	Exc_e
- EEU	Ministry of Finance	Exc_EAEU
VAT internal	Ministry of Finance	VAT_d
VAT external	Ministry of Finance	Vat_e_tot = vat_e + vat_eaeu
- Third countries	Ministry of Finance	Vat_e
- EEU	Ministry of Finance	Vat_eaeu
Sales tax	Ministry of Finance	Sales
Customs duty	Ministry of Finance	T_im
Other indirect taxes	Ministry of Finance	Ti_mis
Total indirect taxes	Estimated	Ti_tot = exc_d + exc_e_tot + vat_d + vat_e_tot + sales +t_im

The group of temporary rows ti_grp covers all indirect taxes used in modeling.

Drawing.

Grants

The amount of grants usually depends on signed bilateral and/or multi-lateral contracts, negotiations with donors, etc. Traditionally they have no empirical confirmation in historical data, they are not modelled econometrically, and are taken from the Ministry of Finance of the Kyrgyz Republic.

Non-tax income

Non-tax income is modelled in Section 3.3.

1.4. Data

Data are obtained from different sources, in particular from the Ministry of Finance of the Kyrgyz Republic, and also from the national statistics, different bulletins available on the Internet, and from the Mid-term forecast of social and economic development.

Applicability of evaluation methods always should be considered taking into account the available data. In view of short period, structural gaps and data with high frequency the number of possible methods is limited.

For assessment of model annual data for the period are used 2000-2021. Unless otherwise specified, only real data are used. Calculations were made with use of the econometric software of EViews. It is possible to study documentation on necessary procedures and their practical implementation in the training materials attached to this manual of the user.

2. Evaluation methods

Assessment problem

Not stationarity of data represents serious problem of assessment. The world econometric researches in this area can give set of examples of the fact that non-stationary data are, as a rule, unpredictable and do not give in to modeling or forecasting. The results received with use of non-stationary temporary ranks can be false as they can specify interrelation between two variables when one of them does not exist. For receipt of consecutive reliable results non-stationary data need to be transformed to stationary.

Testing for availability of single root

To determine whether temporary ranks are stationary, it is recommended to use testing for availability of single root.

At the same time we can rely on the results received by standard expanded test of Dickie-Fuller (ADF). In general, after execution of the test on stationarity it is possible to receive three probable results:

1) ranks are integrated zero procedure. That is statsionarna on level (without difference);

2) ranks are integrated the first procedure. That is statsionarna after the first difference;

3) ranks are integrated different procedures. That is, have combination of ranks I (0) and I (1).

Time row can be stationary in different procedures, for example, combination of level and stationarity in case of the first or second difference. This combination determines evaluation method.

If all variables are integrated on the first difference, it is necessary to carry out the test for cointegration (the precedent condition for establishment of long-term bonds). There are two options: (i) use of the kointegratsionny test of Johansen or (ii) of Bounds tests (method of boundary values) - offered by Pezaran, Shin and Smith (2001).

On the stated below Scheme 1 possible 5 results of testing for single root (blue color) are shown. Then evaluation methods which should be applied depending on results of testing for single root are offered by brown color.

Scheme 1. Choice of evaluation methods

 

For example, result of testing of single root: "All variable statsionarna at the level" (the first blue rectangle in the second row). This result allows us to use simple regression (OLS) for receipt of long-term interrelations.

The second result is that variable statsionarna at the level or in the first difference. They can be integrated at the level I (0) or in the first difference of I (1). Provided that we will receive this result, it is recommended to use autoregression model with the distributed log (ARDL).

The third option is that all variable statsionarna in the first difference. In this case time row should be tested on cointegration. If the test negative, is offered to start unrestricted model of vector autoregression (VAR). On the other hand, if cointegration is proved by testing, the model of correction of mistakes is the decision. The number of endogenous variables will determine the final decision. If there is only one endogenous variable, it is necessary to use model of correction of mistakes (ESM). However, if it is more endogenous variables, the vector model of correction of mistakes (VECM) is one their possible options.

The fourth opportunity consists that temporary ranks of statsionarna either in the first, or in the second difference. Autoregression models are the proposed solution.

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