Strategies For Program-Based Budgeting and Sustainable Regional Development in Kyrgyz Republic English

2016/17 Knowledge Sharing Program
with Kyrgyz Republic:

Strategies for Program-based Budgeting
and Sustainable Regional Development
in Kyrgyz Republic
2016/17 Knowledge Sharing Program with Kyrgyz Republic
2016/17 Knowledge Sharing Program with Kyrgyz Republic
Project Title Strategies for Program-based Budgeting and Sustainable Regional Development in Kyrgyz Republic
Prepared by Korea Institute for Development Strategy (KDS)
Supported by Ministry of Strategy and Finance (MOSF), Republic of Korea

Korea Development Institute (KDI)
Prepared for The Government of the Kyrgyz Republic
In Cooperation with Ministry of Economy, Kyrgyz Republic (MOE)

Ministry of Finance, Kyrgyz Republic (MOF)
National Institute for Strategic Studies, Kyrgyz Republic (NISS)
Program Directors Kwangeon Sul, Executive Director, Center for International Development (CID), KDI
Siwook Lee, Professor of KDI School of Public Policy and Management, Former Executive Director,
CID, KDI
Project Manager Kyong Doug Kwon, Division of Policy Consultation, CID, KDI
Chief Project Officer Kyung-bae Park, Vice President, KDS
Project Officers Sujin Park, Senior Research Associate, Division of Policy Consultation, CID, KDI
Hyejin Kim, Team Manager, Global Capacity Development Center, KDS
Sung-Eun Hong, Program Officer, Global Capacity Development Center, KDS
Seunghee Kim, Program Officer, Global Capacity Development Center, KDS
Hye-jung Kim, Program Officer, Global Capacity Development Center, KDS
Senior Advisor Yangho Ahn, Former Vice Minister, Ministry of Public Administration and Security, Republic of Korea
Principal Investigator Wonhee Lee, Professor, Hankyong National University
Authors Chapter 1. Wonhee Lee, Professor, Hankyong National University

Seung-won Yu, Professor, Korean National Police University
Nurida Baizakova, Head of Program Budgeting Sector of Budget Department, MOF
Aibek
‌ Kadyrov, Head of Strategic Planning and Sustainable and Regional Development,
MOE
Chapter 2. Seung Yong Rho, Professor, Seoul Women’s University
Ki-Deok Shin, Vice President, KDS
Azamat Dikambaev, Director, NISS
Nuradil Baidoletov, Head of Antimonopoly Policy and Development of Public Service
Department, MOE
English Editor Enago
Government Publications Registration Number 11-1051000-000793-01

ISBN 9 79-11-5932-252-5 94320
979-11-5932-227-3 (set)
Copyright ⓒ 2017 by Ministry of Strategy and Finance, Republic of Korea
Government Publications
Registration Number
11-1051000-000793-01
2016/17 Knowledge Sharing Program

with Kyrgyz Republic:
Strategies for Program-based Budgeting
and Sustainable Regional Development
in Kyrgyz Republic
The main purpose of the Knowledge Sharing Program (KSP) is to contribute to the social
and economic development of partner countries through the sharing of experiences of
Korea’s development. The KSP was first introduced in 2004 by the Ministry of Strategy and
Finance (MOSF) of the Republic Korea and is managed by the Korea Development Institute
(KDI).
The Kyrgyz Republic has been admitted as a new partner country to the KSP project since
2014 as the Ministry of Economy (MOE) of the Kyrgyz Republic and the Academy of Public
Administration under the President of the Kyrgyz Republic (APAPKR) officially requested
the Korean government for advice. In 2015, continuously the Kyrgyz Republic has requested
the KSP to the Korean government with the following two aims: i) Reinforcement of policy
effectiveness in Human Resource Management (HRM), ii) Implementation of Monitoring
& Evaluation (M&E) of foreign aid projects. This was coordinated by the MOE with the
involvement of State Personnel Service (SPS), APAPKR and Ministry of Finance (MOF) of the
Kyrgyz Republic.
In 2016, the Kyrgyz Republic requested following topics to the Korean government
through the Embassy of Korea in the Kyrgyz Republic: i) Strategies for Program-based
Budgeting; ii) Strategies for Sustainable Regional Development. In response to the request,
the KDI under the supervision of the MOSF of Korea, designated Korea Institute for
Development Strategy (KDS) as the implementing agency for the project in September 2016.
These topics were accepted and the project was proceeded by a systematic process proposed
by the KDI as follows: i) implementation of Kick-off Seminar and Pilot Study in October-
November of 2016 to start the project and to confirm the counterpart; ii) conduct of a Local
Reporting Workshop and Additional Pilot Study in January of 2017; iii) holding an Interim
Reporting and Policy Practitioners’ Workshop for sharing of co-research output conducted by
both countries in February of 2017; iv) having a Final Reporting Workshop and Senior Policy
Dialogue at Bishkek to finalize the project and discuss its effectiveness in April of 2017.
Over the course of the projects, there have been great contributions from highly
dedicated Local Consultants. Furthermore, the MOE and the MOF of the Kyrgyz Republic
have continued its active participation in the KSP. We hope that the research carried out
through this KSP will contribute to the socio-economic development of the Kyrgyz Republic
and promote mutual friendship between the two countries.
I extend my sincere gratitude to the principal investigator (PI), Wonhee Lee, as well as to
the researchers, and staff of KDS for producing an outstanding report. I also thank Yangho
Ahn, Civil Member of Committee for International Development Cooperation, for sharing
his knowledge and experience despite his busy schedule. I also thank Byeong-hoo Jung, the
Ambassador to the Kyrgyz Republic, and the embassy staff for helping Korean researchers
fully utilize their abilities in the Kyrgyz Republic.
To conclude, the contents of this report are the opinions of experts who have participated
in the program and do not necessarily reflect the official views of the KDS.
Seung-hun Chun
President
KDS
2016/17 KSP with Kyrgyz Republic·········································································································· 010
Executive Summary ·································································································································· 015
Chapter 1
Strategies for Program-based Budgeting in the Kyrgyz Republic
Summary··················································································································································· 020
1. Introduction··································································································································· 022
1.1. Background of Research··································································································· 022
1.2. Research Design················································································································· 023
1.3. Organization of the Paper································································································ 025
2. Current Policy Issues in the Kyrgyz Republic··············································································· 025
2.1. Public Financial Management System·············································································· 025
2.2. Introduction of Program Budgeting in the Kyrgyz Republic········································· 037
2.3. Challenges of Program Budgeting in the Kyrgyz Republic············································ 042
3. Korean Experiences on the Program-based Budget ·································································· 044
3.1. Overview of Korean Program Budgeting········································································ 044
3.2. Evaluation of and Policy Implications from Korean Experiences··································· 046
4. Implications of the Comparative Analysis··················································································· 050
4.1. Comparison························································································································ 050
4.2. Implication························································································································· 058
5. Conclusions and Policy Recommendations·················································································· 061
5.1. Policy Suggestion··············································································································· 061
5.2. Road Map for Recommendation······················································································ 064
5.3. Follow-up Plans ················································································································· 065
References················································································································································· 066
Appendix··················································································································································· 067
Chapter 2
Strategies for Sustainable Regional Development
Summary··················································································································································· 080
1. Introduction··································································································································· 081
2. Korean Experience of Sustainable Development ······································································· 083
2.1. History of Sustainable Regional Development in Korea················································ 083
2.2. Governance for Sustainable Regional Development in Korea······································ 087
2.3. Laws and Institutions of Sustainable Development in Korea········································ 087
2.4. Strategic Plans for Sustainable Regional Development················································· 088
2.5. Implications of Korean Experiences················································································· 091
3. Analysis of Sustainable Development in the Kyrgyz Republic ·················································· 092
3.1. History of Sustainable Regional Development in the Kyrgyz Republic························ 092
3.2. Governance of Sustainable Regional Development in the Kyrgyz Republic················ 094
3.3.
Laws and Institutions of Sustainable Regional Development in the Kyrgyz Republic··· 096
3.4. Strategic Plans for Sustainable Regional Development in the Kyrgyz Republic··········· 099
3.5. Implications of Analysis of Sustainable Regional Development in the Kyrgyz Republic·· 108
4. Policy Recommendations for Improving Sustainable Regional Development························· 109
4.1. New Governance for Sustainable Regional Development············································· 109
4.2. Laws and Institutions for Sustainable Regional Development······································ 111
4.3. Policy Actions for Sustainable Regional Development··················································· 112
4.4. Linkage between Strategies and Budget········································································ 123
4.5. Limitations of Policy Actions and Alternatives································································ 126
References················································································································································· 128
Appendix··················································································································································· 129
Chapter 1
<Table 1-1> Budget Schedule of the Kyrgyz Republic······································································ 026
<Table 1-2> Structure of Public External Debt of the Kyrgyz Republic··········································· 031
<Table 1-3> Expenditures by Functional Classification during 2006–2016 ····································· 034
<Table 1-4> Example of Economic Classification ·············································································· 036
<Table 1-5> Comparison between the Kyrgyz and Korean System of Program Budget··············· 058
<Table 1-6> Road Map for Recommendation··················································································· 064
Chapter 2
<Table 2-1> The Korean Development Strategy (1960–2013)·························································· 085
<Table 2-2> Evolution of Policies for Regional Development in Korea·········································· 090
<Table 2-3> Agenda for Sustainable Regional Development in the Kyrgyz Republic··················· 113
<Table 2-4> Basic Strategic Framework for Five Growth Poles························································ 116
C
Executive Summary 1
[Figure 1] Issues with the Agenda to be Analyzed·········································································· 017
[Figure 2] Logical Framework for Analysis ······················································································· 018
[Figure 3] Organization of Report····································································································· 018
Chapter 1
[Figure 1-1] Issues with Program Budget during the Budgetary Process··········································· 024
[Figure 1-2] Issues to be Analyzed········································································································ 024
[Figure 1-3] Logical Framework for Analysis ······················································································· 025
[Figure 1-4] Government Budget of the Kyrgyz Republic·································································· 030
[Figure 1-5] Public Debt of the Kyrgyz Republic (1992–2014)···························································· 033
[Figure 1-6] Example of Functional Classification················································································ 034
[Figure 1-7] Budget Expenditures for 2015 by Functional Classification··········································· 035
[Figure 1-8] Development of Program-based Budgeting in the Kyrgyz Republic···························· 038
[Figure 1-9] Structure of Program Classification·················································································· 040
[Figure 1-10] 3+1 Fiscal Reform in Korea······························································································· 047
[Figure 1-11] Comparison between the Past Budget Classification and Program Budget
Classification······················································································································ 048
[Figure 1-12] Comparison between the Budget Classification Before and After the Introduction
of the Program Budgeting································································································ 049
[Figure 1-13] Organizational Structure of Department in Charge of PB in Korea······························ 053
[Figure 1-14] Composition of d-Brain····································································································· 055
[Figure 1-15] Program Management System by d-Brain······································································· 057
Chapter 2
[Figure 2-1] Gross Regional Product and Poverty Rate in the Kyrgyz Republic································ 082
[Figure 2-2] Presidential Committee on Regional Development······················································· 087
[Figure 2-3] Sustainable Regional Development Ecosystem······························································· 092
[Figure 2-4] Population Density Choropleth Map with Projected Growth Poles······························ 102
2016/17 KSP with Kyrgyz Republic
Sung-Eun Hong (Project Officer, Korea Institute for Development Strategy)
The Kyrgyz Republic has been assigned as a new partner country for the
Knowledge Sharing Program (KSP) since 2014. The Ministry of Economy (MOE)
of the Kyrgyz Republic and the Ministry of Strategy and Finance (MOSF) of the
Republic of Korea signed a memorandum of understanding for comprehensive
bilateral cooperartion and sharing of development experience and policy know-
how to achieve sustainable development in the Kyrgyz Republic.
In 2016, for the 3rd KSP, the Kyrgyz Republic has again requested the Korean
government through the Embassy of Korea in the Kyrgyz Republic on the following
two topics: i) Capacity Building of the Program-based Budgeting System and ii)
Promoting Sustainable Regional Development in the Kyrgyz Republic. As the
main purpose of the program is to provide professional policy consultation for
sustainable economic development in the Kyrgyz Republic, Korea’s budgeting
system and regional development experience would be an asset to share through
this KSP. Policy research and consultation, based on the local situation in the
Kyrgyz Republic, has been carried out by Korean experts in cooperation with local
consultants.
Sponsored by the Korea Development Institute (KDI) under the supervision of

the MOSF, the Korea Institute for Development Strategy (KDS) implemented the
project organized by the KSP team. It was headed by the principal investigator
(PI), Professor Wonhee Lee, and consists of three highly qualified experts as well as
supporting personnel, research assistants, and coordinators for the project.
010 • 2016/17 Knowledge Sharing Program with Kyrgyz Republic

2016/17 KSP with the Kyrgyz Republic Consultation Team and Topics
Strategies for Program-based Budgeting and

Sustainable Regional Development in Kyrgyz Republic
Consultation Topics
No. Name of Korean Experts Name of Local Consultants
(Relevant Organizations)
Wonhee Lee
Strategies for Program- Nurida Baizakova
(Hankyong National University)
based Budgeting in the (MOF)
1 Seung-won Yu
Kyrgyz Republic Aibek Kadyrov
(Korean National Police
(Ministry of Finance) (MOE)
University)
Strategies for Sustainable Seung Yong Rho Azamat Dikambaev
Regional Development (Seoul Women’s University) (NISS)
2
(MOE, National Institute for Ki-Deok Shin Nuradil Baidoletov
Strategic Studies) (KDS) (MOE)
• Senior Advisor: Yangho Ahn (Civilian Member, Committee for International Development
Cooperation/ Former Vice Minister, Ministry of Public Administration and Security)
• Project Manager: Kyoung Doug Kwon (Director, Division of Policy Consultation, KDI)
• Chief Project Officer: Kyung-bae Park (Vice President, KDS)
• Principal Investigator: Wonhee Lee (Professor, Hankyong National University)
• Project Officers: S
ujin Park (Senior Research Associate, KDI)
Hyejin Kim (Team Manager, KDS)
Sung-Eun Hong (Program Officer, KDS)
Hye-jung Kim (Program Officer, KDS)
Seunghee Kim (Program Officer, KDS)
• Research Assistants: S oojung Park (Researcher, KDS)
Wonuk Hwang (Researcher, KDS)
Also, the Kyrgyz Republic’s counterpart institutions and the local consultants
actively participated in the project. They are senior public officials or senior staff
in public policy institutions, and hence, played an essential role in policy decision-
making and implementation of the government tasks in the 2016/17 KSP.
2016/17 KSP with Kyrgyz Republic • 011

1. Implementation of the 2016/17 KSP with Kyrgyz Republic
Schedule for the 2016/17 KSP with Kyrgyz Republic
Month 2016 2017

Activity 11 12 1 2 3 4 5
Kick-Off Seminar and Pilot
Study
Preparation of an Interim
Report
Local Reporting Workshop and
Additional Pilot Study
Interim Reporting and Policy
Practitioners’ Workshop
Preparing the Draft of Final
Report
Final Reporting Workshop and
Senior Policy Dialogue
Submission of Final Report 5/31
1.1. Kick-off Seminar and Pilot Study
From October 31st to November 5th, 2016, the KSP research team led by head
delegate Yangho Ahn, as the senior advisor of the 2016/17 KSP with the Kyrgyz
Republic, conducted the Kick-off Seminar and Pilot Study in Bishkek, the Kyrgyz
Republic. The Korean team visited the MOE and the MOF and had meetings with
related personnel, which provided the opportunity to gather information. The
KDS with the MOF and the MOE signed the Activity Agreement (AA). The Korean
delegations also visited the National Institute for Strategic Studies (NISS) and
the Free Economic Zone, which helped researchers to figure out the economic
development situation of the Kyrgyz Republic. In addition, the Korean experts were
able to interview local consultants and agreed to sign Terms of Reference (TOR) for
further research and writing of final policy recommendation.

1.2. Local Reporting Workshop and Additional Pilot Study
During the period from January 7th to 14th, 2017, the KSP team, led by head
delegate Wonhee Lee (PI), visited Bishkek to hold a Local Reporting Workshop and
Additional Pilot Study. The Korean team finalized the selection of local consultants
and signed an AA and TOR for mutual understanding of the overall details of
the project and implementation. The visit aimed to assess the progress of the
project and to have additional interviews with several ministries and international
organizations, such as the World Bank and the European Commission. Also, the
Korean delegation visited relevant organizations, such as Bishkek City Development
Agency, the City Hall of Jalal-Abad, and Osh City, to further develop the research.
Besides Additional Pilot Study, the Korean experts held a Local Reporting Workshop
on two topics of the 2016/17 KSP with Kyrgyz Republic, including strategies for
program-based budgeting and those for sustainable regional development.
1.3. Interim Reporting and Policy Practitioners’ Workshop
From February 19th to 25th, 2017, nine Kyrgyz delegates visited Korea to participate
the Interim Reporting and Policy Practitioners’ Workshop. The delegation was
led by Ms. Aidai Kurmanova, the Permanent Secretary of the MOE of the Kyrgyz
Republic, and Mr. Almazbek Azimov, the Deputy Minister of the MOF of the
Kyrgyz Republic. The Interim Reporting Workshop was held on February 21st.
The local consultants of each topic introduced the current situation of the
Kyrgyz Republic, and the Korean experts presented the interim results and policy
recommendation. The Korean and Kyrgyz experts shared opinions regarding
the policy recommendation and had in-depth discussion on the research. For the
Policy Practitioners’ Workshop, the Kyrgyz delegation visited relevant ministries,
institutions, and industrial sites, including the MOSF, the Korea Institute for
Industrial Economics and Trade, the Korea Public Finance Information Service,
the National Assembly Budget Office, Daemo Engineering Co., and the Gyeonggi
Institute of Science & Technology Promotion.
1.4. Final Reporting Workshop and Senior Policy Dialogue
From April 17th to 22nd, 2017, the Korean KSP team of the 2016/17 KSP with the
Kyrgyz Republic hosted the Final Reporting Workshop and Senior Policy Dialogue
in Bishkek, the Kyrgyz Republic. The Korean delegation successfully held the Final
Reporting Workshop at the Assembly Hall of the MOF and invited public officials
from the central ministries of the Kyrgyz Republic and stakeholders concerned. The
KSP team visited the MOF to hold a Senior Policy Dialogue with the attendance
of the Minister along with the heads of Budget and Finance Committee of the
parliment and in the presence of the Prime Minister's Office. In addition, the
2016/17 KSP with Kyrgyz Republic • 013

Korean delegation visited the Issyk-Kul Province and had a meeting with the
Governor of the Province in the presence of the State Secretary of the MOE and the
Director of the NISS, and discussed how to further develop cooperative relationships
between the Kyrgyz Republic and Korea. The Kyrgyz Republic asked for continuous
policy recommendations from Korea regarding the two topics and economic
development.

Executive Summary
Wonhee Lee (Hankyong National University)
1. Demand Identification
The Kyrgyz Republic has committed to economic development, democratization,
and good governance since the democratic government was launched in 2010. In
this sense, the Kyrgyz Republic is described as a young and dynamic democratic
country. However, it is suffering from the political instability, illegitimacy, and
inconsistency of the administrative system of the former Soviet Union. There is
criticism that the hopes for rapid economic development have not materialized and
that the country’s external debt has grown so as to exceed GDP (Times of Central
Asia, 2017).
However, many efforts are being made to overcome the difficulties. The
National Sustainable Development Strategy (NSDS) 2013–2017 was established to
overcome these difficulties and establish visible economic growth and a politically
stable democratic state.
As a result, in 2013, the Kyrgyz Republic asked the Korean government to share
Korea’s economic development experience related to policy issues and was selected
as a new KSP partner country in 2014.
In 2014, the KSP with the Kyrgyz Republic was organized around the themes of
civil servants’ education and training programs and systems, underground economy
bans, tariff alliance joining, and industrial policies.
Executive Summary • 015

In the second year, in 2015, the KSP was conducted based on two themes: i) the
implementation of the Monitoring and Evaluation (M&E) system, ii) reinforcement
of the HRM policy effectiveness of the central and local public officials.
In the third year, in 2016, the Kyrgyz Republic requested a KSP project on a
program-budget system and the implementation strategy based on the Korean
experience by the MOF, and a sustainable regional development plan by the MOE.
Through the received demand survey, the selected research projects were
determined. The 2016/17 KSP with Kyrgyz Republic was conducted through a step-
by-step procedure to grasp policy demand and discuss the project progress plan
with the government of the Kyrgyz Republic.
The MOSF and KDI reviewed the two demand surveys submitted by the
government of the Kyrgyz Republic, announced the outsourcing process for the
external consignment in August 2016 and selected KDS as the final implementation
agency.
From September 7th, 2016, to May 31st, 2017, the 2016/17 KSP with Kyrgyz
Republic in has been conducted over about nine months.
2. Research Design
This research is divided into two parts. One focuses on program-based budget
and the other focuses on regional policy.
The program-based budget can be a starting point of financial management

reform. With a traditional budgetary classification, the so-called line-item
classification, it is difficult to understand the project and what the government
wants to achieve. With the introduction of a program-based budget, the readability
of budgets can be enhanced so that the transparency of budgetary processes
can be guaranteed. The budget can also be related with strategic priorities and
performance management so that it can enhance the quality of public services with
limited resources.
Meanwhile, regional policy is also very important for the Kyrgyz Republic
to develop economic growth and maintain national solidarity through local
equalization. Korea, during 1960s and 1970s, when resources were limited, tried to
make initial efforts for economic development by adopting inequality policies. Only
some specific areas were developed, and spillover effects were expected. After the
year 2000, when the GDP per capita in Korea was above US$ 15,000, national equity

was focused on and many policies were introduced, including economic clustering,
innovation cities, and enterprise cities. The Korean experience occurred through
trial and error and the Kyrgyz Republic can learn lessons from it.
[Figure 1] Issues with the Agenda to be Analyzed
• Governance Structure
• Strategy
• Process
• Policy Instrument
• Monitoring & Feedback
These two agendas have to be investigated within a well-designed framework

because they are related in many aspects and issues. First, governance is mostly
important; who will decide, control, and coordinate the issues is paramount. Then,
the strategy and process can be determined. To guarantee the strategy and process,
policy instruments will be analyzed. Policy instruments include incentives and
penalties. Finally, the feedback systems, such as monitoring, will be analyzed.
This report is based on the comparison of the Kyrgyz Republic with the Korean
case. So the comparison is based on official facts and data, which is crucial for local
consultants, who are public officials in the MOF and the MOE. Also, we will refer to
the international data and materials as well as the local consultants’ advice. When
we draw the implications and lessons, we will refer to the theoretical debates and
global trends. This kind of approach will be helpful in strengthening the logical
background of the policy alternatives.
Executive Summary • 017

[Figure 2] Logical Framework for Analysis
Theoretical
Background Issues
Kyrgyz
of Republic
Innovation
Implication
Comparison &
Recommendation
Background
of Korea
Innovation
Global Trend
3. Organization of Report
This report consists of two parts, as the government of the Kyrgyz Republic
asked for. Chapter 1 will contain program budget, and Chapter 2 will deal with
regional policy. These two agendas are seemingly separate, but in the sense of
sustainable development through efficient resource allocation, they are related.
Therefore, regarding regional policy, we will take a special action for preparing the
budgetary measures.
[Figure 3] Organization of Report
Sustainable
National
Development
Program Regional
Budget Policy
Classification Performance Capacity Governance Strategic Funding

Re-structuring Management Building Re-structuring Target System

2016/17 Knowledge Sharing Program with Kyrgyz Republic:
Chapter 1
Strategies for Program-based

Budgeting in the Kyrgyz Republic
1. Introduction
2. Current Policy Issues in the Kyrgyz Republic
3. Korean Experiences on the Program-based Budget
4. Implications of the Comparative Analysis
5. Conclusions and Policy Recommendations
■ Chapter 01
Strategies for Program-based

Budgeting in the Kyrgyz Republic
Wonhee Lee (Hankyung National University)

Seung-won Yu (Korean National Police University)*
Nurida Baizakova (Ministry of Finance, Kyrgyz Republic)
Aibek Kadyrov (Ministry of Economy, Kyrgyz Republic)
Summary
The Kyrgyz Republic is in the initial stage of introducing a program-based
budget. Despite some progress in this process, there are a lot of challenges toward
successful implementation of budgeting through programs. The MOF faces new
challenges and tries to find out new solutions and approaches. Following are some
of the challenges that were found:
(1) lack of invested human resources and existing technical capacity
(2) inadequate organizational discipline (i.e., negligent attitudes of line

ministries and agencies toward program-based budgeting)
(3) inadequate quality of program budgets and indicators of programs provided

by ministries and agencies
(4) performance information does not affect decision-making on budget

allocation
(5) lack of proper analysis of reports on the implementation of budget programs

and the achievement of budget program indicators
(6) lack of monitoring and an expenditure review process
* Seung-won Yu only participated in writing Part 3. Korean Experiences on the Program-based Budget.

(7) lack of data for analyzing the effectiveness of program implementation
(8) lack of public finance management information technology (IT) systems
In Korea, a program budget was adopted in 2004 when a 3+1 fiscal reform was
attempted. This means that a program budget was introduced with comprehensive
fiscal reform, a top-down budget system, a medium-term expenditure framework,
a performance evaluation system, and IT-based management systems. So, the
program budget was not just an issue of budget classification from line items but a
cornerstone of budgetary reform.
By comparison, some recommendations were drawn for alternatives:
First is the question of how to establish the relationship between the ministries
and the central budget organization after the introduction of the program-based
budget system. The MOF is supposed to focus on national priority setting while line
ministries focus on implementation so that fiscal devolution of budget authority to
line ministries occurs. For this purpose, it is necessary to strengthen line ministries’
capacity in terms of fiscal management. To strengthen the capacity of each ministry,
in Korea, the Self-Evaluation Committee plays a key role in providing advice by an
important external expert.
Second, it is necessary to strengthen the linkage between the program-based

budget system and medium-term financial plans. The National Fiscal Management
Plan (NFMP) is a device to link the annual expenditure limits with priorities by using
prudent economic assumptions and revenue forecasting. With NFMP, programs are
good instruments for setting national priorities.
Third, for improvement of the quality of programs, measures, and performance

indicators, the performance evaluation system needs to be developed. Korea
has two stages: self-evaluation by each line ministry and meta-evaluation by the
MOSF. To support evaluation, a self-evaluation committee is established in each
line ministry, and the Korea Institute of Public Finance (KIPF), a national think tank,
supports the MOSF for meta-evaluation.
Fourth, in Korea, a well-designed IT system, the so-called d-Brain, was developed

to track budgetary implementation in real time and accumulate data. It is very
useful for managing the whole budgetary system.
Finally, it is necessary to set up short-, medium-, and long-term strategies to

activate the program-based budget management system. As the program budget
system involves overall reforms to budgetary management, including budgeting
processes and performance management systems, a robust strategy is inevitable.
Chapter 1 _ Strategies for Program-based Budgeting in the Kyrgyz Republic • 021

1. Introduction
1.1. Background of Research
The Kyrgyz Republic is making efforts to develop the national economy and
democratization, but is suffering from a lack of financial resources. The budget
deficit is 4.9% of GDP, and public sector debt accounts for more than 60% of GDP.
In this situation, efforts to expand financial revenue are necessary, but efforts to
improve transparency and efficiency of appropriations are also needed.
The realities of the fiscal sector require integrating program budgeting (PB)
to the budget system of the country. Therefore, PB was determined as one of the
priority issues of public financial management system reforms under the NSDS of
the Kyrgyz Republic for 2013–17. In addition, country partnership strategies of the
Kyrgyz Republic with the World Bank and the Asian Development Bank (ADB) are
focusing on program-based budgeting as a priority of the fiscal sector.
The introduction of the program-based budget system in 2011 was intended to

strengthen the strategic performance management of expenditure management
and was considered to be a very important instrument to maintain a sustainable
financial structure. It was expected that it would contribute to the effective
utilization of national development resources by enhancing the understanding
of practitioners about the program budget system and by efficiently monitoring,
analyzing, and evaluating program-based budget system.
Despite the achieved progress in the process of introduction of PB, the Kyrgyz
Republic faces a number of challenges. The budget of the Kyrgyz Republic
is still implemented in traditional format (i.e., by economic, functional, and
administrative classifications). Line ministries still depend on line-item classification,
and performance indicators are not used in decision-making processes due to the
absence of reliable data and a lack of monitoring and evaluation. Also, the program
budgets are used only for informative purposes, and performance information does
not affect the decision-making on budget allocation. To be a practical instrument
for the fiscal management reform, the program-based budget system in the Kyrgyz
Republic must be improved.
By contrast, the Korean government introduced PB in 2006 with a

comprehensive fiscal reform. The program-based budget system in Korea has been
developed in tandem with a performance evaluation system, and this system is an
important foundation for developing the Medium-Term Expenditure Framework
(MTEF). Above all, monitoring of program-based expenditures is based on a digital
IT system.

The purpose of this research is to compare the program-based budget system
in the Kyrgyz Republic with the Korean system and draw some conclusions. PB
is not just a technique of budgetary item classification but is a comprehensive
fiscal reform, including a reorganization of the relationship between central
budget agencies and line ministries, budgetary processes, priority setting, and the
performance evaluation system. This is why this report should be based on a well-
designed logical structure.
1.2. Research Design

Programs are groupings of government activities that relate to specific
government objectives. The program-based budget system implies that the
budgetary classification is based on the program, and not the traditional line-
item approach. With traditional budgetary classifications, the so-called line-item
classification, it is difficult to understand the project and what the government
wants to achieve. With the introduction of PB, the readability of budgets can be
enhanced, so that transparency of the budgetary process can be improved. Budgets
can be related to performance management, which can improve the quality of
public services.
In this sense, PB attempts to apply cost-benefit analysis to the allocation decisions,

allocate expenditures by program, and assess results of programs in relation to
objectives. The first advantage of a program-based budget system is to increase
the social and economic efficiency of budget expenditure. In this sense, the most
important advantage of a program-based budget system is to increase the fiscal
sustainability and efficiency of line ministries’ activities. Second, it can help to provide
a comprehensive opportunity for strategic planning. There will be a close relationship
between budgeting and strategic priorities for the development of the country.
Third, the budget can focus on priorities and resource allocation. Fourth, it can make
program managers responsible for the result of and the use of public resources, and
at the same time, expand ability for maneuvering. Fifth, it simplifies the structure of
the budget and increases budget transparency and accessibility for all citizens.
Note that the program-based budget system can result in overall fiscal reforms
with regard to the budgetary process, even though it is considered to be the
technique for classifying the budgetary items. Especially the proposal stage can
include much more mutual interaction between the MOF and line ministries,
including budgetary ceilings and performance indicators. Above all, the whole
process can be changed to focus on the performance and effectiveness of
expenditure.

[Figure 1-1] Issues with Program Budget during the Budgetary Process
Proposed By Approval By Implementation Audit By

MOF Parliament By Ministries Parliament
• MTEF
• Performance • Focus on
• Budgetary
Agreement Effectiveness
Ceiling • Monitoring
• Focus on • Information for
• Performance
Effectiveness Feedback
Indicator
Feedback
Source: Complied by authors based on internal data from MOF.
To analyze the effectiveness of program budgets, the overall process and system
should be considered. For this analytical purpose, this report is organized based on
the issues caused during the budgetary process. Above all, governance is the most
important, particularly who will decide, control, and coordinate the issues. Then,
strategy and process can be determined. To guarantee the strategy and process,
policy instruments can be analyzed. Policy instruments include incentives and
penalties, and then, the feedback system, such as monitoring, should be followed.
The variables to be analyzed can be abstracted as follows:
[Figure 1-2] Issues to be Analyzed
• Governance Structure: MOF, Line Ministries
• Strategy: Performance Evaluation System
• Process: Monitoring System
• Policy Instrument: IT System
• Monitoring & Feedback: Incentive System

1.3. Organization of the Paper
This report is based on the comparison of the Kyrgyz Republic with the Korean
case, based on official facts and data. Furthermore, as the political and historical
backgrounds are different, a contextual understanding should be promoted. To
collect authentic data, there was close cooperation with the local consultants, who
are public officials in the government of the Kyrgyz Republic.
As the program-based budget system was developed and disseminated by the

World Bank and the OECD understanding global trends is important. So the authors
will refer to the international data and materials as well as the local consultants’
advice.
To draw implications and lessons, we will refer to not only global trends but
also theoretical debates. This kind of approach will be helpful in strengthening the
logical background of the alternatives.
[Figure 1-3] Logical Framework for Analysis
Theoretical
Background Issues
Kyrgyz
of Republic
Innovation
Implication
Comparison &
Recommendation
Background
of Korea
Innovation
Global Trend
2. Current Policy Issues in the Kyrgyz Republic

2.1. Public Financial Management System
2.1.1. General Information about the Kyrgyz Republic’s Budget
The Kyrgyz Republic inherited a system of public finance from the Soviet Union,
which was heavily dependent on transfers from the central USSR budget, where

expenditures greatly exceed the level of domestically mobilized revenue. Since
getting independence in 1991, the Kyrgyz Republic has been trying to develop a
Public Financial Management (PFM) system by conducting reforms. One of the latest
and biggest achievements of PFM reforms is the adoption of a new Budget Code
of the Kyrgyz Republic. It was adopted in May 16, 2016, and came into force on
January 1, 2017.
Nowadays, there are two levels of budget system in the Kyrgyz Republic: the
central government’s budget, which is the republican budget, and local budgets,
which number 484. Local budgets fall under the purview of local governments.
Also, the PFM has two non-budgetary funds, which are called the Social Fund of the
Kyrgyz Republic and the Medical Insurance Fund of the Kyrgyz Republic.
According to existing legislation, the financial year is equivalent to the calendar

year, which begins on January 1 and ends on December 31. Budget planning considers
the coming year and the following two years. Despite the adoption of medium-term
planning since 2008, in practice, implementation has not taken place completely.
<Table 1-1> Budget Schedule of the Kyrgyz Republic
Stages Responsible Party Terms

Ministries/agencies and MOF
Ministries/agencies and MOF May 11
negotiations on budget ceilings
Approval of MTBF and budget ceilings
Coordination Council for
by the Coordination Council for by July 1
Macroeconomic and Investment Policy
Macroeconomic and Investment Policy
Distribution of Budget Circular, which
includes instructions on preparation
MOF of the Kyrgyz Republic by July 5
of program-based budget and budget
ceilings for the ministries/agencies
Reconciliation of the ministries and Ministries/agencies and their MF
July 15
agencies’ budget program structure coordinators
Budget proposal submissions to the
Ministries/agencies by August 1
MOF
Submission of draft law on republican September
MOF
budget 15
Submission of draft law on republican
budget to the parliament of the Kyrgyz Government of the Kyrgyz Republic October 1
Republic (Jogorku Kenesh)
Consideration of the budget October –
MOF
in Jogorku Kenesh November

The distribution of basic power among the stakeholders of the republican budget
is as follows: the president of the country has power to sign and promulgate laws
to approve the republican budget and reports on its implementation. However, this
does not include the right to veto a law approved by the parliament (called Jogorku
Kenesh in the Kyrgyz Republic). Therefore, the parliament is empowered to approve
laws on the republican budget and to report on its implementation. In addition,
Jogorku Kenesh determines the main directions of fiscal policy and the medium-term
priorities of the republican budget. The Accounts Chamber is empowered to conduct
the financial audit and performance audits of the central government and local
budgets. This state body is an independent organization, which is accountable to the
parliament and the president of the country.
The executive branch is responsible for the development and implementation

of fiscal policy of the republican budget and for the submission of reports on its
implementation. The MOF is an authorized state body, which is responsible for PFM
as well as public policy relating to internal auditing and the public procurement
system.
The MOE implements economic policy and works out government programs
and forecasts of socioeconomic development, which are used as the basis for
budget planning. Currently, an economic forecast is formed twice a year (in
February for the Medium-Term Budget Framework (MTBF) and in June for the
annual budget). Thus, a unique aspect of the Kyrgyz Republic's budget policy
is the division of power between the MOE, which is responsible for economic
outlook and development programs, and the MOF, which is responsible for budget
planning. In addition, the National Tax Authority and National Custom Authority
are autonomous state bodies of the government, with the mandate to collect
revenues. Also, the State Property Fund, which is responsible for the state’s asset
management, operates as an independent government agency. Ministries and
agencies financed through the republican budget are responsible for drafting
their budgets as well as for the proper use of public funds. Next, let us consider the
budget process and practices implemented in the Kyrgyz Republic.
2.1.2. Budget Process and Practices
The current budget process includes the following phases:
• Budget draft formulation, in which the executive branch formulates the draft
of the budget
• Approval, in which the parliament discusses and approves the budget.
• Execution, in which the executive authorities collect revenues and fund
approved expenses

• Oversight, in which all budget accounts are audited and the results of the audit
are reviewed by the legislature
1) Budget Planning
The annual budget cycle starts with the development of the MTBF in February
and ends with the approval of the budget by the parliament. The MOF has been
developing the MTBF since 2001. Nowadays, 20 ministries and agencies submit
their sector strategies for budget expenditures. However, an existing problem is
the lack of a monitoring system to promote effective performance. One of the
main elements of the MTBF is the determination of the budget ceiling for all
main budget recipients (ministries and agencies) by the MOF by May 11 every
year. Further, controlled ceilings are the subject of disputes between the MOF and
line ministries and agencies. All negotiations on reconciliation of ceilings must be
completed by July 1. After that, budget ceilings are approved as a part of the MTBF
by a Kyrgyz governmental order.1)
The MOF sends the approved ceiling and instructions for budget draft
preparation to all ministries and agencies by July 5. In turn, budget recipients form
their budget drafts according to budget ceilings by August 1.
2) Budget Approval
The MOF submits a draft of the republican budget to the central government for
endorsement by September 15. In turn, the government sends it to the parliament
and the Accounts Chamber by October 1 for further consideration and approval.
The specialized committee on budget and finance of the parliament as well as the
Accounts Chamber examine all budget laws and prepares an opinion letter for use
during budget. Discussion are held within parliament and government throughout
the autumn period, focusing on details of the draft for the next year. The parliament
suggests an increase in expenditure in case of any source of additional revenue. The
republican budget is approved by the end of December. The budget approval is in
accordance with economic, administrative, and functional classifications. The existing
budget classification of expenditures is considered below.
3) Budget Execution
Funds are released quarterly according to estimates of costs submitted by

departments, considering seasonal spending. However, single costs except protected
1) This part was written on the new Budget Code in 2017.

items of expenditure due to revenue shortfalls are transferable to another period.2)
At the same time, the transfer of budget surpluses for the next fiscal year is not
permissible, and any unused funds must be returned to the treasury accounts. In
practice, there are many cases where funds are released by the end of the year.
In the case of expected nonfulfillment of budget revenues, sequestration of costs

(a certain percentage reduction of expenditure) is possible. The Government Council
makes decisions on sequestration. So, the initially approved budget can be revised
twice during the year.
4) Oversight
External audits are conducted by the Accounts Chamber, which is authorized to

undertake a financial audit and a performance audit of all organizations funded
by the republican budget or by local budgets. However, currently, the focus of the
financial audit is mainly on errors, irregularities, and control over the proper use of
funds. At present, the performance audit is conducted on a pilot basis only.
2.1.3. Budgetary Situation of the Kyrgyz Republic
From 1992 to 1995, the level of government expenditure (in % of GDP) was
almost twice as much as the level of government revenue (see Figure 1-4). Due to
lack of budget resources, the government tried to cover the high budget deficit by
monetary expansion in the early 1990s, which resulted in hyperinflation. In 1996,
the government stopped using direct credit of the National Bank of the Kyrgyz
Republic for deficit financing and switched to concessional foreign borrowing. Even
so, the deficit remained very high, at around 10% of GDP (see Figure 1-4).
The high deficit was not sustainable and made the entire macroeconomic system
of the Kyrgyz Republic extremely fragile. The crisis in the Russian Federation during
1998–99 resulted in a sharp currency devaluation, more inflation, and a decline in
the GDP growth rate. Also, the external public debt (accumulated during the period
of massive borrowing from foreign donors) leveled off above 130% of GDP (see
Figure 1-4). In this situation, the government tried to react to the worsening fiscal
position and had to go through a process of expenditure cuts from 33.5% of GDP
in 1998 to 26.6% of GDP in 2001. This was done mainly through non-indexation of
government spending to inflation, while in some cases, expenditure cuts in nominal
terms were also implemented. The deficit of the general government budget was
reduced to the level of around 6% of GDP by about 2005.
2) The Kyrgyz Republic's Act on Basic Principles of Budget prescribes the protected items, such as
wages, interest on public debt, meals, transfers to the Social Fund, medicines, social benefits, and
pensions.

[Figure 1-4] Government Budget of the Kyrgyz Republic
(Unit: % to GDP)
34
24
14
4
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
-6
-16
EXPENDITURE REVENUE DEFICIT
Source: complied by authors based on internal data from MOF.
Economic growth from 2002 to 2007 permitted the budget situation to

improve substantially: the deficit was brought down to almost zero in 2008
when government revenues and expenditures managed to grow simultaneously.
However, from 2010, the situation started to change dramatically and the deficit
returned to the level of 5–7% because of the global financial crisis, the tulip
revolution in 2010, and a significant decline in gold production due to geological
movements at the Kumtor gold mining company in 2012–2013.3)
Key components of general government expenditures are purchases of goods

and services, wages, pensions, and different transfers and subsidies. More than half
of the government expenditure is allocated to the social sector (e.g., education,
health care, social protection, and utilities), while the proportion of capital
expenditure has tended to decrease and is mostly financed by external borrowing.
As [Figure 1-4] shows, between 2009 and 2016, spending by the central and local
tiers of government increased by around 5% of GDP as the authorities attempted
to mitigate the impact of the 2009 global financial crisis, the 2010 tulip revolution,
and repeated global price shocks by increasing wages, social transfers, and public
investment. These factors increased the current expenditure, which is associated
with compensation for crisis victims, security-related spending, and elections.
Increased capital expenditure is associated with infrastructure reconstruction in the
south as well as repairs of government buildings and offices in Bishkek. Lower than
3)
Around 6-10% of total budget revenues come from gold mining company, Kumtor, through
dividends and taxes.

planned tax collection and increased expenditure led to a substantial widening of
the fiscal deficit. During 2010–2013, the budget deficit was around 4–7% of GDP.
The state budget spending was on an upward trend until 2012. However, buoyant
growth and restrained public spending reduced it to around 3% of GDP in 2013.
Public Debt
Due to the very weak income of the country, it was difficult to provide sufficient
income to citizens. Productive activities generated by the government were limited
and private sector participation was not parallel because of the infancy period.
That is why during 1992–1994, the country acquired a huge sum of money from the
International Monetary Fund (IMF), the World Bank, the government of Japan, and
Switzerland to cover the fiscal gap in the name of budget support. Furthermore,
the country has been receiving foreign aid and credits from other bilateral and
multilateral donors to overcome periodic crises. The main creditors of the Kyrgyz
Republic are illustrated in <Table 1-2>.
As <Table 1-2> shows, more than 99% of external debt is in the form of
preferential credits, namely in government concessional loans, which are provided
with a below-market interest rate.
<Table 1-2> Structure of Public External Debt of the Kyrgyz Republic

(Unit: thousands of USD)
Creditors 2013 2014 % to Total

BILATERAL PREFERENTIAL 1,517,662 1,868,054 54.4
The Export-Import Bank of China 758,433 1,115,893 32.5
Japan Bank for International
263,121 229,393 6.7
Cooperation
The Bank KfW (Germany) 90,433 95,528 2.8
The Export-Import Bank of South Korea 71,373 16,664 0.5
The Russian Federation 300,000 300,000 8.7
Government of Turkey 70,548 90,000 2.6
MULTILATERAL PREFERENTIAL 1,589,813 1,518,255 44.2
IMF 202,730 185,204 5.4
ADB 607,075 583,567 17
International Development Association
697,092 671,501 19.5
(IDA - World Bank Group)
Islamic Development Bank (IDB) 63,957 59,024 1.7

<Table 1-2> Continued
Creditors 2013 2014 % to Total

MULTILATERAL
39,991 40,611 1.2
NON-PREFERENTIAL
European Bank of Reconstruction and
39,991 40,611 1.2
Development (EBRD)
Other Small Loans 47,927 49,683 1.4
Total 3,158,690 3,437,068 100
The independent Kyrgyz Republic began with no foreign debt. Extensive

borrowing in the beginning and middle of the 1990s led to some debt accumulation
(see Figure 1-5), which did not seem to be very high but became unsustainable after
the national currency devaluation of 1998–1999 due to the Russian crisis. Then,
the Kyrgyz Republic went through two rounds of Paris Club treatment to receive
substantial debt relief on highly concessional terms. In 2006-2007, the country was
on a brink of receiving debt relief within the framework of the Heavy Indebted Poor
Countries4) initiative (because the main body of the public debt was with the World
Bank, the ADB, and the IMF), but after some hesitation, the government decided to
refrain from joining this initiative.
The debt situation later improved radically due to a healthier economic

situation, the national currency appreciation against the United States Dollar (USD),
and the associated depreciation of mostly USD-denominated debt as well as an
increase in the grant component of the donors’ aid. Note, however, that the debt
situation is still fragile as the debt indicators started to deteriorate again because of
the 20% devaluation of the Som of the Kyrgyz Republic in the end of 2014 and at
the beginning of 2017, which caused the debt to GDP ratio to sharply increase from
47% to 54%. As [Figure 1-5] shows, since 2000, public debt has been increasing in
absolute terms but the ratio to GDP is declining.
In 2015, 15,661 million soms (12% of the total government budget expenditure)
from the budget of the Kyrgyz Republic was planned to be used for debt servicing
and repayment.
Based on the fiscal information mentioned above, we see that fiscal

sustainability has become a challenge facing the Kyrgyz Republic. There is evidence
4) The Heavy Indebted Poor Countries are a group of 39 developing countries around the world with
high levels of poverty and debt overhang, which are eligible for special assistance from the IMF and
the World Bank. This framework provides debt relief and low-interest loans to cancel or reduce
external debt repayments to sustainable levels.

of the need to undertake fiscal sustainability estimations for challenges faced by
the fiscal budget of the Kyrgyz Republic today, including the high level of the
government budget deficit, the necessity of keeping public debt at appropriate
level, strong dependence of the government budget on external financing, a less
developed system of domestic financing, a lack of resources for infrastructure
(which could contribute to economic growth, if addressed), and the adoption
of legal acts and the use of uncorroborated sources of financing, which requires
finding additional funds.
[Figure 1-5] Public Debt of the Kyrgyz Republic (1992–2014)

(million som) (%)
140.0
210,000.0
120.0
180,000.0
100.0
150,000.0
80.0
120,000.0
60.0
90,000.0
60,000.0 40.0
30,000.0 20.0
0.0 0.0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Nominal Debt (million som) Debt to GDP (%) 2014
2.1.4. Budget Classification of Expenditures
The budget classification of expenditures used in the Kyrgyz Republic complies

with the Government Finance Statistics 2001 of the IMF and serves for the
unification of budgetary statistics’ forms and for comparability with international
practice. There are four approved budget classifications: economic, administrative,
function, and program.
The functional classification combines governmental bodies’ expenditure based on

the main purposes of spending. The classification is in 5-digit code, where the first three
digits represent the section (basic function code), the fourth digit indicates the group,
and the fifth digit represents the class. Groups and classes indicate the funds’ objectives.
In the Kyrgyz Republic, the following 10 sections of functional classification are
approved: general public services, defense, public order, economic services, environment,
utility services, health, recreation and culture, education, and social protection. The
example of two groups of functional classifications is given in [Figure 1-6].

[Figure 1-6] Example of Functional Classification
709. Education
(main function
code)
7091. Pre-school
7092. Secondary
and Primary
Education
Education
(group)
(group)
70921. 70922.
70923. 70911 . 70911.
Secondary Secondary-
Elementary Pre-school Primary
Education Vocational
Education (class) Education (class) Education (class)
(class) Education (class)
The largest portion of expenditure (50%) goes to the social sector, which
includes education, social protection, health care, and culture. Another large
portion is devoted to economic issues (23.6%), mainly public investment in the
electricity and communications sector, funded by external sources. Data obtained
by functional classification of budget expenditure are presented in the following
<Table 1-3> and [Figure 1-7].
<Table 1-3> Expenditures by Functional Classification during 2006–2016

(Unit: share in %)
Classification 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Public Service 11.7 27.3 29.5 26.7 22.5 25.3 26.2 16.2 9.2 11.7 9.9
Economic Services 28.3 14.7 14.0 22.4 22.0 23.7 25.8 29.5 33.8 23.6 33.9
Environment 0.0 0.4 1.2 1.2 1.0 0.7 0.5 0.5 0.5 0.8 0.5
Utilitiy Services 3.2 3.5 3.5 3.5 2.8 1.7 1.1 1.3 1.7 1.3 0.7
Health 12.5 11.4 10.3 10.8 10.0 10.0 10.2 9.9 8.6 10.5 8.9
Culture and Recreation 2.4 3.3 2.4 2.2 2.0 2.2 1.7 2.0 1.9 2.0 1.7
Education 10.6 12.6 11.5 9.5 7.5 7.4 6.9 11.5 16.0 18.5 13.3
Social Security 15.2 11.7 11.2 10.2 17.4 16.5 16.5 18.0 17.1 18.7 20.9
Note: Data of two remaining sectors (Defense and Public Order) are not disclosed.

[Figure 1-7] Budget Expenditures for 2015 by Functional Classification
Public Services (Unit: share in %)

11.7
Defense & Public
Social Protection Order
18.7 13
Economic
Education Services
18.5 23.6
Health
10.5
Environment
Utility Services 0.8
Recreation Culture 1.3
2
Economic classification of expenditures is the grouping of budget expenditures

depending on the form that transactions take (e.g., wages, social contributions,
travel, rent, and utilities). An encoding of this classification consists of eight
characters and includes codes of sections, categories, groups, articles, sub-
articles, and cost elements. Since the execution of the budget is very detailed, it is
implemented by an eight-digit code (i.e., by elements). Let us consider an example
of economic classification of labor costs (see Table 1-4).
The largest share of expenditure of the republican budget covers salaries of

public sector employees and social benefits. Compensation of employees and
subsidies are about 40% of aggregate expenditures. These expenditures have
been increasing from year to year. The increase in funds devoted to wages is
predominantly not due to new hires but because of salary growth. However,
nominal wages in the public sector continue to be relatively low.
Administrative classification consists of two parts—the main code (4 digits) and

the code of an institution. The first two digits are the code of the agencies receiving
funding from the national budget (the so-called main manager of budgetary
funds), the third digit shows the code structure of subordinated departments, and
the fourth digit indicates the departmental unit receiving funding.

<Table 1-4> Example of Economic Classification
Sub-
Section Category Group Item Element
articles
1 2 3 4 5 8
2 21 211 2111 21111 21111100
Expenditures Salary and Salary Salary Salaries of Basic wage
employments permanent 21111200 Extra
employees payments
21111300
Additional
payments and
compensation
21112 21112100
Wages of Employees hired on
temporary contract and on a
workers temporary basis
212 2121 21211100
Contributions/ Contributions Contributions to
social to the Social the Pension Fund
contributions Fund 21211200
Contributions
to the Health
Insurance Fund
According to the administrative classification of the Kyrgyz Republic, there are

more than 70 codes. Accessibility of a wide range of codes for this classification
is due to a ramified structure of the executive branch, which is composed of the
cabinet, twelve ministries, four national committees, six state agencies, fifteen
public authorities, and two nonbudgetary funds. There are also other budget
organizations that receive public funds directly from the MOF.
Several agencies execute public functions within the same sector, obstructing
coordination of their actions and the development of industry. For example, PFM
falls under the purview of the MOF, the MOE, the State Tax Authority, the State
Customs Authority, and the Fund of State Property Management.

2.2. Introduction of Program Budgeting in the Kyrgyz
Republic
2.2.1. History of Program Budgeting (PB)
Performance information was formulated for the first time in 2001 by four
pilot ministries. They prepared their medium-term sector strategies of budget
expenditures on a program basis as a part of the MTBF. This part included a
description of the ministry’s role, tasks, priorities, expected results, and justifications
of public expenditures and any other variations.
Development partners played a significant role in the introduction of PB through

the provision of technical assistance to the MOF. Several programs and projects
were in existence during 1997–2008, including the World Bank's program, called
“Public Sector Resource Management Adjustment Credit”, the Department for
International Development of the United Kingdom’s project, called “Strengthening
PFM” and the United States Agency for International Development’s project,
called “Building the Capacity of Revenue Forecasting and Gradual Introduction
of Program-Based Budgeting”. Significant progress was made by the Multi-Donor
Trust Fund’s project, called “Capacity Building in PFM” which operated from
December 2009 to May 2015.
The process of introduction of PB has intensified since 2011. The MOF sent the
refined Budget Circular to line ministries and agencies concurrently with a budget
ceiling to formulate a draft of the republican budget for 2012 and the projections
for 2013–2014. Six pilot ministries were obliged to submit their program budgets in
addition to the traditional budget format. These ministries were chosen from among
12 agencies that had submitted their MTBF sector strategies. For the purposes of
consolidation and accounting, the MOF provided the pilot ministries with ceilings
on all funds allocated to the ministry or agency, including both recurrent and capital
expenditures. Also, training and advisory assistance was conducted by the staff of the
MOF and consultants to support pilot ministries in forming a good program budget.
Thus, the six pilot ministries listed below presented their program budgets for
2012–2014:
• Ministry of Agriculture
• Ministry of Transport and Communications
• Ministry of Education and Science
• Ministry of Health

• Ministry of Labor, Employment and Migration
• Ministry of Internal Affairs
[Figure 1-8] Development of Program-based Budgeting in the Kyrgyz Republic
76 75 75
80
60
40
28
20 20 20
15 15
20
6 6 6
0
2011 2012 2013 2014 2015 2016
Number of ministries and agencies presented program budgets
Number of ministries and agencies presented MTSS
In 2012, the number of ministries and authorities submitting program budgets

increased from six to fifteen. In 2013, because of the need to continue with the
reform, the number increased from 15 to 28. Since 2014, 76 budget recipients have
presented their program budgets, which have been sent to the parliament for
consideration.
The MOF, in 2011, for the first time, submitted a draft of PB of pilot ministries
for approval by the Cabinet of Ministers and the parliament. These practices have
continued in the subsequent budgetary cycles. However, neither the Cabinet of
Ministers nor the parliament has scrutinized the annual budget by programs since
2011. Also, the MOF published these documents on the official website (www.
minfin.kg) to provide transparency regarding public expenditures. Thus, today, PB
serves for informational purposes only and is not an effective tool for expenditure
allocations. The budget is implemented by administrative, functional, and economic
classification of expenditures.
All these initiatives were supported by capacity-building activities, such as

workshops and training on PB issues, for specialists of the MOF and line ministries
and agencies. In addition, the MOF improved guidelines and instructions year by
year, based on the experience of the previous years.

2.2.2. Methodological Framework
The MOF has approved methodological and instructional materials related to

program budgets to be used by all ministries and agencies, including the following:
• Methodological Guideline to Develop Medium-Term Sector Strategy of Budget
Expenditures (hereafter “Guideline”)
• Budget Circular for Formulation of Program Budgets (hereafter “Budget
Circular”)
• Instruction to Determine Performance Indicators for Budget Programs and
Measures
• Instruction on the Procedure for the Formulation and Reporting of the
Achievement of Performance Indicators
“Guideline” and “Budget Circular” stipulate a two-level program structure:

programs and sub-programs (also known as measures). Each ministry and agency
should determine their program structure in accordance with national and sectoral
priorities. The instructions stipulate that each agency should have an administrative
program, including planning, management, and administration. Budget programs
should be divided into measures and expenditures, with expenditures allocated
by program and measure. In addition, each program and measure should have
defined performance indicators and targets. The targets of indicators should be
determined in accordance with allocated resources. Total expenditures should not
exceed the ministry’s or agency’s budget ceiling. Budget measures that require
financing beyond the budget ceiling should be presented separately as an additional
budget request. At the same time, the total amount of required additional funding
should not exceed 5% of the total amount of the budget ceiling for the ministry or
agency. For detailed information, please refer to the methodological and instructive
materials mentioned above.
To prepare a good-quality program budget, each ministry and agency is required to

establish a workgroup led by the highest-ranked ministry official (i.e., the permanent
secretary or the deputy minister). Representatives of all subordinate organizations
and specialized departments and divisions should be included in the workgroup.
2.2.3. Program Classification
Program classification was developed and approved in 2015 for the further
implementation of PB. To execute budget programs, the MOF is trying to introduce
the program classification into the automated treasury system. The existing
program classification has five digits: the first three digits identify programs and
remaining two identify measures.

[Figure 1-9] Structure of Program Classification
001. Program 002. Program 003. Program
01. Measure 01. Measure 01. Measure
02. Measure 02. Measure 02. Measure
03. Measure
It is currently possible to develop a report on program outcomes by program

budgets for the following four pilot ministries of the Kyrgyz Republic:
• Ministry of Labor and Social Welfare

• Ministry of Education and Science
• Ministry of Health
• Ministry of Agriculture and Melioration
2.2.4. Human Resources in Charge of PB
Human resource investments in PB in the Kyrgyz Republic are very limited. In

2013, a PB unit consisting of three employees was established as a subordinate
division within the Department of Budget Policy of the MOF. In fact, nowadays,
all work is assigned to three people. With this level of human resource investment,
it is impossible to oversee the entire budget of the central government. In
addition, there is a shortage of human resources devoted to PB in ministries and
departments. In line ministries and agencies, all work related to PB is imposed as
an additional burden on financial departments since there is no allowed increase in
personnel.
2.2.5. Performance Information
According to the existing methodology, performance indicators are virtually

measurable criteria that enable the identification of the achievement of an
organization’s strategic and operational objectives. Performance indicators are used

in the course of program-based budget submission preparation and are divided into
budget program indicators and budget-measure performance indicators. Budget-
program performance indicators represent final socially significant result (e.g., a
reduction in car accidents, a reduction in the maternal and infant mortality rate,
and improvements in preschool education availability). In most cases, such indicators
are expressed in relative values and characterize changes in a situation as compared
to the one in the basic period (i.e., rate of infant mortality in BY-1– x0%t, target
rate for BY– x1%; for BY+1– x2%; for BY +2 - x3%).
Budget-measure performance indicators usually depict the volume of performed

work (i.e., provided services); for example, the length of renovated roads, the
number of vaccinations that were carried out, and the number of built and
renovated kindergartens. These indicators should be expressed in absolute values.
To the extent possible, it is also necessary to employ relative indicators that picture
the extent to which the solving of the problem resulted from the implementation
of the measure. For example, an indicator showing that X km of roads have been
renovated, making Y% of the overall need, or that X number of children have been
vaccinated, making Y% of the overall number of children in a certain age category.
When developing the indicator system, it is advised to observe the following

principles and criteria:
• Compliance with authority and competence of the ministry or agency

• Compliance with budget program or measure
• Adequacy and relevance
• Possibility for collection of certain indicator information
• Possibility for timely acquisition of indicator information
• Data collection efficiency
• Data compatibility
• Indicator user comprehensibility
• Change description for customers
• Reflection of qualitative changes
• Validity of the set indicator values
• Linkage of budget-measure implementation and amount of financing
indicators
• Fiscal transparency
• Impartiality

• Uniqueness
Used indicators that describe a ministry's or agency's activity must, whenever

possible, include indicators that characterize the level of customer satisfaction by
those consuming the public services provided by ministries and agencies and their
subordinate organizations. These indicators should capture the amount and quality
of the received service.
For each indicator, it is necessary to specify the following:
• Target (expected and forecasted) values for each year from BY-1, BY, BY+1,
and BY+2
• Actual values for BY-1
Upon receipt of program-based budget submissions, the MOF analyzes indicators

given in the submissions to determine their compliance with the above criteria.
2.3. Challenges of Program Budgeting in the Kyrgyz

Republic
2.3.1. Lack of Political Will
Nowadays, neither the parliament nor the prime minister manifests a strong
interest in scrutinizing the budgets of line ministries and agencies by programs.
Therefore, top leaders of ministries and agencies do not show any interest in
the process of program budget formulation. Only the MOF, with the support of
development partners, is attempting to introduce PB.
2.3.2. Inadequate Legal Framework
All activities for the implementation of PB are carried out in accordance with
the order of the government of the Kyrgyz Republic. Methodological materials are
approved by the orders of the MOF and have been recommended for all budget
organizations. The legal basis of PB is stipulated in the new budget code of the
Kyrgyz Republic. This document provides the definition of budgetary programs,
including a two-level program structure for all ministries and agencies. In addition,
it stipulates that program budgets should be included as part of the package of
the budget and provide regulations for reporting the achievement of performance
indicators. Also, priority budget programs are not subject to sequestration.
However, this budget code does not stipulate motivation mechanisms, monitoring
and evaluation processes, or the use of performance information in decision-

making.
2.3.3. Lack of Human and Technical Capacity
Human resource investments in PB in the Kyrgyz Republic are very limited.

Nowadays, all work is assigned to the PB sector, which consists of three people. In
addition, there is a shortage of human resources devoted to PB in line ministries
and agencies, where all PB-related work is imposed as an additional burden on
financial departments, without increasing their personnel. Despite the ongoing
annual capacity-building activities, the potential of specialists remains insufficient
to generate a high-quality program budget. The main issue is a high turnover due
to the low salary of civil servants, which does not allow continued generation of
capacity. Others who do not have the appropriate experience and knowledge are
replacing PB experts who have the requisite experience. This is reflected in the
quality of the budget documents. Correspondingly, insufficient human investment
is a significant obstacle in the successful implementation of reforms.
2.3.4. Inadequate Organizational Discipline
There are organizational problems impeding the effective implementation of

PB, which are highlighted below:
• L ate start for proposals: Most the ministries and agencies start their
formulation of a program budget but neglect the timeline set up by the
budget calendar. Some of them start to prepare budget documents after the
deadlines. Therefore, the MOF does not have enough time for analysis and
refinement, which is negatively reflected in the quality.
• I nefficient functioning of workgroups: Workgroups focused on the
development of program budgets were formed in some agencies, but they
neglected the proposed timetable and stages of budget preparation. The
formulation of the entire program budget is assigned to one or two financial
unit specialists. Therefore, the lack of involvement of specialized departments
affects the quality of the program budget and performance information.
• Passive use of methodology: For some reason, line ministry and agency
specialists ignore the guidance materials of the MOF during formulation of
their draft of program budgets. The quality of budget requests would be
greatly improved if they studied the MOF’s instructions.
• The great resistance of some ministries and agencies to innovation has led to
the negligent attitude of specialists toward this process. So the development
of the program budget is considered an additional burden on the financial
officers, which has increased the number of reporting forms.

2.3.5. Lack of Monitoring and Expenditure Review
The MOF started work on monitoring indicators of budget programs and

measures from 2013. Instructions for the procedure of formulating and reporting
achievement of performance indicators were developed, tested, and approved
by the MOF. According to the instructions, information on the achievement
of indicators is to be submitted to the MOF on semi-annual and annual bases.
Currently, most ministries and agencies provide information on the achievement
of performance indicators. However, some unresolved issues remain. First is the
quality of performance indicators. The quality of performance information varies
depending on the agency. The indicators should be socially relevant (consistent with
the objectives of the program), specific, measurable, achievable, realistic, and time-
bound (SMART) for easy implementation. Nevertheless, some ministries have noted
the need to increase funding as an indicator. Because of this, there is no reliable
database of performance indicators. The collection of data for monitoring in most
ministries and departments, including the MOF, is carried out by hand.
3. Korean Experiences on the Program-based

Budget
3.1. Overview of Korean Program Budgeting
The Korean government has introduced the Digital Budget and Accounting
Office, and since 2004, the program budget system has been developed, piloted,
and officially operated from the 2007 budget, which was introduced in 2006. PB in
Korea is a system that aims to manage the budget, especially in the program unit,
unlike the past method of operating the budget based on the economic unit (e.g.,
travel cost and salary). A program is a set of activities designed to achieve common
policy goals. The program unit is a business unit that has policy independence with
a certain size. PB is budgeting that is managed and focused on the program unit,
with systematic classification by the program activities of a project.
Such systematic operation of the budget business will eliminate the divisions
between the projects, control similar and duplicate projects, and allow the program
manager to operate the budget with considerable autonomy. Surely, the manager
must take responsibility for the autonomy, which is complemented by a financial
performance management system. With the introduction of PB, the Korean
government intended to manage the budget by considering the performance of
the programs that constitute a set of activities with the same policy goals rather
than on the individual activities of a project.

The program is structured by considering the functions and performance
targets of the organization and the budgetary work carried out by each central
administrative agency. In this case, the program should be given consideration over
an account or a fund, and even if the account or fund of a unit business is different,
it is placed under the same program when the policy goal is the same. In the
program budget system, therefore, the distinction between an account and a fund
is not as important as in the past. This is because when a few activities belong to the
same program, it does not matter whether they are in any account or fund.
One thing to note in the Korean experience is that they did not simply change
the budget classification from the economic classification to the program-activity-
project classification. The Korean PB is a budget system that allows the top-down
budget system to be focused on the programs that are sets of activities with the
same policy goals. In addition, PB was designed to link financial performance
management with budget allocation based on the programs and to manage
the cost of budgets focused on the programs. This was the policy goal of the
introduction of the Korean PB. In other words, the introduction of the program
budget system has made the allocation, review, enforcement, and performance
of the budget focused on the programs, which provides the basis for soundness,
efficiency, effectiveness, and accountability of government resource management.
Thus, PB in Korea is designed to serve as an enabler for the fiscal expenditure

management reforms to operate properly. The past budget system in Korea did
not have a strategic unit for allocating the resources to link national policy priority
and the government budget (Allen Schick). In addition, the MTEF and the yearly
budget have been established in different classifications in the past, and it has been
impossible to link them together. However, because the program budget structure
was established, the program became a unit linking national policy and budget,
and the MTEF and the yearly budget were established under the same classification,
strengthening the bilateral linkages.
When the Korean government introduced top-down budgeting for the first
time, they did not consider what kind of business unit would be the basic unit
to manage top-down budgeting. PB was designed to manage the governmental
resources based on the program unit in the operation of top-down budgeting.
The Finance Authority has decided not to review each project as usual but to set
a budget ceiling for each program by reviewing the budget for each activity and
considering the resource allocation from a strategic viewpoint. In other words,
when the budget authority reviews the budget in a top-down manner, they should
focus on activity units rather than project units. In this case, the line ministries can
have considerable autonomy in executing the budget within the program ceiling.

When the financial performance management system was started in Korea in
2004, the business unit for performance management was a project. However, PB
was designed to link the financial performance management with the budget,
with the program unit being the basic unit for financial performance management.
In other words, when designing the program-activity-project classification, the
classification was planned to link the performance management structure (mission,
vision, strategic goal, performance goal, management task, and performance
indicator) and the budget classification (sector-sub-sector-program-activity-project)
with each other. This plan has already been proposed by the Budgeting and
Accounting Reinvention Office, a cross-government organization, in 2004. However,
for a considerable period since then, fiscal authority has considered the financial
performance management structure and the budget classification separately.
Recently, the MOSF has been continuously trying to link the financial performance
management structure with budget classification.
In addition, PB in Korea was designed to manage the government expenditure

by calculating the program cost. If the program is set up properly and the cost of
the program is calculated, it will be possible to compare the costs between the
ministries, a private organization and a line ministry, and a Korean line ministry and
a foreign organization.
In this way, the Korean PB was designed to make the program unit an enabler as
a core unit in managing the MTEF, top-down budgeting, the financial performance
management system, and government accounting, which is called “3+1 fiscal
reform.” The first step was to introduce the MTEF. The 5-year Economic Development
Plan, which had been a very important instrument to initiate an economic take-
off in Korea, ended in 1997. To develop a new comprehensive national plan, the
MTEF was introduced. With the METF, budgetary priority and sectoral ceilings were
considered and referred to as “top-down” budgeting. When top-down budgeting
was introduced, the role of the MOSF changed to focus on macroeconomics,
while projects were expected to be decided by each line ministry. So the MOSF
tried to focus on performance management. In Korea, the stage of performance
management is divided into two steps: self-assessment by line ministries and meta-
evaluation by the MOSF. To support the whole process, IT-based skill was introduced.
The d-Brain system was invented to support the whole process by using IT.
3.2. Evaluation of and Policy Implications from Korean

Experiences
This part focuses on a few important issues that Korea considered when
introducing PB.

[Figure 1-10] 3+1 Fiscal Reform in Korea
National Fiscal Management Plan

(5-year MTEF)
Performance Management
Top-down Budgeting
System
(Sectoral ceilings)
(Self Assessment + Meta Assessment)
Digital Budget and Accounting System

(IT System)
Program-based Classlfication
Source: Authors.
3.2.1. Program Budget Classification
In the past budget classification, all business units were located in the Sese-hang
units, while the organizations for managing the Sese-hangs were located in the
Sehang units. In the Jang, Gwan, and Hang units, the government functions were
classified as large, medium, and small scale. From a superficial viewpoint, the past
budget was also classified by businesses. However, it is not enough to say that the
budget classification is structured based on the businesses in that the businesses
were not structured based on the policy goals. In addition, the past budget
classification did not play an important role despite the classification included in
the project units (Sese-hangs) in that the projects were not structured based on the
policy goals. In the past, the budget was managed based not on the project units
but on the economic classification.
On the other hand, in the new program budget classification, the project units in
the past budget classification were structured into three levels: programs, activities,
and projects. A program is a business unit that has an independent policy goal with
a considerable scale, which is one of the government’s policies. An activity refers
to the business unit as a means of achieving the program’s policy goals. A project
refers to the detailed business unit constituting the activity. With the introduction
of the new program budget classification, the budget business units have been
structured as three levels as the “policy goal-means-detail.”
If (re)introducing the program budget classification in the Kyrgyz Republic (by

referring to the Korean experiences), it is necessary to clarify the definition and
role of the program, the activity, and the project units and to reset the budget
classification of each line ministry of the Kyrgyz Republic.

[Figure 1-11] Comparison between the Past Budget Classification and Program Budget Classification
Past Budget Program Budget

Classification Classification
(Jang)
Large-scaled Gov't Function (Sector)
Upper Gov't Function
(Gwan)
Medium-scaled Gov't Function
(Hang) (Sub-Sector)
Small-scaled Gov't Function Lower Gov't Function
(Se-hang)
Organization within Line Ministry
(Program)
Policy Goal
(Activity)
Means of Program
(Sese-hang) (Project)
Project Detail of Activity
Source: Yu (2015).
3.2.2. MTEF and Top–Down Budgeting
Many scholars and government officers misunderstand that PB is used just for a
new budget classification and not for the operation of the budget. PB is a budget
system introduced to classify the budget based on the policy goals and to operate
it for budget management. The main purpose of PB is to structure the budget
according to the program classification and to apply it to top-down budgeting,
MTEF, and yearly budget. However, it appears that many people judge that
structuring the budget based on the program classification is the whole of PB. This
is because although it has been more than 10 years since the introduction of PB in
Korea, the Korean fiscal authority has not actively operated top-down budgeting,
MTEF, and yearly budget based on PB.
The Korean government introduced the MTEF in 2004. However, there were
many criticisms that the MTEF had not worked properly in the past. For the MTEF to
function properly, it has to be linked to the yearly budget. For this, its classification
should be the same as that of the yearly budget. As shown in [Figure 1-12], before
the introduction of PB, the classifications of the Korean MTEF and the yearly

budget were totally different in that the MTEF had a three-step classification
structure (sector, sub-sector, and project), while the yearly budget had a five-step
classification structure (jang, gwan, hang, se-hang, and sese-hang). In addition, the
MTEF classified the government function into two steps (sector and sub-sector),
while the yearly budget classified the government function into three steps (jang,
gwan, and hang). Since PB was formally introduced in 2007, the MTEF and yearly
budget could be linked with consistency in budget classification.
[Figure 1-12] Comparison between the Budget Classification

Before and After the Introduction of the Program Budgeting
BEFORE the introduction of AFTER the introduction of

the Program Budgeting the Program Budgeting
Yearly MTEF Classification

MTEF
Budget = Classification = Yearly Budget Classification
Classification
(Jang)
(Sector) (Sector)
(Gwan)
(Sub-sector) (Sub-Sector)
(Hang)
(Se-hang)
(Program)
Policy Goal
(Activity)
Means of Program
(Project)
(Sese-hang) (Sese-hang) Detail of Activity
Source: Yu (2015).
In addition, when the Korean government introduced top-down budgeting in

2004, they failed to choose which budget business unit would be the basic unit for
operating top-down budgeting. Although there were ceilings for each sector, sub-
sector, and line ministry, there were no ceilings for budget businesses under the
ceiling of a line ministry. In other words, they have not decided which business unit
to set for the ceiling of top-down budgeting.

After introducing PB in the Kyrgyz Republic, it will be possible to operate the PB
linked with the MTEF and top-down budgeting. Specifically, it is necessary to unify
the budget classifications of the MTEF and yearly budget. In addition, if top-down
budgeting is introduced in the Kyrgyz Republic in the future, a program unit should
be considered as the basic unit of ceilings in the budget allocation.
4. Implications of the Comparative Analysis

4.1. Comparison
The Kyrgyz Republic already adopted a program-based budget but faces
new challenges and tries to find new solutions and approaches. So it is necessary
to compare the two countries’ experiences before making suggestions. The
comparison will be performed according to the logical foundation.
4.1.1. Governance Structure
1) Political Will
Political will to introduce PB in the Kyrgyz Republic belongs to the MOF. Initially,
neither the parliament nor the president has shown a strong interest in introducing
PB. As a result, the top leaders of line ministries and agencies do not show any
interest in the process of PB. Only the MOF, under the pressure of civil society with
support of development partners, is attempting to introduce it.
In Korea, political will belongs to the president. In 2002, the newly elected
president strongly pushed PB with other fiscal reform instruments. One of
the motivations for this was his experience as the Minister of Maritime Affairs
and Fisheries and the other was the strong support provided by civil-society
organizations. As a result, all stakeholders were obliged to introduce PB.
2) Initiative
Development partners of the Kyrgyz Republic have played an important role

in the process of introducing program-based budgeting by providing technical
assistance. Of course, the demand by the civil-society side was strong. In such
circumstances, the MOF attempted to introduce PB.
The Korean government adopted PB as one of the instruments for fiscal

reform. In 2004, they developed a simultaneous 3+1 Fiscal Reform, Top-down

Budgeting, Medium-term Expenditure Reform, Performance Evaluation, IT-based
Management, and Program-based Budgeting. The framework was designed by the
Presidential Committee for Government Reinvention and Local Decentralization,
which was strongly supported by the president.5) To guarantee permanent impact,
the Fiscal Reform Act was enacted, and to focus on the budget and accounting
system, a cross-government office, Budget and Accounting Reengineering Office
was established, which was comprised of the Ministry of Planning and Budget
(MPB), the Ministry of Finance (MoF) of Korea, and the Ministry of Government
Administration and Home Affairs. Of course, this project team was supported by
outside experts. As the full reform was designed, the MOSF6) has been in charge of
managing the fiscal systems.
3) Government Structure
According to the administrative classification of budget expenditure of the

Kyrgyz Republic, there are more than 70 codes. Accessibility of a wide range of
codes for this classification is due to a ramified structure of the executive branch,
which is composed of the cabinet, twelve ministries, four national committees, six
state agencies, fifteen public authorities, and two nonbudgetary funds. There are
also other budget organizations that are receiving public funds directly from the
MOF.
Several agencies execute public functions within the same sector, obstructing
coordination of their actions and development of industry. For example, public
financial management falls under the purview of the MOF, MOE, State Tax
Authority, State Customs Authority, and Fund of State Property Management.7)
5) The members of this committee were comprised of outside experts and staff at NGOs. It guaranteed
independency, neutrality, and expertise.
6) In 2008, the MPB and the MoF were merged into one ministry (MOSF). Since then, the MOSF has
been in charge of all fiscal affairs.
7) The executive branch is responsible for the development and implementation of fiscal policy of
the republican budget and reports on its implementation. The MOF is the authorized state body
responsible for public financial management as well as public policy relating to internal auditing
and the public procurement system. However, the MOE implements economic policy and works
out government programs and forecasts of socioeconomic development, which is used as the basis
for budget planning. Currently, an economic forecast is formed once a year (in March) for the
MTBF, based on which the MOF determines control ceilings. Thus, a unique aspect of the Kyrgyz
budget policy is the division of power between the MOE, which is responsible for economic outlook
judgements and development programs, and the MOF, which is responsible for budget planning. In
addition, the National Tax Authority and National Custom Authority are autonomous state bodies
of the government, with the mandate to collect revenues. Also, the State Property Fund, which is
responsible for state asset management, operates as an independent government agency. In this
situation, it is very difficult to distinguish the impact of MOF activity on fiscal policy sustainability.

In Korea, even though the presidential system has been adopted, the prime
minister plays an important role. There are five executive bodies under the prime
minister that serve their own regulatory and control function. In addition, there
are 17 ministries and 16 executive bodies under the ministries. Furthermore, fifty
agencies operate as government body in Korea. Even though there are many
public bodies which perform government functions, the role of the MOSF is to
coordinate the budgets of other ministries. The main reason is that the minister of
the MOSF has the status of deputy prime minister, which means that this ministry
has a superior position in comparison to other ministries; in addition, the budgetary
coordination function exclusively belongs to the MOSF.
4) Relationship between Central Budget Agency and Line Ministries

and Agencies
The Kyrgyz government faces the new challenge of role rearrangement

between the MOF and line ministries and agencies. Budgetary proposals and
implementation are up to line ministries, while making and coordinating the
budget is up to the central budget agency. So the MOF finds it difficult to control
line ministries after making a budget. Despite ceilings set up by the MTBF, these
ceilings are subject to be changed in the process of budget negotiation.
The Korean government adopted PB with a top-down process, which means a

decentralization of the budgetary process. After adopting the program budget,
the central budget agency tries to focus on the output of budgetary projects and
priorities, while line ministries focus on budgetary activities and implementation.
In Korea, as the program budget was adopted after the financial crisis in 1997, the
role of the central budgetary agency changed from micromanagement to macro-
management.
To carry out the program budget system, the MOSF strengthened

its organization. The Fiscal Management Bureau is in charge of general fiscal
management in the MOSF, which has two primary tasks: to formulate mid- to
long-term fiscal strategies and a roadmap for fiscal consolidation and to manage
budget spending and assess fiscal performance to improve fiscal effectiveness.
Its role is devised to coordinate various roles related to the program budget: i)
evaluate the performance of fiscal projects and developing measures to improve
efficiency and achieve better outcomes, ii) develop annual fiscal expenditure plans
and regularly monitor budget execution, iii) evaluate public fund performance
and manage investment pools, iv) conduct preliminary feasibility studies on fiscal
projects and invite private sector creativity in public projects through public-private
partnerships (PPPs), v) prepare the National Financial Report and submit it to the
National Assembly, vi) manage budget information using d-Brain, the ministry’s

comprehensive digital budget and accounting system.
[Figure 1-13] Organizational Structure of Department in Charge of PB in Korea
Fiscal Management Bureau
Deputy Director of Fiscal Performance
Government
Fiscal
Fiscal Accounting Fiscal
Management Feasibility PPP Policy
Performance Information
and Study Policy and
Evaluation System
Coordination Division Division Financial
Division Report Division
Division
Division
Source: http://english.mosf.go.kr/co/selectAboutMosf.do?boardCd=C0006#link.
5) Capacity Building
The Kyrgyz government understands the importance of line ministries to

successfully implement program budgets. The public council of each state agency
was established to monitor the activity of each line ministry or agency. The public
council is comprised of outside experts in a particular sector.
The Korean government tried to strengthen the role of line ministries and
capacity building. Each line ministry established a Self-Assessment Committee,
which is comprised of outside experts. Its role is to consult how to organize a
program-based budget classification, develop performance indicators, and carry out
a self-evaluation. The Korea Institute of Public Finance, one of the national think
tanks sponsored by the government, plays the role of educating the staff at each
line ministry.
4.1.2. Strategy
1) Role of Line-Item Classification
The Kyrgyz government tries to discard line-item classification after adopting

program-based budgeting. However, the MOF finds it difficult to manage the
whole budgetary process without line-item classification.

The Korean government uses a program budget based on line-item
classification, which means that line-item classification has its own role. The role
of program-budget classification emphasizes priorities, while line item focuses on
control inputs and costs. To cut costs, line-item review remains important.
2) Unit of Cost
The Kyrgyz government tries to calculate cost based on the program unit. It is
true that the program budget is important to link cost to performance. However,
the MOF faces difficulties in allocating the overhead cost. Actually, without the
double booking system and accrual system, it is a very tough task.
The Korean government adopted a double-booking system and the accrual-

basis booking system and published a financial statement in 2011. However, the
MOSF found that it was very difficult and burdensome to adopt a costing system
with a program budget. In particular, it was not efficient to manage the cost
allocation system.
3) Performance Indicator
The Kyrgyz government has tried to develop performance indicators according

to the program classification. However, the performance indicators submitted
by each line ministry are based on budgetary inputs. Most of them are output
indicators, while outcome indicators are presented rarely. To spread the meaning
of PB to civil society, developing performance indicators is a very urgent task. So the
MOF struggles to develop well-designed performance indicators.
The Korean government has also struggled to develop performance indicators.

Every year, there is consultation advise provided to each line ministry by outside
professional consultants. With regard to performance evaluation, the Korean
government has two stages. The first is a self-evaluation by each line ministry.
To support the self-evaluation, each line ministry is supposed to organize a self-
assessment committee, which is comprised of outside experts. Second, the MOSF
reviews, and finally, accepts the performance evaluation, which is called meta-
evaluation. For meta-evaluation, KIPF, one of the national think-tanks sponsored by
the government, has the role of supporting a review of the performance indicators
submitted by each line ministry. For some specific issues with regard to problematic
projects, in-depth research can be conducted by the MOSF.

4.1.3. Process
1) Tracking Implementation
The Kyrgyz government tries to track the budget implementation of each

ministry. However, it is not effective to control budgetary implementation with just
program classification. It may raise conflicts between the central budget agency
and line ministry. Thus, budget planning is implemented by hand. There is an IT
system of budget execution that is not integrated with budget planning and other
IT systems. Almost all data for monitoring are gathered by hand. So, there is lack of
reliable data that can be used for monitoring and evaluation.
The Korean government developed an IT-based management system. The Digital

Budget & Accounting System, commonly referred to as d-Brain, is an integrated
information system that allows all fiscal management processes to be conducted
online. It is meant to represent an intelligently integrated financial management
system in the digital era. It consists of a business support system, central financial
information system, statistical analysis system, interfaced external systems, and
open fiscal data system. The system produces useful information for understanding
the comprehensive picture of national finances and the status of fiscal health by
connecting the financial systems of various organizations.
[Figure 1-14] Composition of d-Brain
Business Central Financial Information System Fiscal Information

Support System -Unit Business Management Disclosure
Program Mgmt Budget Mgmt Open Fiscal Data System

• Execution • NationalFiscal Mgmt Plan
• Monitoring • Budget Formulation
Statistical Analysis System
Call Center
OLAP EIS
Performance Mgmt National Treasury Mgmt
• Goal / Evaluation • Revenue • Expenditure • Funds
EDW
• Self-review /
Asset & Debt Mgmt Data Warehouse Data Mart

E-learning In-depth Review • Budget
• Budget • Liability
• NationalProperty • National Debt • Acct
• Treasury Funds & Setilement
Real-time Receipt • Goods • Receivables • Acct & Setilement • Program info
• Assets • GFS • GFS
& Disbursement
• EBPP • EFT Accounting Mgmt
E-payment • Settlement • Cost
Meta Data
Interface with Board of Audit & Bank of Korea, Local Local Education Non-profit Public
External Systems Inspection Commercial Banks Government Authorities Institutions
Source: http://eng.openfiscaldata.go.kr/portal/dbrain/english/introduction.do?code=dBrain&leftCd=0&subCd=
&depCd=.

2) Role of Audit
The Accounts Chamber of the Kyrgyz Republic implements financial audits.

Nowadays, they are trying to introduce performance audits, but this type of audit is
being implemented on a pilot basis. Internal audit divisions under each ministry and
agency also implement audits on line-item units.
In Korea, the Board of Audit and Inspection (BAI), which is independent of

the government structure but under the president, has the role of performing
audits. The Performance Evaluation Report, which is meta-evaluated by the MOSF,
is supposed to be reviewed by the BAI. Of course, the BAI audits some specific
problematic issues in detail, but the program unit is an important instrument to
audit program effectiveness.
3) Role of Parliament
The Kyrgyz government wants budgetary approval in the parliament to be done

based on program classification. However, parliament members focus on projects
and activities and even line items. In this case, the central budget agency cannot be
concerned with line items.
In Korea, the situation is very similar to that in the Kyrgyz Republic. Even though
a performance evaluation report is submitted to the parliament and approved by it,
the parliament still focuses on line item. To embed the program-budget approach
in a country, it is mostly important and urgent to have understanding from its
parliament.
4.1.4. Policy Instrument
1) Relation with MTEF
The Kyrgyz government adopted the MTEF based on a program budget.

Budgetary priorities are identified in this document. The MOF has formulated the
MTBF since 2002. In 2012–2015, 15 ministries had presented their MTEF. In 2014, the
number of ministries and agencies that should present their MTEF was increased
from 15 to 20. Nowadays, only 20 ministries and agencies among 76 present their
medium-term sector strategies. Despite some progress, performance results are not
used in decision-making processes.
To formulate the MTEF, the MOF sets up control ceilings for the MTEF that are
very close to annual budget ceilings. The MTEF is used for determining sectoral
priorities. In reality, the Kyrgyz government does not use them in decision-making

processes regarding the allocation of funds. According to the Budget Code (which
came into force from January 1, 2017), public hearings with public councils and
representatives of NGOs on the Medium-Term Sector Strategy must be organized by
each line ministry or agency prior to submission to the MOF.
In Korea, the MTEF is a good instrument for setting budgetary priorities, because
these priorities are developed based on program units. Especially during the making
of the MTEF, the Korean government holds public hearings with experts and staff
at NGOs. In this situation, the program is a good instrument for readability and
acceptability by ordinary citizens.
2) IT System for Managing Budget
The Kyrgyz government wants to track and manage the budget based on
program classification. However, this cannot be done easily without a well-
developed IT-based system.
The Korean government developed the d-Brain system, which provides

information by budget type (program, unit program, or project), enabling budget
officials in charge of each fiscal program and project to easily monitor, manage, and
compare programs and projects. Through linkages with other unit systems such as
budgets and expenditures, the accounting-program management system provides
information such as basic program information, allocated budget, current execution
status, and procurement information in real time.
The provided information allows decision makers to set priorities among

programs and monitor the progress and execution status of each program.
[Figure 1-15] Program Management System by d-Brain
Program Management System Budget Accounting System
• Budget Management
Program/ • Preliminary Feasibility Study
Performance
Project Execution Completion • Performance Management
Management
Program Registration Related • Revenue / Expenditure
/Project information / • Fund Management
transaction
Managers linkage • National Property /
Individual Goods Management
Program/ Execution Rate Performance • Asset / Debt Management
Project Monitoring Monitoring • Settlement
Monitoring
Source: http://eng.openfiscaldata.go.kr/portal/dbrain/english/components.do?code.

4.1.5. Monitoring & Feedback
1) Incentive System
The Kyrgyz government tries to embed PB in the country, but it is not easy. This
is because there are not sufficient instruments to compel other line ministries.
The Korean government adopted PB with a strong incentive and penalty system.
When a program receives a C grade, the amount is supposed to be cut by 10%.
In contrast, an excellent program may have additional amount allocated to it in
budgets for the next year.
2) Incentive-based Payment System
The Kyrgyz government still does not adopt an incentive-based payment system,
so it is not easy to link the program budget to a personal incentive system. The
Korean government adopted performance payment, so the performance result of a
program budget is related to performance payment for the program.
4.2. Implications
The Kyrgyz Republic already adopted PB, so it is important to assess it and look
for some implications. Based on the above analysis, some critical issues can be
abstracted as follows:
<Table 1-5> Comparison between the Kyrgyz and Korean System of Program Budget
Category Kyrgyz Republic Korea

Starting Year 2011 2006
• Weak • Strong
Political Will
• Belong to MOF • Belong to President
• Lack of strategy to introduce PB • 3+1 fiscal reform with President’s
Background of • Consulting by development will by demand of civil society
Introduction partners through provision of
technical assistance
• Great number (up to 77) of • Up to 40
Government
ministries/agencies/committees/ organizations including ministries
Structure
inspections and agencies

Category Kyrgyz Republic Korea

• Lack of legal basis (2011-2016) • National Fiscal Act
Legal Basis • Budget Code (came into force • Guidelines for Budget Proposal
from January 1, 2017)
• MOF • MOSF
Responsible
–Unit of program budget –Dept. of Fiscal
Ministry
Management
• Budget and performance indicator • Budget and performance
Role of Line
proposal indicator proposal
Ministries
• Self-assessment
• Program • Field
• Program measure (sub-program) • Sector
Classification
• Program
Structure
• Sub-program
• Activities
• Program goal • Strategic objectives
Level of
• Program measure task • Performance goal
Performance
• Performance indicators for • Sub-program goal
Indicator
program and measures • Performance indicator
Performance • Each line ministry with • Self-assessment committee
Indicator consultation of MOF and public • Meta-evaluation
Developer council
DB for Budget
• None • d-Brain system
Management
Relationship
• Priority setting • Priority setting
with MTEF
Through its experience, the Kyrgyz Republic has raised clear issues. By
comparison, some issues can be drawn for alternatives.
The first is the question of how to establish the relationship between the
ministry and the central budget agency after the introduction of the program
budget system. The task is to establish a system for the management of individual
project management departments by submitting a budget based on the program
unit and to establish standards for determining program units in the process of
review by the central budget agency.
Second is the issue of how the budget authority monitors and controls the
budget execution of individual departments in a situation where they are
controlled by only a program unit and do not control line items. The task is to
design the monitoring function of the central budget agency in the case where the
discretion of the execution is given to individual departments on a program basis.

Third, it is very important to develop performance indicators according to
changes in budgetary classification. However, individual ministries still submit
performance indicators for budgetary input levels. It is therefore necessary to
determine who will develop performance indicators based on the outcomes and
impacts appropriate to the program management.
Fourth, it is necessary to manage program classification and performance

indicators over medium to long term. Therefore, the experience and performance
indicators that make up the program should be accumulated. It is necessary to
construct a program unit and a performance index in DB.
Fifth, there is difficulty in spreading the PB, because the ministry officials do not
understand the meaning of a PB and are not willing to cooperate with the central
budget agency. Therefore, it is necessary to develop and disseminate a manual that
develops standards and performance indicators. In the same way, it is necessary
to make efforts to strengthen the capacity of civil servants in charge of individual
departments.
Sixth, there is a lack of an incentive system with regard to the budgeting process
after the introduction of the new budget system. With these incentives and penalty
systems, the effectiveness of managing business on a program-by-program basis can
be assured. This powerful and influential device is especially needed to guarantee
the sustainability of program budgets.
Seventh, the Kyrgyz Republic introduced a medium-term budget framework, but

is not linked to the annual budget. Therefore, it is necessary to find a plan to link
the budget with the mid- to long-term plan scheme and ensure the predictability of
funds. It means that the program-based budget should be an efficient instrument
for setting budgetary priorities and following established priorities.

5. Conclusions and Policy Recommendations
5.1. Policy Suggestion
As a start for fiscal reform, the program budget has an important place.
However, it is not practical and efficient to just change the classification from line
items to programs without a blueprint of the overall fiscal reform. Based on the
comparison, some policy recommendation can be suggested as follows:
5.1.1. Political Will to Implement PB and Reorganize the Government
For the successful implementation of PB in the Kyrgyz Republic, the Kyrgyz

government structure should be gradually redesigned. To do this and to succeed in
introducing PB (e.g., by introducing an IT system and a system of monitoring and
evaluation and by using performance information in decision-making processes),
very strong political will is required; presidential power is needed to push the whole
line ministry into action.
To induce such political concern, advocacy by non-governmental organizations

is needed. When the program budget is well structured, the readability and
effectiveness of the budget can be enhanced and the final beneficiary is the
taxpayers. This is the reason why civilian participation should be included in the
development of the program budget.
5.1.2. Relationship between the Line Ministries and Agencies and the
Central Budget Agency
After adopting a program budget, line ministries expect decentralization while

the central budget agency still wants to control budgetary execution. A program
budget implies the power devolution to line ministries to carry out the project
development while the MOF is focused on national priorities.
However, a program budget itself does not mean that the itemized unit should
be discarded just because the program budget system is introduced. Line items still
have a role in determining the cost in the budgeting stage. To reduce cost, line
item review may be an important process. PB can be developed based on line-item
classification. In Korea, the Department of Financial Planning, the Department of
Financial Management, and the Department of Budget Making, all have a role in
maintaining financial effectiveness and soundness.

5.1.3. Development of Performance Indicators
A program is not just a unit of budgetary classification. It should contain the

meaning of the budget’s objectives for civil society and the national economy.
So it is necessary that the program unit is related to performance indicators. The
most important issue with the Kyrgyz Republic is that relevant and adequate
performance indicators are not developed.
In Korea, with regard to performance evaluation, there are two stages. The
first is the review of individual ministries by committee, followed by the meta-
evaluation by the MOSF. Self-evaluation committees of individual ministries will
primarily develop and evaluate performance indicators by themselves. The self-
evaluation committee of these ministries is composed of external experts and is
making efforts to ensure objectivity and professionalism. The MOSF conducts a
meta-evaluation of the performance indicators and evaluation results submitted
by individual ministries. In this process, KIPF provides support. It is a system that
complements objectivity and professionalism through the support of specialized
research institutes.
In this context, it is necessary to strengthen the NISS, an important policy

research support organization in the Kyrgyz Republic, to expand its support for
financial management and reform.
5.1.4. Database (DB) Construction and IT-Based Support System
In Korea, KIPF plays an important role in supporting the management of

program budgets. The Performance Management Division under the MOSF
supports the development of performance indicators while managing key
performance indicators.
The whole process is managed through a digital system. In this sense, d-Brain
is very important to carry out program budgets. In 2016, the Korea Public Finance
Information Service, a public institution, was established to manage the d-Brain
system.
Korea's d-Brain is a complex system covering the whole budgetary process and
processes information with regard to financial management. To adopt the IT-based
management system, it is necessary for the Kyrgyz Republic to adopt this in its initial
stage by just covering the program budget related information.

5.1.5. Strengthening the Capacity of Line Ministries
Each department has difficulty in spreading the message of program-based

budgeting because they do not understand how to structure the program unit; only
three staff members in the MOF are in charge of program management.
To develop the program unit and related performance indicators, the capacity
of each ministry is very important. In this sense, the self-evaluation committee of
each line ministry plays a critical role of providing advice by external experts. In
addition, it is important to educate the staff in charge of program budgets at each
line ministry.
On the other hand, it is necessary to develop and disseminate manuals that

develop standards and performance indicators for the program units. Also, there is
a need to develop very specific checklists and make them available.
In the future, it is necessary to strengthen the authority of the program unit

through a reorganization of the MOF.
5.1.6. Construction of an Incentive System
To install a new system, an incentive and penalty system is important. Especially

in the initial stage, such a control system is very influential in getting a new system
adopted.
In the case of Korea, it was compulsory to reduce program budgets by 10% if it

was not delivering the intended social goods. This can be an efficient instrument
used by line ministries when adopting program budgets.
In the same way, it is necessary to strengthen efforts to link the program budget
system with the performance management system. This kind of compulsory system
can guarantee the compliance of the ministries.
5.1.7. Strengthen Linkage between the Program Budget System and

the Medium-Term Financial Plan
The NFMP is a device to link the annual expenditure limit with priorities by using
prudent economic assumptions and revenue forecasting. With the NFMP, programs
are good instruments for setting national priorities.
In this way, a program budget can be linked to the MTBF. However, the MTBF
should be linked with the annual budget to ensure the predictability of public

funds. Also, it can draw acceptance from ordinary citizens by enhancing the
readability of the budget structure.
5.2. Road Map for Recommendation

The program budget system involves overall reforms of budget management,
including budgeting processes and performance management systems. Therefore,
it is necessary to strategically manage the issues discussed above. Strategies for
management from the short-, mid-, and long-term perspectives are as follows.
<Table 1-6> Road Map for Recommendation
Category Short-Term Mid-Term Long-Term

Should be
Political Will Strong Strong
strengthening
Up to 15 ministries
Government Should be gradually Should be gradually All agencies and

Structure re-organized re-organized committees should
be under the line
ministries
Strategic review by
Role of Budgetary
MOF
Process and Devolution to line
Initiative by MOF
Program ministries
Project decision by line
Classification
ministries
Program base by MOF Program base by MOF
Program base by
Monitoring
MOF Real-time monitoring Real-time monitoring
by IT by IT
Relation with MTEF Priority setting Priority setting Priority setting
Academy for fiscal
Capacity Building Manual for guideline Training program
education
Performance Outcome and Impact
Output oriented Outcome oriented
Indicator oriented
DB Data accumulation DB by IT DB by IT
The critical criteria needed to divide responsibilities should focus on the role
between the MOF and line ministries. In the initial adoption stage, initiative by
the MOF is very important, but as other fiscal instruments develop and program
budgets mature, the function of the MOF will change. The MOF will be needed to

focus on budgetary priorities, evaluate the budgetary performance, and monitor
implementation as the main role of the program budget is to focus on the results
and effectiveness of budgetary programs.
5.3. Follow-up Plans

The Kyrgyz Republic has tried to settle program budgets, which can provide a
new opportunity for reorganizing the whole budgetary process.
Through this KSP, overall ideas were introduced. However, to carry out the
ideas in detail, it may be necessary to have pilot implementation for a specific
ministry, including the development of performance indicators and methodologies
for measurement. The ministries that are early adopters can be candidates for the
pilot study by comparing competent Korean ministries with them, for example, the
Ministry of Agriculture, the Ministry of Transport, and the Ministry of Health and
Welfare.
Such further research can provide new opportunities for the Kyrgyz Republic to
develop PB by considering supporting devices.

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Appendix
2017 Guidelines for Program Budget Published by

MOSF
1.1. Performance Plan Overview
1.1.1. Outline of Performance Plan
1) Outline of Performance Plan
The performance plan is an annual plan for achieving the strategic and performance
goals of the central office and the fund management body.
The performance plan sets out the performance targets, the performance indicators,
and the target level in the budget preparation stage before the project is implemented.
• In this way, we encourage the transition from the enforcement stage to an efficient
business management method for achieving performance and improving the
efficiency of financial management by refluxing post-performance information to
expenditure restructuring.
[Appendix Figure 1-1] Financial Performance Management System
• Result Management by Objectives

Monitoring
(Strategic Objectives-Program Objectives-Project Unit)
(Performance Plan -> Performance Report)
• Evaluation of Integrated Financial Business

Review & Feedback
(Performance Management Target)
(Checklist method check)
• Evaluation of In-depth Financial Project

Evaluation & Feedback
(Individual In-depth Analysis of specific projects)
(In-depth Evaluation by Projects)
Each ministry performance plan will be made public by the National Assembly and the
public, thereby enhancing the understanding of the government’s financial management
performance and raising the transparency and accountability of financial management.
In particular, as financial expenditure takes place in accordance with a low birthrate,

aging has increased, interest in ensuring financial soundness has increased, and the

necessity of efficient financial management through performance management has
increased.
2) Legal Basis of Performance Planning
With the enactment of the National Finance Act in 2007, the main contents of
performance management, such as performance plans, performance reports, and
financial business evaluation, have laid the foundation for performance-based financial
management.
• Each ministry is obliged to submit the annual budget proposal and the fund
management plan to the Minister of Strategy and Finance (Article 8 of the Law) and
organically link budget formation and performance management.
• In addition, the government submits the performance plan together with its budget
proposal and the fund management plan as attached documents when submitting it
to the National Assembly (Acts 34 and 71) and applying to the budgeting process.
<Appendix Table 1-1> The Status of Performance Management Act
Act Contents
(Section 1) A person who manages funds in accordance with
the rules and regulations of each central office (excluding those
entrusted with the management or operation of funds, hereinafter
referred to as "fund management body") shall establish a
performance management system for financial activities.
(Section 2) When submitting a budget request pursuant to Article
31-Section 1, the head of each central office shall submit the
performance plan for the next year’s budget and the performance
Article 8 of the report of the previous year’s budget (the performance report
National Finance under Article 14-Section 4). The fund manager shall submit the
Act (financial performance plan of the next year’s fund and the performance
management based report of the previous year’s fund when submitting the fund
on performance) management plan in accordance with Article 66-Section 5 to the
Minister of Finance.
(Section 3) The head of the central office and the fund management
entity should make the budget and the performance report of the
fund in accordance with the National Accounting Law.
(Section 5) The Minister of Strategy and Finance shall prepare
guidelines regarding the performance plan, etc., in accordance with
Article 2 and notify the heads of each central office and the fund
management entity.

<Appendix Table 1-1> Continued
Act Contents
(Section 6) The Minister of Strategy and Finance may conduct an
assessment of the main financial business, as prescribed by the
presidential decree, and reflect the results in financial management.
(Section 7) The Minister of Strategy and Finance may entrust
investigation and research to the specialized agencies when it is
necessary to conduct professional research, survey, etc., in relation
to assessment in accordance with the provisions of Section 6.
Article 8 of the (Section 8) The MOSF Minister may require the submission of
National Finance comments regarding such pages or materials on the evaluation of
Act (financial the relationship between administrative agencies when deemed
management based necessary in performing the assessment in accordance with Article
on performance) 6. In this case, the head of the administrative agency concerned shall
comply with this, except for special reasons.
(Section 9) According to the budget plan based on Article 33, the
revised budget pursuant from Article 35, the fund operation plan
pursuant to Article 68-Section 1, the proposed revision of the fund
operation plan pursuant to Article 70-Section 2, the supplementary
budget plan from Article 89-Section 1, and the performance plans
prepared in accordance with those plans should strive to match the
project contents and costs.
(Article 34) In accordance with the provisions of Article 33, the
budget proposal submitted to the National Assembly should be
accompanied with the following documents
1. ~ 7. (omitted)
Articles 34 and 71 of 8. Performance plan according to the provision of Article 8-Section 2
the National Finance (Article 71) As the government or the fund management body shall
Act submit to the National Assembly the fund management plan and the
(supplementary plan for the modification of the fund management plan (hereinafter
documents for budget referred to as the "fund management plan plan") in accordance
proposal and fund with Article 68, Section 1, and Article 70, Section 2, the following
management plan) documents should be attached. However, in case of submitting
changes to the fund management plan, it may be omitted if the
attached documents overlap with already submitted documents.
1. ~ 3. (omitted)
4. Performance plan under Article 8 - Section 2
(Article 14) closing report is organized into the following sub-
National Accounts paragraph documents
(consisting of a
1. ~ 3 (omitted)
closing report)
4. Performance report

Act Contents
(Article 3) The Ministry of Strategy and Finance may be required to
evaluate major financial business (hereinafter referred to as “self-
evaluation of financial business”) in accordance with the Fund
Management Body pursuant to Article 8, Section 1 and the respective
Enforcement Decree central authorities in accordance with the law Article 8, Section 6.
of the National Furthermore, in-depth evaluation can be conducted for businesses
Finance Act (Financial falling under any of the following sub-paragraphs. However, the
Business Evaluation) assessment of the national research and development (R&D) projects
under the "Science and Technology Basic Law" Article 9, Section
2, No. 5, can replace them with the evaluation of the "Act on the
performance evaluation and performance management, including
national research and development projects". (The rest is omitted)
Source: 2017 Guidelines for Program Budget Published by MOSF.
1.1.2. Progress of Preparation of Performance Plan
We have been implementing a performance budget system on a pilot basis with a

few departments since 1999 by using the financial management methods of advanced
countries as a model for performance-based fiscal management after the financial crisis in
1997.
Since 2003, we have selected 22 departments that have experience in making

performance plans, as a pre-implementation test, and enforced a full-scale performance
management system.
• Reinforcement of financial operability and accountability to enlarge the autonomy of

budget management by fully expanding financial projects to all ministries (48) since
2006.
Enactment of a performance management system reached by budget guidelines in

accordance with the implementation of the National Finance Act in 2007.
• When the head of each central office and the fund manager submit the budget
request and fund management plan to the Minister of Strategy and Finance, a
performance plan should be mandatorily submitted with it (Article 8, Section 2).
Submit the performance plan from the fiscal year 2009 to the National Assembly as attached
documents of the budget plan and fund management plan (Article 34, Section 71).

Revised relevant regulations to match the budget plan, fund management plan, the project
contents of the performance plan, project costs, etc., from fiscal year 2011 (Article 8, Section 9).
1.1.3. Organizations to Prepare the Performance Plan
The heads of all central offices and fund management subjects who submit the budget
request pursuant to the National Finance Act (Article 8) are the target organization for
the performance plan.
• The target organizations for the performance plan are 52 central offices in 2017.1)
The organizations are to write a performance plan to establish performance plans

regarding all financial projects (General Finance, R&D, Informatization), which each
competent ministry wants to carry forward.
• However, projects that are difficult to disclose to the public in light of related laws
and business specificities are excluded (guidelines for the preparation of performance
plans).
1.2. How to Write a Performance Plan

1.2.1. Establishment of Performance Target System
The MOSF suggests how to create a plan and standards by instructing each department
on the systematic performance management of the central office.
Establish a stage-by-stage performance target system such as “Mission and Vision”,

“Strategic Goal”, “Program Goal”, and “Unit Business” as each department considers
project structure and organization of the institution pursuant to the performance of
planning guidelines.
1) Mission and Vision Settings
The mission based on the relevant laws and regulations such as the Government
Organization Act covers the purpose of the institution and its main functions.
A vision based on an understanding of the organization’s current status as a desirable

future to achieve through accomplishment of the mission is to present contents that can
be implemented through performance management.
1) Excluding the National Intelligence Service among 53 budgets

2) Strategic Goal Setting
Strategic goals that the agency needs to focus on or promote by considering the goals
of the national government, the mission, and the vision of the organization, which are the
mid/long-term goals.
• It should have a logical link with the mission of the agency and make it clear so the
level of improvement in the future can be seen.
• It should be written in specific (rather than general or abstract) form, and is set
up considering the mid- and long-term plan according to the national financial
management plan or related laws.
3) Program Goal Setting
The program’s objective is a sub-concept of the strategic objective, which is a concrete

goal achieved through actual business promotion and is assessed through the “strategic
goal” achievement measure.
• The program goal is to ensure that there is a link between the strategic goal and the
program goal or between the program goal and the unit project. The goal of the
program is to have the results be as societally beneficial as possible.
• Be able to judge the short-term (annual) performance level for achieving long-term
goals and avoid too many program goals.
• Program goals are defined and specifically designed to be able to be measured

through the performance indicators from the set-up stage.
4) Business Unit Setting
Individual business units are business units of business promotion and performance
measures, which are the concrete means for achieving program goals.

<Appendix Table 1-2> Scope of Unit Business Setting for Performance Management by Business Type
Classification Scope of Setting

• In principle, all unit projects are included in the performance plan target
system in the budget system.1)
•P
ersonnel expenses, basic expenses, fund operating expenses,
General Finance
government internal expenditures, conservation expenditures, local
grants and local education financial grants, borrowing interest
repayments, unit business consisting of health insurance contributions,
reserve funds, and other items only
• In principle, business units set all national R&D programs2), 3)
R&D •A
unit business consisting of personnel expenses, basic expenses,
fund administration expenses, research planning, management, policy
research projects
• In principle, all information set for each business unit4)
Informatization •B
usiness PC and officer Lyon of its employees’ S/W
•R
eplacement dissemination, fee of communication lines, employee IT
training expenses
Note: 1) Unit business that can be excluded from performance management target
2) Pure facility business, humanities, and social studies research projects also targeted for performance
management
3) Unit business that can be excluded from performance management target
4) Unit business that can be excluded from performance management target
1.2.2. Setting up Performance Indicators and Target Values
1) Setting up the Performance Indicator
Performance indicators are set up to maintain representativeness and inclusiveness as a

tool to measure whether a program goal or unit business achieves its goal.
• Accurately measure the achievement of your goals and make it possible to keep track
of changes in performance levels over time through ongoing evaluations.
The performance indicator is set as a result indicator that can measure the program’s
goal or the ultimate effect of the unit project as much as possible.

• If it is difficult to set up the result indicator and use the process index and calculation
index in parallel, but it is simple to set the measurement quality.
The performance indicators are classified into four types according to the
characteristics of the indicators (input, process, output, and result indicators), and are
classified into quantitative and qualitative indicators according to the quantitative
measurement.
<Appendix Table 1-3> Indicator Classification according to the Characteristics of Indicators
Classification Concept Feature

Indicator indicating amount of input such as
Help find budget issues
budget and manpower
Input indicator and problems in the
(e.g., vocational training education, budget
process
execution rate)
Help to mid-check the
Indicator of the amount of output during the
progress of business
Course index project
such as business
(e.g., progress rate by vocational training)
progress
Indicator of primary output after project Help assess the entity
Output index completion meet the goals set in
(e.g., number of vocational training graduates) proportion to the input
Help measure the impact
Ultimate effect of business through primary
and effectiveness of the
output, indicator of the influence on policy
Result indicator achieved level of the
(e.g., vocational training, graduates’
intended final target
employment, income growth)
business
<Appendix Table 1-4> Indicator Classification according to Measurement
Qualitative Indicator
Classification Quantitative Indicator
(Scale Indicator)
Measurable with materialized quantitative Unable to measure with
Definition
value quantitative values
• Evaluator's subjectivity cannot be involved • Reflect the subjective opinion
Feature
• Repeat measurement leads to same results of the evaluator
• Level of satisfaction
• Major national issues in
• Good agricultural land area
public awareness
• The cost of overseas construction orders
• Degree of building
Cases • Tourism income growth rate
information management
• The incidence of five crimes per 100,000
system
population
• Implementation degree of
system improvement task

2) Setting the Target Value of the Performance Indicator
The target values of the performance indicators are set in a challenging manner in
terms of aggressive business practices, such as willingness to improve the business method
in consideration of the mid- and long-term plans, comparable business and international
trends, and past trends.
When establishing measurement indicators and target values, we use official data and
provide clear evidence, such as the source of data, and methods to ensure accuracy and
reliability of the performance measurement data.
[Appendix Figure 1-2] Performance Goal Management System Map
Mission and
Vision
Strategic Goal I Strategic Goal II Strategic Goal III
Program Program Program Program Program Program

Goal Goal Goal Goal Goal Goal
I-1 I-2 II-1 II-2 III-1 III-2
Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project
Unit Unit Unit Unit Unit Unit Unit Unit Unit Unit Unit Unit Unit Unit Unit Unit Unit Unit
1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3
1.3. 2017 Performance Plan Highlights

1.3.1. Program Objectives and Unit Project Status
The performance management system of the 52 central agencies to be completed in

2017 is composed of 180 strategic objectives, 513 program goals, and 2,133 unit projects.
• Compared to the year 2016, the number of targeted central government offices
decreased by one, the number of strategic goals decreased by one, and the program
goals and business units decreased by one and eighteen, respectively.2)
2) The central office declined to speak with the special investigation committee of the April 16 ferry disaster.

2,133 units were composed of the following: general finance 1,688; R&D 227; and
informatization 218.
• Decreased by 18 units from the previous year, 15 by general finance, 2 by R&D, and 1
by information.3)
<Appendix Table 1-5> 2017 Performance Goal Management System

(Unit: number)
Unit Project
Fiscal Strategic Program
Department
Year Goal Goal Amount General R&D Informatization
Finance
2017(a) 52 180 513 2,133 1,688 227 218
2016(b) 53 181 514 2,151 1,703 229 219
Variation ∆1 ∆1 ∆1 ∆18 ∆15 ∆2 ∆1
<Appendix Table 1-6> Status of Program Objectives and Unit Business by Department
Strategic Goal Program Goal Unit Business

No. Department
2016 2017 2016 2017 2016 2017
Total 181 180 514 513 2,151 2,133
Presidential Secretariat and
1 1 1 1 1 1 1
National Security Office
2 Presidential Security Office 1 1 1 1 1 1
3 National Assembly 2 2 5 5 22 21
4 Supreme Court 2 2 3 3 17 17
5 Constitutional Court 1 1 1 1 7 7
Central Election
6 1 1 2 2 8 7
Management Committee
Democratic Peace and
7 1 1 1 1 3 3
Unification Advisory Council
The Board of Audit and
8 1 1 1 1 5 5
Inspection
Secretariat of the Prime
9 2 2 2 2 29 29
Minister’s Office
10 MOSF 4 4 17 17 43 41
3) Decrease in the number of unit projects due to restructuring of budget subjects, such as business integration
and closing.


No. Department
2016 2017 2016 2017 2016 2017
Ministry of Science, ICT and
11 6 6 37 37 165 165
Future Planning
12 The Ministry of Education 4 4 18 19 78 81
13 The Foreign Office 6 6 13 14 41 40
14 Ministry of Unification 2 2 10 10 23 24
15 Ministry of Justice 5 5 9 9 36 35
16 Ministry of National Defense 5 5 12 13 59 58
Ministry of Government
17 Administration and Home 4 4 16 16 84 85
Affairs
18 Ministry of Culture 6 6 34 34 105 105
Ministry of Agriculture, Food
19 5 5 21 21 90 92
and Rural Affairs
20 Ministry of Trade 6 6 25 25 124 122
Ministry of Health and
21 4 4 36 36 169 171
Welfare
22 Ministry of Environment 6 6 9 9 78 80
Ministry of Employment and
23 5 5 10 10 94 97
Labor
Ministry of Gender Equality
24 4 4 6 6 33 32
and Family
Ministry of Land,
25 7 7 40 41 152 156
Infrastructure and Transport
Ministry of Maritime Affairs
26 3 3 22 19 123 117
and Fisheries
The Ministry of Public Safety
27 and Security of Republic of 5 5 10 10 59 59
Korea
The Human Resources
28 1 1 5 5 22 23
Affairs
29 The Office of Legislation 2 2 2 2 4 4
Ministry of Patriots and
30 5 5 9 9 38 39
Veterans Affair
Korean Food and Drug
31 10 10 10 10 21 20
Administration
National Human Rights
32 1 1 1 1 6 6
Commission


No. Department
2016 2017 2016 2017 2016 2017
Korean Communications
33 2 2 5 4 10 9
Commission
34 Fair Trade Commission 3 3 4 4 12 12
Financial Services
35 4 4 10 9 19 17
Commission
Anti-Corruption and Civil
36 1 1 1 1 7 7
Rights Commission
37 Council for Nuclear Safety 2 2 5 5 5 5
38 National Tax Service 4 4 5 5 20 19
39 Korea Customs Service 4 4 5 6 13 13
40 Public Procurement Service 2 2 3 3 9 8
41 National Statistical Office 3 3 5 5 21 21

Ministry Manpower
42 4 4 4 4 8 7
Administration
Defense Acquisition
43 3 3 11 11 45 40
Program Administration
44 The National Police Agency 4 4 11 11 34 33
Cultural Heritage
45 4 4 9 9 28 28
Administration
Rural Development
46 3 3 7 7 31 31
Administration
47 Korea Forest Service 4 4 7 7 39 42
The Small and Medium
48 6 6 15 15 50 48
Business Administration
The Korean Intellectual
49 2 2 5 5 16 14
Property Office
The Meteorological
50 4 4 8 8 23 22
Administration
Multifunctional
51 Administrative City 1 1 2 2 10 10
Construction Agency
The Saemangeum Project
52 2 2 2 2 4 4
Office
4.16 Special Rapporteur on
53 the Sinking of Sewol Ferry 1 - 1 - 7 -
Disaster

2016/17 Knowledge Sharing Program with Kyrgyz Republic:
Chapter 2
Strategies for Sustainable

Regional Development
1. Introduction
2. Korean Experience of Sustainable Development
3. Analysis of Sustainable Development in the Kyrgyz Republic
4. Policy Recommendations for Improving Sustainable Regional Development
■ Chapter 02
Strategies for Sustainable

Regional Development
Seung Yong Rho (Seoul Women’s University)

Ki-Deok Shin (Korea Institute for Development Strategy)
Azamat Dikambaev (National Institute for Strategic Studies, Kyrgyz Republic)
Nuradil Baidoletov (Ministry of Economy, Kyrgyz Republic)
Summary
The fundamental aim of the 2016/17 KSP with the Kyrgyz Republic, with its
topic being strategies for sustainable regional development in the Kyrgyz Republic,
is strengthening the future of sustainable regional development, including
governance, law, and institutions, by employing a vision-strategy framework.
Pragmatically, and in the short-term, this means establishing an effective 5-year
plan for sustainable regional development systems.
In order to diagnose and analyze the current status of sustainable regional

development in the Kyrgyz Republic, members of the KSP team reviewed
documents and reports produced by the Kyrgyz government as well as international
organizations, conducted interviews with experts as well as government officials
related to the subject, and brainstormed to explore development alternatives.
Problems that were found vis-à-vis the Kyrgyz Republic's sustainable regional
development through the expert interviews and literature review were as follows:
the absence of adequate governance, law, and institutions; inadequate manpower
for sustainable regional development; the lack of a budget for implementing
a development plan; and the lack of strong leadership from both the central
government and the local ones for a sustainable development plan. In addition,
due to environmental constraints, the Kyrgyz Republic has had difficulties in
constructing fundamental infrastructure, for instance, transportation and electricity.

Furthermore, the engagement of civil society is needed to improve sustainable
regional development.
For improving the sustainable regional development system of the Kyrgyz

Republic, policy actions on factors related to the ecosystem of sustainable regional
development should be considered. First of all, competencies within the Kyrgyz
government should be enhanced. To ensure adequate powers of implementation
and delivery of the plan, functions and organizations of the central government
should be reconfigured. In addition, to improve government manpower, the
number of government officials as well as expertise on sustainable regional
development should be strengthened. Second, governance for sustainable regional
development should include the central government and the regional ones, and
the private sector and civil society should be delineated and strengthened. Third, to
garner authority for implementing sustainable development, laws and institutions
should be clarified.
In terms of strategies for sustainable regional development within the 5-year

period, the Kyrgyz Republic should focus on 5 poles among 20 options. Moreover,
the Kyrgyz Republic needs to consider a mega-regional development plan instead
of these 20 poles. Further, for sustainable regional development, the government
needs to consider the "smart city" as an exemplar.
1. Introduction
As a developing country, the Kyrgyz Republic is economically challenged. The
Kyrgyz Republic has suffered various economic problems, such as geographic
imbalance as shown in [Figure 2-1], the lack of financial resources, and an excessive
unofficial economic sector. The inadequate Social Overhead Capital (SOC) due
to the natural environment in the Kyrgyz Republic leads to negative impacts on
economic growth. Poor governance and institutions, inadequate use of law and
institutions, and the low competence of policy actors in society have seriously
impeded effective and efficient systematic transformational changes in society.
A vicious cycle in the Kyrgyz Republic has prevented its economic development.
For the past two decades, the Kyrgyz Republic has made serious efforts toward
economic growth and regional development. The Kyrgyz Republic, however, has
not achieved much in terms of socioeconomic development. In particular, in the
field of sustainable regional development, the natural environment and the lack of
financial resources have restrained growth even though the Kyrgyz government has
developed some plans for sustainable regional development that is supported by
international organizations.
Chapter 2 _ Strategies for Sustainable Regional Development • 081

[Figure 2-1] Gross Regional Product and Poverty Rate in the Kyrgyz Republic
(Based on 2015 data)
(%)
Jalal-Abad High poverty,
45 H High GRP
H
40
Batken H Naryn H
Osh city
Poverty rate
35
Average rate
30
H Issyk-Kul H
Talas
Osh
25 H Chui
Bishkek city H
Low poverty,
H
Low GRP
20
15 35 55 75 95 115 135 155 175
GRP per capita (thousand Som)
Source: National Statistical Committee of the Kyrgyz Republic.
In this context, the KSP Team proposed customized strategies for sustainable
regional development to strengthen both economic growth and balanced regional
development in the Kyrgyz Republic. To do so, as a first step, the KSP Team
analyzed the current sustainable regional development system of the Kyrgyz
Republic. Through literature reviews, interviews, and a field trip, the KSP team
analyzed problems, needs, and future plans for sustainable regional development.
Various case studies of Korea’s sustainable regional development system were
taught and shared to strengthen the abilities of public officials. In addition, the
KSP helped people in the Kyrgyz Republic to visit regional development agencies in
Korea so as to facilitate the building of strong collaborative relationships between
the Korean institutes and the governmental organizations of the Kyrgyz Republic.
Based on the needs of the Kyrgyz Republic, this study aimed at strengthening
the strategies of sustainable regional development of the Kyrgyz Republic provides
alternatives in governance, law, and institutions and a vision-strategy framework.
In addition, the study suggests a role for a Korea–Kyrgyz sustainable regional
development network to facilitate collaboration and mutual support. In this
network, the Kyrgyz Republic’s public servants can get advice on how to strengthen
their capabilities with the objective of ensuring and enhancing the development of
the sustainable regional development program for the Kyrgyz Republic.

2.Korean Experience of Sustainable Development
2.1. H
istory of Sustainable Regional Development in
Korea
Regional Development Policy in Korea can be divided into two separate periods:
the economic development period and the co-planning period of economic
development and regional development. In the economic development period, the
Korean government established seven Five-Year Economic Development Plans from
1962 onward, focusing on improving the national economy. Regional development
policy is included in economic development plans as well as the Comprehensive
National Territorial Development Plan (CNTDP). In the co-planning period, however,
the Korean government has established regional development plans separately and
tried to harmonize this with national economic plans.
Before the 1990s, the Korean government had mainly focused on national
economic development rather than focusing on regional development. Korea had
focused on government-led economic growth and a policy of industrialization
from the 1960s to the 1980s. Consequently, there was no particular vision or
strategic concept for regional development in that period. Regional development is
considered to be a part of industrial policy and/or national territorial policy. Korea
has conducted 10-year CNTDPs four times and two revised CNTDPs since 1972.
The first and second CNTDPs included various comprehensive topics. Most
industries were located in the northern part of the country since the southern part
was an agricultural area. Industrialization centered on cities in the 1960s, and rapid
urbanization and its various attendant problems occurred, for instance, the disparity
between urban and rural areas. Moreover, for economic growth, a sound territorial
plan should be coordinated with economic policies. In these periods, the CNTDP
instituted by the central government controlled local government-level planning.
The central government bureaucrats most likely made local planning decisions and
public enterprises implemented major development projects.
The first CNTDP focused on the maximization of growth potential with limited
resources. In the first plan, i) developing large industrial estates and metropolitan
regions, ii) investing in high-priority infrastructure (highways and ports), and iii)
linking regions to major industrial estates were major issues.
The second CNTDP focused on spreading the growth effect across the nation.
This plan included i) suppressing overconcentration in Seoul metropolitan area,
ii) developing multiple growth poles in the nation, iii) expanding development
potential to reduce regional disparity, and iv) considering the environmental

aspects of territorial development.
The third CNTDP focused on the establishment of "multi-centered" territorial

structure. The third plan focused on decentralized national development, such as
developing industrial sites on the west coast and regional cities. Further, the plan
included developing a comprehensive transportation network and expanding
south–north exchanges. In addition, the plan was the first to start preparing for the
reunification of Korea.
The fourth CNTDP focused on balanced regional development and open

and integrated national territory. The fourth plan included i) building a
π-shaped territorial axis to serve as a "strategic gateway", ii) promoting regional
competitiveness through industrial clusters and a regional innovation system, and
iii) building a high-speed transport network.

<Table 2-1> The Korean Development Strategy (1960–2013)
Topic 1960s 1970s 1980s 1990–1997 1998–2003 2003–2008 2008–2013
Economic Industrial
Development Industrial competitiveness
stabilization competitiveness Globalization Balanced growth Green growth
Vision (government-led)
(government-led) (market-led)
Five-Year Economic Development Plan Five-Year Plan

Five-Year Plan
for Balanced
National Multi- for Regional
National
annual Planning Development
Development
(1962–66) (1972–76) (1982–86) (2009-13)
(1992–96) (2004-08)
(1967–71) (1977–81) (1987–91)
Support to Building
targeted light industrial
industry complexes
Regional
in heavy and Focus on high- Gradual trade Private sector
Support to industrial
Import chemical tech sectors and capital development and
venture business promotion
Policy Leverages restrictions industries liberalization support to small
and to industrial programs
(Industry) conditioned Gradual trade and medium
R&D in high-tech Support to green
to export- Import and financial Regulatory enterprises(SMEs)
sectors cluster/green
orientation restrictions liberalization reforms (Techno Parks)
cities
conditioned
Infrastructure to export-
building orientation

Topic 1960s 1970s 1980s 1990–1997 1998–2003 2003–2008 2008–2013

Support reverse
Support reverse
engineering Government National
engineering
Policy Leverages support to R&D National and regional
Support to Support to
(Science & Investment and incentives and regional innovation
Building of private sector frontier R&D and
Technology and S&T for private sector innovation systems,
Government R&D innovation
(& Information)) infrastructure investment in system cross-regional
institutional and
(Daedeok Science R&D collaboration
legal framework
Town)
Literacy Expansion of
Technical and Continuous Focus on quality
(primary and higher education Life-long learning
Human Capital vocational support to higher of the education
secondary system (Masters systems

training education system
education) and PhDs)
Second phase
First phase of the Third phase of
of the Regional
Comprehensive National Territorial Development Plan Regional Policy Regional Policy
Policy
Law on Regional
Regional 1st CNTDP (1972-1981) Balanced “Specialized New policy
Amplification:
Development 2nd CNTDP (1982-1991) Development approach” focus paradigm
new strategic
3rd CNTDP (1992-2001) (1994) on 4 provinces and focus
industries in
4th CNTDP (2000-2010) and strategic on Economic
9 additional
industries Regions
provinces
Source: Main table from OECD 2012, Industrial policy and territorial development: lessons from Korea. CNTDP cell added by the authors.
2.2. G
overnance for Sustainable Regional
Development in Korea
In the 1960s and the 1970s, the Economic Planning Board played an important
role in improving the Korean economy. The Economic Planning Board had full
support from the President, and the ministry in charge of the organization had
significant power, such as those of budget allocation, planning, and coordination,
via a vice-prime minister. In the fourth Five-Year Economic Development planning
period, KDI, a think-tank undertook a tremendous role in supporting the setting up
of the economic development plans.
Later, in the 1990s, the Korean government set up a Presidential Committee on

Regional Development for sustainable and balanced regional development.
[Figure 2-2] Presidential Committee on Regional Development
Evaluation
Presidential Committee
Advisory
on Regional Development Committee
Advisory
Committee Research
Member Expert Committee Special Committee Institutes
Regional Development Planning Group
Regional Life Regional Communication Policy Research

Planning Bureau Bureau Vitality Bureau Burearu Team
Regional Development Support Group
Source: Website of the Presidential Committee on Regional Development(http://www.region.go.kr/ibuilder.

do?menu_idx=2154).
2.3. L
aws and Institutions of Sustainable Development
in Korea
The urban planning acts were integrated and reorganized in the late 1990s. For
instance, to integrate downtown development programs in the Urban Planning

Act and land readjustment projects in the Land Readjustment Act, in 2000, the
Urban Development Act was revised. In addition, in 2002, the Urban and Residential
Environment Improvement Act was enacted on the basis of the integration
of urban and residential environment improvement projects and residential
reconstruction projects under the Housing Construction Promotion Act. For the
purposes of regional development, the Korean government has tried to invoke
several laws to have the power of execution.
In order to facilitate balanced regional development, the ROH Moo-Hyun

Government legislated the Special Act on Balanced National Development and on
the basis of this law, the Regional Development Special Account was established.
The purpose of this account was to expand budgets for local municipalities. Until
now, 200 projects have been integrated into 24 comprehensive projects. In order
to give local governments the authority to design their own projects, a block grant
was introduced. The account is worth about $10 billion. With regard to the budget
allocation process in this account, local governments can directly apply for budgets
through the central government. Ministries in the central government separately
undertook evaluations on budget execution. Then, the Presidential Committee on
Regional Development conducted a comprehensive evaluation on the basis of the
ministries’ evaluations.
2.4. Strategic Plans for Sustainable Regional

Development
Korea has developed both economic development and sustainable regional
development plans. Since 1962, Korea has developed seven Five-Year Economic
Development Plans. Further, since 1972, Korea has developed four CNTDPs. Finally,
since 2004, Korea has developed three Five-Year Regional Development Plans.
Strategic plans in the age of Industrialization were developed between the

1960s and the 1990s. The First Five-Year Economic Development Plan (1962–
1966) focused on electric power, basic industries, and SOC. Based on the success
of the first plan, the Second Five-Year Economic Development Plan (1967–
1971) emphasized food self-sufficiency, forest tree-planting, chemistry, steel,
and machinery. The Third Five-Year Economic Development Plan (1972–1976)
emphasized heavy industries and balanced industrial growth. Based on the
tremendous economic growth over a 15-year period, the Fourth Five-Year Economic
Development Plan (1977–1981) tried to balance and co-optimize among growth,
equity, and efficiency. Moreover, this plan focused on a self-growth structure and
technological innovation.

The basic values of the Fifth Five-Year Economic Development Plan (1982–
1986) were stability, efficiency, and equilibrium. In addition, price stabilization,
globalization, and market competitiveness were major goals for economic
development. The Sixth Five-Year Economic Development Plan (1987–1991) valued
efficiency and equity for national welfare and economic advancement. The Seventh
Five-Year Economic Development Plan (1992–1996), which was the last of these
plans, focused on strengthening business competitive power, social equity, balanced
development, and creating the foundation for reunification.
In terms of strategic plans for regional development leading up to and including

the 1990s, Korea focused on national economic development rather than regional
development. In particular, from the 1960s to the 1980s, Korea focused on national
economic growth and the policy of industrialization. Consequently, there was
no vision or strategic conceptualization for regional development. As mentioned
above, since 1972, Korea has developed four ten-year comprehensive and five-Year
Regional Development Plans. The CNTDPs are briefly described above, and Five-Year
Regional Development Plans will be briefly described below.
President Moo Hyun Roh developed the concept of balanced national

development. From this starting point, the Korean government established its First
Five-Year Plan on Balanced National Development for the first time (2004–2008).
This plan focused on a function-dispersion type of balanced national development,
including Sejong City, Innovation City, and Enterprise City and the 4+9 Regional
Strategic Industry.
To seriously promote balanced national development, the ROH Moo Hyun

Government legislated the Special Act on Balanced National Development.
However, in the implementation process of each policy, social conflicts and
economic inefficiency occurred, in particular social conflict, because of the
administrative capital, hollowing out of regional cities due to the construction
of new cities such as Innovation City and overlapping regional investments for
promoting regional industry.
Following the ROH Moo Hyun Government, the LEE Myung-bak Government
established the First Five-Year Plan on Regional Development (2009–2013). This
plan was characterized by 5+2 mega-regional development, leading industries,
development of human resources, and 30 leading projects. The three-dimensional
regional development strategy in this plan may be optimal in theoretical terms;
however, the lack of resources and governance meant that the power of execution
could not be guaranteed. The lack of government-wide control can weaken the link
between regional policy and large national projects. In other words, there is a limit
to the creation of synergies because of tendencies to implement major regional

development projects separately.
<Table 2-2> Evolution of Policies for Regional Development in Korea
1998-2003 2003-2008 2008-2012

Category KIM ROH LEE
Government Government Government
National Main Export-led growth- focus on the knowledge economy
Development Growth
Strategy Model Globalization Balanced Growth Green Growth
Origins of RDP
specialized policy Expansion of RDP Consolidation,
Phase targeting specific and creation of regal focus on “Economic
industries in specific framework Regions”
region
Finding new sources Promoting balanced
of growth growth
Supporting regional
Rationale
Consolidation Addressing excessive competitiveness
of democracy at concentration in the
provincial level Capital Region
Promotion
of industrial
Promotion Promotion
development by
Main of industrial of industrial
Regional targeting functional
Targets development in 4 development in all
Development regions (economic
selected provinces Korean provinces
Policy regions, provinces
(RDP) and local areas)
Establishment of
Creation of
the Presidential
Presidential
Central government Committee on
Governance Committee
initiative Balance National
on Regional
Development
Development (PCRD)
(PCBND)
5-Year Plan for 5-Year Plan
Balanced National for Regional
No major
Development Development
institutional
Plan and (2004-2008) (2008-2013)
changes for
Resources
addressing regional
Special Account for Special Account
development
Balanced National for Regional
Development Development
Source: Internal Documents of the Presidential Committee on Regional Development and Ministry of Trade,
Industry, and Energy.

Korea is currently in the midst of the Five-Year Plan on Regional Development
(2014–2018). This plan has several projects covering the improvement of quality of
life, development of creative human resources, flourishing of regional culture, and
inclusive welfare and healthcare system.
2.5. Implications of Korean Experiences

Many studies have indicated the success factors of economic development
in Korea. Based on those, the following are important factors responsible for
the economic and regional development in Korea. First of all, without strong
presidential leadership and competent public officials, economic and regional
development could not have occurred satisfactorily. The governmental bureaucracy
was equipped with relatively high autonomy from the parliament and was
competent, strong, and cohesive; thus, it was capable of defining, planning, and
proceeding with development.
In addition, citizens’ strong willingness to avail of better lives through thrift,

hard work, and discipline, as well as education, could be important factors for
success. With regard to these, in his book, Culture Matters: How Values Shape
Human Progress (2001: xiii), Samuel P. Huntington argues as follows:
In the early 1990s, I happened to come across economic data on Ghana and
South Korea in the early 1960s, and I was astonished to see how similar their
economies were then. These two countries had roughly comparable levels of
per capita GNP, similar division of their economy among primary products,
manufacturing, and service; and overwhelmingly primary product exports,
with South Korea producing a few manufactured goods. Also, there were
receiving comparable levels of economic aid. Thirty years later, South Korea had
become an industrial giant with the fourteenth largest economy in the world,
multinational corporations, major exports of automobiles, electronic equipment,
and other sophisticated manufactures, and per capita income approximating
that of Greece. Moreover, it was on its way to the consolidation of democratic
institutions. No such changes had occurred in Ghana, whose per capita GNP was
now about one-fifteenth that of South Korea’s. How could this extraordinary
difference in development be explained? Undoubtedly, many factors played a
role, but it seemed to me that culture had to be a large part of the explanation.
South Koreans valued thrift, investment, hard work, education, organization,
and discipline. Ghanaians had different values. In short, cultures count.
In sum, the Korean economic development plans, CNTDPs, and balanced

regional development plans, all have some implications for the improvement of
sustainable regional development in the Kyrgyz Republic.

First of all, a holistic approach is important to improve sustainable regional
development. The level of government interest in sustainable regional development
as potentially providing solutions to flagging social and economic growth has
increased. [Figure 2-3] shows the eight major elements that are considered
important for the generation of a sustainable regional development ecosystem.
The elements in the ecosystem are equally important, and the balance of the
development of each element should be considered when initiating the roadmap
for sustainable regional development in the Kyrgyz Republic.
[Figure 2-3] Sustainable Regional Development Ecosystem
Government Policy
Regulatory
Local & Global
Framework &
Markets Infrastructure
Human Capital & Sustainable Regional

Funding & Finance
Workforce Development Ecosystem
Universities and
Companies as Culture
Catalysts
Mentors, Advisors
& Support Systems
Source: Authors.
3. Analysis of Sustainable Development in the

Kyrgyz Republic
3.1. History of Sustainable Regional Development in
the Kyrgyz Republic
More than 90 percent of the country is covered by mountains, where livelihoods
and economic activity of the population are hindered and complicated. The country
has to solve issues addressed to population displacement and the rejuvenation of
manufacturing, particularly in the remaining 10 percent of the territory.

The economic connections between the north and the south of the country are
weak. There are no linked infrastructures except for one road, which makes the
issue of regional development equivalent to the issue of the country’s integrity.
Border security of the country is closely tied to territories as all areas of the country
have borders with foreign countries, which means that there are no purely internal
territories. Substantial barriers to interregional communication have resulted in
regional development strongly depending on integration into the economies of
neighboring countries rather than inter-regionally.
During the years of independence, despite the declared values of decentralized

governance and strengthening of the regions, there have been regressive processes,
which eventually led to the total concentration of all kinds of resources in the
economic and political center of the country; first of all, it concerns financial and
human resources.
Disparities in regional development have assumed alarming proportions: more

than half of the country's population is accommodated in the south; however, the
contribution of the south to the national economy is less than one-third of the GDP
of the country. The above facts prove conclusively that the problem of development
of territories is not only socioeconomic within a domestic-political framing, it also
has a geopolitical dimension.
The country's economy is strongly dependent on one area, the Chui region,
including the city of Bishkek. It produces about 60 percent of the GDP of the entire
country. Industry, in its entirety, has been concentrated in a few regions (Bishkek,
Chui, Jalal-Abad, and Issyk-Kul) which makes the economy of other regions more
vulnerable.
Taking the Osh, Batken, Talas, and Naryn regions and Osh City together, the
joint share of these five regions in the industrial production of the country does not
exceed 10 percent. The influence of the Batken, Talas, and Naryn regions and Osh
City is becoming less significant for the national economy.
The state uses two main instruments in regulation of the economy, fiscal and
monetary policies. It turns out that both tools are not focused on the development
of the territories. The incomes, which is independently collected by local budgets,
has exhibited a strong decline; fewer transfers have been received from the
republican budget. Dependence of the territories on the distribution policies of
the central government is thus amplified. A significant part of the tax income
comes from Bishkek. The monetary policy does not set the task of developing the
territories, and as indirect evidence of it, there are no independent commercial
banks outside of Bishkek. As already discussed, the south of the country remains less

developed economically. It is clear that two different approaches of state policy are
required for the north and the south of the country.
Data analysis of the last 20 years shows that we cannot solve problems of the
territories’ development. Over the years, we have learned to conduct sectoral
policies, which have no spatial dimension, and which are not perceived by
inhabitants of the regions. There are many sectoral policies, institutions, and
schemes; however, there is no consolidated or comprehensive operating approach
to the development of the territories.
3.2. Governance of Sustainable Regional Development

in the Kyrgyz Republic
Several paradigms of administrative-territorial structure still exist in the country.
The administrative-territorial units and administrative-management philosophy
inherited from the Soviet Union preserved. On the other hand, there were mad
multiple attempts of decentralization, the results of it lead to the suspension of
the national level from the territorial problems. The market principles deeply got
into all sectors of society, but did not find reflection in policy measures related to
regions.
Regional development plans were supposed to achieve targets by the joint

efforts of the government, local community, business, and civil society; however,
mutual cooperation did not materialize.
The other levels, which are in the function space, are not capable of
changing anything without the intervention of the country’s leadership and the
understanding that regional development is a strategic objective.
Particular attention should be paid to the development of agriculture, which

is a strategic sector of the Kyrgyz economy. Problems in this domain manifest
themselves in the lack of access of farmland to irrigation water and in the absence
of regional projects for the construction and rehabilitation of irrigation systems.
Funding for the maintenance of existing irrigation systems and the conservation of
water resources is not sufficient.
The issue of the development of regional farmers’ capabilities is significant in

terms of the Kyrgyz Republic's accession to the Eurasian Economic Union (EEU). In
this context, it needs some measures to improve the competitiveness of domestic
agricultural products, develop new forms of cooperation, create large agro-
industrial clusters, and better emphasize on export-oriented agricultural production
to EEU countries.

A significant obstacle to the development of the regional economy is the lack of
transport infrastructure. Therefore, the government needs to address the question
of the allocation of funds for projects aimed at the construction and rehabilitation
of existing regional and strategic roads.
For local business, development is necessary for solving a number of issues

related to the reduction of interest rates on loans and the expansion of the banking
network in the regions.
The investment climate in the regions remains unattractive and unfavorable.

Local authorities jointly with the municipal authorities have not yet been able to
reach common ground for the adoption of mutually acceptable solutions in matters
related to the environment and the development of the local economy. There are
no optimal models of long-term mutually beneficial relationships between investors
and the local community.
The possibility of resurrecting idle companies or diversifying operational

companies working on local raw materials has not yet been considered.
No consistent efforts have been made to improve the tax system in terms of
stimulating local economic development so as to support the priorities of the
regional economies. There are no mechanisms of state support or tools for the
promotion of domestic products to foreign markets.
It is very important to solve the issues involved in developing border territories,

where economic and social problems are closely interrelated with issues of state
border security. Specific program activities that promote economic development
and address social issues are required for such territories.
The solution to all of these problems is directed at agricultural production and

processing industries development and small and medium business development,
which are expected to eventually impact the improvement of life quality in the
regions and reduce disparities in regional development across the country.
The fundamental problems of regional development are connected to the

absence of mobilization on regional issues at the national level. Nowadays,
sectoral and project-oriented approaches dominate public policy without any real
consideration of the interests of regions. Indeed, there is a belief that the territories
should solve their development problems independently.
Analyses of sectoral and regional strategy documents have shown that the
traditional approach to regional development in the absence of real financial

opportunities for its advancement does not lead to the expected results.
Practically, the only government tool available is inter-budget mechanisms for

the redistribution of resources. It is necessary to recognize that this mechanism is
no longer sufficient, and moreover, it is ineffective in its existing form. The lack
of resources for development and the inadequacy of allocated funds, which are
sufficient only for survival and the presence of government in the regions, have
exacerbated the situation.
There is no objective "region or/and territory" within the framework of state

policy.
The leading role in regional development is assigned to state government

bodies. However, the public administration system is in shambles, which makes the
achievement of goals more difficult.
Public administration reform should consist not in reforming of activities of

the ministries and departments but in improving the quality of their process
management in social and economic development. It is necessary to change the
assessment system of state government bodies’ activities—functioning shall be
replaced by effectiveness, timeliness, and quality of problem resolution.
Career advancement should be restricted to only professional, competent, and

ethically sound individuals. This is the only way to restore the trust of citizens in all
state institutions.
There are big failures vis-à-vis the weak involvement of civil society, business, and
expert communities in the control systems of state bodies, where it is impossible to
achieve transparency in public administration.
In general, the country needs a compact and professional state apparatus that
can effectively perform the functions of the state in a corruption-free manner and a
credible private sector.
3.3. Laws and Institutions of Sustainable Regional

Development in the Kyrgyz Republic
In the Kyrgyz Republic, the administrative-territorial system was formed in the
process of historical development of the state in the context of the interests of the
population at one time or another. This system, inherited from the Soviet period,
has been developed on the principle of rapid mobilization of the population in
case of external military aggression. Road transportation and communications

infrastructure have also been subordinated by the principle of urgent delivery of
military and reserve forces to the collecting points.
It is necessary to undertake cardinal reforms of Administrative and Territorial

Division (ATD) for the formation of an effective and balanced system of
government and regional management. First of all, administrative-territorial reform
should be directed at creating an optimal system of governance. The existing ATD
system does not fully correspond to the new relationships developing in the country
and society. Moreover, the current administrative-territorial structure of the country
does not meet the objectives of good governance nor is it able to provide decent
livelihoods or effective development.
The experience of recent years has shown that in "center-oblast-district-local self

government (LSG)" areas and regions in its current form are redundant links in the
control system.
Abolishing these two links and creating a new step of management at their base
district/aymak that is endowed with appropriate authority, resources, and influence
mechanisms seem expedient.
Simultaneously, it is necessary to expand the authority of local governments

to gain control over activities of districts/aymak for the purposes of effective
management and providing quality and timely services to citizens of the regions.
The new form of government should be based on new principles, which would
consider geographical, economic, resource, infrastructure, demographic, cultural,
and other ties, systems, and specific regions. Districts/aymaks numbering 16–18 and
two cities of republican subordination would be enough for the republic to form an
effective system of governance in the vertical and horizontal planes.
Implementing administrative-territorial reforms in the proposed version will

provide the following:
• E limination of unnecessary management levels, which will improve

management and reduce administrative expenses
• Optimize the number of aiyl okmotu
• Improve the quality of public administration and local self-government
• Improve the quality and accessibility of public and municipal services to limit
possibilities of corruption
• Financial savings and effective use of human, material, and other resources
• Restore confidence of the citizens in the public administration system.

Reformatting the territorial environment of the country does not mean the
technical abolition of oblasts and automatic rearrangement of regions (including
their settlements) into the new districts/aymaks. Territorial changes must begin with
settlements.
The lowest level of management is considered to be aiyl okmotu, which includes

settlements, and many aiyl okmotu consist of only one village. The number of aiyl
okmotu in the country ranges from 500 to 50,000.
The economic relationships between the regions of the country and neighboring
states has changed in accordance with the transition to a market economy and the
partial decentralization of power. New and nascent economic ties do not fit into
the framework of existing administrative boundaries, which caused problems in the
management of interregional economic processes.
There is also the illogical existence of advanced technology development in the

country. As an example, the population of the Kara-Suu district of the Osh region
exceeds the population of the Talas and Naryn oblasts. Simultaneously, there are
areas where the population is less than 20,000 people, which is much lower than
that in certain villages.
The presence of huge numbers of public government employees at various levels

with overlapping functions is another reason for reform. The provision of services to
citizens remains difficult. The accessibility of public and municipal services to citizens
is an important part of the administrative-territorial reforms.
Access to public services remains problematic, and the delegation of certain

authorities in terms of providing public services has been realized unsystematically.
Excessive administration, overabundance of regulatory and licensing authorities—
these and other factors hamper the development of business, reducing investment
attractiveness, which would finally complicate the dynamic development of
the economy. The motivation system of public personnel is not well developed;
therefore, the level of corruption remains high.
As of January 1, 2015, the administrative state system includes four levels of

management—central, regional, district, and municipal (cities and villages)—which
are detailed in the following:
• 2 cities of republican subordination

• 7 oblasts
• 40 districts

• 31 cities
• 9 urban villages
• 3 settlements
• 453 ayil aymaks
• 1,801 rural settlements
The proposed administrative-territorial system model involves the enlargement

of certain administrative-territorial units and the improvement of the activities of
public and municipal governments.
3.4. S
trategic Plans for Sustainable Regional
The new regional policy must build-up population density in inter-territorial and
inter-regional relations. The lack of transportation infrastructure development, as
well as features of the country’s natural environment, means that the connections
between certain territories are extremely poor. Indeed, in reality, some areas are
isolated.
Within this context, the situation is becoming a potential risk for the
preservation of the integrity of the state, which is the primary objective of national
security albeit with limited activities by the state to preserve coherence across the
country.
Analyzing the economic and social activities of the population in the regions
supports the assumption that some regions of the country are more integrated
into sociocultural and economic relationships with neighboring territories of other
states than they are with regions within the country. There are many examples of
Uzbekistan's influence on the border territories of the Kyrgyz Republic.
The country is divided into several spatial zones that are economically and
culturally penetrated/influenced by neighboring countries. This penetration
is provided by the following types of connections: transportation, economic,
technological, trade, cultural, and informational. It is necessary to emphasize the
most significant zones.
The first zone includes the territories of the Batken, Osh, and Jalal-Abad regions
bordering Uzbekistan. The second zone is the territory of the Batken region
bordering Tajikistan. The third zone is the Talas oblast bordering nearby regions of
Kazakhstan. In the future, it is necessary to pay attention to the growing influence
of the Chinese economy on the Kyrgyz Republic. In this regard, it is necessary to

bear in mind the coexistence of Naryn and Osh oblasts with China.
The new regional policy must consider the specificity of these areas, and the
state should offer practical steps to strengthen the internal integration of the
territories as opposed to strengthening centrifugal tendencies.
As a first step, it is necessary to resolve the issues of information covering all

areas of the country and filling it with content that is focused on the integrity of
the state. The resolution of transportation connection issues and the integration
of isolated areas must be the next essential element. Extremely important are the
issues of property security and law enforcement, which fall within the remit of
national government policy.
3.4.1. Analysis of Industrial Cluster and 20 Growth Pole Cities
The necessity of increasing the economic efficiency of regional farms poses new
challenges to the territories, particularly those related to the choice of a competitive
model of the regional economy, which allow the use of existing capacities as much
as possible. One of the most common mechanisms of implementing state and
regional economic policy is the cluster policy.
At present, there is a dearth of regionally competitive industrial clusters in the

country. However, their appearance ensures the Kyrgyz Republic its long-term
competitiveness and stimulating economic clusters should be among the priorities
of the regional development policy.
In addition, territorial production clusters should become a means of integration

of, and support for, small and medium enterprises (SMEs). In other words, the
traditional macroeconomic and sectoral approaches to the development of SMEs
must be supplemented by regional approaches, which are manifested in the
formation of regional industrial clusters.
The main directions of the regional cluster policy are as follows:
• Identifying and monitoring economic clusters at the territorial level, including

identifying a cluster structure and territorially localizing the individual units
• Forming communication platforms for potential participants in regional
clusters, including through integrating them into the development and
discussing regional development strategies
• Facilitating the consolidation of cluster members (including through associative
forms) and the implementation of programs promoting cluster companies to
enter foreign markets

• Developing information and communication infrastructure in the districts/
aymaks
• Creating an institutional environment for the development of regional
economic clusters
The main objective of the cluster policy is to ensure high rates of economic
growth and the diversification of the economy by increasing the competitiveness
of companies and suppliers of equipment and components, specialized production
and services, and research and educational organizations through the formation of
economic clusters in the regions.
The development of regional clusters increases the productivity and efficiency

of production as a whole by facilitating access to suppliers, skilled labor, and
information, as well as service and educational centers. Simultaneously, the
presence of clusters simulates the promotion of innovation, as a campaign have
access to the most advanced information technology to improve the process of
innovation. The clusters are created favorable conditions for the establishment of
new business and launching new types of industries and good.
The effectiveness of the cluster approach is determined by what benefits

it brings in relation to the status quo. Clustering allows the creation of a
comprehensive view of public policy development in the region that considers the
potential of regional economic entities. In addition, the cluster policy combines
industrial and regional policies and those that support small businesses, attracts
foreign and domestic investment, and fosters innovation, science and technology,
and education, among other things.
Clusters form a favorable environment for the development of SMEs as well as

large companies need a lot of them adapted to the technology of related industries
that created a receptive market for small firms. Thus, clusters also perform a social
function by providing employment to many small businesses and suppliers, thus
combining enterprise with competitiveness. International experience suggests
positive relationships between the development of clusters in a country and living
standards and the competitiveness of enterprises.
Economy management based on regional clusters has the following advantages:
• Tax base enlargement

• The possibility of forming industrial clusters that provide employment in the
region and infrastructure development, among other things
• Opportunity for the purposeful reorientation of loss-making enterprises of the

region
• Possibility of investment flows and evaluating the effectiveness of investments
on the basis of the priority of developing regional clusters
• Opportunity to address the preferences of certain groups of businesses that are
important for the regional economy
• Increase entrepreneurial activity
Simultaneously developing all regions is not possible because of limited financial

resources. Therefore, a new approach is needed—a transition from the policy
of equalization of socioeconomic status of all areas to a polarized development
policy that involves the isolation and accelerated development of selected areas
designated "engines of growth".
The concentration of efforts within individual regions has the effect of creating
self-development of growth points, and appropriate choices of growth poles
in the country enable the surrounding regions to take off in the future. The
principle of polarized development is effective only with an appropriate network
of growth poles in the country. Therefore, this concept proposes to allocate 20
cities as the basic poles—points of regional growth. The choice of cities, not villages,
is due to the fact that cities offer much more multifaceted opportunities for
development. In addition, cities have important necessary conditions for successful
initiation—the legal framework, budget, territory (land), and embeddedness in
public administration, business, and economically active populations.
[Figure 2-4] Population Density Choropleth Map with Projected Growth Poles
Population density
people per square km.
Source: www.mineconom.gov.kg, www.stat.kg.

The role of regional centers in the intensive development of industrial parks
and industrial clusters is assumed in these cities. Public authorities, public service
centers, logistics centers, and social facilities must be indispensable in urban cities.
The purposeful development of the cities would automatically involve networks
of the entities and farms of neighboring regions in their economic orbit, thus
opening up new opportunities for expansion and strengthening local business.
Cities’ development involves specific organizational and management measures
and research. Therefore, it is necessary to identify priority projects vis-à-vis social
and economic trends in the 20 cities. Two of them, the cities of Bishkekt and Osh, as
relatively promising and successful, should be explored using scenario analyses.
The most suitable cities for growth poles with a view to form clusters are as
follows: Bishkek, Osh, Karakol, Balykchy, Naryn, Kochkor, Tokmok, Kara-Balta, Talas,
Laylak, Batken, Kyzyl-Kiya, Uzgen, Kara-Suu, Gulcha, Komur Tash, Kara-Kul, Jalal-
Abad, and Kirby Kochkor-Ata.
Considering the limited state-level resources, it is suggested that the phased

support for city development be distributed on the basis of specific criteria. In each
of the three phases, it is proposed that attention be focused on 5-6 cities.
It is necessary to develop a program for urban cities' development by first

determining the major priority directions on the basis of the results of additional
research. These programs should fully consider the specifics of the region, its
advantages, and the potential for further growth. The basis of regional programs
should be formulated to stimulate the natural advantages of regions in terms of
economic, ethno-cultural, social, and geographical activity. Simultaneously, limited
resources should be directed toward supporting those projects that best realize
the competitive advantages of the regions. Further, all the social obligations of the
state with regard to the citizens must be provided in full measure.
The mission of the development of these cities is to accelerate the formation of

the necessary social, economic, communications, and logistics infrastructure on the
territory of each of the cities. All industrial and processing plants need to be focused
on the use of local raw materials and products from local farmers.
Logistics centers should be leading enterprises in the cities, specialized

enterprises, whose main functions are the storage and distribution of finished
products and goods, customs clearance, information services forwarding, fulfilling
the role of transportation companies, and providing vehicle maintenance and
brokerage, among other services.

Further, the logistics centers should be united in logistics networks. The
developed logistics centers' network should allow supply chains to be shortened
and the flow of goods to be optimized, thus effectively solving the problem of
delivering goods from the supplier to the consumer in the shortest possible time
and with the least financial cost. Therefore, the main task of logistics centers is to
provide the transport function of economic clusters.
3.4.2. Economic Districts / Aymaks
The selected cities and regions will form new administrative-territorial entities,
independent districts/aymaks, where cities become district centers. One of the
important criteria for the formation of districts is the principle of "logistical
accessibility" to the population, which means that every citizen of the country
should be enabled to reach the required public services and return home within the
same day.
Further research and analysis in the context of ayil okmotu and the
individual regions of the republic are required for a more detailed review of the
administrative division. Moreover, considering the political importance of this issue,
it is advisable to hold discussions with regional political elites, use the historical
background, and use the current economic conjuncture. Conceptually, it is proposed
that the levels of regions and districts be abolished while creating districts/aymaks
and revising the existing division of ayil okmotu.
For individual territories in regions such as Toguz Toro, Chatkal, Laylak, At-Bashi,
and Chon-Alai, individual approaches should be customized for their development.
In the frame of the new administrative-territorial division, work on the

harmonization of legal acts should be conducted to develop a new regulatory
framework for the functioning of public administration and the local government.
In addition, it is necessary to develop the structure of state administration
bodies and local authorities and new administrative-territorial entities, as well
as to facilitate the restoration of violated interstate and inter-regional economic
relationships that remain rational in the new environment.
The proposed approach must improve access of the population to state and
municipal services, promote a favorable and attractive environment for stimulating
public and private investment to cities, which are points of growth. In other words,
the formation of an effective relational model between local state administrations,
local authorities, and business representatives is important.

Territories characterized by their border status are presented in the list of
proposed districts/aymaks. The development of border areas is closely connected
with the issues of state border security. Bespoke programs should be developed
regarding these kinds of territories.
Generally, research on regional capabilities allows the determination of the

priority product markets, which should ensure maximum inclusion of the region
into the global economic system and facilitate increasing volumes of export
products with high added value. To avoid the issue of the inability to organize the
first stage in terms of maximum regional support to all clusters, it is necessary to
clearly delineate and define the clusters as a basis for priority setting.
Research into the contemporary situation in the Kyrgyz Republic suggests the
following prerequisites of development vis-a-vis "conditional" clusters:
• Educational: Bishkek city—universities and higher education institutions of the

Kyrgyz Republic could provide research and technological development for
regional companies.
• Building: Chui, Osh oblasts—extant resource base, possibility of cement
production, infrastructure, personal products, technologies, equipment, and
energy.
• Tourist: Issyk-Kul oblast—the unique climatic conditions allow the organization
of various forms of recreation and tourism.
• Petrochemical: Jalal-Abad oblast—extant raw material base, but it is necessary
to adjust production and start developing deep processing of local oil
resources.
• Agriculture: A large amount of land of all regions of the Kyrgyz Republic
is suitable for agricultural production, the climate is good, and there are
professional, universities and research facilities.
• Livestock: Chui, Naryn oblasts—a good legacy and a raw material base, the
region could lend itself to science, design, and technologies.
• Innovative: National Academy of Sciences of the Kyrgyz Republic could be
co-opted for higher education and industrial science.
• Transportation and Communication: Naryn, Osh, Chui, and Bishkek—
they all have conditions to create large logistics centers and transport and
communication hubs.
• Medical and Pharmaceutical: Bishkek—there is the possibility of developing
scientific and research activities, technologies, and personnel.

• Fast production: Bishkek, Chui, Talas oblasts—large-scale production, own
raw materials, packaging, storage, transportation and related services, and
developed science and personnel availability.
• Printing: Bishkek—printing plants, design centers, and product demand grows
from all sectors of industry and trade.
The cluster policy in the regions of the Kyrgyz Republic should be developed
according to the specific product, its production, and its place in the structure
of the regional market, including the export capacity of the region; production
perspectives should be in accordance with international labor division.
The system should include the following measures:
• Concessional lending and taxation of enterprises in significant regional clusters

• Stimulating high-tech goods production and creating the conditions for
reducing output with low added value
• A measuring system for the conversion of unprofitable enterprises into import-
substituting goods production facilities should be developed on the basis of
the evaluation of import rationality
• Developing the mechanism of state guarantees for external financing, product
supply on credit, and export insurance
• Assisting in product promotion of regional clusters to foreign markets through
the implementation of exhibition activities
• Opening regional sales offices in countries where trade relationships are a
priority
• Formation of informational infrastructure that facilitates the expansion of
relationships between clusters operating in the same industrial sectors
In general, the creation of local clusters would provide a huge impetus for the
development of small businesses in the Kyrgyz Republic contribute to significant
increase in its competitiveness in domestic and foreign markets; increase the
yield of the region; and resolve employment problems. Regional development
through clusterization would allow increased flow of capital, technologies, and
direct investment, which contributes new technologies, intellectual resources,
management skills, and worldwide brands to the region.
3.4.3. Specialization of the Regions
The country is heterogeneous in terms of natural and economic conditions.

Therefore, each region has its own sector of specialization because of economic and

geographic factors. Its historical specialization must by considered to be a basis for
determining the economic priorities of the region.
Regional specialization is justified if the following criteria are met:
• The cost of products manufactured here are lower than it is in other regions of
the country.
• Its products can be produced in quantities that are more than what is necessary
to meet local demand.
• The production output is provided with resources.
• The production output needs markets that are external to the region.
Economic specialization of districts/aymaks is determined by the following

principles:
• Economic: The district/aymak is considered to be a specialized part of a single

economic complex of the country with a certain composition of auxiliary and
service industries.
• Specific: The priority of this principle is the development of processing
industries in cities because as an integral component of the agricultural sector,
this industry generates real domestic demand for the production of certain
agricultural products.
• National: This considers the national composition of population of the district/
aymak, its historical working, and living conditions and identifies traditions and
lifestyles of local communities.
• A dministrative: This defines the unity (coincidence) of economic
regionalization and the administrative-territorial structure of the country. This
principle creates the conditions for the effective self-development of economic
regions and strengthens their role in the territorial division of labor in the
Kyrgyz Republic as well as eliminating the duplication of activities of state
bodies. It optimizes the combined roles of the central government and the
decentralized local government.
• Geographical: This considers the location of the district/aymak, the natural and
geographical differences, and the social and demographic conditions of the
economy for each district/aymak and the availability of public and municipal
services to citizens.
It is important that economic management in each district/aymak be optimal

with respect to the prevailing natural and economic conditions; a rational
combination of sectors that is based on leading specialized industries is important.

Simultaneously, depending on redundancy or labor shortages, the development of
labor-intensive and other industries should be promoted.
At this juncture, it is difficult to determine specializations across the new

district/aymak framework; this would require additional research. However, the
specialization of district/aymak would understandably be a function of current
regional specializations. It is necessary to emphasize the presence of specific, key
issues in each district/aymak.
Each region of the Kyrgyz Republic should provide its residents with the
necessary conditions for wellbeing through the creation of safe, well-maintained,
and clean living environments. The desire of inhabitants in terms of professional,
creative, entrepreneurial, cultural, and educational fulfillment will also be
supported and stimulated. All regions would exemplify multicultural diversity and
multiethnic tolerance. The interests and values of the Kyrgyz culture should be
respected and shared by all citizens of the Kyrgyz Republic.
The business and investment environment in the regions would be competitive

and attractive to national businesses and foreign investment. The five cities would
be the most attractive in Central Asia and would be included in the list of the most
visited cities.
Disparities in regional development between the territories is expected to be

minimal. Strong regions would be encouraged to prosper further and subsidized
regions would effectively implement support programs for the efficient realization
of self-development. The territorial integrity of the state would be enhanced, and
each region would live in peaceful coexistence with neighboring countries. The
cross-border program for the development of border areas would be developed
and implemented.
3.5. Implications of Analysis of Sustainable Regional

The expected performance system should stipulate integrated guidelines as
follows:
• Improving the quality of life (the length of roads, provision of clean drinking
water, level of employment, level of real incomes, and quality of education
and health services)
• Strengthening economic potential (infrastructure capitalization, corporate
capitalization, and the total export of goods, total share in regional
production, share of subsidy areas, and volume of investments)

• Expansion of the variety of life (scientific, creative, business, and cultural
domains, the quality and quantity of social and cultural infrastructure, and the
number of social and cultural activities and events)
• Strengthening the state and local government systems (security enhancement,
a high level of public trust and transparent decisions, high social mobility and
public participation in projects, and balancing the interests of various social
groups).
Indicators that capture these guidelines should be disaggregated and detailed

during the development of territorial concepts, strategies, and programs.
4. Policy Recommendations for Improving

Sustainable Regional Development
4.1. N
ew Governance for Sustainable Regional
Development
Unresolved interrelationship issues between public government bodies and local
authorities still remain. It is necessary to change the current relationship model for
it to clearly define responsibilities with separation of form and function so as to
eliminate overlapping interests.
One of the most problematic tasks is the development of local authorities.

This particularly concerns the formation of legislative frameworks, which did not
consider the opinion of local authorities during their development.
The differentiation of functions, the authority of the state bodies and local
authorities (Ministerial Support Unit, MSU) and the delegation of public authority
also need to be revised for explaining the expansion of the functions of the local
authorities and determining the mechanism of delegation of state authority and
their financing.
The system of providing municipal services to local authorities needs to be

optimized through the formation of a single base register, standards of municipal
services, and procedures for implementation. It also includes the delegation of some
authority to civil society and businesses.
Inter-budgetary relations need to be improved so as to provide financial

sustainability to local authorities and effective resource management at the
local level. The current subsidizing system of MSU is an impediment to regional
development.

Mechanisms are needed to stimulate public, municipal, and private partnerships.
During the implementation of projects of social and economic consequence, it
should be understood that a private investor may aim to extract quick profits and
be less motivated by non-private goals such as social welfare maximization.
Activities improving the legal awareness of state and municipal employees and
modernizing their training systems are not working actively. Moreover, there are
no programs to stimulate and motivate professionals to execute quality and timely
decisions.
It is important to create a model of public administration that would be capable

of ensuring the effectiveness and coordination of the central and territorial state
bodies and local governments. The strengthening of communication development
(vertical and horizontal) between public authorities is also required.
It is necessary to institute administrative-territorial reforms for the creation of

effective and balanced management systems in the country and its regions. Until
now, no visible results have been observed in this direction.
Modern theory and practice of development of border territories shows that

efforts in that direction without parallel development of the surrounding areas in
neighboring countries are seen to be ineffective. Holistic cross-border development
of surrounding territories as a single complex is required.
Current processes of cross-border cooperation show neighboring states as

tending toward isolationist policies. Issues of delimitation and demarcation of
borders with Uzbekistan and Tajikistan are still not resolved. All countries have a
policy of fences and desire self-development of border areas. Many of those border
areas are remote, inaccessible, and economically weak. It is necessary to understand
that for historical and cultural reasons, isolationist policies are not viable beyond the
short-term.
Therefore, cross-border interaction of structural schemes to form unified and

integrated approaches to the development of these areas is needed, particularly
concerning remote, inaccessible, and economically underdeveloped areas. First,
this refers to infrastructure projects (energy, transportation, and communication).
Second, it refers to social and cultural projects that consider the historical
coexistence of peoples in the region. Third, it refers to cross-border security and the
careful use of natural resources, particularly water, pastures, and forests. Fourth,
it refers to the creation of conditions for the organization of trade and exhibition
activities, fairs, and wholesale and retail cross-border trade.

The Kyrgyz Republic could become the initiator of such projects, drawing
on international best-practice experiences as and where necessary and possible.
It is advisable to involve the resources of relevant international development
institutions to ensure the adequacy of policies and their objectivity vis-à-vis different
states.
Social, fiscal, and administration stimulation measures should be provided for

the benefit of citizens living in border areas. The border territories of the Batken,
Osh, and Jalal-Abad oblasts should be considered as priorities in this regard.
4.2. L
aws and Institutions for Sustainable Regional
Development
Currently the country has 453 ayil okmotu and 67 contain only one village. This
situation is particularly apparent in the Chui, Naryn, and Talas oblasts. Taking the
Chui region as an example, where 22 aiyl okmotu contain only one village; this
seems to suggest that revised approaches to administrative division at this level are
required.
Huge variations in the number of settlements in LSG and the population are not
optimal, and an equal number of fulltime employees in aiyl okmotu create different
conditions for effective control at this level. For the same reason, the financing of
aiyl okmotu remains unbalanced.
Therefore, the first step is to further define the structure of aiyl okmotu,
which would include the existing settlements. New aiyl okmotu should be formed
according to the following four basic principles:
• Geographical location: It is necessary to maintain proximity between the

settlements, which combines the existing transportation, social, and energy
infrastructure.
• Population: It is necessary to adhere to average population in the same aiyl
okmotu. For different areas, this value may be different—depending on the
density of population.
• Economic specialization: It is necessary to regard settlements as a potential
component of a united local economic structure.
• Socio-cultural community: It is necessary to consider both the differences and
the similarities of the local mentality, lifestyle, and ethnic composition.
There will be new ayil okmotu based on these principles, and locates in the same
territorial and economic environment, apparently equal membership, which has

own unique specifics.
Next, it is necessary to determine what kind of aiyl okmotu will be included in

the districts/aymak. Within this framework, it is necessary to consider the proximity
of the aiyl okmotu to supporting cities (growth points) where public service centers
are located.
Following these principles on a phased basis, the possibility of creating a new

scheme of administrative and territorial structure for the republic with a stable and
effective system of state regional administration emerges.
4.3. Policy Actions for Sustainable Regional

Development
4.3.1. Principles of the Policy
The development of a new regional policy should be implemented in accordance

with new principles. Following the necessary research, the key principles offered as
a basis for such a new policy are as follows:
First, public policy transition from the sectoral approach to an integrated model
of regional development of territories that is based on their identity, specificity, and
specialization is envisioned.
Second, focus on the multipurpose nature of regional development and

territories, as well as the consequences of accounting for all aspects of their life,
with emphasis on creating conditions for the realization of citizens' opportunities
and securing the whole range of social services from the state is espoused.
Third, a subsidiary with proximity to population centers that provides social

services and is responsible for creating conditions for appropriate development in
local areas is recommended.
Fourth, changing the principle of equalization endowment and supporting

lagging areas to transition to the principle of territorial selectivity and
concentration of resources to support selective areas is suggested. The mechanisms
of reallocation of funds must not hinder the development of cutting-edge areas.
Fifth, the decentralization of local government systems to stimulate local activity,

with reliance on local initiative, and the provision of initial resources to support the
process of self-development is supported.

Sixth, strengthening regional development public policy through targeted public
investment programs focused on associated areas and generating the maximum
regional multiplier effect is supported.
Seventh, systematizing and sequencing management processes of regional

development so as to ensure the governance and integrity of the country, including
adherence to national and regional interests, are espoused.
The roadmap of sustainable regional development in the Kyrgyz Republic can be

categorized into three areas of Sustainable Regional Development Infrastructure,
Sustainable Regional Development Culture, and Sustainable Regional Development
Strategies (see Table 2-3).
<Table 2-3> Agenda for Sustainable Regional Development in the Kyrgyz Republic
Area Agenda
1. Development of Laws, Regulation, and Government
Policy Framework for Sustainable Regional
Development
Sustainable Regional Development 2. Funding and Financing for Sustainable Regional
Infrastructure Development
3. Specialization of Sustainable Regional Development
Manpower and Organizations
4. Local and Global Network
1. Development of Leadership in both Central and Local
Governments
Sustainable Regional Development 2. Development of Favorable Investment Climate and
Culture Attracting Financial Resources to the Regions
3. Development of Plan-Do-Check-Act (PDCA)
Framework in Sustainable Regional Development
1. 20 Growth Poles
Sustainable Regional Development
2. Industrial Cluster
Strategies
3. Smart City
Source: Authors.
4.3.2. The Approach to Regional Development
Following the structural and functional scheme of regional policy, the concept
is primarily aimed at the formation and economic development of "centers/points
of regional growth" as well as urban agglomeration and the surrounding support
areas in this document. This testifies to the limited resource capacity of the state
and the concomitant need to concentrate funds on priority areas. In this context,
regional policy will be selected.

Needless to say, arriving at solutions to social, political, and public problems
is impossible without raising the economic potential of the regions. Regional
policy objectives can only be achieved with the implementation of economically
viable projects. The development of more detailed plans, forecasts, and projects
in selected facilities is required for practical implementation. Considering today's
realities, the most likely and appropriate tools may be legislative initiatives,
providing special regimes, reviewing financial and economic relationships between
the center and regions, establishing a specialized investment fund to promote the
development of the regions, specializing of regions, and forming clusters.
Indeed, public policy should be formed for all regional objects with sensitivities
to heterogeneities at the micro- and meso-scales. Simultaneously, the priority
should be to continue with the development of "growth points and supporting
areas".
4.3.3. Outside Frame of Regional Policy
The development of the modern world implies interpenetration and

interconnection of the processes occurring in some countries to the situation
in other nations. Regional policy should include the most important global and
regional trends that may affect domestic policy in the territories. Moreover, an
external accounting framework acknowledges potential competitive influences and
pressures on our regions in the frame of Central Asia and thus the regions of other
countries.
In recent years, the development of the international community has continued

apace. A main trends is that of increasing globalization processes covering the
commodities, finance, human resources, transport and technology domains.
The transition of the global economy to a new technological basis, associated

with the development of nanotechnology biotechnology, composite materials,
information technology, alternative energy sources, and new medicine is a defining
feature of the future in the short and medium terms. Simultaneously, the struggle
for basic resources—energy, food, and water—would increase, for which demand
will rise sharply.
The participation of the Central Asian region in global processes is growing.

In economic terms, actors such as geographic proximity of regions to the rapidly
developing countries China and India, the presence of hydrocarbons, free land,
geographical location between Europe and Asia, will all render essential value.

Conversely, in terms of military and political aspects, the region borders
Afghanistan, which is still a potential-risk area. The region is included as being part
of transnational drug trafficking.
Issues of environmental security acquire increasing relevance. The region already

has negative examples of the irrational and thoughtless use of natural resources.
There are growing tensions related to regional water issues. It is important to
understand the geopolitical behavior of our nearest neighbors.
In relation to China, we should consider policy approval for the formation of

agglomerations of 100 cities with populations exceeding one million. We must also
consider the existence of plans for the development of China's western territories
and the desire to provide logistical routes to Europe. In this connection, the
potential of a negotiated China—the Kyrgyz Republic—Uzbekistan railway must be
considered by spatial planning.
Transnational energy projects, primarily CASA-1000, could affect internal

regional policy. Territory development and the distribution of industrial forces
should be planned in the frame of such large-scale projects. It is necessary to
consider international initiatives related to the restoration and modernization of
the "Great Silk Road" idea.
The policy of other neighbors, in fact, involves insulating principles, particularly

in the case of Uzbekistan.
The government should be more active in creating a favorable investment

climate and attracting resources. The problem of the effective use of resources,
particularly repayment of credits obtained under the guarantee of the government
should be solved in parallel.
Priority should be accorded to foreign direct investment as it brings with it

technologies and management practices, thus opening up new markets overseas.
The current weak level of economic development and the extremely low
competitiveness of the production sector of the country are the main causes
of small volumes of foreign direct investment; these factors together form
an unattractive image of the Kyrgyz economy. It is necessary to reduce state
interference in private business, meet investors’ preferences, and follow common
regulations for foreign and local investors.
Selective improvement of the investment attractiveness of the country in terms

of the points/levels of growth for cluster formation and targeted investment

in regional projects is the right strategic solution. Prominent therein would be
attracting financial resources of the Kyrgyz–Russian development fund.
<Table 2-4> Basic Strategic Framework for Five Growth Poles
Economic ……. ……. Investment Infrastructure

No Social Policy
Policy Policy Policy
#1
#2
#3
#4
#5
Source: Authors.
Financing and developing regions that are not attractive to investors but located
in the border areas should be operationalized separately.
The following polices can be considered on the basis of the basic "Five growth
poles" strategy framework in the first five-year sustainable regions plan.
1) Social Policy
Social policy should assist the self-fulfillment of each individual. It is necessary to

provide opportunities to the population living in all regions of the country to live in
dignity and to improve their welfare.
The consistency of all directions of regional policy and support for social
initiatives by legal and regulatory, economic, credit and financial, scientific,
technical, and other activities is necessary for the fulfillment of the population’s
potential. Particularly, fiscal policy, credit systems, mortgages, and so on should be
more flexible.
Measures for the social assistance of disabled people and those with limited
capacities to work should take a special place in regional social policy. The system of
minimum social guarantees should be established at the state level. Participating in
determining the completeness and fairness of social assistance coverage is required
of local governments.
Social services remain among the priority directions of regional policy. The main
task is to ensure the accessibility and quality of free (education, health, culture, and
others) and chargeable (housing services, trade, catering, and so on) services. Such

services have become more diverse with the ascent of private capital; a key task is
to stimulate development further in this domain by attracting private capital for
providing social services.
Characteristics of the regulation of supply and demand of services would

become more significant. Financial and territorial access to the entire range of
services should be enhanced in each region. Particularly, attention should be paid
toward improving the wellbeing of people and the territorial organization of social
infrastructure, which must be close to the residence of people. This is one of the
tasks of the new administrative-territorial division in which the regional centers
should be involved.
In recent years, the maintenance of public security and justice has become a
priority category of regional social policy. Increased criminality has become one
of the frequent life problems of people as frequent attacks on their lives, health,
and property are suffered. In the near future, it is necessary to strengthen the fight
against organized crime, theft, and fraud. Increased security and protection of the
population should be provided by the active voluntary work brigades.
2) Demographic Aspects
Regular monitoring and forecasting of the demographic status of the republic,

as well as migration processes and domestic tendencies in the social sphere, opens
up the possibility of evaluating the actual location of the production forces in
the region for the current period and for the future. In previous programs and
strategies for development, the demographic aspect was usually neglected in
the construction of social and economic objects. It should be based on qualitative
and quantitative composition of the local population and consider historical
specializations of businesses.
The exact vision of the working population and its professional staff in each
region allows the scale of future production (e.g., plants or mini-plants) and the
number of employed workers to be defined. Therefore, monitoring and evaluating
the productive forces should form the basis of the medium- and long-term planning
of regional economic complexes.
Moreover, being aware of the population structure in quantitative terms

provides grounds for the expansion/development of social infrastructure in the
region—schools, universities, hospitals, cultural and sports facilities, among others.
The same information is expected to determine the state social protection

system serving the disadvantaged population and the volume of financial resources

for their support.
The permanent population of the Kyrgyz Republic at the end of 2015 was six
million people. A third of the resident population (34 percent) lives in urban areas
and two-thirds (66 percent) in rural areas. This information is reliable but not used
in the context of a particular region because it is not a guide to any management
action. Therefore, constant monitoring of the demographic status of each region
is necessary, the results of which may form the basis for organizational and
administrative decisions on the ground.
3) Labor Market
The processes of social and economic development occurring in the country in

recent decades have formed a new situation in the labor market and accordingly,
a new context of the functioning of regional labor markets. Intensification
technology, labor, intellectual streams, increase in the variety of activities, and
educational services have led to increased requirements for effective educational
institutions and the effective use of human, financial, and material resources.
The effective use of human resources could be achieved by the establishment of

a modern system of personnel training and the formation of applied qualifications
in the Kyrgyz Republic, which would be capable of ensuring the training of
skilled workers, employees, and specialists for higher and middle management
in accordance with the needs of the economy and society. It is important for
the various categories of the population to acquire the necessary professional
qualifications throughout their working life.
It is also important to focus on professional education and the training of

personnel for the sectoral priority clusters.
One of the main barriers to sustainable socioeconomic development in the

regions of the Kyrgyz Republic is low productivity. Lower wages and labor
productivity reflect the low standard of living, high rate of exploitation of labor,
and demotivation of employees, among other things.
Providing education for training highly skilled workers who can quickly adapt to
technological innovation and the continuous improvement of operating efficiency
is necessary to improve productivity.
Innovative business activities, strong brands, qualifications, access to attractive

markets, the quality of the competitive environment, and the ability to skillfully
promote and sell products or services also impact productivity growth.

4) Economic Policy
Regional economic policy is fundamental to political decision-making more

broadly. The national wealth of the whole country and each region as well as
the quality of life of the population depends on its efficiency and effectiveness.
Economic policy performs a leading role in all administrative activities.
The competitiveness of regions is measurable in terms of their ability to achieve

a high standard of living for the population by increasing productivity and the
efficient use of capital and promoting the effective organization of business in
terms of national, regional, and global markets.
It is necessary to develop the regions, including in terms of international and

regional exchange of goods, finance, labor, technology, and information, on the
basis of the realization of competitive advantages, which would determine their
competitiveness.
In general, the formation of competitiveness of the regions would be based

on specialization in the industries in which these regions have the strongest
competitive advantages.
Local authorities should ensure innovation by creating special conditions for

production (a skilled workforce and an institutional environment), which in contrast
to the basic conditions of production (natural, with the use of human resources
and existing production assets) may be generated by the authorities to ensure their
long-term competitive advantage.
Regional economic policy initiatives must consider actual, empirical conditions

in the region on the basis of market specialization and interregional trade,
considering environmental, social, and political specifications of each region. This
is crucial for the transition to the sustainable development of regions. According
to the NSDS, reliance on them creates a unique opportunity to strengthen the
potential of regions and their financial independence, preserve environmental
benefits, and ensure a better quality of life through the development of priority
directions of regional economies—"locomotives" of sustainable development.
Consequently, a strategic goal for regional management is the creation of

conditions necessary for sustainable development in terms of the development of
human capital, improvement in living standards, and the formation of an efficient
economy.

Regional economic policy is very important vis-à-vis ensuring the rational
allocation and territorial organization of productive forces. Regional and municipal
governments should promote the formation of district-level investment climates
and serve as "owners" of the territory.
The regions need to form their own market specializations and exchange
products with other regions on the basis of economic connections inasmuch
as they have different economic, natural, and historical endowments and
conditions. Moreover, it is necessary to provide for the creation of conditions
for the enhancement of interregional relationships vis-à-vis Eurasian Economic
Community (EAEC) countries in the frame of foreign economic activities so that
local areas realize benefits in terms of their own agricultural products. In addition,
the necessary conditions should be created for export-oriented activities of the free
economic zones of the country.
Investment attractiveness is based on a positive investment climate in the region,

the assessment of which can be narrowed (evaluating the dynamics of domestic
regional product—the baseline of this evaluation is the profitability of production)
or extended (considering the maturity of the market environment, economic,
financial, political, social, socio-cultural, organizational, and legal factors). In turn,
investment attractiveness is a characteristic of the regional condition.
The principles of production location in a market economy represent basic

tenets that guide the state in its economic policy. They should contribute to the
proportional distribution of labor, deepening the division of labor between regions,
as well as facilitating the comprehensive establishment and development of
rational interregional relations.
5) Economic Assets of the Regions
The social and economic development of any country depends largely on the
availability, scope, and quality of local resources, including the degree to which
they have been explored and developed. Regions within the country have resource
potential presented by land, water, energy, minerals, raw materials, recreational
resources, and labor resources.
More details on the presence, condition, and strategic directions of the use of
natural resources, which are the basis for development in the regions, are explained
in the application.

6) Ecological Policy
The health and wellbeing of the population is directly dependent on the quality
of the environment.
One of the main ways of improving the quality of life and health and increasing
life expectancy is reducing deleterious pollution and resource degradation.
The sustainable development of the regions through the implementation

of a regional policy in the field of environment and health would be achieved
through the creation of an enabling environment that prevents the degradation
of ecosystems, enhances the conservation of biological diversity, and implements
energy-saving technologies.
Environmental legislation, the formation of coordination councils (meetings)

on environmental protection, rational environmental management, creation
and organization of work on sustainable development that is publically and
scientifically recommended, enhancement of the system of state environmental
control in the territories, and ensuring decision support by executive organs in
the sphere of environmental protection and environmental management should
be implemented. Measures for reducing the level of environmental pollution,
including optimal technological interventions, must be provided.
Preserving and restoring biological and landscape diversity are a strategic

objective. This is particularly pertinent in mountainous areas that are unique and
vulnerable to perturbations.
All social and economic sectors of the country directly or indirectly depend on
biodiversity. First of all, it maintains normal sanitary and hygienic conditions, which
are important for public health. Unperturbed pastures represent the greatest
fodder value in the agricultural sector.
Steps to improvement economic mechanisms of ensuring rational environmental

management are needed; this could include the development of payment systems
to internalize negative environmental externalities.
Along with the ecological aspects, the issue of ensuring high-quality water
supply for the population is particularly crucial.
7) Investment Policy
The volume of investment in an economy directly affects the economic growth

and social wellbeing of the country. Developed and developing countries are
competing to attract investment. Despite a number of measures taken to liberalize
the economy of the Kyrgyz Republic, objective and subjective obstacles impede
direct investment, making it among the least competitive economies in the
world with one of the lowest investment GDP ratios among Commonwealth of
Independent States (CIS) countries.
In the frame of regional policy, it is essential to pay attention to contemporary

situations and dynamics; the issue of security and the lack of constructive attitude
on the part of local communities worries investors. Fixation in the frame of
investment agreements, relationships of investors with local communities, and
agreeing on mutual responsibilities of parties may serve to solve this problem.
Another important point is for local authorities to assist investors in obtaining

relevant permissions and reducing the number of unwarranted procedures. Local
authorities should create the most favorable conditions for investment.
8) Infrastructure Development
Engineering infrastructure includes a set of systems, communication, and

construction used directly in the supply and use of water, electricity, gas, and
communication equipment.
The construction and rehabilitation of irrigation systems, as well as the provision

of agricultural land by irrigation water, should be financed mainly from the state
budget and partly from local government funds; this is related to the fact that the
state is more interested in national food security. Therefore, the government should
have a medium-term program for the development of irrigation systems in each
region, which is part of the point/growth stage.
External water supply (water sources, hydro-technical construction, water and

sewage treatment plants, reservoirs, and pumping stations) should be supported by
local government financing. This includes outdoor lighting and gas supply systems.
Private business should be more actively engaged in the development of

communication such as telephone and mobile networks, cable TV, and the Internet.
This does not need state involvement; business successfully finds investors and seeks
the necessary financial resources.
Transport infrastructure includes a set of industries and transportation

companies operating passenger and freight transportation and ensuring their
implementation and maintenance.

The regional economy cannot develop effectively without adequate
transportation infrastructure. This rule works at any scale, from small villages to large
cities. Therefore, the possibility of the movement of goods and people is crucial for
the development of regions and is a necessary binding link between them.
Experience shows that the most efficient transportation functions are performed
by private, rather than state-owned, enterprises. Therefore, deferring to the private
sector in this context seems preferable.
Roads are an integral part of transport infrastructure, and construction and

repairs require the largest proportion of investments thereof. Thus, the limited
financial possibilities of local governments do not allow them to participate in the
laying of strategic highways linking major settlements. Inner road construction
should be financed from the budget of local governments (the mayor's office, aiyl
okmotu).
4.4. Linkage between Strategies and Budget

Regional development depends on budgetary funds allocated through a system
of inter-budget relationships, and private investments can be attracted by the
regions. The system of inter-budget relationships should be reviewed, aiming at
stimulating development. Further, special funds for regional development should
be provided.
Similar sources transferred from investors to local funds exist in the hands of the
government of the Kyrgyz Republic at the present time. Moreover, any large-scale
investment project in the frame of Pension Infrastructure Platform (PIP) should be
realized in accordance with the territorial development programs to enhance the effect.
Another instrument for attracting resources for the development of the

territories should be direct investments. From this perspective, it is necessary
to provide investors with a special fiscal and investment regime for the priority
territories. It is also essential to widely use the Public-Private Partnership (PPP)
mechanism.
Financial stimulation measures in terms of subsidies, concessional loans,

including within the Kyrgyz–Russian development fund, tax benefits, and abnormal
depreciation should be proposed. Providing special electrical tariffs is also possible
for attracting investors to the regions.
The realization of financial credit and investment support to SMEs would be

implemented at the expense of crediting organizations oriented toward financing

businesses, as well as investors, the attraction to which would be one of the main
functions of local governments.
Donor assistance of international organizations in the framework of the realized

projects is also crucial for successful implementation in the context of limited
national- and regional-level resources.
Active work to attract direct investment and donor assistance would be

conducted accordingly.
The formation and performance of local budgets is based on the norms of the
Law "On Basic Principles of Budget Law" and the annual framework of the Law
"On Republican Budget", as well as a number of normative documents of the
Ministry of Finance of the Kyrgyz Republic.
The traditional actions, the mechanism of which was generated in the period
of centralized management, are based on budget processes. The profitable
part is formed on the basis of the benchmarks of the Ministry of Finance. Such
an approach and interpretation entail dependency on the part of local self-
governments.
With the understanding that the money comes in depending on the will of the
Ministry of Finance of the Kyrgyz Republic, local budgets are formed on the basis of
the need for ensuring the functioning of institutions rather than that for achieving
goals. In actuality, there is no practice of revenue forecasting and planning.
The current policy of intergovernmental transfers and inter-budgetary relations

tends to push local governments to dependency rather than providing a basis and
framework for stimulating economic development and increasing their tax base.
Applied electronic calculations of intergovernmental transfers are not clear to

the recipients and the volumes allocated to local governments every year are not
always changed with appropriate supporting arguments.
Since 2008, the number of subsidized LSG has grown from 320 to 393, which
means that the volume of allocated grants of 141,100,000 soms increased to 948.8
million soms. Simultaneously, the standard rates of contributions of nationwide
taxes to local budgets increased as well.
The current practice of administrating and collecting local taxes and fees does
not stimulate increased revenues of local budgets, local governments, and the
State Tax Inspectorate, and the local district administrations conducted insufficient

research into the identification of the sources of local government revenues.
There are no mechanisms for the joint implementation of social and

infrastructural projects and the participation of several local governments to
optimize solutions to social and economic issues. This shows the lack of coordination
among representatives of regional and district administration for the effective
resolution of socioeconomic problems at the local level.
Therefore, substantive resources are spent in attempting to ameliorate local

socioeconomic issues; however, the results thereof are not always clear nor do they
always provide good justification for this spending.
Today, there is a need for reviewing the policy of inter-budgetary relationships

and transfers so that they are simple and understandable to each recipient.
Moreover, new competitive technologies are being introduced to obtain financial
resources from the national budget (stimulating grant), including the preparation
at joint projects and applications and the participation of several ayil okmotu for
the effective use of all resources.
For this purpose, it is necessary to calculate the needs ratio of equalization grants
and approve their legislation. The composition of the standards should include the
same functions for all ayil okmotu in terms of spending powers, which is important
for the state. However, their volumes from year to year should not be changed
except for changing approved tariffs.
Moreover, it is necessary to revise the mechanism of allocating stimulating

grants for the resolution of socioeconomic investment issues. This transfer must
include real competitive technologies in accordance with the possibility of the
involvement of several aiyl okmotu. This is allowed to optimize the separate social
facilities, but others are made for expansion purposes because of the proximity of
the administrative-territorial units. To do this, the effectiveness of the heads of local
governments should be evaluated to determine the successful aiyl okmotu.
There should exist an objective, transparent, and "nonpolitical" resource

allocation method for the regions. It is important to ensure an approach whereby
all regions have the right to claim some form of stimulating support, with a
simultaneous multiplier effect on other areas.
It is reasonable to transfer the functions of administration and collection of local

taxes and fees to local governments. The authority of the administration on land
taxes with gardens and taxes on movable and immovable property of citizens is
delegated to territories at this initial stage. The function of local tax collection on

other categories of taxpayers is delegated at the second stage.
Analysis of local budget performance shows that citizens' priorities do not

coincide with the fiscal policy priorities of the local government. Moreover, the
budget formation experience shows that the local budget income growth is
not accompanied by spending that is directed at the resolution of issues of local
significance; in fact, a decrease in funding for the problems associated with the
direct performance of local government functions has been observed.
Local budgets are generally not configured with the objective of maximizing
societal wellbeing. At present, cost-based budgeting prevails in the development
of local projects, which means that the budget is based on the filling elements
of the economic classification of expenditure; however, it is not suitable for the
evaluation of effectiveness in the implementation of local development programs.
Therefore, it is appropriate for local governments to consider the issue of switching
to software and project budgeting and the strengthening of their responsibility for
the realization of budgets.
The level of transparency and accountability of local governments is low and

does not allow the effective evaluation of budget expenditures on behalf of citizens
and therefore prevents their participation in management. One of the reasons for
citizens’ distrust of local governments is the lack of real transparency and public
accountability. The results of fiscal policy implementation particularly concern the
public sector and information.
The evaluation of the effectiveness of budget spending is directly related to the

ability of community members to obtain objective information on a regular basis
regarding the state and use of budgets.
4.5. Limitations of Policy Actions and Alternatives

Analysis of data over the past 20 years shows that we cannot solve problems of
the territories’ development and improve social life in the fields. Over the years,
we have learned to carry out sectoral policies, which have no spatial dimension,
and which are not sensitive to the inhabitants of the regions. There are many other
sectoral policies, institutions, and schemes; however, there is no consolidated or
comprehensive operating approach to the development of the territories.
Today's challenges define the necessity to think globally and act locally as one
of the fundamental issues. The main problems faced by the regions are "geography
specific" which require appropriate action at the local and national levels.

Unresolved interrelation issues between the executive government bodies and
local authorities are still pertinent. It is necessary to change the current relationship
model. It needs to clearly define responsibilities, separate form and function, and
eliminate overlaps and redundancy.
Activities for improving the legal awareness of state and municipal employees
and training system modernization are not working effectively. Moreover, there
are no programs to stimulate or motivate professionals to execute decisions with
quality and timeliness.
It is important to create a model of public administration that will be able to

ensure the effectiveness and coordination of the central and territorial state bodies,
local and local administrations. The strengthening (vertical and horizontal) of
communication development between public authorities is also required.
It is necessary to instigate administrative-territorial reforms for the creation of

effective and balanced national and regional management systems. Until now, no
visible results have been observed in this direction.
There is a big failure vis-à-vis the weak involvement of civil society, businesses,
and expert communities in the control system of state bodies, where it is impossible
to achieve transparency in public administration.
In general, the country needs a compact and professional state apparatus that
can effectively and in a corruption-free manner perform the functions of the state
and a credible private sector.

References
Euijune, Kim., & Kabsung, Kim. (2002). Impacts of Regional Development Strategies on
Growth and Equity of Korea: A Multiregional CGE Model. The Annals of Regional
Science, 36(1), 165-180.
Hung-Suck, Park. (2008). Strategies for Sustainable Development of Industrial Park in
Ulsan, South Korea. Journal of Environm ental Management, 87(1), 1-13.
Korean Government. 1st – 4th Comprehensive National Territorial Development Plans.
Korean Government. 1st – 7th Five-Year Economic Development Plans.
Kwang-Ho, Kim. (2008). Redefining the Goal and Strategy of Regional Development
Policy in Korea. Retrieved from https://www.kdi.re.kr/data/download/attach/8476_
cu8469-4-1.pdf
Kwiho, Lee. (2005). Establishment of eco-industrial parks for infrastructure of cleaner
production in Korea. South Korea: Presentation Manuals at the Korea National
Cleaner Production Center
Ministry of Environment of the Republic of Korea. (2003). Strategies for Sustainable
Development of Eco-Industrial Park. Republic of South Korea.
Ministry of Environment of the Republic of Korea. (2004). Green Korea 2004—Building
an Eco-community for the 21st Century. Republic of South Korea.
OECD (2012), Industrial Policy and Territorial Development: Lessons from Korea.
Retrieved from https://www.oecd.org/korea/50560264.pdf
Presidential Committee on Regional Development. Retrieved from http://www.region.
go.kr/index.do
Rodriguez-Pose, A. (2013). Do Institutions Matter for Regional Development? Journal of
Regional Studies, 47(7), 1034-1047.
Special Act on Balanced National Development. Retrieved from https://elaw.klri.re.kr/
kor_service/lawView.do?lang=ENG&hseq=39792&joseq=JO0002000..
Yong-Sook, Lee. (2009). Balanced Development in Globalizing Regional Development?
Unpacking the New Regional Policy of South Korea. Journal of Regional Studies,
43(3), 353-367.

Appendix
<Appendix Table 2-1> Information on the 20 Growth Poles
Industries Infrastructure
Area, % of
Growth Volume of Roads with
Population squarekilo- Number of inhabitants Specialization
Poles industrial Total hard asphalt
meter enterprises with access
output, roads concrete
to drinking
mln. Som. pavement
water
Bishkek - 160 - - - - - -
Tokmok 60,358 55.35 4222.8 171 60 203.2 131.2 Industry and services
Kara-
44,214 32.1 56.3 25 90 147.1 110.9 Industry and services
Balta
Tourism, Industry and
Karakol 74,104 48.05 1638.6 40 100 195 132.6
Services
Balykchy 46,504 33.57 236,9 12 97 209 74.5 Industry and Tourism
Naryn 38,205 40.51 732.7 5 98 110 42.1 Industry
Logistics and
Kochkorka 10,558 398.2 2 95 29.9 14.3
agriculture
Talas 36,762 12.99 845 7 35/64 161 53 Industry, services
Industry, services and
Osh 275,753 18.3 3385.5 88 80 561.9 366.6
tourism
Trade, tourism and
Uzgen 53,337 9.2 183.5 13 90 142.4 57.7
services
In terms of Gross City
Product, the share of
industrial production
Kara-Suu 23,941 38.7 16.8 7 100 66 27 is up to 32.6%, trade
and services to 51.1%
and agriculture to
16.3%
Agriculture (livestock)
Sary-Tash 3,262 0 11 100 126 108
and logistics
Batken 26,462 51.8 644.2 18 69.8 59 26 Agriculture and services
Isfana 30,452 2.52 11.4 345 67 65 22.7 Agriculture
Kadamjai 19,159 7 4 80 108 22 Agriculture

Industries Infrastructure
Area, Volume of % of
Growth Roads with
Population squarekilo- industrial Number of inhabitants Total hard asphalt Specialization
Poles enterprises with access
meter output, roads concrete
to drinking
mln. Som. pavement
water
In terms of GDP, the
share of industrial
Djalal-
108,311 24.6 3164.2 41 100 415 265.9 production is up to
Abad
70% and that of trade
and services is 25%.

share of the Energy
Tash- and Mining Industries
38,873 48.3 2428.6 6 100 118 118
Kumyr is up to 95% and that
of trade and services
is 4%.

share of the energy
Kara-Kul 24,330 4561.7 7 100 75,2 58.2 industry is up to 97%
and that of trade and
services is 2%.
agriculture is up to
Kerben 26,874 0.99 2.9 2 51 356 45.7
85%, and that of trade
and services is up to
12%.
Kochkor- the mining industry is
15,643 4.85 94.4 16 100 104,6 32
Ata up to 98% and that of
trade and services is up
to 1%.
Note: Industries - Main industries in the growth pole, Infrastructure - SOC in the growth poles,
Specialization - Specialization in the growth pole.
Source: Internal Documents of the Ministry of Economy, Kyrgyz Republic.

<Appendix Table 2-2> Comprehensive National Territorial Development Plans in Korea
Industrial Cluster Policies in Korea
Plans Main Strategies Main Projects
Even though industrial complex
Maximize growth potential withdevelopment in Korea started in the 1960s,
industrial cluster
limited policies
resources were strongly promoted in the ROH Moo Hyun
1. Construct Kyungbu Expressway
Government. 1.Then, the
Develop LEEindustrial
large Myung-bakestates Government
and also supported industrial
(1968–1970)
cluster policies. metropolitan regions (southeastern • Link Seoul (the capital) to Busan (the 2nd
coastal industrial belts, Seoul largest port city)
1st CNTDP Metropolitan Area) • First national highway in Korea
In the early stages, the concept of industrial complexes was defined as a simple
(1972-1981)
2. Invest in high
physical agglomeration priority
of firms andinfrastructure
factories in 2.some
Reduce
logistics costs
designated areas. Later, the
(expressways, ports) and link them • Saemaul Undong commenced in 1972
Korean government pursued various policies to improve
to major industrial estates
competitiveness and to
• Goals: promoting a modern, comfortable,
reinforce the innovation competences of industrialand complexes
convenientin thecommunity
rural late 1990s.
3. Revitalize depressed regions
In the early 2000s, the ROH
(Saemaul Moo Hyun Government started a variety of projects
Undong)
related to industrial clusters. [Appendix Figure 2-1] shows the outline of industrial
1. A
pply special policies for the reduction of
cluster programs. overconcentration in the capital region
Spread the growth effect across the • The Capital Region Readjustment
nation Planning Act (1982) was implemented to
lessen the concentration of population
1. Suppress overconcentration in Seoul
and industry in the capital region
Metropolitan Area
2nd CNTDP • The First Capital Region Readjustment
(1982-1991) 2. Develop multiple growth poles in Plan(1982-1996) was implemented
the nation (Foster metropolitan
2. E stablish the 7X9 national arterial highway
regions as growth engines)
plan
3. Consider environmental aspects of •7 south-north and 9 east-west
territorial development expressways corresponding to increasing
transportation demand and balanced
development
Establish multi-centered national
territorial structure
1. Focus on decentralized national
development (develop the west New town development in Seoul Metropolitan
Area (five New Towns in Seoul Metropolitan
coast industrial sites and local cities)
3rd CNTDP
Area: Ilsan New Town, Jungdong New Town,
(1992-1999) 2. Develop a comprehensive
Bundang New Town, Pyungchon New Town,
transportation network (7X9 arterial and Sanbon New Town)
road network)
3. Expand South-North Exchanges and
prepare for a unified Korea

Plans Main Strategies Main Projects
1. D evelop a Multifunctional Administrative

Balanced regional development and City
open and integrated national territory • Nine ministries (of 15), two major
1. Build—shaped territorial axis to government agencies, and two
serve as “strategic gateway” administrations
• 2012–2014 relocation; 2030 completion
2. Promote regional competitiveness– Planned population: 500,000 thousand
4th CNTDP
industrial clusters and regional
(2000-2010) 2. R elocate public agencies and construct 10
innovation system (RIS)
innovation cities
3. Build high-speed transportation •M ove 157 public agencies with 32,000
network employees to non-capital regions
4. Provide a territorial base for • Create clusters linking public agencies,
cooperation enterprises, and universities in each
innovative city
Global-Green National Territory 1. E stablish “mega economic regions” to

1. Integrated Territory with enforce global competitiveness
competitiveness • Overcome the limitation of administrative
Revised boundaries
2. Sustainable Territory with eco- • Interregional cooperation and
4th CNTDP
friendly development collaborative development
(2011-2020)
3. Attractive Territory with high quality 2. R
egroup seven metropolitan cities and
of living nine provinces into seven mega economic
4. Open Territory to the global market regions
Source: 1st CNTDP, 2nd CNTDP, 3rd CNTDP, 4th CNTDP, and Revised 4th CNTDP.
The core unit of the regional development plans in the LEE Myung-bak Government
was the Regional Economic Area (REA), dividing the nation into the 5+2 REA. The “Pan
Regional Cluster Program”, which was the 5+2 pan regional cluster project according to
the REA started in 2010. The LEE Myung-bak Government’s industrial cluster programs are
shown in [Appendix Figure 2-2].

[Appendix Figure 2-1] Industrial Complex Cluster Program Outline
Cultivation of the world's famous industrial clusters

VISION
that drive the development of the Korean economy
Formation period Growth period Independence period

('05-'08) ('09-'12) ('12-'16)
GOAL Construction of industrial Activation of Construction of autonomous
cluster base cluster network innovative cluster
Individual industrial Regional industrial National industrial

RANGE complex complex complex
(12) (193) (all industrial complex)
• Construction of Korean
• Construction of regional • Advance network activity.
cluster model.
cluster.
STRATEGIES • Establish customized
• Completion of
• Activation of global autonomous industrial
development strategy
network. ecosystem.
according to complex.
Construction of Strengthen
Strengthen R&D Improve residence
PROJECTS industry-university
capabilities
characteristics
/work environment
-institute network of complex
Source: MKE and KICOX, 2011.

[Appendix Figure 2-2] Regional Economic Areas and Major Hub Regional Clusters in LEE Myung-bak Government
Metropolitan area Kangwon area

• Vision • Vision
Global hub of knowledge-based parts and materials Construct medical equipment industry hub of
industry Northeast Asia
• Specialized industries Kangwon area • Specialized industries
IT, parts and materials (electric & electronics, machinery, Medical equipment (medical equipment / related
parts and materials) industries)
Metropolitan area
• Hub & spoke Global • Hub & spoke Global
Hub complex : Seoul digital, Banwol-Sihwa, Namdong, Hub complex : Bukpyung, Wonju
Bupyung-Juan Spoke complex : 6 general, 7 agro-industrial complexes
Spoke complex : 1 national, 13 general complexes
Daegyeong area
Chungcheong area • Vision
• Vision Construct IT fusion / complex industry hub of Northeast
Construct NEW IT hub in Korea Asia
• Specialized industries Chungcheong area • Specialized industries
Daegyeong area Electric & electronics, machinery (mechatronics)
IT (electric & electronics / related industries)
• Hub & spoke Global • Hub & spoke Global
Hub complex : Ansan-Cheonan, Cheongju-Ochang, Hub complex : Gumi, Seongseo, Gyeongsan Jinryang
Chungju Spoke complex : 1 national, 9 general, 10 agro-
Spoke complex : 10 general, 31 agro-industrial complexes industrial complexes
Honam area Dongnam area

Honam area • Vision
• Vision Dongnam area
Construct basic industry hub in Pacific era
Construct eco-friendly green industry hub in Northeast
• Specialized industries
Asia
Mechatronics, automobile, shipbuilding, aerospace
• Specialized industries
• Hub & spoke Global
Shipbuilding, automobile / machine parts, photonics
Hub complex : Changwon, Ulsan-Mipo, Onsan,
Myeongji Noksan, Yangsan Eogok, Sacheon
Hub complex : Gwangju, Daebul, Gunsan, Iksan
Spoke complex : 4 national, 11 general,
Spoke complex : 1 national, 15 general, 18 agro-
28 agro-industrial complexes
industrial complexes
Jeju area
• Vision
Construct eco-friendly bio-cluster
Jeju area • Specialized industries
Bio (food & beverage)
Hub complex : Kumnung
Spoke complex : 1 national, 2 agro-industrial
complexes (Daejung, Gujwa)
Source: MKE and KICOX, 2011.

<Appendix Table 2-3> Roadmap for Sustainable Regional Development in the Kyrgyz Republic (example)
Category Year 1 Year 2 Year 3

• Legislation on
Development of Sustainable Regional
Laws, Regulation, Development
and Government • Operational Plan
• Operational Plan based on
Policy Framework • Establishment of based on Long-Term
Long-Term Plan
for Sustainable Comprehensive Plan
Regional National Sustainable
Development Regional
Development Plan
• Direct financing
from domestic
and international
Funding and • Development of business
• Assessment of organizations’
Financing for opportunities to provide
capital management financial and
Sustainable consulting services to
capacities to finance technological
Regional organizations such as
capital projects capacities
Development public enterprises
• Public-private
partnerships
• Development of • Education and
Specialization
competences in the training at the • Education and training at
of Sustainable
public Sector national academy the national academy
Regional
Development
• Design of education • Global cooperation • Global cooperation for
Manpower and
and training for education and education and training
Organizations
program training
• Development
of central-local
collaboration system
• Central-local
(law, regulation)
partnership projects
• Establishment of
Local and Global • Enlargement of • Advancement of global
global network
Network global network network
framework
• Development of Osh
• Plan for
Free Trade Area
international
collaboration in Osh
Area


• Development
Development of • Evaluation of
of climate of • Annual evaluation of
Leadership in both leadership on
importance of leadership on sustainable
Central and Local sustainable regional
sustainable regional regional development
Governments development
development
Development
of Favorable • Plan for social • Development of
• Development of self-plan
Investment Climate movement for citizenship for
for sustainable regional
and Attracting sustainable regional sustainable regional
development by citizens
Financial Resources development development
to the Regions
Development
of Favorable • Plan for social • Development of
• Development of self-plan
Investment Climate movement for citizenship for
for sustainable regional
and Attracting sustainable regional sustainable regional
development by citizens
Financial Resources development development
to the Regions
• Establishment of
Development of legal foundation for
PDCA Framework PDCA framework
in Sustainable • Operating PDCA • Advancing PDCA
Regional • Development
Development of evaluation
framework
• Plan for regional
specialization: • Implementing growth pole
Mega-regional plan • Development of in mega region
20 Growth Pole
infrastructure
• Plan for Free Trade • Monitoring and Evaluation
Area in Osh
• Implementing industrial
• Plan for industrial • Development of
cluster
Industrial Cluster cluster for special infrastructure for
region industrial cluster
• Monitoring and Evaluation
• Construction of Smart City
• Site selection for
Smart City • Plan for Smart City
Smart City • International collaboration
for Smart City
Source: Authors.

<Appendix Table 2-4> Action Plan for Tourism Specialization in Issyk-Kul (example)
• Reviewing and • Select and Develop

Assessment of Available Key Activities • Dynamic Tour Packages:
Activities in Issyk-Kul Area including Folklore/ Identify Existing Gaps in
General Storytelling Common Tour Packages
• Analysis and Examination
Plan of Existing Touristic • Development and • Development and
Activities and Tourist Training of Cultural Packaging of Local
Profiles in and around (Human) Resources Produce and Products
Issyk-Kul (Ongoing)
• Budget Plan for

Infrastructure
• Budget Plan for CBT
Implementation
• Development and • Development of a
Financial • Pricing and Revenue
Monitoring System for Financial System for CBT
Planning Projection
Revenue Allocation to the Operation
Area
• Preparation and
Application of Project
Proposal
• Communication and
Training of the Global
CBT Standards to
Government Officials
and Local Community
Members • Planning of
Infrastructure
• Nomination and Selection
Capacity of Community, Industry, • Planning of Public • Strategic Planning of
Building and Government Facilities Sustainable Community
Representatives Development in Issyk-
Kul
• Hospitality and Tourism
Service Training
• Collaboration with Korea
Tourism Organization:
Tourism ODA
• Development of
Offline and Online
Public Relations • Collaborate in Destination Communication
Materials • Launch Publicity
and Marketing with Central
Programs
Marketing and Local Governments • Alignment with
National Marketing
Efforts
Source: Authors.

Ministry of Strategy and Finance
Government Complex-Sejong, 477, Galmae-ro, Sejong Special Self-Governing City 30109, Korea
www.ksp.go.kr
Tel. 82-44-215-7762 www.mosf.go.kr
Korea Development Institute
263 Namsejong-ro, Sejong Special Self-Governing City 30149, Korea
Tel. 82-44-550-4114 www.kdi.re.kr
Korea Institute for Development Strategy
5F. WIZ Bldg. 429, Bongeunsa-ro, Gangnam-gu, Seoul 06097, Korea
Tel. 82-2-539-0072 www.kds.re.kr
94320 Knowledge Sharing Program

www.ksp.go.kr
9 791159 322525 Center for International Development, KDI
ISBN 979-11-5932-252-5
ISBN 979-11-5932-227-3(set) cid.kdi.re.kr

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2016/17 Knowledge Sharing Program

with Kyrgyz Republic:

Prepared by Korea Institute for Development Strategy (KDS)

Supported by Ministry of Strategy and Finance (MOSF), Republic of Korea

Prepared for The Government of the Kyrgyz Republic

In Cooperation with Ministry of Economy, Kyrgyz Republic (MOE)

Chief Project Officer Kyung-bae Park, Vice President, KDS

Principal Investigator Wonhee Lee, Professor, Hankyong National University

Authors Chapter 1. Wonhee Lee, Professor, Hankyong National University

English Editor Enago

Government Publications Registration Number 11-1051000-000793-01

2016/17 Knowledge Sharing Program

Strategies for Program-based Budgeting in the Kyrgyz Republic

Strategies for Sustainable Regional Development

Sung-Eun Hong (Project Officer, Korea Institute for Development Strategy)

Sponsored by the Korea Development Institute (KDI) under the supervision of

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Strategies for Program-based Budgeting and

2016/17 KSP with Kyrgyz Republic • 011

Schedule for the 2016/17 KSP with Kyrgyz Republic

Month 2016 2017

Submission of Final Report 5/31

1.1. Kick-off Seminar and Pilot Study

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1.3. Interim Reporting and Policy Practitioners’ Workshop

1.4. Final Reporting Workshop and Senior Policy Dialogue

2016/17 KSP with Kyrgyz Republic • 013

014 • 2016/17 Knowledge Sharing Program with Kyrgyz Republic

Wonhee Lee (Hankyong National University)

Executive Summary • 015

The program-based budget can be a starting point of financial management

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[Figure 1] Issues with the Agenda to be Analyzed

• Monitoring & Feedback

These two agendas have to be investigated within a well-designed framework

Executive Summary • 017

[Figure 3] Organization of Report

Classification Performance Capacity Governance Strategic Funding

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Strategies for Program-based

Strategies for Program-based

Wonhee Lee (Hankyung National University)

(1) lack of invested human resources and existing technical capacity

(2) inadequate organizational discipline (i.e., negligent attitudes of line

(3) inadequate quality of program budgets and indicators of programs provided

(4) performance information does not affect decision-making on budget

(5) lack of proper analysis of reports on the implementation of budget programs

(6) lack of monitoring and an expenditure review process

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(8) lack of public finance management information technology (IT) systems

By comparison, some recommendations were drawn for alternatives:

Second, it is necessary to strengthen the linkage between the program-based

Third, for improvement of the quality of programs, measures, and performance

Fourth, in Korea, a well-designed IT system, the so-called d-Brain, was developed

Finally, it is necessary to set up short-, medium-, and long-term strategies to

Chapter 1 _ Strategies for Program-based Budgeting in the Kyrgyz Republic • 021

The introduction of the program-based budget system in 2011 was intended to

By contrast, the Korean government introduced PB in 2006 with a

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1.2. Research Design

In this sense, PB attempts to apply cost-benefit analysis to the allocation decisions,

Chapter 1 _ Strategies for Program-based Budgeting in the Kyrgyz Republic • 023

Proposed By Approval By Implementation Audit By

1.3. Interim Reporting and Policy Practitioners’ Workshop

1.4. Final Reporting Workshop and Senior Policy Dialogue

(2) inadequate organizational discipline (i.e., negligent attitudes of line

(3) inadequate quality of program budgets and indicators of programs provided

(4) performance information does not affect decision-making on budget

(5) lack of proper analysis of reports on the implementation of budget programs

2. Current Policy Issues in the Kyrgyz Republic