The modernization of macroeconomic policy

M.M. Khalitova, Dr. Sc. Economics.,

A.A. Nurpeissova, Ph.D. in Economics,

Institute of Economics CS of the MES RK

“It is crucially important on a step-by-step basis by 2050 provide the solution of the following problems:

First of all, the macroeconomic policy of state should be modernized…”

The new state needs the new financial policy, able to become a base for significant qualitative steps in the country socio-economic development. Therefore the Head of state has specified the modernization of a macroeconomic policy, and more precisely its financial component, as the absolute priority. Herewith the “comprehensive economic pragmatism on the principles of profitability, repayment… and competitive ability” lies at the root of all the economic background assumptions of the President N.A.Nazarbayev [The strategy -2050].

In essence, the President has detached the primary positions of a New financial policy.Under the scientific rationale it is possible to mark the following principles:

1.The principle of purposefulness – reinforces the provision, according to which all the financial costs should have the subject-purposive appointment.

2. The principle of financial system adaptation to the alternating conditions. The implementation of a given principle in practice supposes the continuous monitoring of a market and macroeconomic situation, designated to the tracking of all significant factors influence on the dynamic of a highly industrial economy development.

3.The principle of information and analytical support of a finance and investment activity. The necessity of the given principle application is conditioned on the high uncertainty both the funding recipients behavior and its performance environment in whole. The information support is the most important element of the national economy funding process.

4.The principle of efficiency. When the taking of financial decisions is carried out on basis of a transparent progress evaluation with regard to objectives, as well as the effective accumulation of governmental financial resources, whereby the tax burden does not bear pressure upon the innovative activity of business entities.

5.The principle of planning and forecasting. The planning and forecasting as the essential elements of any activity management system, very significant in the questions of financial security of a highly industrial development of national economy.

6. The principle of confidence building sideways the population. The give principle, in our opinion, is especially notional, since for the impactful attraction of internal and external resources as the sources of investment projects it is necessary to create the conditions  of confidence to the financial system and the policy carried out by the state in the given area.

In the Strategy-2050 the President has specified that for the economy, which is affected enough by the world market, it is of critical importance to preserve stability in the periods of fluctuations for as long as the specified enterprise proportions will be achieved. The President notes: “The global economic system can miss the mark already in 2013 – 2014, in particular to cause the slump of world prices for raw materials. The similar scenario is extremely undesirable for us” [The strategy -2050].

In this regard, the questions of economic processes forecasting are of the utmost interest. Since the Kazakhstani budget is considerably oil-linked, according to the President’s opinion, we need to concentrate on the long-term forecasting and planning pf macroeconomic processes, including the budgetary costs and receipts, resources reservation, inflation expectations, drawing potential, debt obligations, etc.

Thus, in the area of monetary policy the President N.A.Nazarbayev as the primary task has detached the problem of inflation rate growth. Substantially, over the last years the inflation exerts the sufficient serious affection to the dynamics of credit interest rates. This linkage is reflected in the Letter and detached as the principal directions of a monetary policy of the future.

In this regard the President says about the maximum coordinating of the Government work on price control on one side, and the National bank activity on the application of money and credit and monetary policy measures in order to restrain the inflation. In this case the Government and National bank need to “knock down” the population’s trust by holding or strengthening of a national currency, and the Government – by the ceiling in price, perhaps even by the administrative methods.

The question of population’s trust to the regulatory structures, in that case the National bank and Government has not a insignificant meaning. Under the condition of defined limits of inflation and currency rates fixation by the National bank and the high degree of the population’s confidence it can be assumed that there will be no sharp turnabout in prices. At that the National bank will apply the maximum possible instruments of money and credit and monetary control for the curbing of exchange fluctuations and inflationary volatility. In case of absence or the low degree of confidence on the part of population, it can turn to be a challenging task to preserve the parameters determined by the National bank.

Generally, such variable as a degree of confidence to the central bank and government is used as one of the basic coefficients in various mathematical models of inflation targeting, considered in the scientific papers of IMF and it shouldn’t be neglected during the carrying out of anti-inflationary policy. Therefore we think that it needs to provide the population’s confidence to the regulator by virtue of bigger publicity and transparency of its activity.  The practice of disclosure by the National bank of information about its activity perhaps requires the improvement.

The carrying out of competent and circumspect budgetary policy is very significant point in the President’s Letter.

It should be pointed out that  in consequence of purposive actions in the area of budgetary policy over the last years it was proved successful to solve the range of significant problems. The undertaken social obligations of state are abided and satisfied. The National Fund establishment has allowed passing the period of a global recession without the fall of citizens’ living standards, support the financial infrastructure and real sector of economy. The prudent budgetary policy became the essential factor of sustainable development of our country.

However nevertheless in conditions of a continuing global financial and economic crisis the President’s appeal to arm with the new principle of budgetary policy, i.e. to spend only within one’s opportunities and shorten the budget till the maximum possible lower limit is of utmost importance.

Thus, the results of native scientists’ investigations bear the evidence of a necessity for the rational use of budgetary funds, securing of its effectiveness.

In other words, the given appeal, in our opinion, is a reflection of modern challenging needs of the whole world community, and ours in particular. In this context, to our opinion, the citizens of republic should with profound responsibility conceive and support the given initiative stated by the Head of state.

In turn, we, as the scientists are fully supportive of the course of realization of the budgetary expenses effectiveness potential increase.

In our opinion, the principal objectives of a budgetary policy to the middle-term and long-term perspective should become:

- the strengthening of macroeconomic stability and securing of budgetary stability;

- elaboration of a long-term budget strategy;

- determination of the pension system development parameters;

- the creation of conditions for the rendering of high quality public services;

- providing of transparency and openness of budgetary process.

The President has accurately posed a question on the need to the public budget orientation to the productive from the standpoint of a long-term outlook nationwide projects, such as, for example, the economy diversification and development of infrastructure.

Also it is correctly noticed that the need of the most scrutinous justified election of objects for the investments has drawn to a head.

Seeing that often the effectiveness of realized budget expenditures is low, received socioeconomic impact is disproportionate to the volume of discharged funds on one or another goal. Therefore, it is particularly important to mention that the projects accomplished on the budgetary funds should in the first instance solve the real-world problems of citizens and bring income to the country treasury.

Taking into account that in the near term the hard constraints connected with the adversity in the world economy will have effect, the work on elaboration of distinct priorities of budget expenditures is necessary.

To our opinion, the budgetary expenditure patterns should be changed in favor of those items, which are directed to the education, science and infrastructure. 

The instruments  budgetary policy should be focused on the contrariety to the factors of unsteadiness, high rate of inflation and budgetary deficit. The improvement of entrepreneurial and investment climate is impossible otherwise.

Such instrument as a “transparency” became of prime importance and at the provision of pragmatism for the budgetary process, whereof it is said in the Strategy. Only the transparence can make the budget expenditures maximally effective.

In this regard the different international financial institutes have repeatedly opined on the necessity of the supreme audit institutions status rise. It is necessary not only for the carrying out of estimation of the budgetary funds expenditure efficiency, but also for the determination of the economic development condition through the activity of subjects, which are the large taxpayers, directly affecting the state income basis. This is precisely why today the demand of action measures, focused on the real strengthening of financial control bodies becomes increasingly evident.

The base of economic policy of the President N.A.Nazarbayev is the longtermness, since the “2050 is not a simple symbolic date. It is a real term, whereon the world community orientate itself today" [The strategy -2050]. The real Strategy implementation is possible only at the three basic elements aggregate: pragmatism (whereat all strategic line of the President is based), planning and forecasting.

The long-term budgetary projects in the foreign countries, covering the period from 15 to 50 and even for 75 years, contain the principal background assumptions for the determination of a stable development path of the public services and income redistribution sphere.

The need of a long-term planning is driven by the consolidation of the budget ‘s role as a public policy instrument for the purposes of achievement of desired goals on the formation of a high industrial economy, wherein the centerpiece is occupied by the human capital. It grows up in respect of a socioeconomic development adverse trends presence: ageing of population, ecological problems, high degree of economy and budget dependence from the base material sector and external conjuncture, preservation of terrorism danger. Under the circumstances the demand for public services and relevant government expenditures increases, what creates a threat for the country financial soundness. At that the complex solution of the following problems should be provided: funding of current projects and investment programs, fulfillment of the middle-term and long-term development programs, financial deepening, improvement of investment, innovative and entrepreneurial climate and others.

In such a manner, the long-term bottom-line financial planning  as a component part of macroeconomic processes management will become a basis for the new social model of Kazakhstan formation.