Theme state targeted funds

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THEME 8. STATE TARGETED FUNDS 
 
Plan: 
1. Socio-economic essence and importance of state targeted funds. 
2. Extra-budgetary Pension Fund under the Ministry of Finance of the Republic 
of Uzbekistan. 
3. State Fund for the Promotion of Employment of the Republic of Uzbekistan. 
Key words: 
state extra-budget funds, state targeted funds, Extra-budgetary 
Pension Fund under the Ministry of Finance of the Republic of Uzbekistan, State 
Fund for the Promotion of Employment of the Republic of Uzbekistan. 
1. Socio-economic essence and importance of state targeted funds. 
In modern conditions, in the process of implementing by the state the 
redistributive monetary relations regulated by the legislation on the formation and 
use of its monetary income, it is tasked with achieving maximum balance and 
proportionality of the financial resources of centralized funds of monetary funds, 
determining the procedure for the formation and use of the funds of these funds, 
monitoring their use and stimulating the socio-economic development of society and 
the state. 
An important link in the financial system of the state is the state extra-budgetary 
funds. Government bodies in connection with the expansion of their activities 
needed more and more expenses, requiring funds to cover them, these funds were 
concentrated in special funds intended for special purposes. Such funds were, as a 
rule, of a temporary nature and with the implementation of the planned measures by 
the state, they ended their existence. 
If historically any state did not have extra-budgetary funds, then the division of 
the state budget into a system of budgets, including the allocation of special budget 
funds within and outside of them with their sources of funding and expense items, 
significantly complicated the entire system of formation and distribution of funds. 
in the state system. The emergence outside the budgets of state extra-budgetary 
funds, and within the budgets - target funds and funds of ministries and departments 
gradually led to the complication of the formation and use of budgetary funds, the 
complication of the mechanism of planning, distribution and redistribution of 
sources of income between elements of the budget system and extra-budgetary 
funds, complication of control over effective spending of their funds. 
Before considering the concept and essence of state non-budgetary funds, let 
us define the term "fund". 
The fund, on the one hand, as an economic category, is the centralization of 
funds accumulated for solving certain problems, on the other hand, as a category of 
public fund, it is an organization that accepts and distributes funds received at its 
disposal among consumers. All extrabudgetary funds can be summarized in four 
main groups: state extrabudgetary funds, targeted budgetary funds, special 

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budgetary funds and sectoral extrabudgetary funds. 
Let's consider the concept and essence of state extra-budgetary funds. 
The state off-budget fund is a fund of funds formed outside the budget at the 
expense of special sources, which is at the disposal of state, regional and local self-
government bodies and has a designated purpose. The order of their formation and 
use is regulated by financial law. Extra-budgetary funds are one of the methods of 
redistribution of national income by the authorities in favor of certain social groups 
of the population. 
Let's give a definition of the term "extra-budgetary funds". 
1. Extra-budgetary funds are an important link in the public finance system. 
They express the form of redistribution and use of financial resources attracted by 
the state to finance certain public needs through the provision of social and other 
services to the population. Extra-budgetary funds have their own clearly defined 
focus and are intended to provide financial support for priority state social programs 
in a market economy. 
2. State extra-budgetary funds are centralized funds of state funds generated 
outside the state budget intended for the realization of citizens' rights to pensions, 
social insurance, social security in case of unemployment, health care and medical 
care. State extra-budgetary funds are targeted funds of financial resources formed 
by compulsory payments and voluntary contributions from legal entities and 
individuals in order to implement social, economic and scientific tasks facing society 
and the state. 
3. Extra-budgetary funds (accounts) are an independent link in the public 
finance system (in some countries - the budget system, a special form of education 
and use of targeted public financial resources, income and expenditures intended for 
the financial support of the functions of the state (local self-government) for the 
social protection of citizens and the solution of other tasks by funding funds 
accounted for and managed autonomously from the budgets of public legal entities. 
4. Extra-budgetary funds are a set of monetary distribution and redistribution 
relations, as a result of which funds of financial resources are formed that are not 
included in the budget and have, as a rule, a target value. 
5. State off-budget fund is, on the one hand, a fund of funds created by the state 
separately from the budget to financially support the implementation of certain tasks, 
on the other hand, an organization that manages this monetary fund. 
According to Richard Allen and Dimitar Radev The term “extrabudgetary” can 
be used in several ways, each highlighting a different aspect of the issue. 
Extrabudgetary funds are the broadest concept and include all income, expenses and 
funding that are excluded from the budget. Extrabudgetary funds cover a variety of 
activities in which extrabudgetary income and expenses are paid and spent. 
Extrabudgetary funds (or units) are institutions that engage in extrabudgetary 
operations, may use off-budget accounts, have their own governance structures, and 
often have a legal status that is independent of ministries and departments. 
Extrabudgetary funds can be characterized as follows 
• EFs account for a significant portion of central government spending. 

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Including funds for social protection of the population, they account for about 46% 
of the total expenditures. 
• Social insurance funds are the single most common form of extrabudgetary 
activity, accounting for 35 percent of total spending. 
• While the level of extrabudgetary activity, excluding social insurance funds, 
is broadly comparable for developed and transition economies and developing 
countries, social insurance funds represent a significantly larger share of central 
government spending in developed countries. 
• A more detailed analysis of the data shows that the WF in many developed 
countries already has an established institutional structure - mainly variations of the 
agency model are discussed below in section II, while transition economies and 
developing countries use a wider range of organizations, sometimes without clear 
economic and legal identity. 
• EFs in developed countries are generally well integrated into the budget 
process — in line with the concept of a consolidated budget discussed later in this 
note, and in some cases not presented as a separate government subsector. For 
example, data on EF for most EU member states are included in the state budget. 
State extra-budgetary funds as an economic category are understood as 
economic (monetary) relations associated with the formation, distribution 
(redistribution) and use of funds of funds intended for solving certain state problems, 
the financing of which is outside the state budget. 
In terms of the socio-economic nature, off-budget funds are understood as a 
method of redistributing national income in favor of certain social groups of the 
population, certain industries and spheres of the economy. 
In terms of material content, extra-budgetary funds are understood as the 
totality of financial resources at the disposal of authorities and management at any 
level and intended for strictly targeted use. 
We will also consider the concept of state trust funds and target budget funds. 
State trust funds - funds formed in accordance with the current legislation to 
finance certain government expenditures and consolidated as part of the country's 
budget system to ensure more complete state control over the receipt and targeted 
use of funds. State trust funds are funds consolidated as part of the state budget, for 
each of which the sources of funds, norms and conditions for the receipt of funds 
from each source, as well as the purposes for which these funds can be used, are 
determined by legislation. 
Targeted budgetary funds are understood as monetary funds formed as part of 
the country's consolidated budget from targeted sources of funds and used to finance 
certain state or local expenditures under the control of the fiscal authorities of the 
state. 
The allocation, along with the budget, of special off-budget funds is due to 
several reasons: 
1) the need to allocate special monetary resources for the purpose of their more 
efficient and strictly targeted use; 
2) the need to identify special and at the same time stable financial sources to 

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meet the special needs of the state; 
3) the need to find additional funds to meet public needs, which cannot be fully 
financed from the budget, but which are the basis for expanding the scope of 
government activities in the field of military spending, scientific research, social 
payments to the population, etc. 
The functioning of state extra-budgetary funds, as the transfer of funding for 
the implementation of certain state tasks outside the state budget, has both positive 
and negative sides. 
On the one hand, with the formation of extra-budgetary funds, the state obtains 
additional funds both to finance certain priority social areas and to intervene in the 
economy. In some cases, the favorable state of the budgets of extra-budgetary funds 
helps to reduce the deficit of the state budget, and the autonomy of extra-budgetary 
funds should theoretically help to ensure more effective control over the use of 
funds. Extra-budgetary funds make it possible to overcome the residual principle of 
financing social and other expenses, as well as to unload the budget, taking on part 
of its expenses, thereby solving the problem of financing the budget. Within the 
framework of the budget, there is practically no assignment of income to specific 
types of expenditures, there is a possibility of overflow of funds by item of 
expenditure, reduction of funding for important items of expenditure, in particular, 
social ones. The way out of this situation is the formation of financial resources 
outside the budget and their use to finance individual public needs on the basis of 
operational independence. Having a strictly targeted direction for the use of funds, 
extra-budgetary funds make it possible to increase the resources mobilized by the 
state, which is easier than with an increase in tax rates, since if there is an increase 
in rates to extra-budgetary funds, then this is perceived more calmly, since most 
citizens receive income from extra-budgetary funds ... 
On the other hand, the very transfer of any public expenditures outside the state 
budget may call into question the transparency of their implementation, as well as 
create opportunities for abuse. All funds are uneconomical and ineffective. They 
require huge expenditures from the budgetary funds of the funds, actually from tax 
revenues for the maintenance of the administrative and service personnel of the 
funds and the creation of information systems for collecting, recording and 
distributing the funds' financial flows. 
The state mobilizes part of the income of organizations and the population into 
funds to finance its activities. Extrabudgetary funds solve two important tasks: 
• provision of additional funds to priority sectors of the economy; 
• expansion of social services to the population. 
State off-budget funds, being an integral part of the financial system of almost 
any state, have a number of features: 
• are established by the authorities and administration and have a strict 
targeting; 
• funds from funds are used to finance government expenditures not included 
in the budget; 
• monetary funds are formed mainly through mandatory contributions from 

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legal entities and individuals; 
• insurance premiums to funds and the relationship arising from their payment 
are of a tax nature, insurance premium rates are set by the state and are mandatory; 
• relations related to the calculation, payment and collection of contributions 
(taxes) to funds are covered by most of the rules and regulations of tax legislation; 
• the monetary resources of some funds are in state ownership, they are not 
included in the budgets, as well as other funds and are not subject to withdrawal for 
any purposes not expressly provided for by law; 
• spending of funds from funds is carried out by order of the Government or a 
specially authorized body, for example, the Board of the fund; 
• are legal entities, exempt from taxes and other mandatory payments. 
With the help of state extra-budgetary funds, it is possible: 
• influence the production process through financing, subsidies, crediting; 
• ensure environmental protection measures, financing them through fines for 
environmental pollution; 
• provide social services to the population through the payment of social 
benefits, pensions; 
• provide loans to foreign partners, etc. 
State extra-budgetary funds perform distribution, regulatory and control 
functions. The distribution function is expressed in the redistribution of a part of the 
national income through extra-budgetary funds in favor of various segments of the 
population, as well as for solving a number of priority tasks of socio-economic 
development. Through extra-budgetary funds, the state can regulate various socio-
economic processes, stimulate the development of economic sectors. The control 
function is manifested in signaling to society about deviations in the production or 
social process. 
Extrabudgetary funds can be classified according to various criteria. 
1. On the basis of belonging to the level of government, off-budget funds are 
federal, regional and local in federal states and national and local in unitary states. 
2. According to the sources of the formation of funds, off-budget funds are 
divided into funds formed directly from tax and non-tax revenues, and funds formed 
from budget funds. 
3. According to the spheres or purposes of the use of funds, off-budget funds 
are divided into funds that provide the social sphere, the sphere of economy, science, 
culture, defense, ecology, etc. In turn, the group of economic funds can be 
subdivided into investment, currency, road and others. , and special - for social 
insurance funds, pension funds, social support of the population, etc. 
4. In terms of industries or areas of use of funds, funds are subdivided into 
intersectoral and sectoral. 
5. Depending on the expected period of operation (action), taking into account 
the implementation of specific measures, there are state extra-budgetary funds of 
perpetual, long-term and short-term. 
6. According to the scope of problems, state extra-budgetary funds can be 
subdivided into funds of a general and specific nature. 

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7. According to the form of functioning, extra-budgetary funds are allocated, 
existing in the form of budgets and extra-budgetary funds in the form of special 
accounts, which differ from budgets in less regulation of the procedure for the 
formation and use of funds and the lack of a full-fledged budget process). 
8. In relation to the state budget, in accordance with the budgetary legislation, 
the states allocate extra-budgetary funds that function separately from the state 
budget and extra-budgetary funds, for one reason or another, are included in the state 
budget. 
Richard Allen and Dimitar Radev believe that consistent EF classification is 
important to ensure that financial data is comprehensive and fiscal targets are well 
defined. Such a classification should start with the framework of concepts and 
definitions for statistical reporting set out in the GFSM 2001 and the relevant 
international standards. GFSM 2001 focuses on the economic characteristics of an 
enterprise rather than its legal form. The basic concept is an “institutional unit”, 
which is defined as “an economic entity that is capable, by itself, of owning assets, 
making liabilities and participating in economic activities and transactions with 
other enterprises”. An institutional unit is also characterized by “a complete set of 
accounts, including a balance sheet of assets, liabilities and net worth”. 
The GFSM 2001 allows specifically for inclusion of the WF in its classification 
systems. In particular: 
“At the same time, state institutions can act as an independent legal entity and 
have greater independence in their actions, including the right, at their discretion, to 
determine the volume and composition of their expenses and a direct source of 
income, such as earmarked taxes. Such entities are often created to perform specific 
functions such as road construction or the non-market production of health and 
education services. These bodies should be considered as independent government 
units if they maintain a full set of accounts, own goods or assets in their own rights, 
participate in non-market activities for which they are legally responsible, and are 
able to take obligations and enter into contracts ”(p. 2.24). GFSM 2001 goes even 
further in providing relevant information that can help users identify and classify 
specific types of EOs: 
“Non-market non-profit organizations that are both controlled and mostly 
government-funded units are legally non-governmental organizations, but they are 
considered to carry out public policy and are actually part of the government. 
Governments may choose to use non-profit organizations rather than government 
agencies to implement certain public policies, since non-profit organizations can be 
viewed as stand-alone, objective, and not subject to political pressure. For example, 
research and development and the creation and maintenance of standards in areas 
such as health, safety, environment, and education is an area in which non-profit 
organizations can be more effective than government agencies ”(paragraph 2.29). 
Likewise, the GFSM 2001 apparently recognizes that social security funds will 
sometimes (or even normally) take off-budget form, as such funds must meet the 
general requirements of the institutional unit, namely “to be organized separately 
from other government activities, keep your assets and liabilities separately, and 

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conduct financial transactions using its own funds ”(paragraph 2.21). 
While the GFSM 2001 can help determine the economic status of WFs and 
their affiliation with power or in the broader public sector, a more detailed typology 
can be useful for detailed financial analysis and presentation. To this end, WFs can 
be grouped according to: (I) goals; and (ii) sources of funds; and (iii) institutional 
structure. Many EFs can combine traits in more than one of the categories listed 
below. 
Goals 
• Special Funds: Funds created for specific purposes and from special taxes or 
other earmarked income are generally required by law, such as social security funds, 
health funds, road funds. 
• Development funds: Funds created to support development programs 
typically involve donor contributions and sometimes domestic sources (eg 
privatization proceeds) such as social funds, environmental funds, and industry 
funds. 
• Investment funds: funds created for specific investment purposes and 
composed of stocks, bonds, property, precious metals or other financial assets such 
as sovereign wealth funds. 
• Contingent (reserve) funds of funds: funds intended for emergencies or 
unforeseen expenses. 
• Stabilization funds: funds created to reduce the impact of volatile factors on 
the government and the economy, such as oil stabilization funds. 
• Savings funds: funds that seek to create a repository of wealth for future 
generations, such as saving money on oil. 
• Target-specific funds: Funds used to finance overall fiscal balance rather than 
recurring deficits, most often through the use of oil and other non-renewable 
resource revenues such as oil fund financing. 
• Partnership funds: funds related to the inflow of aid donors (including in-kind) 
and managed through specific procedures, taking into account the requirements of 
interested donors. 
• Revolving funds: funds that are replenished, usually through deductions for 
goods and services and lending operations, and whose income remains available to 
finance their ongoing activities that would otherwise compromise fiscal rules that 
require budgetary allocations expires at the end of the year. 
• Trading funds: funds created to provide a financial mechanism for the 
implementation of the trading activities of the authorities on the principle of self-
financing. 
• Depreciation funds: funds accumulated by a government or government 
agency, usually arising from taxes, levies or duties for the purpose of paying off 
debt. 
• Various off-budget funds, including secret funds, managed by ministries and 
departments. 
Sources of financing 
• Earmarked receipts: both general (for example, defined as a percentage of 

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total revenue) and specific (determined from a specific tax or social security 
contributions). 
• Transfers from the budget. 
• User fees. 
• Sale of financial and non-financial assets, including privatization proceeds: 
usually used for one-off purposes. 
• The volume of sales of goods and / or services. 
• Borrowing. 
• Donor funds: including direct donations and / or debt cancellations, and debt 
swaps. 
Institutional structure 
• Funds managed centrally by the Ministry of Finance or the Treasury: the 
motivation for creating such funds is, most often, to avoid constraints in the 
budgetary process, such as in the case of centrally revolving funds. 
• Funds managed by ministries and / or other agencies expenditures: in addition 
to the above, these funds can be created to avoid spending controls applied in 
budgetary organizations. 
• Foundations administered by autonomous institutions. 
• Foundations administered by local governments. 
Many of the above activities or funds can also be organized as budgetary funds. 
In these cases, they are part of the budget, but are designed for specific strategies 
and goals. For example, all trust funds in the United States operate under the budget, 
except for two social security funds and pension funds, which are classified as off-
budget funds. 
State extra-budgetary funds represent funds of funds formed outside the budget, 
and in some cases, consolidated within it at the expense of special sources, at the 
disposal of state, regional and local self-government bodies and having a designated 
purpose. The number of off-budget funds is influenced by three objective factors: 
the number of owners, the size of financial resources, needs and environment. Off-
budget funds are a characteristic financial instrument, the essence of which is the 
separation of the state by the state of a part of the available monetary resources to 
meet social or economic needs. 
Let's consider the sources of formation and directions of use of funds of state 
extra-budgetary funds. 
The main reason for the creation of state extra-budgetary funds is the need to 
allocate expenses that are extremely important for society and provide them with 
independent sources of income. With the help of state extra-budgetary funds, 
important social and economic tasks are being solved: 
• social protection of the population; 
• raising the standard of living of the poorest part of the population; 
• maintaining and improving the health of a certain part of the population; 
• social orientation of the unemployed part of the population; 
• provision of social services to various categories of citizens, etc. 
State off-budget funds are created in two ways: 

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• One way is to allocate certain expenses from the budget that are of particular 
importance; 
• another - the formation of an off-budget fund with its own sources of income 
to achieve certain goals. 
All funds are targeted and are used for their intended purpose. All targeted 
budget funds are centralized funds of monetary resources created from income for 
the intended purpose or in the order of earmarked deductions from specific types of 
income and other receipts. Trust funds are created with the aim of developing certain 
areas or spheres of activity: economic, social, scientific and are formed mainly at the 
expense of the budgets of the corresponding level. 
Let's consider the main sources of formation and directions of use of funds of 
state extra-budgetary funds. 
The material source of extra-budgetary funds, like budgets, is the national 
income, in the process of redistribution of which, in general, state extra-budgetary 
funds are created. 
The income and expenses of off-budget funds are independent economic 
categories. Revenues of the state off-budget fund - economic (monetary) relations 
associated with the formation of a centralized fund of funds intended to finance state 
tasks outside the existing budget. 
The main methods of mobilizing the national income in the process of its 
redistribution during the formation of funds are: 
- special taxes and fees; 
- funds from the budgets of the corresponding levels in the form of gratuitous 
subsidies or certain deductions from tax revenues of the budget; 
- borrowed funds. 
The main sources of formation (income) of state off-budget funds are: 
- compulsory payments of legal entities and individuals provided for by 
financial legislation; 
- voluntary contributions from legal entities and individuals; 
- funds of budgets of different levels; 
- loans; 
- Other income. 
Special taxes and levies are established by the legislature. Funds from budgets 
of different levels come in the form of gratuitous subsidies or certain deductions 
from tax revenues of the budget. Extrabudgetary funds can also be revenues from 
borrowed funds. The surplus available to the budgets of extra-budgetary funds can 
be used to purchase securities and receive profit in the form of dividends or interest, 
as well as redistributed to other state extra-budgetary funds. 
Expenditures of the state off-budget fund - economic (monetary) relations 
associated with the distribution (redistribution) and use of a centralized fund of funds 
intended to finance government tasks outside the existing budget. 
The main directions of the use of funds (expenses) of off-budget funds are, as 
a rule: solving the most important problems of socio-economic development: 
- fulfillment of the goals and objectives of the functioning of off-budget funds; 

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10 
- financing of targeted programs of social and economic development; 
- the maintenance of governing bodies of off-budget funds, etc. 
The revenues and expenditures of the state off-budget fund form its budget. The 
process of drawing up, reviewing, approving, executing and reporting on the 
execution of the budgets of extrabudgetary funds is similar to the budgetary process. 
Each extra-budgetary fund has its own budget, which is replenished from statutory 
sources of income and distributed in strictly defined areas. 
Separation of funding sources for targeted activities from budgetary resources 
allows: 
• first, to expand the composition of funds allocated for their provision (at the 
expense of additionally identified income and saved financial resources, voluntary 
contributions and donations from legal entities and individuals, income from loans 
and money and clothing lotteries and other sources); 
• secondly, to guarantee the targeted use of resources in the full volume of their 
receipts. In the conditions of depersonalization of the financial resources coming to 
the budget, no one can give such a guarantee of the targeted use of funds, and even 
in their full volume. In the mechanism for the formation and use of off-budget funds, 
the legal regime that guarantees the protection of the interests of each individual 
person and territory is most fully materialized in practice. 
The importance of the separate functioning of off-budget funds is especially 
increasing in modern conditions, and the autonomous status of off-budget funds 
allows guaranteeing timely financing of the most important social events. 
The variety of off-budget funds determines complex multi-stage connections 
between them and other parts of the financial system. Distinguish between unilateral, 
bilateral and multilateral financial ties. 
With unilateral ties, funds go in one direction: from financial links to the state 
off-budget fund. Such a connection appears during the formation of funds or their 
use of funds. 
In bilateral relations, the cash flow moves between state extra-budgetary funds 
and other parts of the financial system in two directions. 
In multilateral relations, one extra-budgetary fund simultaneously comes into 
contact with different financial links and other extra-budgetary funds, i.e. money 
moves in different directions between them. 
In the Republic of Uzbekistan, there are a number of state non-budgetary funds 
that finance the performance of various functions and tasks in both the social and 
economic spheres. These funds include The extra-budgetary Pension Fund under the 
Ministry of Finance of the Republic of Uzbekistan, the Republican Road Fund under 
the Ministry of Finance of the Republic of Uzbekistan, the Fund for Funds from the 
Privatization of State Property, the State Fund for the Promotion of Employment of 
the Republic of Uzbekistan, the off-budget Fund for Reconstruction, Overhaul and 
Equipping of Secondary Schools, Professional Colleges, academic lyceums and 
medical institutions under the Ministry of Finance of the Republic of Uzbekistan, 
the Fund for Reclamation of Irrigated Lands under the Ministry of Finance of the 
Republic of Uzbekistan, the Fund for the Development of the Material and Technical 

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11 
Base of Higher Education Institutions under the Ministry of Finance of the Republic 
of Uzbekistan, the Fund for Reconstruction and Development of the Republic of 
Uzbekistan. The extra-budgetary Pension Fund under the Ministry of Finance of the 
Republic of Uzbekistan and the State Fund for the Promotion of Employment of the 
Republic of Uzbekistan are social funds, while others are economic. The income and 
expenses of these funds are consolidated in the state budget of the Republic of 
Uzbekistan. Other state extra-budgetary funds are also functioning.