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Budgeting in Russia

This presentation covers the general characteristics of the budget in Russia, the implementation of three-year budgets, fiscal rules at the federal and sub-national level, and the management of extra-budgetary expenditures. It also highlights the growth of real GDP, expenditures and revenues of the Russian Federation, budget balances, and public debt. The presentation explores the similarities and differences between the Russian three-year budget system and those in OECD countries. It also discusses the fiscal rules for the federal budget and sub-national governments, as well as the challenges related to extra-budgetary expenditures.

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Budgeting in Russia

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  1. Budgeting in Russia Dirk-Jan KRAAN Budgeting and Public Expenditures Division OECD

  2. Topics to be covered in this presentation: • General characteristics of the budget • Three-year budgets • Fiscal rules at federal and sub-national level • Extra-budgetary expenditures

  3. Growth of real GDP (percent change on previous year) (f): forecasts

  4. Expenditures and revenues of the Russian Federation(% of GDP)

  5. Budget balance of Federal Government and General Government in Russia(in percent of GDP) na: data not available (f): forecasts

  6. Public debt of the Russian Federation(in percent of GDP)

  7. Three- year budget • Introduced by revision of the budget code in 2007; • Applied for the first time in budget 2008-2010; • Purpose: to enhance medium term planning in the sectors and to facilitate the conclusion of multi-annual • procurement contracts; • Separation in budget formulation process between updating exercise and authorization of new spending initiatives; • Envelopes for new initiatives have been put at 2.5 percent in t+1 (2009) and 5.0 percent in t+2 (2010).

  8. Russian three year budget and • rolling multi-annual expenditure framework • in OECD countries • Similarities: • Ceilings/targets for total federal budget and sectors (mostly ministries); • Updated from year to year; updates can reallocate between the sectors; • Provides stability to the budget as a whole and to the sectors. • Differences: • Three year budget includes ceilings/targets at line item level; • Annual updates can change total expenditures in the light of revenue forecasts, without compensation by structural revenue measures (this is a difference with a fixed expenditure framework as exists in UK, Sweden, the Netherlands).

  9. Fiscal rules • Definition: rule that sets multi-annual constraints on expenditures, revenues or budget balance. • Fiscal rules in Russia: • Federal budget (including transfers to federal social security funds); • Budgets of sub-national governments.

  10. Fiscal rules for the Federal budget

  11. Features of fiscal rule for the federal budget • Protects the budget against volatility of oil-price and • oil production; • Ensures that a substantial and increasing share of • the oil revenues is saved; • Nominal balance rule; does not provide for automatic stabilization; has pro-cyclical effects.

  12. Fiscal rules for sub-national governments • (regions and municipalities) • Debt not allowed to exceed own annual revenue (excluding grants); • Deficit not allowed to exceed 15 percent of own annual revenue (excluding grants); • Rules are stricter for regions and municipalities receiving grants totalling more than 60 percent • (regions) or 70 percent (municipalities) of total revenue; • Regions depending for a large share of their revenues on grants are subject to special rules aimed at development of the tax base and budgetary discipline; the rules are stricter to the extent that the share of grants in regional revenue is larger.

  13. Features of fiscal rules for sub-national governments • Have generally been effective in keeping down the sub-national deficit; • Nominal balance rules;do not provide for automatic stabilization; has pro-cyclical effects; • Rather complicated and interventionist.

  14. Extra-budgetary expenditures • Russia has made large progress in the area of budget transparency, particularly at the federal level; • Efforts have focused on: • 1. non-tax revenues of federal entities 2. quasi-fiscal activities of public enterprises • Almost all expenditures and non-tax revenues of • federal entities are now on budget; • Budgets of Extra-budgetary Social Security Funds are fully coordinated with the Federal budget and simultaneously submitted to the State Duma for authorization.

  15. Federal State unitary enterprises and joint stock companies in which the Russian Federation has a stake (1 June 2006)(numbers)

  16. Remaining problems in the area • of extra-budgetary expenditure • Integration into the federal budget of revenues and expenditures of State unitary enterprises that • remain in the government sector; • Integration into regional and municipal budgets of non-tax revenues and expenditure from commercial activities of sub-national governmental • entities; • Putting on budget of (now implicit) subsidies by • public enterprises in the energy sector; • Clarification of the position of the ‘state • corporations’.

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