Budgeting in Russia
Dirk-Jan KRAAN
Budgeting and Public Expenditures Division
OECD
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
2
Growth of real GDP
(percent change on previous year)
2002
2003
2004
2005
2006
2007
2008
EU15 (old)
1.1
1.2
2.3
1.6
2.8
2.7 (f)
2.5 (f)
EU10/12
(accession)
4.1
4.3
5.3
5.8
6.2
5.5 (f)
5.0 (f)
Russia
4.7
7.3
7.2
6.4
6.7
7.0 (f)
6.8 (f)
(f): forecasts
3
Expenditures and revenues of the Russian Federation
(% of GDP)
4
Budget balance of Federal Government and General
Government in Russia (in percent of GDP)
2002 2003 2004 2005 2006 2007 2008 2009 2010
Federal government:
Primary balance
3.4
3.4
5.4
8.4
8.0
3.8 (f) 0.7 (f) 0.5 (f) 0.6 (f)
Overall balance
1.3
1.7
4.3
7.5
7.4
3.3 (f) 0.2 (f) 0.0 (f) 0.0 (f)
Non-oil overall
balance
-4.4
-2.7
-2.2
-2.9
-3.6 -4.8 (f) -6.6 (f) -5.9 (f) -5.3 (f)
Primary balance
2.7
3.3
6.1
9.1
9.2
5.5 (f) 3.3 (f)
na
na
Overall balance
0.6
1.4
4.9
8.2
8.4
4.9 (f) 2.8 (f)
na
na
Non-oil overall
balance
-6.9
-4.6
-2.9
-4.6
-4.4 -5.3 (f) -6.6 (f)
na
na
General
government:
na: data not available
(f): forecasts
5
Public debt of the Russian Federation
(in percent of GDP)
6
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).
7
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).
8
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.
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Fiscal rules for the Federal budget
Limits
Budget aggregates
2008
2009
2010
From 2011
onward
Total expenditures
-
-
-
-
- Non-oil and gas
revenue
-
-
-
-
= Non-oil and gas
deficit
< 7.1 % GDP
< 6.5 % GDP
< 5.5 % GDP
< 4.7 % GDP
6.1 % GDP
5.5 % GDP
4.5 % GDP
3.7 % GDP
< 1.0 % GDP
< 1.0 % GDP
< 1.0 % GDP
< 1.0 % GDP
- Oil and gas transfer
= Budget Deficit
10
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.
11
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.
12
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.
13
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.
14
Federal State unitary enterprises and joint stock companies in
which the Russian Federation has a stake (1 June 2006)
(numbers)
Industry
State unitary enterprises
Units
Non-market goods and
services
Manufacturing industry,
including
%
Joint stock compagnies
Units
%
1,817
25.3
356
9.6
1,624
22.6
1,772
47.6
Machine building industry
660
9.2
663
17.8
Light industry
187
2,6
27
0.8
Building material industry
55
0.8
53
1.4
Food processing industry
55
0.8
141
3.8
Metallurgic industry
30
0.4
101
2.8
Chemistry
Other manufacturing
industries
Agriculture
Construction
Transport and
communications
Forestry
Other industries
Total
34
0.5
98
2.7
603
8.4
689
18.5
913
752
12.7
10.5
363
380
9.7
10.2
612
8.6
396
10.6
53
1,407
7,178
0.8
19.6
100.0
99
358
3,724
2.7
9.6
100.0
15
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’.
16