ministry of finance of russia karen vartapetov ministry of finance russian federation fiscal space...
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Ministry of Finance of Russia
Karen Vartapetov
Ministry of Finance Russian Federation
FISCAL SPACE – REVIEWING, ASSESSING AND PRIORITISING GOVERNMENT EXPENDITURE
14-15 MAY 2008
The case for fiscal space in performance budgeting and medium-term
expenditure framework in Russia
Ministry of Finance of Russia
Fiscal space of the Russian federal budgetFiscal space is substantial =
Budget surplus (3-4% GDP) + Oil-and-gas reserve funds (10-12% GDP) vs.
Federal budget expenditures (16-17% GDP)
Sustainable measures to increase fiscal space:• Raising revenues (space for better tax administration)• Rationalizing expenditures (a significant room for better allocation and efficiency
gains, program-based budgeting)• Borrowing (a valid measure, but the current strategy is to reduce the debt burden)• External grants (in essence, the inflow of oil-and-gas export revenues represents an
external grant of the unsustainable nature. Hence, Reserve and National Welfare Funds)
Ministry of Finance of Russia
Two ways of delivering better public management
• ‘Imposing order’ – strengthening of external control
• Optimal decentralization – providing incentives for managers to deliver agreed outcomes
Ministry of Finance of Russia
Performance budgeting enables an efficient use of fiscal space
Decentralization of public finance management in Russia
• Fiscal decentralization - devolution of revenue and expenditure decision-making authority to subnational governments
• Administrative decentralization (‘agencification’)- granting financial management autonomy to accountable government agencies
• Service delivery decentralization – separation of policy-making and service provision (‘steering rather that rowing’)
Ministry of Finance of Russia
Russia’s case: Budget Reform Matrix3 waves of public finance decentralization
Fiscal
decentralization 2001-2004
Administrative decentralization
2005-2008
Service delivery decentralization
2008-2010
Budget administrators
Different-tier governments
Ministries and agencies
Public service providers
Responsibilities (functions)
Laws on delineation expenditures
Administrative reforms
Alternative service delivery
Resources Stable and unified tax-sharing rates
3-year expenditure framework
Per-capita financing, performance contracts
Institutional incentives
Competition for voters and investment
Competition for budget resources
Competition for consumers
Fiscal discipline
(sanctions)
Externally imposed management
Evaluation of financial
management
Public service standards, contracts
Transition from soft to hard budget constrains
Ministry of Finance of Russia
Expenditure
Inputs
Activities
Output
Outcome
Traditional input budgeting
Output budgeting
Outcome budgeting
Cost efficiency
Tec
hnic
al
effi
cien
cy
Intermediate outcome
Effectiveness
Eff
icie
ncy
Models for performance budgeting
Ministry of Finance of Russia
The planned trajectory of the Russian budget reform
Input-based short-term Input-based short-term budgetingbudgeting (1991 - 2000) (1991 - 2000)
establishment of budget procedures and regulation (Budget Code)
Cash-basis budget
Federal Treasury
fiscal dicsipline and expenditure control
Intergovernmental equalization transfers
Results-based medium-Results-based medium-term budgeting (from term budgeting (from 2008)2008)
Long-term budget stability and sustainability
Revenue and expenditure delineations between government tiers
Meduim-term budget planning
Performance budgeting
International standards in public accounting and reporting
2001-2008
Ministry of Finance of Russia
Russia’s case: performance budgeting toolsDocument Key issues
Long-term economic program National goals, Outcomes Ministries’ and agencies’ performance
reports Policy goals, Intermediate outcomes
Long-term expenditure (earmarked) programs
Policy outcomes, Intermediate outcomes, resources
Ministries’ and agencies’ internal expenditure (earmarked) programs
Intermediate outcomes, Outputs, Resources
Register of existing expenditures A basis for formulating new policy proposals
Annual budget allocation justifications Outputs, Resources Explanatory note for budget projections
and estimates National outcomes,
Outputs, Resources (summary) Rewarding grants for top-reformers (annual evaluation of progress in
performance budgeting) Incentives for improvement
Ministry of Finance of Russia
4.Federal Government Long-term Economic Program (public, approved by Parliament)
3. Ministries’ performance reports (public, approved by Government)
Traditional budget documents
(submitted to MoF)Expenditure
Inputs
Activities
Output
Outcome
Russia’s case: Performance budgeting tools
Intermediate outcome
1. Expenditure programs2. Budget allocation justifications (available to the public, assessed by MoF)3. Register of existing expenditures
Lump sums to
top-performers
Ministry of Finance of Russia
Performance Budgeting and the budget process
Macroeconomic Planning
Budget Preparation
Budget implementation
Accounting and Reporting
Control
Revenue policy
Debt policy
Internal audit
Performanceaudit
Outcomeplanning
Outcomereporting
Medium-termplanning
Management accounting
Budget programs
Delegation and accountability
Ministry of Finance of Russia
Transition to multi-year budgeting
Model Federal budget Regional budgets
Local budgets
1. Annual budget an a separate 3-year financial plan (prepared by the MoF for analytical purposes)
2000-2005 2000-2007
2. Annual budget is a part of a government-approved 3-year financial plan
2005-2007 Some regional governments
3. Three-year budget From 2008 From 2008 - choose between 2 and 3
Ministry of Finance of Russia
Medium-term expenditure framework: comparing a medium term financial plan to a 3-year federal budget
IndicatorsMedium-term financial plan
Three-year budget
Basic indicators of the budget and budget policy Yes Yes
Separation of existing expenditures and new expenditure proposals
Constrained Yes
Planning of performance results Constrained Yes
Long-term contracts with service providers Constrained Yes
Possibility to re-allocate funds among years Yes Yes
Pre-conditions for temporarily even allocation of budget funds
Yes Yes
Predictability of intergovernmental grants Yes Yes
Ministry of Finance of Russia
14
2 following yearsCurrent fiscal year
t +1 t +2 t +3 t +4 t +5
ADJUSTMENT
PLANNING
Rolling three-year budget
Current fiscal year 2 following years
Current fiscal year 2 following years
ADJUSTMENT
PLANNING
Ministry of Finance of Russia
Sequencing in budget planning
Before 2008 After 2008
(revised Budget Code)
Step 1 Economic forecasting
(revenue, debt strategy) Economic forecasting
(revenue, debt strategy)
Step 2 New expenditure proposals Estimation of existing expenditures (register)
Step 3 Estimation of total expenditures (existing and new expenditures)
Estimation of the room for new policy proposals
Step 4 Adjustment (correction of revenue and expenditure estimations)
Decisions on new expenditure programs
Ministry of Finance of Russia
New policy proposals
(5-10%)
• new legislations• new programs
Approval
Inclusion in the budget
Separate planning of existing and proposed expenditures
Exiting expenditures
(90-95%)
• Social transfers• Debt service• Public services• Capital programs
Ministry of Finance of Russia
Performance-budgeting and fiscal space
Zero-based BudgetingAll existing expenditure programs are revised every budget period(politically sensitive; lock-in expenditures )
Incrementalist ApproachOnly new policy proposals are considered (5-10% of total expenditures)VS
1. Allocative efficiency gains
2. Technical efficiency gains
Ministries’ efficiency gains do not usually exceed the inflation rate
Ministry of Finance of Russia
Composition of federal expenditures, 2008
Capital expenditure;
0,2%
Other commitments;
1,9%
Debt service; 2,5%
International commitments;
1,6%
Intergovernmental fiscal grants;
15,3%
Social tranfers ; 49,3%
Legislative and juditial powers ;
1,0%
Public services; 28,0%
Ministry of Finance of Russia
2014 20152011 2012
Separate planning of existing and new expenditures
Public sector pay & fringe benefits, military pay and allowance
2008 2009 20102007 2013
Reg
iste
r of
exi
stin
g ex
pend
itur
es
Room for new policy proposals
Expenditure limits
Existing expenditures
Pensions and benefits (Public liabilities)
3-year budget
State Arms program (till 2015)
Long-term earmarked expenditure programs
Investment objects
Ministry of Finance of Russia
Program for socioeconomic development for 12 years
Macroeconomic forecast for
3 years
Medium-term expenditure framework from 2008
3-year budget
New and existing ‘expenditure justifications’
Ministerial strategic plans (performance
reports)
Annual budget policy
statement for 3 years
Fiscal framework
Strategic priorities
Debt, revenue and
intergovernmental fiscal relations
strategies
Sectoral strategies
Ministries have to support their
expenditure bids with performance
information
Ministry of Finance of Russia
Russia’s budget reform in the international context
• Ukraine
• Australia
• New Zealand, Great Britain, Nederland, Sweden
• USA•
Medium-term Budgeting
Performance Budgeting
•
RussiaRussia (200 (20077))
• Russia (2003)
•
• Bulgaria
•
RussiaRussia (200 (2009-20109-2010))
Vietnam 2007
France 2007
• Czech Republic
• Poland• Kazakhstan
Ministry of Finance of Russia
PB is instrumental in a specific institutional context
In the last budget cycle Russia’s federal budget expenditures were increased by some 30% without
any efficiency assessment or effectiveness consideration
You can’t budget for results if you don’t manage for results.
Yet the latter requires human skills and institutional arrangements (accountability, transparency, political
commitment )
Ministry of Finance of Russia
Expenditure
Inputs
Activities
Output
Outcome
Traditional input budgeting
Output budgeting
Outcome budgeting
Cost efficiency
Tec
hnic
al
effi
cien
cy
Intermediate outcome
Effectiveness
Eff
icie
ncy
Models for performance budgeting
Russia 2008
Ministry of Finance of Russia
PB is not the easiest way to create fiscal space
ALLAN SCHICK’S PRINCIPLES OF BUDGET REFORM SEQUENCING:
• Foster an environment that supports and demands performance before introduction of performance and outcome budgeting
• Control inputs before seeking to control outputs • Budget for work to be done before budgeting for results to be achieved • Enforce formal contracts in the private sector before introducing
performance contracts in the public sector• Introduce effective financial auditing before moving to performance
auditing • Adopt and implement predictable budgets before insisting that managers
efficiently use the resources entrusted to them
Ministry of Finance of Russia
The question is:Whether to implement Performance Budgeting while basic institutional arrangements are not in place and
fiscal space is excessive?The Russian answer: “Probably, yes”
1. Performance information contributes to better accountability and transparency.
2. The change in fiscal behavior is a long-term process. The accumulation of performance information is time-consuming. The sooner you start the better
3. Take as many steps forward as possible as there always be a few steps back
4. If you don’t sort out fiscal rules you might not be able to use fiscal space when it is really needed
Ministry of Finance of Russia
Questions for consideration
1) Does performance budgeting present an efficient tool for enhancing fiscal space?
2) In what ways is performance information used in the budget process in your economy?
3) Do the basic pre-conditions (say, control of inputs) have to delivered before introducing performance budgeting?