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Karen Vartapetov Ministry of Finance Russian Federation. The case for fiscal space in performance budgeting and medium-term expenditure framework in Russia. FISCAL SPACE – REVIEWING, ASSESSING AND PRIORITISING GOVERNMENT EXPENDITURE 14-15 MAY 2008.

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Karen Vartapetov Ministry of Finance Russian Federation

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Karen vartapetov ministry of finance russian federation l.jpg

Karen Vartapetov Ministry of Finance Russian Federation

The case for fiscal space

in performance budgeting and medium-term expenditure framework in Russia

FISCAL SPACE – REVIEWING, ASSESSING AND PRIORITISING GOVERNMENT EXPENDITURE

14-15 MAY 2008


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Fiscal space of the Russian federal budget

Fiscal 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)


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Two ways of delivering better public management

  • ‘Imposing order’ – strengthening of external control

  • Optimal decentralization – providing incentives for managers to deliver agreed outcomes


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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’)


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Russia’s case: Budget Reform Matrix3 waves of public finance decentralization


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Models for performance budgeting

Expenditure

Traditional input budgeting

Cost efficiency

Inputs

Activities

Technical efficiency

Efficiency

Output budgeting

Output

Effectiveness

Outcome budgeting

Intermediate outcome

Outcome


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The planned trajectory of the Russian budget reform

  • Results-based medium-term budgeting (from 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

  • Input-based short-term budgeting (1991 - 2000)

  • establishment of budget procedures and regulation (Budget Code)

  • Cash-basis budget

  • Federal Treasury

  • fiscal dicsipline and expenditure control

  • Intergovernmental equalization transfers

2001-2008


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Russia’s case: performance budgeting tools


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Russia’s case: Performance budgeting tools

Traditional

budget documents

(submitted to MoF)

Expenditure

1. Expenditure programs

2. Budget allocation justifications

(available to the public,

assessed by MoF)

3. Register of existing expenditures

Inputs

Activities

Lump sums to top-performers

3. Ministries’

performance reports

(public, approved by Government)

Output

Intermediate outcome

4.Federal Government

Long-term Economic Program

(public, approved by Parliament)

Outcome


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Performance Budgeting and the budget process

Medium-term

planning

Revenue

policy

Macroeconomic

Planning

Debt

policy

Performance

audit

Outcome

planning

Control

Budget

Preparation

Internal audit

Delegation and

accountability

Accounting

and Reporting

Outcome

reporting

Budget

implementation

Management

accounting

Budget

programs


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Transition to multi-year budgeting


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Medium-term expenditure framework: comparing a medium term financial plan to a 3-year federal budget


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Rolling three-year budget

Current fiscal year

2 following years

ADJUSTMENT

Current fiscal year

2 following years

PLANNING

ADJUSTMENT

Current fiscal year

2 following years

PLANNING

t +1

t +2

t +3

t +4

t +5

14


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Sequencing in budget planning


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Separate planning of existing and proposed expenditures

Exiting expenditures

(90-95%)

  • Social transfers

  • Debt service

  • Public services

  • Capital programs

New policy proposals

(5-10%)

  • new legislations

  • new programs

    Approval

    Inclusion in the budget


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Performance-budgeting and fiscal space

1. Allocative efficiency gains

Zero-based Budgeting

All existing expenditure programs are revised every budget period

(politically sensitive;

lock-in expenditures )

Incrementalist Approach

Only new policy proposals are considered (5-10% of total expenditures)

VS

2. Technical efficiency gains

Ministries’ efficiency gains do not usually exceed the inflation rate


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Composition of federal expenditures, 2008


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Separate planning of existing and new expenditures

Expenditure limits

Room for

new policy proposals

Investment objects

Existing

expenditures

Register of existing expenditures

Long-term earmarked expenditure programs

State Arms program(till 2015)

Public sector pay &fringe benefits, military pay and allowance

Pensions and benefits (Public liabilities)

2015

2007

2008

2009

2010

2011

2012

2013

2014

3-year budget


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Medium-term expenditure framework from 2008

Program for socioeconomic development for 12 years

Macroeconomic forecast for 3 years

Annual budget policy statement for 3 years

Debt, revenue and intergovernmental fiscal relations strategies

Ministerial

strategic plans (performance reports)

Sectoral strategies

Strategic priorities

Fiscal framework

New and existing ‘expenditure justifications’

Ministries have to support their expenditure bids with performance information

3-year budget


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Russia’s budget reform in the international context

Medium-term Budgeting

  • Australia

  • New Zealand, Great Britain,

  • Nederland, Sweden

Russia (2009-2010)

France 2007

  • USA

Vietnam 2007

  • Czech Republic

Russia (2007)

  • Poland

  • Bulgaria

  • Kazakhstan

  • Russia(2003)

Performance Budgeting

  • Ukraine


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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 )


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Models for performance budgeting

Expenditure

Traditional input budgeting

Cost efficiency

Inputs

Russia 2008

Activities

Technical efficiency

Efficiency

Output budgeting

Output

Effectiveness

Outcome budgeting

Intermediate outcome

Outcome


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PB is not the easiest way to create fiscal spaceALLAN 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


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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”

  • Performance information contributes to better accountability and transparency.

  • The change in fiscal behavior is a long-term process. The accumulation of performance information is time-consuming. The sooner you start the better

  • 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


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Questions for consideration

  • Does performance budgeting present an efficient tool for enhancing fiscal space?

  • In what ways is performance information used in the budget process in your economy?

  • Do the basic pre-conditions (say, control of inputs) have to delivered before introducing performance budgeting?


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