1. Results of (OECD) fiscal rules survey of PEMPAL countries Deanna Aubrey on behalf of BCOP Resource Team World Bank 24 February 2016

2. The survey aimed to identify which fiscal rules are being applied by PEMPAL countries, and their key characteristics. The fiscal rules component of the OECD Budget Practices and Procedures Survey was used (30 questions): What type of rules are in place (Expenditure, Revenue, Budget Balance, Debt, Other). What are the characteristics of each rule (time span, coverage, target, legal basis, monitoring and enforcement). PEMPAL and OECD jointly conducted the full formal OECD Budget Practices and Procedures Survey in 2012 with 13 PEMPAL countries. Some changes between the 2012 and 2016 surveys identified noting however, only 9 countries common to both surveys. Objectives and Scope of Survey (1)

3. The survey was issued electronically by our survey expert, who prepared the report through online suvery instrument (Survey Monkey). Pre-meeting surveys implemented by PEMPAL are informal instruments. No quality assurance of results is undertaken or support for understanding of translated concepts given (like for OECD formal surveys). Thus results should be treated with caution and only used as a guide to facilitate further discussions between countries. Only key results presented here – full report will be posted on website with meeting materials. Of the 18 countries registered to attend this meeting, 16 countries completed the survey. A great response – thank you! Objectives and Scope of Survey (2)

4. More PEMPAL countries have applied fiscal rules since 2012 driven in part by EU, EU Accession and IMF requirements. Only 7 out of 13 countries reported having fiscal rules in 2012 survey, compared to 15 out of 16 in 2016 survey. For example, in the 2012 survey, Montenegro and Uzbekistan reported they had no fiscal rules, but now report they have established them. Belarus also reported in 2012 it only had debt rules, but has since adopted more rule types. Reforms in some countries are underway. For example: Croatia reported amendments to the Fiscal Responsibility Act in 2014 to create a new temporary structural balance rule as a % of GDP as part of an EU adjustment plan. Moldova’s budget balance rule will apply from 2018. Macedonia reported that fiscal rules have not been adopted entirely, but the Government has submitted a proposal to the Parliament to amend the Constitution to establish the budget balance and debt rule. Key Changes in Fiscal Rules

5. Types of Rules Applied

6. PART 1: EXPENDITURE RULE RESULTS

7. 10 countries report they have expenditure rules: Belarus, FBiH, Bulgaria, Croatia, Georgia, Romania, Russian Federation, Tajikistan, Ukraine, Uzbekistan - compared to only 3 in the 2012 OECD survey. The most common target is a nominal expenditure ceiling (used by 5 countries). What targets are used for Expenditure Rules? Bulgaria Russian Federation Tajikistan Ukraine Uzbekistan

8. Most expenditure rules are set in primary legislation except for Uzbekistan (secondary); Belarus (secondary and primary); Bulgaria and Romania (EU international treaty); and Romania also reporting some rules under internal rules/policies. Most expenditure targets are reported to be temporary (11 targets are temporary compared to 5 permanent). Most rules require a proposal with corrective measures, in the case of non-compliance. Exceptions include Belarus, Bulgaria, Croatia, who have no enforcement procedures in place. Characteristics of Expenditure Rules (1)

9. Some countries reported flexibility in certain types of expenditure rules. For example Belarus, Georgia, Romania for specific expenditure to GDP ratio target. For Croatia, it has some flexibility in applying nominal expenditure growth rate target, (for disasters, large economic disturbances) as specified in Amendments to the Fiscal Responsibility Act as long as fiscal sustainability is not threatened in medium term. Bulgaria, Russian Federation, FBiH, Ukraine allow no flexibility on expenditure rules applied. Characteristics of Expenditure Rules (2)

10. Some examples reported by countries: Belarus - education at least 5% of GDP, health not less than 4% of GDP, public debt service no more than 10% of revenues, region debt servicing no more than 15% of local revenues excluding subsidies. FBiH – amount of current income must be equal to or greater than current expenditure. Accumulated deficit from previous period must be covered in next 5 years. Bulgaria – expenditure must not exceed 40% of GDP. Annual expenditure growth shall not exceed reference growth of potential GDP (as determined by EC). Croatia – expenditure growth rate of general budget must not exceed projected growth rate of GDP in current prices. Romania – wages expenditures for public employment in 2016 has a target of 7.7% of GDP. Russian Federation – federal budget expenditures has nominal target in rubles each year, over the next three years. Georgia – ratio of the sum of the consolidated budget expenses and the growth of non-financial assets to GDP not more than 30%. Examples of Expenditure Rules

11. PART 2: REVENUE RULE RESULTS

12. 7 countries report they have revenue rules: Belarus, Bulgaria, Georgia, Romania, Russian Federation, Ukraine, Uzbekistan – compared to only 2 countries in the 2012 OECD Survey. What constraints/limits are imposed by Revenue Rules? Bulgaria Russian Federation Ukraine Belarus Romania

13. Most revenue rules are set in primary legislation, except for Belarus and Uzbekistan (secondary). Some constraints/limits are temporary and some permanent. Belarus, Russian Federation, Ukraine and Uzbekistan are temporary. Bulgaria, Georgia and Romania are permanent. Most enforcement procedures are not defined ex ante except in Georgia and Romania where corrective measures must be implemented. There is limited flexibility during economic crises except in Georgia and Romania. For example the Georgia, the Government has the right to request to permanently increase tax rates for 3 years. In this case a referendum is not held. Characteristics of Revenue Rules

14. Some examples reported by countries: Russian Federation - all oil and gas revenues received in excess of a certain level are sent to reserve fund. Belarus - there is a target to reduce the tax burden to 26% of GDP by 2016. Georgia - the organic budget law prohibits the growth of any tax rate, except excise tax. Bulgaria – surplus revenues for the current budget year may not serve as a source of additional expenditure. Romania – For the major budgets (state, state social insurance, and special funds), laws and rules impose different tax percentages. Examples of Revenue Rules

15. PART 3: BUDGET BALANCE RULE

16. 14 countries report they have budget balance rules – compared to only 5 countries in 2012 OECD survey. The most common target is a specific budget balance as % of GDP (used by 8 countries). What targets are used for Budget Balance Rules? FBiH Ukraine Belarus Bulgaria Georgia Macedonia Moldova Montenegro Russia Serbia

17. Most budget balance rules are set in primary legislation except for Macedonia (Constitution) and Uzbekistan (secondary). Most budget balance targets are permanent except for those in Belarus, Russian Federation, Ukraine and Uzbekistan which have only been set for a temporary time period. Most enforcement procedures are in the form of corrective measures (presented to Parliament or implemented by entity responsible for breach). Exceptions Macedonia, Russian Federation and Serbia whose enforcement procedures are not defined ex ante. Bulgaria noted an automatic correction mechanism applies, and that for European Union countries, the budget deficit or budget surplus are defined in structural terms, to ensure they take into consideration business cycle swings and filter out the effects of one-off and other temporary measures. 7 countries reported there was flexibility in budget balance rules (for example in cases of natural disasters and external shocks) and 5 countries reported there was not. Characteristics of Budget Balance Rules

18. Some examples reported by countries: Belarus - consolidated budget deficit not more than 1.5% of GDP. Bulgaria (based on EC rules) - Medium Term Budgetary Objective (MTO) for structural deficit of general government on annual basis should not exceed 0.5% of GDP, or 1% provided the amount of consolidated debt of general government is below 40% of GDP, and risk to long-term sustainability of public finances is low. The MTBO for the structural deficit on an annual basis shall be updated every three years. The general government balance objective shall be to reach and/or maintain a nil or positive balance. The general government deficit on an annual basis, may not exceed 3 per cent of GDP. The annual budget deficit on a cash basis may not exceed 2% of GDP. Romania (based on EC rules) – Structural budget deficit to 1% of GDP for 2016, MTO includes budgetary effort to eliminate the risk of exceeding the 3% budget deficit of GDP set in the Accession Treaty, and which will ensure long-term stability of public finances. Serbia – the target annual fiscal deficit shall amount to 1% of GDP in medium term. Examples of Budget Balance Rules

19. Some examples reported by countries (continued): Croatia (based on EC rules) – The structural balance, expressed as a % of GDP, shall be realized according to adjustment plan to achieve MTO whereby general budget expenditure growth shall not exceed the potential reference growth rate of the GDP, increased by the expected rise in prices. Inter-annual decrease of the structural balance must be at least 0.5% of GDP, while ensuring that the general budget deficit does not exceed 3% of GDP and public debt does not exceed 60% of GDP. However, the structural balance rule is currently not applied since the Croatian Government has not adopted an adjustment plan because it is awaiting EU Council recommendations. Macedonia, Montenegro, and Georgia – budget deficit must not exceed 3% of GDP. Moldova – budget deficit maximum level 2.5% of GDP, excluding grants. Russian Federation – Estimated deficit of 1% of GDP used for determining maximum amount of expenses. Examples of Budget Balance Rules

20. PART 4: DEBT RULES

21. 12 countries report they have debt rules – compared to only 5 countries in the 2012 OECD survey. The most common target is the ceiling for debt in level or as % of GDP (used by 7 countries). What targets are used for Debt Rules? FBiH Ukraine Belarus Bulgaria Kyrgyz Republic Macedonia Montenegro Serbia Ukraine

22. Debt rules are most commonly set in primary legislation except Macedonia (Constitution), Kyrgyz Republic (secondary), and Romania (international treaty and internal rules/policies). Most debt targets are permanent. Most countries (6 out of 9) reported that the rule does not allow for flexibility in economic crises, except Kyrgyz Republic (changes to rule can be made in bylaws); Ukraine (in emergencies, a separate decision can be made by Government); and Macedonia (flexibility is permitted in event of natural disasters and external shocks that threaten national security, citizens health, or in case of significant decline in real GDP). The most common enforcement measure is the requirement to submit a proposal with corrective measures to Parliament for non-compliance (Bulgaria, Montenegro, Romania, Serbia, Ukraine). In FBiH and Bulgaria the government entity responsible for the over run must also implement corrective measures. Enforcement procedures are not defined ex ante for some countries i.e. Belarus, Georgia and Macedonia. Characteristics of Debt Rules

23. Some examples reported by countries: Belarus – the amount of external public debt not more than 25% of GDP; domestic public debt not more than 20% of GDP; amount of debt of regions not more than 80% of the revenues of local budgets without targeted subsidies. Georgia, Macedonia, Montenegro, Bulgaria, Romania, Kyrgyz Republic – the public debt must not exceed 60% of GDP. Serbia - General government debt, excluding liabilities for restitution, shall not exceed 45% of GDP. Bulgaria – If the nominal amount of consolidated general government debt exceeds 60% of GDP, the medium-term budgetary forecast and the State Budget Act shall set out measures aimed at annually decreasing that debt by at least 5% of the excess ascertained, until the target of 60% is reached. Uzbekistan - maximum amount of public debt is determined annually by Parliament when adopting the state budget and state trust funds Examples of Debt Rules

24. Thank you for your attention!