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 2

3. Growth of real GDP (percent change on previous year) 2002200320042005200620072008 EU15 (old)1.11.22.31.62.82.7 (f) 2.5 (f) EU10/12 (accession) 4.14.35.35.86.25.5 (f) 5.0 (f) Russia4.77.37.26.46.77.0 (f) 6.8 (f) (f): forecasts 3

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

5. Budget balance of Federal Government and General Government in Russia (in percent of GDP) 200220032004200520062007200820092010 Federal government: Primary balance 3.4 5.48.48.03.8 (f) 0.7 (f) 0.5 (f) 0.6 (f) Overall balance 1.31.74.37.57.43.3 (f) 0.2 (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) General government: Primary balance 2.73.36.19.19.25.5 (f) 3.3 (f) na Overall balance 0.61.44.98.28.44.9 (f) 2.8 (f) na Non-oil overall balance -6.9-4.6-2.9-4.6-4.4-5.3 (f) -6.6 (f) na na: data not available (f): forecasts 5

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

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). 7

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). 8

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. 9

10. Fiscal rules for the Federal budget Budget aggregates Limits 200820092010 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 - Oil and gas transfer 6.1 % GDP 5.5 % GDP 4.5 % GDP 3.7 % GDP = Budget Deficit < 1.0 % GDP 10

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. 11

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. 12

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. 13

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. 14

15. Federal State unitary enterprises and joint stock companies in which the Russian Federation has a stake (1 June 2006) (numbers) Industry State unitary enterprisesJoint stock compagnies Units% % Non-market goods and services 1,81725.33569.6 Manufacturing industry, including 1,62422.61,77247.6 Machine building industry6609.266317.8 Light industry1872,6270.8 Building material industry550.8531.4 Food processing industry550.81413.8 Metallurgic industry300.41012.8 Chemistry340.5982.7 Other manufacturing industries 6038.468918.5 Agriculture91312.73639.7 Construction75210.538010.2 Transport and communications 6128.639610.6 Forestry530.8992.7 Other industries1,40719.63589.69.6 Total7,178100.03,724100.0 15

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’. 16