Karen Vartapetov Ministry of Finance Russian Federation

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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
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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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Russias 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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Russias case performance budgeting tools
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Russias 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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Russias case Policy area - Transportation
Implementation
Results
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Performance Budgeting and the budget process
Revenue policy
Medium-term planning
Macroeconomic Planning
Debt policy
Performance audit
Outcome planning
Control
Budget Preparation
Internal audit
Delegation and accountability
Accounting and Reporting
Budget implementation
Outcome reporting
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
2 following years
Current fiscal year
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
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Sequencing in budget planning
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Separate planning of existing and proposed
expenditures

• New policy proposals
• (5-10)
• new legislations
• new programs
• Approval
• Inclusion in the budget

• Exiting expenditures
• (90-95)
• Social transfers
• Debt service
• Public services
• Capital programs

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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
2014
2011
2012
2008
2009
2010
2007
2013
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
Ministerial strategic plans (performance reports)
Debt, revenue and intergovernmental fiscal
relations strategies
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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Russias 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 Russias federal budget
expenditures were increased by some 30 without
any efficiency assessment or effectiveness
consideration
You cant budget for results if you dont 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 space
ALLAN SCHICKS 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 dont 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?