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RIA Novosti
May 18, 2005
BUDGET REFORM IN RUSSIA POSTPONED
MOSCOW. (RIA Novosti political commentator Yana Yurova) - A new stage in the process of budget reform was due to begin in 2006: the transition from managing budget expenditure to managing results.
However, Russian Finance Minister Alexei Kudrin has announced that next year only tentative moves will be made to introduce the new system.
This is good news for ordinary Russians because what would seem to be a purely administrative change in the country's financial planning could have an adverse effect on their day-to-day lives.
The process of budget reform in Russia began a year ago and was scheduled to take three years. The planned reforms were aimed at rationalizing government expenditure. The first stage of the process saw the reform of interbudget relations and the replacement of social welfare benefits with cash payments. The final stage was expected to start this year, with a transition from the current system of "estimated" budgeting, when ministries and government departments are given lump sums, to "targeted" budgeting, which means funding will only be allocated for specific projects. In addition, the budget will include specific performance indicators for each project.
This would give a real boost to efforts to liberalize the economy. State Duma deputy Mikhail Zadornov believes that budget reform based on end results will "allow the country to use every ruble from the budget more effectively." Furthermore, preference will be given to those projects that will promote accelerated economic growth.
For this reason, the government wanted to prepare the ground very thoroughly for the transition. Last year, the Commission on Budget Expenditure, headed by Vice Premier Alexander Zhukov, formulated the concept of the reform and asked government departments to evaluate their performance using 58 indicators. Government officials started compiling the relevant financial reports, on the basis of which it would be possible to determine by the end of the year whether they had coped with the task or not. However, the budget commission mothballed the project, switching over to more pressing issues, such as the government's debt strategy and tax policy.
As a result, the government will not be able to approve the performance indicators for state departments and targeted programs in time. And this means that they will not be able to switch to the new method of budgeting. Nevertheless, the budget for next year must be drawn up by the end of August, and work is already underway. In essence, even if the last stage of the budget reform does start now, it will be a watered down version. Kudrin is already saying that just 30% of departmental expenditure in 2006 will be on targeted programs.
However, from a political rather than an economic point of view, it would be advisable to postpone the reform. It is already known that the reform will slash the number of budget-dependent institutions in the country, of which there are currently about 65,000. If it transpires that spending on public hospitals, outpatient clinics, schools and other social institutions is to be cut then the government could be faced with a much more serious public outcry than after it announced the law on cash payments for welfare benefits.
In a report Governance Matters World Bank experts agree that Russia could well see a public backlash. The report says that Russia's successes in state administration are questionable: increased "government efficiency" is being accompanied by reduced government accountability. It may have been concerns about domestic policy that prompted Russian authorities to postpone the budget reform until 2007, that is until the controversy surrounding the benefits law has died down.