A Tactical Budget Maneuver
The Russian Government Shifts to a New Budget System Aimed at Tightening Fiscal Discipline
Tai Adelaja - Russia Profile - russiaprofile.org - 3.26.12 - JRL 2012-56

Russia's President-elect Vladimir Putin has endorsed a new budget system for the country in a move analysts say could bolster his fiscal stewardship and allay existing concerns over loose monetary policy. Putin, who has been roundly criticized for making wide-ranging campaign promises that could hurt the budget, has committed to transition to a new budget system based on performance and sustainability of the state programs when he returns to the Kremlin later this year, the Vedomosti daily reported on Monday. For the first time after the global financial crisis, the government will also be using budgeting that relies less on revenues from oil and gas, the paper said.

The declared objective of the new budget reform is to switch from a system of budget management that has focused solely on federal targeted programs and budgetary allocation through government departments. Under the federal targeted programs, the government is expected to make an investment in a specific project, such as the construction of hospitals. But in recent years such projects have ballooned out of control and the government has been having a hard time finding enough resources to keep them afloat. For instance, in the current three-year budget the so-called targeted programs were underfunded by 350 billion rubles ($11.9 billion) ­ a shortfall of 11 percent ­ according to an unnamed Finance Ministry official cited by Vedomosti. The ministry is hoping to correct such imbalances in the future by pegging federal budget to finance specific state programs. "We are suggesting that the ramifications of federal targeted programs are in sync with the budget provisions from 2013," said a Finance Ministry official.

The new budget system, also known as the Program Planning Budget System or PPBS, is expected to curb waste in federal expenditures by encouraging competitive allocation of budget resources between programs, as well as giving financial and administrative incentives to ensure that results are obtained. The PPBS will also tie programs to specific achievement indicators, such as decreased mortality, and increased life expectancy. Under the new system, budget institutions may be required to submit annual reports on the results of their main activities, while the efficiency of spending will be assessed by previously determined indicators.

Officials at the Ministry of Finance said the government could adopt the new program of budgeting this year. The ministry said 96.7 percent of the federal budget, or 9.04 trillion rubles ($301 million) of the budget for 2011 to 2013 is made up of 39 state programs based on the new system. The budget was prepared before December's parliamentary elections, but the ministry decided to shelve the reforms because of the impact a sudden budget restructuring could have on the elections. However, despite such preparations, some departments are not yet ready to transition to the new system next year, the ministry said.

In addition to the budget reform, the government also hopes to wean the budget from heavy reliance on oil and gas revenues and save oil windfall for the rainy day. Finance Minister Anton Siluanov said in January that the country could more than double its reserve fund in 2012 by allocating $32.4 billion from its oil and gas revenues in 2011. He's urged the government to consider amending the budget law by February 1, the deadline by which the Reserve Fund should be increased by law. Siluanov said the Reserve Fund, which stood at $25.2 billion in January, "is obviously still lower that the pre-crisis levels of 2008." "Our policy is to prevent growth of spending and create new budget strategies for the implementation of anti-crisis measures," said the minister.

Russia's treasury nest egg helped the country to get through the financial crisis of 2008. But Russia abandoned the practice of saving the country's oil revenues in special state stability funds amid the crisis, triggering an increase in the non-oil deficit from 4.5 percent of the GDP in 2007 to 13.5 percent in 2009. The oil price that balances the budget also rose from $40 per barrel in 2006 to over $100 per barrel in 2011. In November last year, the Head of the IMF Christine Lagarde recommended that Moscow put aside more of its oil revenues while the price is high. Russia earned $176 billion from the sale of oil and gas in 2011. In its latest budget proposals, the Ministry of Finance adopted a $97 per barrel oil price benchmark in the 2013 budget, and gradually decreased it to $95 per barrel in 2014, $92 per barrel in 2015 and $90 per barrel in 2016, Interfax reported.

Russia will surely return to its pre-crisis practice of applying the so-called "budget rule" and saving the country's oil revenues in special state stability funds, Presidential Economic Aide Arkady Dvorkovich told journalists on Friday. "In fact, we have returned to pre-crisis principles concerning budgetary discipline. Formally the budget rule is cancelled, but the president and the prime minister have made a decision in principle that we must return to the budget rule," Dvorkovich said. "The rule is being worked out now and will be approved soon."

Keywords: Russia, Government, Politics - Russia, Economy - Russian News - Russia

Russia's President-elect Vladimir Putin has endorsed a new budget system for the country in a move analysts say could bolster his fiscal stewardship and allay existing concerns over loose monetary policy. Putin, who has been roundly criticized for making wide-ranging campaign promises that could hurt the budget, has committed to transition to a new budget system based on performance and sustainability of the state programs when he returns to the Kremlin later this year, the Vedomosti daily reported on Monday. For the first time after the global financial crisis, the government will also be using budgeting that relies less on revenues from oil and gas, the paper said.

The declared objective of the new budget reform is to switch from a system of budget management that has focused solely on federal targeted programs and budgetary allocation through government departments. Under the federal targeted programs, the government is expected to make an investment in a specific project, such as the construction of hospitals. But in recent years such projects have ballooned out of control and the government has been having a hard time finding enough resources to keep them afloat. For instance, in the current three-year budget the so-called targeted programs were underfunded by 350 billion rubles ($11.9 billion) ­ a shortfall of 11 percent ­ according to an unnamed Finance Ministry official cited by Vedomosti. The ministry is hoping to correct such imbalances in the future by pegging federal budget to finance specific state programs. "We are suggesting that the ramifications of federal targeted programs are in sync with the budget provisions from 2013," said a Finance Ministry official.

The new budget system, also known as the Program Planning Budget System or PPBS, is expected to curb waste in federal expenditures by encouraging competitive allocation of budget resources between programs, as well as giving financial and administrative incentives to ensure that results are obtained. The PPBS will also tie programs to specific achievement indicators, such as decreased mortality, and increased life expectancy. Under the new system, budget institutions may be required to submit annual reports on the results of their main activities, while the efficiency of spending will be assessed by previously determined indicators.

Officials at the Ministry of Finance said the government could adopt the new program of budgeting this year. The ministry said 96.7 percent of the federal budget, or 9.04 trillion rubles ($301 million) of the budget for 2011 to 2013 is made up of 39 state programs based on the new system. The budget was prepared before December's parliamentary elections, but the ministry decided to shelve the reforms because of the impact a sudden budget restructuring could have on the elections. However, despite such preparations, some departments are not yet ready to transition to the new system next year, the ministry said.

In addition to the budget reform, the government also hopes to wean the budget from heavy reliance on oil and gas revenues and save oil windfall for the rainy day. Finance Minister Anton Siluanov said in January that the country could more than double its reserve fund in 2012 by allocating $32.4 billion from its oil and gas revenues in 2011. He's urged the government to consider amending the budget law by February 1, the deadline by which the Reserve Fund should be increased by law. Siluanov said the Reserve Fund, which stood at $25.2 billion in January, "is obviously still lower that the pre-crisis levels of 2008." "Our policy is to prevent growth of spending and create new budget strategies for the implementation of anti-crisis measures," said the minister.

Russia's treasury nest egg helped the country to get through the financial crisis of 2008. But Russia abandoned the practice of saving the country's oil revenues in special state stability funds amid the crisis, triggering an increase in the non-oil deficit from 4.5 percent of the GDP in 2007 to 13.5 percent in 2009. The oil price that balances the budget also rose from $40 per barrel in 2006 to over $100 per barrel in 2011. In November last year, the Head of the IMF Christine Lagarde recommended that Moscow put aside more of its oil revenues while the price is high. Russia earned $176 billion from the sale of oil and gas in 2011. In its latest budget proposals, the Ministry of Finance adopted a $97 per barrel oil price benchmark in the 2013 budget, and gradually decreased it to $95 per barrel in 2014, $92 per barrel in 2015 and $90 per barrel in 2016, Interfax reported.

Russia will surely return to its pre-crisis practice of applying the so-called "budget rule" and saving the country's oil revenues in special state stability funds, Presidential Economic Aide Arkady Dvorkovich told journalists on Friday. "In fact, we have returned to pre-crisis principles concerning budgetary discipline. Formally the budget rule is cancelled, but the president and the prime minister have made a decision in principle that we must return to the budget rule," Dvorkovich said. "The rule is being worked out now and will be approved soon."