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Focus on Russia's Budget
22 March 2007
Focus on Russia's Budget

Focus on Russia's Budget
Russia Moves from Stabilization to Long-Term Planning
by: Josh Wilson, USRCCNE Editor and
Eugene Ivanov, Innocentive.com

Russia to Switch to Three-Year Budget
On March 7, the Duma approved, in the first reading, an amendment to the Budget Code that will allow the Cabinet to draft three-year budgets, instead of just one year. Duma Speaker Boris Gryzlov argued that longer-term planning could help contain inflation resulting from huge disbursements of budget funds at the end of each fiscal year. The second and the third readings are expected in April, and the Cabinet is expected to submit the 2008-2010 budget to the Duma by May 1.

President Putin’s Budget Address
In the 2008-2010 budget address, delivered on March 9, President Putin outlined his economic priorities. Putin has called for switching to long-term budget planning for up to 10-15 years and also called for transforming the Stabilization Fund into the Reserve Fund and the Future Generations Fund. The President has expressed his opposition to changing the current income tax for individuals (fixed at 13%), which, he said, has so far proved effective.

Synopsis of Budget Policy (from Kremlin.ru)

President Vladimir Putin sent the Government and the Federal Assembly a policy document outlining budget policy for 2008-2010.

The document summarises the results of budget policy over the period 2000-2006, and outlines the main budget strategy principles for 2008-2010 and beyond.  

The document contains separate chapters dealing with the main areas of tax policy, state spending priorities, and improving inter-budgetary relations. 

The medium-term budget strategy should facilitate the country’s social and economic development while keeping strictly to the principles of efficient and result-producing state spending, the document said.

The document outlines the main areas the Government should concentrate on in drawing up and implementing its budget strategy.

The first objective is to turn the budget into an effective macroeconomic regulation instrument. The aim should be to bring the inflation rate down to an acceptable 3-4 percent a year.

The second objective is to ensure that the budget is balanced over the long term. As the need to stabilise macroeconomic indicators by sterilising excess money supply diminishes, it will become more important to ensure that budget expenditure remains sustainable regardless of world commodities prices. 

It is with this purpose in mind that the Government Stabilisation Fund should be transformed into a Reserve Fund and a Fund for Future Generations. The Reserve Fund’s purpose will be to maintain budget expenditure in the event of a sharp drop in oil prices in the medium term, while oil and gas sector revenue collected in excess of the money put in the Reserve Fund and the funds used directly to finance federal budget expenditure will be placed in the Fund for Future Generations.

The third objective is to carry out budget planning on a longer-term basis. The drafting and approval of a three-year budget should be seen as a basis for the transition to longer-term financial planning. It is essential to gain practical experience in making and using long-term forecasts (for a period of 10-15 years and longer).

The fourth objective is to ensure that spending commitments are fulfilled. The document notes that unconditional fulfilment of budget spending commitments should be at the foundation of budget policy, but it also points out the need for a considered and cautious approach to increasing or taking on new spending commitments, which must be based on available resources.

The fifth objective is for the Government to introduce the use of modern evaluation methods for assessing the effectiveness of budget spending from the point of view of social and economic policy goals and measuring the results achieved against the policy objectives set. 

The sixth objective is to introduce modern principles for carrying out state capital investment.

The seventh objective is to make use of mechanisms that encourage budget-funded organisations to improve the quality of service they provide and make budget spending more effective, and to give the main distributors of budget funds greater powers to decide on the form that financial provisions for public services should take. 

Work should begin on transforming budget-funded organisations providing some kinds of public services into autonomous organisations in cases where this would create considerable incentives for making them more efficient.

The eighth objective is to raise the quality of financial management in the public sector. The document states that the financial authorities should introduce a system to monitor the quality of financial management of the agencies chiefly responsible for distributing budget funds.

The ninth objective is to draw up a strategy for continuing pension reform and resolving the issue of balancing the Pension Fund.

The document also notes the need to pay particular attention to drafting and implementing the federal targeted programme to assist rapid social and economic development in the Far East and Trans-Baikal regions.


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