Transcript No Slide Title

Ministry of Finance of Russia
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
Karen Vartapetov
Ministry of Finance
Russian Federation
Ministry of Finance of Russia
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)
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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)
Ministry of Finance of Russia
Two ways of delivering better public
management
• ‘Imposing order’ – strengthening of external
control
• Optimal decentralization – providing incentives
for managers to deliver agreed outcomes
Ministry of Finance of Russia
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’)
Ministry of Finance of Russia
Russia’s case: Budget Reform Matrix
3 waves of public finance decentralization
Fiscal
decentralization
Administrative
decentralization
Service delivery
decentralization
2001-2004
2005-2008
2008-2010
Budget
administrators
Different-tier
governments
Ministries and
agencies
Public service providers
Responsibilities
(functions)
Laws on delineation
expenditures
Administrative
reforms
Alternative service
delivery
Resources
Stable and unified
tax-sharing rates
3-year expenditure
framework
Per-capita financing,
performance contracts
Competition for
voters and
investment
Competition for
budget resources
Competition for
consumers
Externally imposed
management
Evaluation of
financial
management
Public service
standards, contracts
Institutional
incentives
Fiscal
discipline
(sanctions)
Transition from soft to hard budget constrains
Ministry of Finance of Russia
Models for performance budgeting
Expenditure
Traditional input budgeting
Cost efficiency
Technical
efficiency
Efficiency
Inputs
Activities
Output budgeting
Output
Effectiveness
Outcome budgeting
Intermediate outcome
Outcome
Ministry of Finance of Russia
The planned trajectory of the Russian budget reform
Results-based mediumterm budgeting (from
2008)
Input-based short-term
budgeting (1991 - 2000)
Long-term budget stability
and sustainability
establishment of budget
procedures and regulation
(Budget Code)
Revenue and expenditure
delineations between
government tiers
Cash-basis budget
Federal Treasury
fiscal dicsipline and
expenditure control
Intergovernmental
equalization transfers
2001-2008
Meduim-term budget
planning
Performance budgeting
International standards in
public accounting and
reporting
Ministry of Finance of Russia
Russia’s case: performance budgeting tools
Document
Long-term economic program
Ministries’ and agencies’ performance
reports
Long-term expenditure (earmarked)
programs
Ministries’ and agencies’ internal
expenditure (earmarked) programs
Register of existing expenditures
Annual budget allocation justifications
Explanatory note for budget projections
and estimates
Rewarding grants for top-reformers
(annual evaluation of progress in
performance budgeting)
Key issues
National goals, Outcomes
Policy goals, Intermediate outcomes
Policy outcomes, Intermediate
outcomes, resources
Intermediate outcomes,
Outputs, Resources
A basis for formulating new policy
proposals
Outputs, Resources
National outcomes,
Outputs, Resources (summary)
Incentives for improvement
Ministry of Finance of Russia
Russia’s case: Performance budgeting tools
Expenditure
Inputs
Activities
Output
Traditional
budget documents
(submitted to MoF)
1. Expenditure
programs
2. Budget allocation
justifications
(available to the public,
assessed by MoF)
3. Register of existing
expenditures
3. Ministries’
performance reports
(public, approved by
Government)
Intermediate outcome
Outcome
4.Federal Government
Long-term Economic Program
(public, approved by Parliament)
Lump
sums to
topperformers
Ministry of Finance of Russia
Performance Budgeting and
the budget process
Medium-term
planning
Revenue
policy
Macroeconomic
Planning
Debt
policy
Performance
audit
Internal audit
Outcome
reporting
Management
accounting
Outcome
planning
Control
Budget
Preparation
Delegation and
accountability
Accounting
and Reporting
Budget
implementation
Budget
programs
Ministry of Finance of Russia
Transition to multi-year budgeting
Model
1. Annual budget an a
separate 3-year financial plan
(prepared by the MoF for
analytical purposes)
2. Annual budget is a part of a
government-approved 3-year
financial plan
3. Three-year budget
Federal budget
Regional
budgets
Local
budgets
2000-2005
2000-2007
2005-2007
Some regional
governments
From 2008
From 2008 - choose
between 2 and 3
Ministry of Finance of Russia
Medium-term expenditure framework:
comparing a medium term financial plan to a 3-year federal budget
Indicators
Medium-term
financial plan
Three-year
budget
Basic indicators of the budget and budget policy
Yes
Yes
Separation of existing expenditures and new
expenditure proposals
Constrained
Yes
Planning of performance results
Constrained
Yes
Long-term contracts with service providers
Constrained
Yes
Possibility to re-allocate funds among years
Yes
Yes
Pre-conditions for temporarily even allocation of
budget funds
Yes
Yes
Predictability of intergovernmental grants
Yes
Yes
Ministry of Finance of Russia
Rolling three-year budget
Current fiscal year
2 following years
ADJUSTMENT
Current fiscal year
2 following years
PLANNING
ADJUSTMENT
Current fiscal year
t +1
2 following years
t +2
t +3
PLANNING
t +4
t +5
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Ministry of Finance of Russia
Sequencing in budget planning
Before 2008
After 2008
(revised Budget Code)
Economic forecasting
(revenue, debt strategy)
Economic forecasting
(revenue, debt strategy)
Step 2
New expenditure proposals
Estimation of existing
expenditures (register)
Step 3
Estimation of total expenditures
(existing and new expenditures)
Estimation of the room for new
policy proposals
Step 1
Step 4
Adjustment (correction of revenue Decisions on new expenditure
and expenditure estimations)
programs
Ministry of Finance of Russia
Separate planning of existing and proposed
expenditures
Exiting expenditures
(90-95%)
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Social transfers
Debt service
Public services
Capital programs
New policy proposals
(5-10%)
• new legislations
• new programs
Approval
Inclusion in the budget
Ministry of Finance of Russia
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 )
VS
Incrementalist Approach
Only new policy proposals
are considered (5-10% of
total expenditures)
2. Technical efficiency gains
Ministries’ efficiency gains do not usually exceed the
inflation rate
Ministry of Finance of Russia
Composition of federal expenditures, 2008
International
commitments;
1,6%
Debt service;
2,5%
Intergovernmental
fiscal grants;
15,3%
Other
commitments;
1,9%
Public services;
28,0%
Capital
expenditure;
0,2%
Social tranfers ;
49,3%
Legislative and
juditial powers ;
1,0%
Ministry of Finance of Russia
Separate planning of existing and new expenditures
Register of existing expenditures
Expenditure limits
Room for
new policy proposals
Investment
objects
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)
2007
2008 2009 2010
3-year budget
2011
2012
2013
2014
2015
Ministry of Finance of Russia
Medium-term expenditure framework from 2008
Annual budget
policy statement
for 3 years
Macroeconomic
forecast for 3
years
Debt, revenue and
intergovernmental
fiscal relations
strategies
Program for socioeconomic
development for 12 years
Ministerial
strategic plans
(performance
reports)
Strategic priorities
Fiscal framework
New and existing
‘expenditure justifications’
3-year budget
Sectoral
strategies
Ministries have to
support their
expenditure bids
with performance
information
Ministry of Finance of Russia
Russia’s budget reform in the international context
Medium-term
Budgeting
• Australia
• New Zealand, Great Britain,
Nederland, Sweden
Russia (2009-2010)
France 2007
Vietnam 2007
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• Czech Republic
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• USA
Russia (2007)
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• Bulgaria • Poland
• Kazakhstan
• Russia (2003)
• Ukraine
Performance
Budgeting
Ministry of Finance of Russia
PB is instrumental in a specific institutional context
In the last budget cycle Russia’s federal budget
expenditures were increased by some 30% without
any efficiency assessment or effectiveness
consideration
You can’t budget for results if you don’t manage for
results.
Yet the latter requires human skills and institutional
arrangements (accountability, transparency, political
commitment )
Ministry of Finance of Russia
Models for performance budgeting
Expenditure
Traditional input budgeting
Cost efficiency
Inputs
Technical
efficiency
Efficiency
Russia 2008
Activities
Output budgeting
Output
Effectiveness
Outcome budgeting
Intermediate outcome
Outcome
Ministry of Finance of Russia
PB is not the easiest way to create fiscal space
ALLAN SCHICK’S PRINCIPLES OF BUDGET REFORM SEQUENCING:
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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
Ministry of Finance of Russia
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”
1. Performance information contributes to better accountability
and transparency.
2. The change in fiscal behavior is a long-term process. The
accumulation of performance information is time-consuming.
The sooner you start the better
3. Take as many steps forward as possible as there always be a
few steps back
4. If you don’t sort out fiscal rules you might not be able to use
fiscal space when it is really needed
Ministry of Finance of Russia
Questions for consideration
1) Does performance budgeting present an efficient
tool for enhancing fiscal space?
2) In what ways is performance information used in
the budget process in your economy?
3) Do the basic pre-conditions (say, control of inputs)
have to delivered before introducing performance
budgeting?