Russian Federation
Fiscal Transparency Evaluation
Author: International Monetary Fund. Fiscal Affairs Dept.
Publication Date:
26 May 2014
eISBN:
9781498348058
Language:
English
Keywords:
ISCR; CR; annual budget; balance sheet; fiscal policy; reserve fund; net present value; financial year; debt holding; government holding
Download PDF (2.3 MB)

This paper discusses key findings of the pilot Fiscal Transparency Evaluation for the Russian Federation. Most aspects of Russia’s fiscal reporting and budgeting practices are in line with good or advanced practice under the July 2013 draft of the Fiscal Transparency Code. The disclosure and management of fiscal risks has significantly improved in recent years. The evaluation highlights a number of important areas where fiscal transparency practices could be further improved. Addressing these gaps in fiscal transparency practices would enable the government to provide a more complete picture of its fiscal position, prospects, and risks.

Abstract

This paper discusses key findings of the pilot Fiscal Transparency Evaluation for the Russian Federation. Most aspects of Russia’s fiscal reporting and budgeting practices are in line with good or advanced practice under the July 2013 draft of the Fiscal Transparency Code. The disclosure and management of fiscal risks has significantly improved in recent years. The evaluation highlights a number of important areas where fiscal transparency practices could be further improved. Addressing these gaps in fiscal transparency practices would enable the government to provide a more complete picture of its fiscal position, prospects, and risks.

Executive Summary

Most aspects of Russia’s fiscal reporting and budgeting practices are in line with good or advanced practice under the July 2013 draft of the Fiscal Transparency Code, and the disclosure and management of fiscal risks has significantly improved in recent years (Table 0.1). Specifically, over the past decade and a half:

  • the 1998 Budget Code and subsequent amendments have established a comprehensive legal framework for fiscal management at all levels of government;

  • the government began publishing cash-based in-year and year-end fiscal reports and accrual-based annual financial statements as well as fiscal statistics which consolidate Federal, regional, and municipal governments in line with international standards;

  • detailed and credible medium-term macroeconomic forecasts have been prepared since early 2000, and a new oil price-based fiscal rule was introduced in 2013 to encourage sustainable and counter-cyclical fiscal policy making;

  • the coverage of the Federal government budget has steadily expanded and the three main remaining extra-budgetary funds are presented and approved alongside it in a timely manner;

  • the policy-orientation of the budget has improved thanks to a comprehensive and detailed medium-term budget framework introduced in 2008, and a new program and performance budgeting system introduced in the 2014 Budget; and

  • firm central controls over key sources of fiscal risks have been established, including annual limits on the issuance of debt, credit, and guarantees by the Federal government, and on borrowing by sub-national governments.2

At the same time, this evaluation highlights a number of important areas where fiscal transparency practices could be further improved:

  • while fiscal reports provide a relatively comprehensive picture of the Federal and sub-national government finances, they exclude the financial activity of various classes of government-controlled enterprises with net expenditure of at least 29 percent of GDP and liabilities of at least 127 percent of GDP in 2012;3

  • government balance sheets recognize most conventional financial and nonfinancial assets and liabilities, but they exclude the government’s 200 percent of GDP in sub-soil oil and gas assets and 287 percent of GDP in liabilities accrued to date from public pensions and public-private partnership (PPP) arrangements;

  • financial statements make no provisions for assessed but unlikely to be collected taxes or non-repayment of the government’s 4 percent of GDP in loans, while budgets overstate likely payouts against the government’s 2 percent of GDP stock of guarantees. In addition, there are no regular estimates of the estimated 1-2 percent of GDP in annual revenue foregone through tax expenditures;

  • while the Federal budget is relatively comprehensive, 14 percent is currently classified as secret for national security reasons, and there are plans for extra-budgetary expenditure and lending via sovereign wealth funds;

  • there is scope to enhance the credibility, transparency, and scrutiny of official fiscal forecasts; and

  • reporting and analysis of near-term fiscal risks is incomplete and fragmented and forecasts of longer-term fiscal pressures to be published in 2014 will extend only to 2030.

Addressing these gaps in fiscal transparency practices would enable the government to provide a more complete picture of its fiscal position, prospects, and risks. Based on data for 2012, this more comprehensive view of public sector finances (summarized in Table 0.1) would suggest that:

  • the public sector accounts for a considerable share of economic activity with revenues of at least 71 percent of GDP, expenditures of at least 68 percent of GDP, and an estimated surplus of 3 percent of GDP;

  • the public sector has an extensive balance sheet with assets amounting to 381 percent of GDP (200 percent in sub-soil assets, 82 percent in other fixed assets, and 100 percent in financial assets) and liabilities amounting to 400 percent of GDP (282 percent in unfunded pension liabilities, 16 percent in other government liabilities, and 102 percent in net liabilities of public corporations); and

  • estimates of the current net worth and projections of the long-term sustainability of the public sector are highly sensitive to assumptions about future economic growth, oil production and price developments, demographic trends, and other risks. Over the long-run, declining oil and gas revenues and rising pension and healthcare costs are likely to place considerable pressure on the fiscal position.

This report makes nine recommendations aimed at enhancing the information base for fiscal decision-making and ensuring the country keeps pace with evolving international transparency standards and practices. They are to:

  • clarify the boundary between general government, public, and private sectors and expand the institutional coverage of fiscal reports to encompass the whole public sector;

  • expand the coverage of balance sheets to include subsoil assets as well as pension and public-private partnership liabilities;

  • enhance the consistency between budgets, statistics, and accounts in their treatment of non-cash flows and valuation of fixed assets;

  • improve disclosure and management of the revenue foregone from tax expenditures;

  • improve the coverage and detail of the annual budget;

  • enhance the independent scrutiny and transparency of the official macroeconomic and fiscal forecasts;

  • improve the disclosure and analysis of fiscal risks;

  • publish regularly long-term fiscal projections covering at least thirty years; and

  • strengthen the financial oversight of government-controlled enterprises.

The sequence of actions required to implement these reforms over the next five years have been incorporated into a Fiscal Transparency Action Plan that is appended to this report.

Table 0.1.

Summary Assessment Against Fiscal Transparency Code (July 2013 version)

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Table 0.2.

Russia: Estimated Public Sector Finances Overview, 2012

(Percent of GDP)

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Including Social Security Funds, consolidated

Estimates based on the 26 largest corporations by liability.

Net Worth refers to the difference between assets and liabilities (including shareholders’ equity). For public corporations it equals to zero when the market price of equities is not available.

Central government: including PPPs assets of 2% of GDP (estimation)

Central government: including government pension liabilities of 3% of GDP and PPPs of 2% of GDP (estimation)

The totals are consolidated, i.e. intra-flows/stocks within the related sector are eliminated.

I. Fiscal Reporting

1.0. Introduction

1. Fiscal reports should provide a comprehensive, timely, reliable, comparable, and accessible summary of the government’s financial performance and position. This chapter assesses the quality of fiscal reporting practices against those set out in the July 2013 draft of the IMF’s Fiscal Transparency Code. In doing so it separately considers the following dimensions of fiscal disclosure:

  1. coverage of public sector institutions, stocks, and flows;

  2. frequency and timeliness of reporting;

  3. quality, accessibility, and comparability of fiscal reports; and

  4. reliability and integrity of reported fiscal data.

2. Fiscal reporting is characterized by a high degree of uniformity, frequency, and timeliness. All government units follow a uniform budget classification, chart of accounts, and reporting format. The main in-year and annual fiscal reports, summarized in Table 1.1, cover the consolidated accounts for central, regional, and municipal governments. Monthly, quarterly, and year-end budget execution reports prepared by the Federal Treasury include cash revenue, expenditure, financing, and debt and are classified according to the standardized national budget classification. Year-end budget execution and financial statements also produced by the Federal Treasury present both cash and accrued revenues, expenditures, and financing and include a balance sheet of financial and (above ground) nonfinancial assets and liabilities also based on the national budget classification. Finally, monthly and annual fiscal statistics produced by the Treasury and Federal Statistics Service (Rosstat) respectively follow the IMF’s Government Finance Statistics Manual 2001 standards, though, as discussed below, the coverage is not complete.

Table 1.1.

Russia: List of Fiscal Reports

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Note: GG: general government, BCG: budgetary central government, EBU: extra-budgetary units (EBUs include budgetary and autonomous units, the Housing and Communal Services Reform Fund, Russian Nanotechnology Corporation, and the Russian Road Company). Rev: revenue, Exp: expenditure, Fin: financing, OEF: other economic flows, Liab: liabilities.

1.1. Coverage of Fiscal Reports

1.1.1. Structure of the Public Sector (Basic)

3. As of October 2013, the public sector comprised 81,954 separate institutional entities of various legal forms. As shown in Table 1.2 this includes:

  • 12,402 budgetary central government entities including federal government ministries, agencies, budgetary organizations, and legislative and judiciary bodies who receive all of their funding from the Federal Budget and keep their accounts with the Federal Treasury;

  • 4,389 central extra-budgetary organizations. These autonomous and semi-autonomous government entities are partially financed by transfers from the Federal budget and partly by payments from the beneficiaries of their services;4

  • 87 social security funds including the Federal Pension Fund, Social Insurance Fund, and Mandatory Medical Insurance Fund as well as 84 regional governments. These funds depend on transfers from the Federal budget for 47 percent of their revenue;

  • 23,185 sub-national governments including 83 state (regional) governments (46 oblasts, 21 republics, 9 areas, 2 federal cities, 4 autonomous regions, and 1 autonomous oblast) and 23,102 local governments (municipalities). Regional governments partly depend on transfers from central government, while municipalities partly depend on transfers from the regions;

  • 31,092 public corporations comprised of 22,440 unitary enterprises, 308 government corporations (11 financial and 297 nonfinancial) and 8,344 joint stock companies; and

  • 10,799 other, unspecified government-controlled entities included in the official statistical register of the Federal Statistics Service (Rosstat).

Table 1.2.

Russia: Estimated Public Sector Institutions and Finances

(Percent of GDP, 2012)

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Consolidated revenue/expenditure at the subsector and sector level exclude intra-flows within the related subsector/sector.

Net Lending/Borrowing

Source: Number of units: Rosstat as of October 2013; GFSM 2001 data for GG and staff estimates based on annual reports of the 26 largest public corporations.Note: Consolidation reflects current and capital transfers, subsidies and dividends. Taxes paid by public corporations to government are not consolidated.

4. The government maintains but does not publish a comprehensive register of all public entities. For the purpose of compiling economic statistics in line with the 1993 System of National Accounts (SNA93), Rosstat maintains a relatively comprehensive register of government units and public corporations. However, this statistical register is currently under review because it does not classify these entities to these sectors according to international standards, as discussed below. The Treasury maintains a separate register of government entities for the purpose of compiling accounts but this does not cover all government-controlled entities as defined by international standards or include any public corporations. In addition, the list of individual units included in the general government is not consistent between the two registers.5

5. The definitions of the general government and public sector do not follow international standards and differ across fiscal reports. The Federal Treasury defines the general government based on the legal status of each entity rather than on the “market test” used in international statistical standards.6 As a result, some of the 31,092 entities classified by the Federal Treasury as “commercial” in legal form, and therefore excluded from fiscal reports, would likely fall within the general government based on the market test. The sector classification applied in Rosstat’s general government fiscal statistics include some of these entities but also do not systematically apply the market test to the different classes of entities. These differences in the coverage of general government entities likely account for some of the up to 1.8 percent of GDP discrepancy in the general government net lending/borrowing between Rosstat’s national accounts and the Treasury’s government finance statistics.

1.1.2. Coverage of Institutions (Good)

6. Based on a data from the country’s 26 largest public corporations, the consolidated public sector accounted for at least 68 percent of GDP by expenditure in 2012. Within this, central government net expenditure (i.e., excluding the impact of transfers to other public sector units) accounts for 33 percent (22 percent of GDP), sub-national governments for about 26 percent (18 percent of GDP), and public corporations for at least another 41 percent (28 percent of GDP) of consolidated public sector expenditure.7

7. The most comprehensive fiscal reports cover the consolidated general government as defined in national legislation and about 60 percent of public sector expenditure. The Treasury’s budget execution reports and financial statements cover most non-corporate central and sub-national government entities but leave out three extra-budgetary entities (the Housing and Communal Services Reform Fund, Russian Nanotechnology Corporation, and Russian Road Company), whose net expenditure accounts for 2.7 percent of GDP. Rosstat’s annual GFSM 2001-based fiscal statistics also consolidate these three entities (Figure 1.1).

Figure 1.1.
Figure 1.1.

Russia: Coverage of Public Sector in Fiscal Reports, 2012

(Percent of Expenditure)

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Source: GFSY, staff estimates, annual reports of 26 largest public corporations.

8. However, the very large public corporation sector is not covered by any consolidated fiscal report. As discussed in the previous section, none of Russia’s consolidated fiscal reports cover the large number of entities classed as commercial enterprises in national legislation, some of which would likely be classified as general government entities under international standards. While financial reports for individual government enterprises are collected by different ministries and government agencies, aggregated information on the financial position and performance of the whole public sector does not exist. However, the government recently committed to publishing fiscal statistics for the consolidated public sector, with preliminary estimates to be published in 2016–18. A project group has been established between the Ministry of Finance, Federal Treasury, Rosstat, and the Central Bank to: (i) define the scope of the public sector; (ii) establish a database covering all public corporations; and (iii) report statistics for the consolidated public sector in national accounts, financial accounts and balance sheets, and government finance statistics.

9. Expanding the institutional coverage of fiscal reports from the general government to encompass the wider public sector would significantly increase total revenue and expenditure but not significantly alter the overall balance. For example, for 2012, incorporating into the fiscal accounts of the largest 26 public corporations, would add a further 27 percent of GDP to expenditure and revenue. Since most of these corporations run operating balances, consolidating them into public sector accounts does not materially alter the overall fiscal surplus of 3 percent of GDP in 2012.

10. In addition to their sizeable revenues and expenditures, public corporations also have very large asset and liability holdings, relative to both the government and to public corporations in other countries. As shown in Figure 1.3, the largest 26 public corporations had liabilities of around 102 percent of GDP compared with general government liabilities of only 11 percent of GDP in 2012. Understanding the financial position of these entities and their relationship with the government is therefore critical to understanding the financial position and sustainability of Russia’s public sector as a whole.

Figure 1.2.
Figure 1.2.

Russia: Public Sector Gross Liabilities

(Percent of GDP)

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Source: Staff estimates; National budgets. Data for Russia cover only the 26 largest public corporations, 2012. Data for other countries is from 2008–12.
Figure 1.3.
Figure 1.3.

Public Sector Balance Sheet Coverage in Fiscal Reports, 2012

(Percent of GDP)

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Source: GFSY 2012, staff estimates

1.1.3. Coverage of Stocks (Good)

11. A consolidated general government balance sheet is published on an annual basis. This information on the general government’s fixed and financial assets and liabilities is published on an annual basis in the Treasury’s year-end financial report and Rosstat’s government finance statistics. As shown in Table 1.3, the balance sheet for 2012 provides a detailed breakdown of the general government’s 11 percent of GDP in liabilities, 34 percent of GDP in financial assets, 43 percent of GDP in nonfinancial assets, and an overall net worth of 67 percent of GDP.

Table 1.3.

Russia: Reported General Government Balance Sheet, 2012

(Percent of GDP)

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Source: GFSY, 2012

12. However, this balance sheet does not reflect the true value of some general government assets and liabilities and excludes those held by public corporations. As shown in Table 1.4 and Figure 1.2, consolidated public sector asset holdings (covering the general government sector and the largest 26 largest corporations) are estimated to be at least 381 percent of GDP and its liabilities are estimated to be around 400 percent of GDP in 2012. The differences between these figures and those reported in financial statements and statistics reflect the fact that:

  • the government has unrecognized subsoil assets of around 200 percent of GDP, as discussed further in Section 3.2.3;

  • the government has unreported liabilities for pension rights accrued to date of around 285 percent of GDP, as discussed further in Section 3.2.2;

  • the government has growing obligations under public private partnership (PPP) contracts estimated at 2 percent of GDP, as discussed further in Section 3.2.7;

  • public corporations have 97 percent of GDP in liabilities to the private sector and 127 percent of GDP in fixed and financial assets, as discussed further in Section 3.3.2; and

  • finally, though not reflected in the above estimates, government holdings of nonfinancial assets are most likely significantly underestimated, as they are reported in the balance sheet at historical prices, and do not take into account subsequent price changes. It is estimated that there is at least a ten-fold difference between the historical and market value of these assets. In addition, shares and other equities are not recorded in market prices.

Table 1.4.

Russia: Estimated Public Sector Balance Sheet, 2012

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Source: GFSY 2012, staff estimates

13. Taking a more comprehensive view of the public sector balance sheet substantially alters the estimated fiscal position, though the estimate of overall public sector net worth is highly sensitive to underlying assumptions. As shown in Figure 1.4, consolidating the government’s sub-soil assets, PPPs, funded pensions, and balance sheets of the 26 largest public corporations delivers an overall net worth for the public sector of positive 264 percent of GDP. However, a more comprehensive measure which also includes 282 percent of GDP in unfunded pay-as-you-go pension obligations delivers an overall public sector net worth of minus 19 percent of GDP if these long-term obligations are recognized as liabilities (Table 1.4).

Figure 1.4.
Figure 1.4.

Public Sector Net Worth in Selected Countries

(Percent of GDP, 2012)

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Source: Staff estimates, national budgets and statistical agencies.Note: The figure presents data on net worth for countries where such estimates were available. For other countries these are estimates for 2010–11 covering nonfinancial and financial assets and liabilities as well as pension liabilities. The data for Russia present estimates for 2012. Pension estimates refer to unreported civil service pension obligations accrued to date.

1.1.4. Coverage of Flows (Good)

14. Budget execution reports are cash-based, but annual financial statements provide accrual data for the general government. According to the Budget Code, the national accounting rules take into account international standards for financial reporting of public units such as GFSM 2001 and IPSAS. Cash-based budget execution reports provide a detailed breakdown of revenue receipts, expenditure payments, and financing. However, the financial statements record individual revenue, expenditure and outstanding amounts of assets and liabilities on an accrual basis, e.g., expenses and the related payables are recorded when goods and services are delivered and not when government makes cash payment.

15. However, not all accrued flows are fully or appropriately captured in financial statements. For example, reported tax revenue is based on assessments and declarations, and provisions for amounts unlikely to be paid are not created. The same is true for the treatment of the 4 percent of GDP in government loans, where no provision was made for write-offs in 2012. In addition, pension liabilities from the state-funded pension scheme and the related flows are omitted from official fiscal reports. Finally, changes in market prices of stocks of fixed assets and shares and other equities are not reflected as other economic flows that affect net worth.

16. In addition, there are some inconsistencies in the treatment of non-cash flows across different types of fiscal reports. In particular, government budgets include provision for nearly the full amount of guarantees issued each year (RUB 115 billion or 0.2 percent of GDP in 2012) which tends to overstate forecast liabilities as only 5 percent of the total value guarantees have been called over 2012–13. Furthermore, there are large accrued rents to Federal and sub-national governments in fiscal statistics for which no cash counterpart can be identified. The resulting differences between accrual and cash transactions are noticeable, as shown in Table 1.5, with accrued revenues consistently exceeding cash receipts by 4–7 percent of GDP and the accrual balance consistently exceeding the cash balance by 0.2 to 1.4 percent of GDP between 2009 and 2012. The differences between accrual and cash revenue and expenditure are to a large extent reflected in other (unspecified) accounts receivable/payable in the balance sheet.

Table 1.5.

Russia: Difference between Accrued and Cash Revenue and Expenditure

(Percent of GDP)

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Source: GFSM 2001, staff estimates

1.1.5. Tax expenditures (Basic)

17. There is limited disclosure of revenue loss due to tax reliefs and tax subsidies. By making exceptions in the tax system for certain taxpayers, activities or transactions—in the form of deductions, exemptions, allowances, rate reliefs, deferrals, or credits—the government decides to forgo revenue that otherwise would have been collected. Since the foregone revenue benefits some tax payers and not others, it is akin to a subsidy on the expenditure side of the budget. To fully capture the redistribution of economic funds through the budget, the extent of the loss of revenue through tax expenditure should be disclosed.

18. While there have been efforts to estimate the size of tax expenditures, the government does not have an official methodology for calculating tax expenditures. Tax expenditures are difficult to measure directly. To make an estimate of the revenue loss, a benchmark tax—defined as the rate structure, deductions, and accounting treatment prevailing in the absence of any tax expenditures—must be identified. Tax expenditure analysis also requires a choice between three estimation methodologies, based on either revenue foregone, revenue gain, or outlay equivalent. No official approach has yet been agreed by the Russian government.

19. Preliminary unofficial estimates indicate federal tax expenditures in the range of 1–2 percent of GDP in 2010. This would put the size of tax expenditure toward the low end compared with a sample of advance countries included in a recent OECD survey, as shown in Figure 1.5. However, these estimates exclude the foregone tax from corporations operating in the 24 Special Economic Zones which offer generous tax incentives. Given that several initiatives to stimulate innovation through tax exemptions have been taken in recent years—for example in the area of energy efficient equipment and regional development—the estimate is likely on the low side and revenue loss from tax expenditures is likely to grow. As indicated above, these estimates are also sensitive to the definition of the benchmark tax, in particular whether VAT on certain services are included.

Figure 1.5.
Figure 1.5.

Tax Expenditures

(Percent of GDP)

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Note: Estimates for the year 2008, except Germany: 2006; Netherlands: 2006; Korea: 2006; and Canada 2004. Dark and light blue colors for Russia illustrate two different estimates for the size of tax expenditures.Sources: Tax Expenditures in OECD Countries (2010); T. Malinina (2010); Estimates of Tax Expenditures and Reliefs: International Experience and Russian Practice.

1.2. Frequency and Timeliness of Fiscal Reporting

1.2.1. Frequency of in-year reports (Advanced)

20. Cash-based in-year budget execution reports and in-year fiscal statistics are produced with a high degree of frequency and timeliness. Cash-based budget execution reports are produced on a monthly basis and published within 30 days of the end of each month. Quarterly reports are available 35 days after the end of the quarter. These budget execution reports are also translated into the monthly cash-based GFSM 2001 statistical format and published within two months.

1.2.2. Timeliness of annual financial statements (Advanced)

21. Annual accounts covering the Federal government budget and the consolidated budgets of the Russian Federation are published within five months of the end of the financial year. Under the Budget Code, Russia produces two sets of annual accounts covering all nationally-defined general government entities. First, a cash-based annual budget execution report shows government revenues, expenditure, and financing for the previous year. Second, an accrual-based financial statement provides an income statement, balance sheet, and cash flow statement for the previous year. Both reports are published within five months of the end of the year.

1.3. Quality of Fiscal Reports

1.3.1. Classification (Good)

22. Fiscal reports include an administrative, economic and functional classification. The administrative classification reflects the existing structure of the budgetary units. The uniform chart of accounts employed by all nationally-defined general government entities allows for the compilation of consolidated fiscal reports for the nationally-defined general government sector which generally follow GFSM 2001 economic and functional classifications. As discussed in Section 2.4.2, a program classification is currently being prepared for the 2014 budget which will also be incorporated into ex post fiscal reports.

23. However, there are several differences between the national and GFSM 2001 classification rules. In particular, according to national budgetary rules, “above the line” transactions include outflows due to the acquisitions of shares and other equities. Such operations are treated as financial (“below the line”) transactions in GFSM 2001, on the assumption that the government has acquired a financial asset which will generate a sufficient, market rate of return. Another example is the treatment of holding gains from sales of nonfinancial assets which are treated as revenue in the budget execution reports, but in GFSM 2001 are defined as other economic flows not impacting the operating balance. Finally, external debt is defined by the Budget Code as debt in foreign currency, while according to international standards it should refer to the holdings of debt by non-residents.

1.3.2. Data consistency (Basic)

24. Annual government finance statistics and accounts provide a reconciliation of above and below-the-line transactions. However, this is only one of the three internal consistency checks called for under the July 2013 draft of the Fiscal Transparency Code. The government does not publish consistency checks that explain either the stock-flow adjustments in government finance statistics or the differences in government debt issuance figures compiled by the Treasury and government debt holdings compiled by the Central Bank. In addition, as discussed in Section 1.1.4, there are significant unexplained differences between the net lending/borrowing compiled by the Treasury and Rosstat.

25. Stock-flow adjustments (SFAs) are significant and have been especially large in recent years. A shown in Figure 1.6 and Table 1.6, these differences in the change in debt and net lending/borrowing have averaged 1.9 percent of GDP over 2009–12 compared with 1.1. percent of GDP in EU countries. SFAs were particularly large in 2011 and 2012 (5.2 and 4.3 percent of GDP respectively) indicating that the government issued debt, despite of the positive performance (surpluses). The borrowed funds were deemed to be used for acquisitions of financial assets—shares and equities. Changes of the value of foreign currency-denominated debt which are not captured in financial statements may also account for some of this unexplained discrepancy between stock and flow figures. The absence of information explaining the SFA elements may give rise to doubts concerning the correctness of the treatment of some flows and stocks and ultimately on the reliability of the main fiscal aggregates.

Figure 1.6.
Figure 1.6.

Russia: Stock Flow Adjustments

(percent of GDP)

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Source: IMF Government Finance Statistics Yearbooks
Table 1.6.

Russia: Sources of Stock-Flow Adjustments

(percent of GDP)

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Source: GFSM 2001Note: Net lending/borrowing is here reported using reverse sign convention, e.g., surpluses are recorded as negative figures contributing to the reduction of debt.

1.3.3. Historical Consistency (Basic)

26. While revisions to historical fiscal data have typically been small, a major revision of fiscal data for 2009 led to a 9.5 percent of GDP increase in net borrowing. This revision related to the exceptional flow which was not recorded in financial statements in line with the GSFM 2001 methodology. Before 2009, according to the national accounting rules, holdings of government shares and equities had not been reported among government assets. A decision to include them into the balance sheet led to the inclusion of large one-off receipt to government in 2009 financial statements. Treatment of this inflow was reconsidered by statisticians in 2011 and reclassified as another economic flow that did not count as revenue and therefore required a large upward revision to reported borrowing in 2009.

27. Historical statistics are not reviewed on regular basis to take into account new information on public finances. Apart from the exceptional revision for 2009, there have not been any revisions to historical fiscal data. Because Russian GFS reports are based on final data sources, the authorities state that revisions due to new information are not needed. This does not follow the practice in most advanced countries where historical data are routinely updated to reflect new information on government finances—in particular on specific government transactions (e.g., capital injections, super-dividends, debt assumptions, or debt cancellation), changes in the sector delimitation, identification of non-compliant treatments of flows and stocks in the nationally based reports, or accounting errors uncovered by the auditor. These updates are incorporated into historical statistical reports and explained to ensure a consistent and accurate time-series.

1.4. Integrity of Fiscal Reports

1.4.1. Statistical integrity (Good)

28. Comprehensive GFSM 2001-based fiscal statistics are produced and disseminated by the Federal Treasury. The Treasury is a semi-autonomous institution under the Ministry of Finance, and an executive order establishes that fiscal statistics are to be based on accounting data and compiled in accordance with international standards. While Rosstat functions under the Ministry of Economic Development, it was granted professional independence by the 2008 Statistical Law. However, Rosstat compiles only annual government nonfinancial national accounts according to SNA methodology and with a delay of almost two years.

1.4.2. External audit (Good)

29. The annual budget execution reports and financial statements are audited independently by the Chamber of Accounts in line with the Constitution. Under Article 7 of the Federal Law on the Audit Chamber, the chair of the Chamber of Accounts is proposed by President and appointed by the Parliament for the period of six years. He or she can only be removed from office for gross misconduct and following a resolution passed by both Houses of Parliament. The conclusions of the audit report are presented to Parliament alongside the final versions of the statements themselves by the start of September. However, the report does not provide an opinion as to whether the financial statements present a true and fair view of the government’s financial position.

1.4.3. Statistical dissemination (Good)

30. Fiscal statistics meet the IMF’s Special Data Dissemination Standard (SDDS). The Federal Treasury produces and publishes monthly cash-based and annual accrual-based government finance statistics in accordance with the SDDS requirements, using a flexibility option on the timeliness of the monthly data. The authorities are currently working on preparing quarterly data on general government operations on accrual basis. To meet SDDS plus standards, Russia would need to publish quarterly data on general government within 12 months and quarterly debt within four months after the end of the reference quarter.

1.4.4. Reliability of financial statements (Good)

31. Annual accounts meet national accounting standards and their reliability is validated by the Account Chamber. Russia has applied a national accrual-based accounting standard for all government entities since 2006. The audit report of the Accounts Chamber typically includes a number of recommendations for improving the construction and presentation of the accounts based on this standard. There is an ongoing project to introduce IPSAS, even though not all IPSAS standards have been issued. The new accounting standard for government would bring the classification of revenue and expenditure in line with the generally accepted international accounting standard and improve the valuation and recognition of assets including subsoil assets and land. However, it is not envisaged that the new standard will require the recognition of accrued pension liabilities in balance sheets.

1.5. Conclusions

32. Fiscal reports meet either good or advanced practices in most areas, but there is scope for improvement in several areas. Table 1.7 summarizes the quality of Russia’s fiscal reporting relative to the standards set by the July 2013 draft of the Fiscal Transparency Code as well as the relative importance of each area. This assessment highlights a number of areas where reporting can be improved. These include:

  • accounts and fiscal statistics limit their coverage to general government units and do not reflect the significant financial activity of publicly-controlled corporations;

  • summary balance sheet data does not include the government’s significant subsoil assets, pension liabilities, and PPP obligations;

  • fiscal reports do not include provisions for non-recoverable taxes and loans and assets are recognized at historical cost rather than market value; and

  • there is no regular estimation or active management of the revenue loss from tax expenditures.

Table 1.7.

Russia: Summary Assessment of Fiscal Reporting*

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See Glossary and Legend on page 4 for color coding

All figures refer to 2012 unless otherwise indicated

Chapter IV includes a series of recommendations for how fiscal reporting can be enhanced in these areas by consolidating available fiscal information into a new set of more comprehensive summary fiscal reports.

II. Fiscal Forecasting and Budgeting

2.0. Introduction

33. This chapter assesses the quality of current fiscal forecasting and budgeting practices relative to standards set by the July 2013 draft of the IMF’s Fiscal Transparency Code. It focuses on four main areas:

  1. the comprehensiveness of the budget and associated documentation;

  2. the timeliness of the budget and its passage;

  3. the policy orientation of budget documentation; and

  4. the credibility of the fiscal forecasts and budget proposals.

34. The budget process in Russia is comprehensively regulated by the Budget Code of the Russian Federation, which sets the rules and procedures for the preparation, approval, and execution of federal, regional, and municipal budgets. This comprehensive legal framework ensures consistent classification and treatment of expenditure and revenue, and enables strong central control over government finances. Budgets at all levels of government are generally comprehensive, excluding only some extra-budgetary social funds which collect social contributions but also receive transfers from the budget. The budgets of the Federal government, sub-national governments and extra-budgetary funds are consolidated and presented to Parliament in October of each year.

35. A defining feature of budgeting and fiscal forecasting in Russia is their medium-term orientation. Medium-term economic forecast prepared by the Ministry of Economic Development are comprehensive, updated regularly, and (while not a legal requirement) discussed with independent forecasting bodies. Budgets at all levels of government cover the upcoming year and a two-year forward planning period. Revenue, expenditure, financing, and debt are presented for all three years at the same level of detail. A parliamentary decision on the outer years of the planning period is taken each year. The recently introduced fiscal rule—linking aggregate federal expenditure to revenue calculated using a historically based oil-price—provides a bridge between aggregate fiscal planning and budget preparation. In recent years, longer-term forecasts—covering the period up until 2030—have been prepared, and a more thorough fiscal sustainability analysis is being developed. A summary of the main macro-fiscal forecasting and budget documents is presented in Table 2.1.

Table 2.1.

Russia: Macroeconomic and Fiscal Forecasting and Budget Documents

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2.1 Comprehensiveness of Budget Documentation

2.1.1. Budget unity (Good)

36. The Federal Budget covers all federally-funded ministries, agencies and other entities defined as budgetary in national legislation. The annual budget law includes the revenue and expenditures of all 91 main spending units (ministries and agencies) of the Federal government which receive their funding from the Federal Treasury. The budgets for the three federal extra budgetary funds – Pension Fund, Social Insurance Fund, and the Federal Mandatory Health Insurance Fund – are submitted together with the budget (Budget Code Article 192, Paragraph 5), and approved by the legislature. The budget documentation also includes a consolidated forecast of general government revenue and expenditure (Budget Code Article 192, Paragraph 44).

37. However, several public entities which carry out government functions are not presented as part of the budget documentation. Of the six state corporations (Deposit Insurance Agency, Vneshekonombank, Fund for Assisting in Housing and Utility Reform, Russian Roads, Olympstroi, and Rosatom), only the first three are classified as part of central government statistics and none are included in the annual budget. While these state corporations are legally defined as non-profit companies, their activities involve the implementation of government policies, for example managing road infrastructure PPPs (Russian Roads), overseeing the construction of public infrastructure (Olympstroi), managing the depositors guarantee scheme (Deposit Insurance Agency), supporting the diversification of the economy (Vneshekonombank), or setting nuclear energy regulations (Rosatom). There are also announced plans for extra-budgetary investment or lending by two sovereign wealth funds, the National Wealth Fund and the Investment Fund of the Russian Federation. Should these tax-funded institutions undertake such activity, they should be classified as government entities and presented in the annual budget alongside other, budget-financed, public investments.

2.1.2. Gross budgeting (Basic)

38. Most central government revenue and expenditure is authorized via the annual budget. The annual budget law covers the vast majority of tax, non-tax, and non-refundable revenue (Budget Code Article 41) collected by the federal government. However, revenue from the delivery of certain non-statutory and demand-driven goods and services—primarily in the areas of health and education—is not included in budget revenue. Instead, this revenue is allowed to off-set expenditure, with only the resulting net expenditure being drawn against appropriations in the budget. Such own-financed expenditure accounts for 4.3 percent of total central government expenditure in 2012, which is in line with other countries (Figure 2.1). Net budgeting at the sub-national level is at around the same share of total sub-national expenditure (3.7 percent in 2012). The retained revenues of predominantly fee-financed Federal and sub-national agencies are not reflected in budget documentation, though actual fees collected and gross expenditure (both appropriation and fee-financed) are disclosed in the annual accounts.

Figure 2.1.
Figure 2.1.

Retained Revenue

(Percent of Total Expenditure)

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Note: Revenue from fees and charges paid by non-government entities (i.e. does not include payments between government entities), which is retained by the collecting agency. Reflects the fiscal year 2012, except Australia: 2011, Japan: 2009 and UK: 2011.Sources: Authorities’ Data, Staff Estimates

39. The specificity and transparency of the budget has been reduced in recent years due to a growing share of expenditure being classified as secret for national security reasons. This expenditure is shown only at an aggregate level and the detail provided for other parts of the budget is withheld. The share of the budget classified as secret has risen over the past five years and stood at close to 14 percent of total expenditure in 2013. It is forecast to increase to close to 25 percent in 2016 as more agencies and activities (such as border protection) are classified as national security and spending on armaments increases (Figure 2.2). Russia already has a relatively high proportion of budget expenditure classified as secret relative to other G-20 countries, many of whom classify less than 1 percent of total budget expenditure as secret (Table 2.2).

Figure 2.2.
Figure 2.2.

Russia: Hidden (Unspecified) Expenditure in the Federal Budget

(Percent of Total Expenditure)

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Sources: Federal Budgets for 2006 - 2014-16
Table 2.2.

Share of the National Budget Classified as Secret

(Percent of Total Expenditure in 2012)

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Source: Open Budget InitiativeNote: Includes only secret items in the government’s budget. The actual extent of undisclosed revenue and spending could be higher to the extent there is extra budgetary spending.

2.1.3. Macroeconomic forecasts (Advanced)

40. The government produces regular, detailed, and credible medium-term macroeconomic forecasts as part of the preparation and presentation of the annual budget (Budget Code Article 192.4). The Ministry of Economic Development issues two or three medium-term macroeconomic forecasts per year. The April forecast presents three to five macroeconomic scenarios as options for internal budget preparation purposes, but the published document contains only a few key parameters. The forecast is updated in September for use in the draft Budget presented to Parliament and again in December for use in the final budget approved by Parliament. Both of these updates are published, including a comprehensive and detailed discussion on the underlying assumptions for inflation, growth and exchange rates. As shown in Figure 2.3, Russia has a strong macroeconomic forecasting record despite the relative volatility in output growth (see Figure 3.1). Except for the crisis year of 2009, forecasts for GDP-growth three-years ahead are unbiased and relatively accurate compared with other G-20 countries that publish multi-year forecasts.

Figure 2.3.
Figure 2.3.

Average Medium-Term Real GDP Forecasting Error 2000-12

(Percent of GDP)

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Note: Excludes 2009 for all countries, except Japan, which excludes both 2008 and 2009. For Brazil the data cover 2001-12. For Turkey 2006-12. For Russia: 2005-12.Sources: Authorities’ data, staff estimates

2.1.4. Medium-term budget framework (Advanced)

41. Russia has had a comprehensive and detailed medium-term budget framework mandated by the Budget Code since 2008. Budgets at the Federal, sub-national, and municipal level cover the upcoming year and two-year forward planning years. Information on forward plans is provided at the same level of detail for all years in the planning framework. Expenditure is classified by organizational unit, function, economic category, and, where specified, program. Revenue is classified by collecting entity and revenue type. Figures for the preceding two years and the current year are presented at aggregate levels.

42. Large revisions to outer years’ expenditure estimates in the medium-term budget plan call into question the plan’s ability to discipline expenditure. Since 2008, actual expenditure has, on average, been 9 percent higher than the initial estimate for the second year and more than 12 percent higher than the initial estimate for the third year. This level of forecast error exceeds that of other countries with medium-term budgeting frameworks (Figure 2.4). The introduction of a legally-mandated multi-year expenditure limit in 2013, as part of the new oil price-based fiscal rule, may help to strengthen multi-year expenditure discipline.

Figure 2.4.
Figure 2.4.

Average Difference Medium-Term Estimates and Actual Expenditure

(Percent of Total Expenditure)

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Note: Covers the years 2000-12 except Austria: 2009-12; Japan 2002-2010; UK 2000-2011; Russia 2008-12; Brazil 2001-2011; and Turkey: 2006-12.Sources: National Budget Documents, Staff Estimates

2.2 Timeliness of Budget Submission and Approval

2.2.1. Fiscal strategy report (Good)

43. The government publishes four documents which outline its fiscal strategy ahead of the preparation of the upcoming budget. The President’s Budget Address (required by Article 170 of the Budget Code), normally issued in June, outlines the key issues and the main directions of budget policy for the upcoming year and the medium-term planning period, albeit in qualitative terms. In July, the government issues a preliminary version of the Main Directions for Budget Policy and the Main Directions for Tax Policy which contain fiscal projections for the general government, federal budget, extra budgetary funds, and sub-national budgets, together with an allocation of the federal budget to some 40 government programs for the upcoming year and the medium term. In the Mid-Year Performance Report—normally issued in July—the government reviews economic developments and fiscal performance mid-year, and prospects for the remainder of the year. Taken together, the information presented in these documents compares favorably with that provided by other countries’ pre-budget statements (Table 2.3), though accessibility would be improved if they were combined into a single document.

Table 2.3.

Timing and Contents of Pre-Budget Statements in Selected Countries

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For t+1 only.

Source: National documents

2.2.2. Budget submission (Advanced)

44. The annual budget is submitted to the legislature in a timely manner. According to the Budget Code (Article 192, Paragraph 1), the government should send the draft budget, including all the accompanying documentation, to the legislature (Duma) no later than October 1, i.e., three months before the start of the budget year. As shown in Table 2.4, the timelines of Russia’s budget submission compares favorably with other G-20 countries.

Table 2.4.

Timing of Submission of the Budget Proposal to the Legislature, 2013

(number of months before the start of the budget year)

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Canada submits a preliminary draft of its budget two months before the start of the budget year, and a detailed draft budget after the start of the budget year.

Source: National Budget Documents.

2.2.3. Budget approval (Advanced)

45. The budget is also approved well in advance of the start of the financial year to which it refers. According to Article 196 of the Budget Code, the Duma should adopt the budget in three readings within 60 days of its submission, i.e., by late November. Following adoption by the Duma, the budget is sent to the upper house—Council of Federation—within five days. The Council of Federation should adopt it within 14 days (Article 208, Paragraph1), and send it to the President for signature within five days (Article 208, Paragraph 2). In the event that the budget is not adopted by the start of the financial year, monthly expenditure not exceeding 1/12 of the previous year’s budget can be executed (Article 190). For the past four years, the budget has been adopted and published in the final days of November or the first days of December, i.e. one month before the start of the financial year.

2.3 Legal Framework for Budgeting

2.3.1. Organic budget legislation (Advanced)

46. A comprehensive legal framework covers all aspects of public financial management at all levels of government. The Budget Code of the Russian Federation N145-F3 from July 31, 1998 (with amendments up until July 23, 2013) governs fiscal policy making, budget preparation and execution and accounting and audit. Fiscal policy making, including the fiscal rules for the federal budget and sub-national governments, is regulated by Section IV. Budget preparation is regulated by Section VI, budget execution by Section VII, and accounting, reporting and external control by Section VIII. In addition to the Budget Code and Tax Code, there is separate legislation regulating government accounting and reporting and financial control, including a law on the Accounts Chambers (supreme audit institution).

2.3.2. Legal basis for revenue Collection (Good)

47. The legal framework for tax collection is comprehensive but could be more accessible. The Tax Code N146-F3 from July 2008 (with amendments up until October 2013) provides a comprehensive legal framework for taxation in the Russian Federation. However, there is no official tax-payer’s guide to the tax system, other than those provided by non-government organizations or companies. However, the Ministry of Finance produces Main Tax Policy Guidelines each spring summarizing the main tax policy and administration changes anticipated over the coming three years. According to Article 100 of the Tax Code, a decision by the Tax Authorities can be questioned within 15 days by the tax payer.

2.4 Policy Orientation

2.4.1. Fiscal policy objectives (Good)

48. A new oil price-based fiscal rule came into effect in 2013 which sets clear and measurable objectives for the fiscal performance of the Federal Government. According to this rule, expenditure of the Federal Budget should not exceed the sum of three components:

  • projected non-petroleum revenue; plus

  • petroleum revenue calculated using a reference oil price; plus

  • net financing equivalent to 1 percent of GDP.

Initially, the benchmark price for oil is set at the average oil price for the last five years. The backward-looking time horizon for calculating the benchmark price will increase by one year every year until a ten-year average is reached by 2018.

49. The new fiscal rule is designed to promote stable and sustainable fiscal policy by breaking the link between volatile oil revenues and expenditures. When the actual oil price is above the benchmark oil price for the current year, the additional revenue is deposited in an oil Reserve Fund. When the oil price is below the base price, the Reserve Fund can be used as a financing source for the federal budget. The government has an objective to build up the Reserve Fund’s assets to 7 percent of GDP. Once this size is achieved (currently projected by the authorities to occur in 2019), the law requires 50 percent of any above-projection revenue to be deposited in the National Wealth Fund—a savings fund intended to finance future pension costs. The remaining 50 percent can be used for investments in domestic infrastructure or other projects of national importance. The rule also includes a mechanism for dealing with a sudden drop in oil prices to ensure an accelerated adjustment of expenditure to adapt to the new situation. However, to prevent sudden and discontinuous cuts in expenditure, ministerial budgets cannot be reduced below the ceilings established in the previous three-year budget.

2.4.2. Performance information (Advanced)

50. Following a series of reforms aimed at improving the performance orientation of the budget, a comprehensive program budgeting framework is being introduced in the budget for 2014–16, reorienting the existing performance budget model. Accordingly, some 40 expenditure programs have been approved covering the majority of federal budget expenditure. Each program is assigned to a ministry as the lead agency, but other ministries can also contribute to the program. For example, the Ministry of Sport is the implementing agency for Program 13: “Developing Physical Culture and Sport” with the Ministries of Health, Communication, Education, Interior, and Regional Development also participating in the program. Each program has a number of sub-programs; in the case of Program 13 there are four: (i) “Developing Physical Culture and Sport for the Entire Population”; (ii) “Developing High-Results Sports”; (iii) “Organization of the FIFA Football World Championships in 2018 and the FIFA Confederations Cup in 2017”; and (iv) “Managing the Development of Areas of Physical Culture and Sports.”

51. Programs are linked to specific sets of largely outcome-based performance objectives. Each program has an Objective, which in the case of Program 13 is to: “Create conditions for all citizens to engage in physical culture and sports, increase the international competitiveness of Russian athletes, and successfully organize large international sporting events in the Russian Federation.” Under each program there are Tasks, Indicators, and outcome-based Expected Results for the medium term. Examples of indicators for Program 13 include: (i) the share of the population engaging in physical culture and sports on a regular basis; (ii) the share of Russian Olympic athletes who receive medals; and (iii) the share of sports facilities in used following the organization of the FIFA World Championships in 2018 and the FIFA Confederations Cup in 2017.

52. The ministry responsible for a program is required to submit a report on the achievements of the program objectives each year. This report is sent to the Ministry of Finance and to the Ministry of Economic Development, which consolidates the reports into a single report on the performance of the government. While program documents are submitted together with the budget proposal, performance reports are not formally approved by the Duma.

2.4.3. Citizens’ guide to the budget (Basic)

53. The government has committed to the publication of a Citizen’s Budget starting in 2013. At the federal level, in mid-October 2013 the government published around 230 slides containing information on the main fiscal policy directions, general government finances, key figures for the federal budget, and detailed information on the composition of budget expenditure. While this is a welcome development, its length and detail means it does not provide an accessible and concise summary of the budget for citizens. The government also recommends that regional and municipalities publish their own Citizen’s Budgets setting out: (i) general characteristics of revenue and expenditure; (ii) detail on the composition of revenue and expenditure; (iii) intergovernmental fiscal relations; and (iv) any other information of interest to local citizens.

2.4.4. Fiscal sustainability analysis (Not met)

54. A long-term fiscal strategy for the Russian Federation is under preparation but has not yet been published. The Ministry of Economic Development issues long-term projections for the economy, the latest one in December 2012. While this document includes a section on the development of main fiscal parameters, it is not based on a comprehensive assessment of the cost drivers of key programs. To fill this gap, the Ministry of Finance is currently developing a report on fiscal developments up to 2030. This document will have a more detailed assessment of expenditure pressures beyond the budget cycle, including analysis of the sensitivity of public finances to various macroeconomic assumptions, which should provide valuable input into the discussion of structural policies. However, a 15-year time frame is not long enough to capture the implications for Russia’s fiscal sustainability of demographic change and the likely long-run decline in oil and gas revenues. The risks that these long-run trends present for Russia’s fiscal sustainability are discussed further in Sections 3.2.3 and 3.3.4.

2.5 Credibility of Forecasts and Budgets

2.5.1. Independent Evaluation (Basic)

55. While there is some independent scrutiny of macroeconomic and fiscal projections, a more formalized role for independent experts would help improve credibility and contribute to the development of forecasting capacity. The Accounts Chambers is charged with assessing the government’s Budget Proposal, and issues its opinion, including an evaluation of the government’s macroeconomic assumptions, in early October each year as an input into the parliamentary scrutiny of the budget. This evaluation covers the oil price, GDP, inflation and exchange rate, including comparisons with forecasts of commercial banks and international finance institutes. In addition, the Ministry of Economic Development engages a number of think tanks and research institutes such as the Economic Expert Group and the Academy of Science during the preparation of macroeconomic forecasts.

2.5.2. Supplementary Budget (Good)

56. Changes in the legislated budget that increase the expenditure level or substantially alter its composition require amendments to the budget by parliament. According to Articles 212 and 213 of the Budget Code, changes in the budget require parliamentary and presidential approval following the same steps as the approval of the annual budget. According to Article 217, if there are insufficient appropriations to fulfill social benefit commitments, the government is allowed to increase the budget by 5 percent without presenting a supplementary budget. Article 217 also allows for redistribution between expenditure categories of up to 10 percent of expenditure during the execution of the budget, giving the government a wide mandate to deal with unforeseen events.

57. There have been relatively large supplementary budgets in the past, though recent budgets have been more binding. There are typically two or three supplementary budgets per year, which is in line with G-20 practice. However, the size of expenditure increases authorized by in-year budget amendments has been higher than in other G-20 countries (Figure 2.5). The ability to increase overall spending without parliamentary approval and to overspend against the approved budget have, at times, been used to substantially increase expenditure above the initially approved budget (Figure 2.6). However, since 2009, supplementary budgets have been considerably smaller and all in-year spending increases have been authorized by parliament.

Figure 2.5.
Figure 2.5.

Average Size of Supplementary Budgets 2000–12

(Percent of Approved Expenditure)

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Note: Excludes 2009. Korea: 2000–08; Japan: excludes 2008 and 2009, Turkey: 2004–10Sources: Authorities’ Data, Staff Estimates
Figure 2.6.
Figure 2.6.

Russia: Expenditure Increases Following Budget Approval 2000–12

(Percent of Approved Expenditure)

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Sources: Authorities’ Data

2.5.3. Forecast Reconciliation (Basic)

58. Budget documentation provides relatively limited information about the sources of often substantial revisions to successive vintages of expenditure estimates in the medium-term budget. The government updates its expenditure projections for the new budget and planning period each year based on new policy commitments, updated macroeconomic and demographic projections, and any changes in the budget structure that has occurred since the previous year. While revisions to expenditure in the outer years have moderated lately, Figure 2.4 shows that, on average, second year (t+2) expenditure has been revised up by 9 percent and third year (t+3) expenditure by 12 percent compared with the original budget. The Explanatory Note to the budget contains some qualitative discussion of the impact of new policies, but lacks a comprehensive reconciliation of the new medium-term expenditure estimates with those in the previous year’s budget, decomposing any changes into macroeconomic factors, volumes and case-loads, new discretionary policies and classification changes.

2.6. Conclusions

59. In summary, fiscal forecasts and budgets meet either good or advanced practices in most areas, but there are several areas where practices could be improved. Table 2.5 summarizes the quality of fiscal forecasting and budgeting relative to the standards set by the July 2013 draft of the Fiscal Transparency Code as well as the relative importance of each area. This assessment highlights a number of areas where fiscal forecasting and budgeting can be improved. These include:

  • the comprehensiveness and specificity of the annual budget is at risk from planned extra-budgetary expenditure and a growing proportion of expenditure classed as secret;

  • there is no unified fiscal strategy report setting the framework for budget preparation, no published independent evaluation of the credibility of the government’s macro-fiscal forecasts, and no detailed reconciliation of often substantial changes to medium-term expenditure plans; and

  • long-term fiscal projections under preparation only have a 16-year forecast horizon and do not explore the fiscal implications of alternative demographic or oil production scenarios.

Table 2.5

Russia: Summary Assessment of Fiscal Forecasting and Budgeting*

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See Glossary and Legend on page 4 for color coding

All figures refer to 2012 unless otherwise indicated

Chapter IV includes a series of recommendations for how fiscal forecasting and budgeting can be enhanced to provide a more comprehensive and credible picture of short, medium, and long-term fiscal prospects.

III. Fiscal Risk Analysis and Management

3.0. Introduction

60. This chapter assesses the adequacy of fiscal risk analysis and management practices relative to the July 2013 draft of the Fiscal Transparency Code in three areas:

  1. general arrangements for disclosure and analysis of macroeconomic and specific fiscal risks;

  2. risks emanating from specific sources such as government assets and liabilities, guarantees, other financial exposures, long-term contracts, and financial derivatives; and

  3. coordination of fiscal decision-making between central government, social security system, local governments, and public corporations.

61. While low general government debt and large oil and gas reserves provide room to accommodate fiscal shocks, the fiscal risks it faces are large and diverse. GDP growth and government revenues are relatively volatile, primarily due to the importance of the oil and gas sector, making medium-term fiscal forecasting and policy making challenging. Russia’s large state-owned enterprises are also a significant source of potential fiscal risk, especially those with large balance sheets operating in volatile sectors such as finance and energy. Russia’s public finances also face longer-term fiscal pressures from its aging population and the likely long-term decline in hydrocarbon revenues.

62. The degree of disclosure and active management of these risks varies. The government’s Budget Code and fiscal rules provide robust procedures for the management of the risks from volatile oil and gas revenues, government guarantees, and sub-national governments. However, there is no published strategy addressing specific risks arising from state-controlled enterprises or other contingent liabilities such as deposit insurance, or likely long-term expenditure risks such as rising pension and healthcare costs or the costs of nuclear decommissioning. More generally, as shown in Table 3.1, the reporting of fiscal risks is relatively limited and diffuse and there is no consolidated statement of the key risks facing Russia’s public finances and the government’s strategy for managing them.

Table 3.1.

Russia: Selected Reports Relating to Fiscal Risk

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3.1 Risk Disclosure and Analysis

3.1.1 Macroeconomic risks (Basic)

63. The volatility of oil and gas prices and exports are a significant source of fiscal risk. The energy sector accounts for around one-fifth of GDP, two-thirds of exports, and around one-third of general government revenues. Given the volatility of international energy prices, it is not surprising that Russia’s nominal GDP growth (Figure 3.1a) and government revenue growth (Figure 3.1b) have been among the most volatile in the G-20 over the past decade. Table 3.2 illustrates the sensitivity of the Russian fiscal balance to changes in oil prices and the Russian rouble to US dollar exchange rate. For example, a permanent US$10 per barrel lower oil price or a 10 percent appreciation of the rouble are estimated to increase the deficit by around 1 percent of GDP in 2015.8 The government recognizes these risks and has recently introduced a new fiscal framework designed to mitigate their potentially pro-cyclical effect on fiscal policy, discussed further in Chapter II.

Figure 3.1.
Figure 3.1.

Indicators of Macro-Fiscal Risk in the G-20, 2002-12

Citation: IMF Staff Country Reports 2014, 134; 10.5089/9781498348058.002.A001

Source: IMF, World Economic Outlook database, October 2013
Table 3.2.

Sensitivity of Revenue, Expenditure and Balance, Share of GDP

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Source: Staff calculations