In its yearly update on Fiscal Transparency in Russia, Oxford Analytica stated that Russia's overall score of "Enacted" remained unchanged from 2004. The Russian government has continued to build on its steady progress towards improving fiscal transparency standards. The provision of information on fiscal operations has improved dramatically in recent years. Fiscal projections remain extremely cautious and the country is increasingly prepared for the tasks of minimizing fiscal risks and ensuring long-term sustainability. Russian statistical data on fiscal operations is generally recognized to be of a high standard. However, in spite of the generally positive progress, developments during the past year have revealed the limited capacity of the Russian administrative apparatus to meet the ambitions of policy-makers in certain areas and a number of reforms have had to be delayed. In particular, due to a lack of preparedness at the sub-national level, the overhaul of the federal fiscal relations has had to be delayed from 2006 to 2009. In the context of the 2006 Article IV consultations, the International Monetary Fund expressed concern about the pace and composition of fiscal relaxation. Since 2003, the policy of taxing and saving oil revenues had been key to preventing serious overheating in the face of unprecedented terms-of-trade gains, and staff expressed concern that the rapid increase in the non-oil deficit during the last 1.5 years suggested that support for this important policy was flagging.

General Overview

According to the 2005 Fiscal Transparency report by Oxford Analytica (OA), the Russian government has continued to build on its steady progress towards improving fiscal transparency standards. The provision of information on fiscal operations has improved dramatically in recent years. The Ministry of Finance (MoF) runs a very comprehensive website, as do the Federal Treasury and the federal services responsible for taxation, customs, and other areas. The state budget bill and law have become extensive documents whose numerous appendices are now almost invariably published even before the parliamentary proceedings begin. In addition to its budget, the MoF now also publishes an indicative three-year fiscal plan, which builds on the previous three-year social strategy prepared by the Ministry of Economic Development and Trade (MEDT). (OA 2005, p. 390)

.Russian statistical data on fiscal operations is generally recognized to be of a high standard. The Federal Treasury publishes comprehensive, timely, and fairly accurate data on the operations of the entire general government and the level of detail has improved significantly in recent years. Russia's subscription to the Special Data Dissemination Standard (SDDS) of the International Monetary Fund on January 31, 2005 constituted an important recognition of the considerable progress made in converging with international best practice. The Russia metadata is recognized as being of high quality even internationally. (OA 2005, p. 390)

In spite of the generally positive progress, developments during the past year have revealed the limited capacity of the Russian administrative apparatus to meet the ambitions of policy-makers in certain areas and a number of reforms have had to be delayed. In particular, due to a lack of preparedness at the sub-national level, the overhaul of the federal fiscal relations has had to be delayed from 2006 to 2009. Similarly, attempts to introduce performance budgeting in 2005 proved largely fruitless, although the authorities remain committed to the overall goal and appear determined to learn from their mistakes. In general, progress in many areas is hampered by the limited headway made in reforming public sector administration. Indications of increasing corruption reflect the difficulties of serious reform, while the country's good economic performance appears to have reduced the sense of urgency for resolute action. (OA 2005, p. 390)

Fiscal projections remain extremely cautious and the country is increasingly prepared for the tasks of minimizing fiscal risks and ensuring long-term sustainability. A key element of the government's strategy is a Stabilization Fund that is replenished from oil revenues. However, political pressure for increasing spending from the oil and gas windfall is growing. As a result, the cut-off oil price for transfers to the Stabilization Fund has revised upwards, although the differential will be diverted to a new Investment Fund. The purpose of the Investment Fund will be to finance important infrastructure projects. (OA 2005, p. 390)

The International Monetary Fund (IMF) notes in a 2004 Report on the Observance of Standards and Codes (ROSC) for Fiscal Transparency in Russia that principles on fiscal management are elaborated in detail in the Budget Code, which is generally consistent, although some internal ambiguities and elements could deter progress towards greater transparency. The Code explicitly embraces the principle of openness, mandating the publication of approved budget and budget execution reports and of making information available to the legislative bodies at all levels of governments. Reports on implementation have to be submitted to the Federal Assembly. (IMF 2004, p. 13)

Russia has attained high standards with respect to several of the main indicators of fiscal management and transparency. The legal framework specifying the government's role and powers as well as the processes that pertain to the budget and taxation are very detailed and comprehensive in many spheres. In the financial sector, the Central Bank of Russian Federation (CBR) has achieved a significant degree of independence. The increasing availability of information on the budget (at all stages) to the Duma (parliament) and the public (both in the official newspapers and on the Ministry of Finance website) is impressive. Many aspects of the process by which the budget is prepared, deliberated, executed and monitored are quite impressive. The treasury system has strengthened the quality of budget implementation and enhanced the amount of the data available for budget monitoring. (IMF 2004, p. 27)

In the context of the discussion of the 2004 Fiscal ROSC, the Russian authorities recognized that a number of important reforms remain to be undertaken - in narrowing the remaining opaqueness in the boundaries between the general government, the public enterprise sector, and the private sector; in addressing remaining weaknesses in intergovernmental relations; in assuring the stability of fiscal policies, independent of the movement of oil prices; in liberalizing the energy market and further reducing quasi-fiscal activities (QFAs); in further strengthening the budget formulation and execution process; and in enhancing debt management. Yet there is clear evidence that, in most of these areas, the authorities have a clear sense of direction for needed reform, are deeply engaged in an open and transparent process of strategizing and conceptualizing an appropriate medium-term plan of action, and in many cases, are already engaged in implementing these plans. (IMF 2004, p. 27)

Russia is still largely a resource-based economy where about one-third of the budget revenues are related to activities in the oil and gas sector. This high degree of dependence makes the budget particularly vulnerable to changes in oil prices, which have shown large fluctuations in recent years. Recognizing the budget's vulnerability to oil price fluctuations a Stabilization Fund was established in 2004, building on the previously accumulated financial reserve. The IMF urged Russia to also establish a separate, non-oil balance in the budget and to fully and regularly disclose the size of the oil fund as well as submit it to a yearly audit. (IMF 2004, p. 30)

One of the key policy recommendation of past Article IV consultations has been to tax and save the oil revenue windfalls as long as cyclical pressures persist. In the 2006 Article IV consultations, the IMF noted that fiscal policy had been broadly in line with the staff's suggestions until 2005-06 when the non-oil primary balance of the general government widened by a cumulative 3 percent of GDP. Staff have also urged that VAT reform be delayed or, at least, be revenue-neutral to avoid exacerbating inflationary pressures. The authorities have decided to postpone this reform until 2009. Much of the far reaching structural changes with regard to the tax system and expenditure control are in line with the considerable IMF Technical Assistance (TA) advise given to Russia in these areas. (IMF 2006, p. 16)

The IMF estimates that fiscal relaxation will continue in 2007. The preliminary 2007 budget, indicates that noninterest expenditures of the general government will rise by 11/2 percent of GDP in 20072, while the non-oil primary deficit will widen by about 1/2 percent of GDP. This will bring the deterioration in the non-oil deficit of the general government since the current fiscal easing began in early 2005 to 33/4 percent of GDP (compared to 2004). Officials explained that the relaxation is likely to be larger as the 2006 budget is expected to be amended, although the size of the increase and the extent to which it will carry over to even higher expenditures next year is unclear. Excluding such an amendment, IMF staff estimates that the combined impact of additional terms of trade gains and changes in the fiscal stance will amount to a stimulus of 11/4 percent of GDP in 2007. (IMF 2006, p. 18)

The planned fiscal relaxation reflects a trade off between short- and medium-term considerations. Officials of the Ministry of Economy considered it to be measured in view of the scope for relaxation over the medium term and of spending needs. They did not believe that cyclical pressures were set to increase and found the relaxation to be, if anything, too cautious. Officials of the Ministry of Finance, however, were concerned about such pressures, noting that the relaxation during the last 11/2 years had been associated with a notable acceleration in the pace of real ruble appreciation. They believed that the further relaxation would keep the ruble appreciating at a faster-than-desirable pace in real terms. (IMF 2006, p. 18)

IMF staff expressed concern about the pace and composition of fiscal relaxation. Since 2003, the policy of taxing and saving oil revenues had been key to preventing serious overheating in the face of unprecedented terms-of-trade gains, and staff expressed concern that the rapid increase in the non-oil deficit during the last 11/2 years suggested that support for this important policy was flagging. As to 2006-07, with GDP growth already close to potential and additional large terms-of-trade gains in the offing, further fiscal relaxation would unhelpfully exacerbate cyclical pressures. Staff suggested that any significant increase in the non-oil fiscal deficit should be postponed until demand pressures ease. (IMF 2006, p. 19)

The authorities are considering important changes to the tax system, the budgetary framework, and the administration of the Stabilization Fund: (1) Oil sector taxes will be changed. While the authorities considered the tax burden on the oil sector to be in line with the practice in other major oil producing countries, they felt that Russia's heavy reliance on taxation based on physical quantities rather than on profits may discourage investments. (2) VAT reforms are on hold. Despite strong pressures for a cut in the general rate, VAT reforms have been postponed, partly because of concerns about political support in the run-up to the elections for offsetting a cut in the general rate with an elimination of the preferential rate and of exemptions. IMF staff welcomed the postponement of the reduction in the rate, reiterating that the VAT is among the least distortionary taxes in Russia. (3) The authorities are considering changes that could buttress the fiscal policy framework. The Ministry of Finance has gained some support for suggestions to more explicitly take into account the implications for the non-oil deficit when determining the headline budget limit. Moreover, starting in 2007, the federal budget is being framed in the context of rolling three-year budgets with a detailed expenditure breakdown. The IMF staff agreed that these initiatives could help focus budgetary discussions on productive use of the oil wealth in a medium-term context, especially if linked to implementation of the structural reform program. Nevertheless, they cautioned that the rolling three-year budget framework, while in principle providing a stronger anchor for the main parameters of the annual budgets, would not be effective if these budgets are regularly revised, as it has been the case in recent years. The authorities also explained the new investment strategy for the Stabilization Fund, according to which its balance at the CBR is to be converted from rubles into foreign currency, with a remuneration determined by the yield on a basket of first-rate foreign sovereign bonds. (IMF 2006, pp. 19, 20)

The Principles

Clarity of roles and responsibilities.

EN

Oxford Analytica (OA), in its 2005 Report on Fiscal Transparency in Russia, rates Russia's compliance with this principle as "Enacted." The International Monetary Fund's (IMF) Report on the Observance of Standards and Codes (ROSC) for Fiscal Transparency in Russia states that the definition of general government has yet to fully conform with accepted international standards. Russian legislation gives no explicit definition of the general government sector (as defined in the Government Finance Statistics Manual 2001). The closest concept defined in legislation is "state bodies."(OA 2005, p. 391; IMF 2004, p. 4)

The roles of the different branches of the state are clearly defined in the constitution. State authority is exercised by the President, the Federal Assembly, the government of the Russian Federation, and the courts of the Russian Federation. The chairman of the government (who has powers equivalent to a prime minister) is appointed by the President with the consent of the State Duma. The Federal Assembly (the State Parliament) has two chambers, the Duma (lower chamber) and the Federation Council (upper chamber). The judicial branch consists of three court systems; an arbitrate court system, a general jurisdictional (federal) court system, and the constitutional court. The Duma may approve or reject the government's budget proposals as submitted in the draft annual budget law, but it cannot change the aggregate levels of revenues and expenditures submitted without the government's concurrence. The government can be sued in courts by legal entities; cases on economic matters are heard in the arbitrate court system. (IMF 2004, p. 13)

The Budget Code sets out budget preparation, execution, and reporting functions. The majority of these responsibilities lie with the Ministry of Finance (MoF). Within the ministry, budget preparation and budget execution roles are separated, with the Federal Treasury, which now operates as a separate federal service under auspices of the MoF, responsible for the latter. (OA 2005, p. 391)

The federal budget of the Russian Federation presents the fiscal activities of the federal government excluding federal extra-budgetary funds. Separate budgets of federal extra-budgetary funds are made publicly available but provide information which is not fully classified. The budget does not cover entrepreneurial activities of budget entities. The budget provides aggregated expenditure allocations for national defense, law enforcement, and national security. The details of some of these expenditures are contained in secret supplements to the budget. This information is accessible outside the government only to the chairmen of the upper and lower chambers and to the concerned special committees of the Duma. The budget specifies all federal transfers to lower levels of government and separates clearly earmarked budget funds. The budget document provides indicative data on the consolidated budget (estimates and outcomes) of most general government (except the territorial medical funds). (IMF 2004, pp. 15-16)

The IMF states that intergovernmental fiscal relations are defined in the law but lack stable rules for expenditure and revenue assignments. The Russian constitution recognizes three separate tiers of government: the federal government, the 89 regions consisting of the Oblasts and Republics, and over 11,000 self-governing localities. A gradual process of mergers of the regions has begun with the objective of combining smaller regions. (IMF 2004, pp. 9; OA 2005, p. 391)

However, the customary use of the concept of state bodies in legislation and administration does not yet constitute a formal definition of the general government. The definition of state bodies also excludes the approximately 12,000 local governments. No single document is published that shows an institutional table detailing the structure of government and the rest of the public sector; the authorities have indicated that this information can be obtained from Presidential Decrees and the various legislative acts. (OA 2005, p. 391; IMF 2004, p. 4)

A clear delineation of tasks between the different levels of government has not been achieved yet. Non-funded federal mandates for the regions have diminished in number, although the problem has not been completely eliminated. In particular, the monetization of social benefits in 2005 was a major step forward. Starting in 2004, sub-national governments have enjoyed a great deal more autonomy in implementing their expenditure responsibilities. Under Article 134 of the Budget Code, subjects of the Federation receiving federal transfers are required to keep their accounts at the Federal Treasury. Further structural reform is likely to be required before a fully functioning system of fiscal federalism can be established. (OA 2005, p. 392)

Oxford Analytica points out that confusion is caused by entrepreneurial activities conducted by budgetary entities, the scale of which currently amounts to approximately 2.5% of GDP. The Russian Treasury has identified over 31,000 own-resource accounts connected with budgetary organizations, mostly in education, health, railways, agriculture, defense, and natural resources. Up to 70 of them, mainly in defense, remain outside of the confines of the Treasury system. None of the liabilities of any of these accounts are reported or monitored. In addition, as of June 1, 2004, Russia had 9,222 federal state-owned unitary enterprises whose numbers are still growing. Some of them provide quasi-fiscal services and therefore ought to be incorporated in the general government. Their accounting and reporting practices are not publicly available. However, their economic significance and revenue-generating potential are relatively marginal. Similarly, extra-budgetary activities funded by commercial operations of sub-national budgetary organizations are typically not recorded in the budgets of sub-national governments. (OA 2005, p. 391)

Even though the Russian economy has been profoundly transformed as a result of an ambitious privatization program over the past decade, a great deal of property remains at least partially in government hands. However, the trend towards steady divestment has been partially reversed since 2004. The government recognizes the critical, and growing, importance of the energy sector for the conduct of Russia's foreign policy and is thus eager to ensure adequate influence over the sector. The exploitation of a number of key sub-soil assets will be open exclusively to majority Russian-owned companies. In addition, the government is committed to maintaining a strong presence in the financial sector and there are no plans to privatise the leading state-controlled banks Sberbank, Vneshtorgbank, and Vneshekonombank. In other areas, however, the government is continuing with its privatization program, which is approved simultaneously with the annual budget. The government's privatization program for 2006-08 is marked by a continued commitment to reducing the number of state-owned enterprises (SOEs) not necessary for the effective fulfillment of government function as well as to cutting the numbers of unitary SOEs. Comprehensive legislation exists to properly regulate the process of privatization. (OA 2005, p. 394)

The government's "Program for the Development of Fiscal Federalism in Russia for the Period Until 2005," approved in 2001, marked the beginning of an ambitious reform of the division of responsibilities between different levels of government. In pursuance of its objectives, the Federal Law "On Basic Principles of Organization and Legislative (Representative) and Executive Public Authorities of the Subject Entities of the Russian Federation" was amended and a new law "On Local Self-Administration" was passed in 2003. Recent tendencies towards greater centralization, most notably the direct appointment of regional governors, have raised some questions about the final results of these reforms and further modification of the program cannot be ruled out. Moreover, capacity limitations and a widespread lack of preparation on the sub-national level have led to a delay in the full implementation of this program from 2006 to 2009. (OA 2005, p. 391)

The Russian system of intergovernmental relations has been hampered by a discrepancy between a high degree of decentralization of resources and an exceptionally high degree of centralization of fiscal authority, argues Oxford Analytica. A permanent working group on the reform of inter-budgetary relations in the country has operated at the MoF since 1999 and considerable progress has been made towards establishing a system of fiscal federalism. The main problem is that inter-budgetary loans continue to be extended and rolled over in violation of the Budget Code. In spite of attempts to impose discipline and reform the system, soft loans have tended to reappear in different guises; for example, the Fund for Improving Budget Balance. While transfers to the regions are recorded in the budget, there is no regional breakdown of direct federal spending. It is thus difficult to determine the overall scale of general government spending in any one region. (OA 2005, p. 392)

An expenditure optimizing commission was established in 2003 (headed by the Minister of Finance) to increase the efficiency of budget expenditures, including through a reduction in the number of budgetary organizations. Its findings were applied in the preparation of the 2004 budget. (IMF 2004, p. 5)

The Central Bank of the Russian Federation (CBR) is defined by law as an independent institution and cannot provide any financial assistance to the government, unless called to do so by the federal budget law. Nor can it purchase government securities on the primary market. Three of the 12 members of the National Banking Council come from the federal government. In addition, the minister of finance and the minister of economic development and trade can attend meetings of the CBR's decision-making board as non-voting members. While the CBR provides banking services to the government, it does not charge any fees for them. In return, it does not pay interest on any government deposits. (OA 2005, p. 393)

Even though corporate governance standards are improving, elements of government involvement in the private sector remain opaque. Examples include irregularities with the sale of government assets and support to companies through tax-offset mechanisms. Although direct subsidies to companies have become relatively rare, regulated energy prices constitute a major indirect subsidy. (OA 2005, p. 394)

Regulation of private enterprises is fairly complex and the need for strengthening and simplification is acknowledged. The basic laws governing business activities are set out in the Civil Code, the special federal law for joint-stock companies, and the special federal law for private limited companies. Government resolutions, guided by the three basic laws, lay down the rules and guidelines covering the general areas of establishment, conduct, and operations of businesses. Some regulatory functions are carried out in the government, through ministries and departments or by special federal regulatory commissions. According to the Ministry of Economic Development and Trade, in certain areas regulations are overly complicated or are in conflict. In addition, gaps are evident in the regulatory framework in some areas. (IMF 2004, pp. 8-9)

Open budget processes

EN

Oxford Analytica (OA), in its 2005 Report on Fiscal Transparency in Russia, rates Russia's compliance with this principle as "Enacted." In a 2004 the Report on the Observance of Standards and Codes (ROSC) for Fiscal Transparency in Russia, the International Monetary Fund (IMF) notes that the annual budget presentation focuses on macroeconomic considerations and on the allocation of resources to broad functional areas and programs. The budget process is well established and follows a clear timetable. The budget documentation submitted to the Duma (parliament) is very comprehensive. Key macroeconomic and budgetary assumptions are documented and published at regular intervals during the process, and are subject to extensive scrutiny and discussions. Budget appropriations are based on departmental and functional classifications. Neither the functional nor the economic classification is fully consistent with international standards (namely, that of the Government Finance Statistics (GFS) Manual). The lack of consistency principally relates to the third and fourth levels of the functional classification. These levels are not assigned to the top levels of the classification in a clear hierarchical structure and they contain elements of both program and economic classification. Efforts are ongoing to bring the classification up to international standards. (OA 2005, p. 400; IMF 2004, pp. 19-20)

With the passage of the 1998 Budget Code, and other legislation, as well as subsequent amendments, resolutions and presidential decrees, the legal framework has progressively reformed many aspects of the budget. It has largely clarified the various stages of the budget approval and execution process. Particularly at the federal government level, budget preparation and execution has become increasingly sophisticated, with a high degree of transparency both in the process and in the amount of information available to the public and Duma at all stages. Macroeconomic policy forecasts are soundly based and open for external scrutiny. The rapid pace of implementation of the Treasury system has dramatically strengthened the execution, control, and monitoring of budget outlays. (IMF 2004, p. 26)

The annual law "On the Federal Budget" follows a functional classification of expenditure and revenue items on which parliamentary decisions need to be taken. A comparable system is used at the sub-national level. The budget bill is now presented with most of its appendices before the Duma readings begin. The Federal Budget Code details the system of data classification used in budget documents at all levels of government. In spite of steady improvement, expenditure classification still excludes economic categories and combines administrative and functional categories. (OA 2005, p. 402)

The Ministry of Finance (MoF) is currently holding discussions concerning the unified methodology for accounting principles, although many difficulties remain reports OA in its 2005 update on Fiscal Transparency in Russia. Russia has signaled that it intends to move towards a system of data reporting on an accrual basis, gradually replacing the cash based system. The MoF is currently working on a Budgetary Chart of Accounts on an accrual basis. The Chart would be integrated with the budget classification and would further incorporate the provisions of GFS2001. (OA 2005, p. 403)

Regular reports on public debt and debt guarantees of the federal government are published. The Ministry of Finance releases monthly and quarterly data on foreign debt and guarantees, classified by official creditor and type of debt to private creditors, and on domestic debt and guarantees, classified by debt instrument. The Central Bank of the Russian Federation (CBR) publishes monthly data on general government debt held by non-residents and the foreign investment position held by the institutional sectors. At the end of each year, the Finance Ministry conducts an inventory of the public debt and reconciles differences. Subnational debt, including the municipalities, is reported on a monthly basis. The budget documents do not provide a comprehensive listing of government assets and liabilities. The Duma is provided with a list of government financial assets, but this list is confidential. (IMF 2004, pp. 17, 21)

In addition to the budget law, various medium- to long-term programs on economic and social development of the country address fiscal plans. The most important of these is the three-year prognosis on the socio-economic situation of the country. A new government order has now built on this by introducing the requirement -- first applied to the 2006 budget -- to present a three-year medium-term fiscal plan in the budget bill. The 2003 Budget Law was the first to explicitly specify priority areas for public expenditure, even if the relationship between the targets and actual budgetary allocations has tended to be somewhat tenuous. A government decree of July 28, 2004 -- "General Directions for the Activity of the Government of the Russian Federation for the Period until 2008" sets general targets for policy and suggest greater government activism and several large-scale state investment projects. Major structural reform initiatives are currently being pursued in the budgetary sphere, intergovernmental relations, administrative reform, banking sector reform, social policy, and the restructuring of the electricity sector. The government is eager to substantially boost investment in transportation infrastructure. (OA 2005, p. 400)

The IMF in its 2006 Article IV consultations with Russia noted that the authorities are considering changes that could buttress the fiscal policy framework. The Ministry of Finance has gained some support for suggestions to more explicitly take into account the implications for the non-oil deficit when determining the headline budget limit. Moreover, starting in 2007, the federal budget is being framed in the context of rolling three-year budgets with a detailed expenditure breakdown. The IMF staff agreed that these initiatives could help focus budgetary discussions on productive use of the oil wealth in a medium-term context, especially if linked to implementation of the structural reform program. Nevertheless, they cautioned that the rolling three-year budget framework, while in principle providing a stronger anchor for the main parameters of the annual budgets, would not be effective if these budgets are regularly revised, as it has been the case in recent years. The authorities also explained the new investment strategy for the Stabilization Fund, according to which its balance at the CBR is to be converted from rubles into foreign currency, with a remuneration determined by the yield on a basket of first-rate foreign sovereign bonds. (IMF 2006, pp. 19, 20)

Transfers to sub-national governments are included in the budget, but there is no detailed presentation of their overall financial position. While some aggregate information is available, it is not possible to assess accurately the information for all individual regions because their budgets would not yet have been approved. Despite the close financial relationships between the budgetary organizations and the state enterprise sector, there is no consolidated presentation for the broader public sector, and no information is provided on the state enterprises. (IMF 2004, p. 20)

Budget forecasts are clearly presented in the budget documents, and the main macroeconomic assumptions are disclosed to the public. The macroeconomic assumptions and the projections are widely published and intensely discussed, but the details of the models themselves are not made publicly available. Concerning the characterization of the approach to fiscal policy formulation, a paper laying out the government's medium-term fiscal policy objectives is annually considered by the government, and is submitted to the State Duma together with the draft budget for the upcoming year. (IMF 2004, p. 21)

OA reports that the ex ante control of public sector expenditures has improved dramatically as a result of the reform of the Federal Treasury, which has an extensive network of local offices. The Treasury is now responsible for the financial flows of all federal budgetary organizations and maintains a webpage where budget data at the central and general government levels is presented with a lag of six weeks. The situation at the regional level continues to be quite mixed. In most regions, especially ones receiving substantial federal subsidies, the Federal Treasury executes budgets, whereas some advanced regions such as St Petersburg have set up their own treasuries. The MoF now publishes monthly and quarterly data on the execution of the budget on its website. Monthly data is available on each regional government. (OA 2005, pp. 402-403)

There is no legal requirement for a mid-year budget review by the Federal Assembly, although there is quarterly reporting and the government can submit budget amendment bills during the year. In addition, the government can, under particular circumstances and subject to fairly strict limitations, amend the budget without parliamentary approval. This is typically limited to moving funds between institutions and programs but not between functions.(OA 2005, p. 403)

The Treasury provides summary reports on the budget execution to the Duma on a monthly basis and within one month of the reference month. The MoF also publishes quarterly reports on budget execution with relevant commentaries. Audited annual reports are provided within 13 months of the year-end. Final accounts of the consolidated government are also provided. (OA 2005, p. 404)

Objectives of federal earmarked programs are generally announced and progress is reported against these objectives. Until now, there have been no mechanisms for systematic specification and monitoring of other budget program objectives. For the preparation of the 2004 budget, the MoF has asked the state bodies to submit objectives for their budget programs, and plans to establish a tracking and evaluation mechanism for these objectives. (IMF 2004, p. 22)

Public availability of information.

EN

Oxford Analytica (OA), in its 2005 Report on Fiscal Transparency in Russia, rates Russia's compliance with this principle as "Enacted." The website of the Ministry of Finance (MoF) now presents comprehensive information on the fiscal activities of the government. Following Russia's Special Data Dissemination Standard (SDDS) subscription on January 31, 2005, the data is presented in full compliance with International Monetary Fund (IMF) standards. The classification is primarily administrative. The budgets of the federal extra-budgetary funds are published, but the information does not fully conform to the Government Finance Statistics (GFS) classification. The budget does not include entrepreneurial activities of budgetary organizations. Similarly, the published data on the activities of entities protected by the law "On State Secrets" -- defense, law enforcement, and national security -- is only in aggregate form. (OA 2005, p. 398)

In the 2004 Report on the Observance of Standards and Codes (ROSC) for Fiscal Transparency in Russia, the IMF reports that the federal budget of the Russian Federation presents the fiscal activities of the federal government excluding federal extrabudgetary funds. Separate budgets of federal extrabudgetary funds are made publicly available but provide information which is not fully classified. The budget does not cover entrepreneurial activities of budget entities. The budget provides aggregated expenditure allocations for national defense, law enforcement, and national security. The details of some of these expenditures are contained in secret supplements to the budget. This information is accessible outside the government only to the chairmen of the upper and lower chambers and to the concerned special committees of the Duma (parliament). The budget specifies all federal transfers to lower levels of government and separates clearly earmarked budget funds. The budget document provides indicative data on the consolidated budget (estimates and outcomes) of most general government (except the territorial medical funds). (IMF 2004, pp. 15-16)

The budget documents provide estimates of the expected budget outturn for the year preceding the budget and summary budget forecasts for the two years following the budget. Budget estimates are based on two macroeconomic scenarios that are formulated in the government's Social and Economic Program. These scenarios use different assumptions about international oil and gas prices and economic growth in the rest of the world, and the budget has generally been based on the more conservative scenario. Revenue and expenditure estimates for the years beyond the forthcoming budget year are not broken down and the budget document does not describe, in quantitative terms, fiscal policies beyond the budget year. (IMF 2004, p. 16)

According to OA, the disclosure of contingent liabilities, tax expenditures and quasi-fiscal activities still requires significant improvement, although the budget documents now list outstanding guarantees. Similarly, some assessment is typically provided of tax expenditures that will change during the budget year. Although many subsidies, for example to the regions, are identified in the budget documents, there is no systematic assessment due to the non-economic classification of expenditures. There is no assessment of price subsidies in the energy sector. The Budget Code states that public guarantees have an upper limit and constitute a debt obligation as part of the sovereign internal debt of the Russian Federation. They are thus fully recorded. The Russian government has been generally reluctant to issue guarantees on a large scale. (OA 2005, p. 398)

Under the provisions of the Budget Code, all non-confidential information about approved budgets and their execution has to be made public. Thus all budget preparation documents are released to the public upon approval by the government. In accordance with the Budget Code, the consolidated budget, consisting of the federal and sub-national budgets, is presented to the Duma. Quarterly and annual reports on extra-budgetary funds are prepared separately to the main budget. At the federal level, all earmarked funds fall under the Treasury's control. The federal budget documents also provide indicative data on the estimate and outcomes for the general government, with the exception of territorial medical funds. (OA 2005, p. 398)

Regional governments have to compile fiscal reports on all the budgets within their jurisdictions on a monthly and quarterly basis, although the monthly data is not always complete due to reporting lags, in which case budget estimates tend to be used as a proxy. The quarterly reports cover accounts payable and receivable. Ex post data on the implementation of the general government budget -- covering the federal and sub-national governments -- is presented on the MoF website on a monthly basis. The coverage improved last year due to efforts to close down some federal and regional extra-budgetary funds, for example the regional road fund. The lag before publication typically does not exceed one month. A formal assessment of the consolidated budget of the general government, including the extra-budgetary funds, is published on an annual basis. The budget execution data is compiled in accordance with national concepts and definitions. Although they do not fully match the Government Financial Statistics (GFS) 1986 format, they can be reclassified in accordance with GFS1986.. (OA 2005, pp. 398-99)

Regular reports on public debt and debt guarantees of the federal government are published. Information on government financial assets is compiled by the Ministry of Finance during budget preparation, but most of this information is treated as confidential. The debt owed by foreign governments to the Russian Federation is appended, as of 2004, to the federal budget documents. Otherwise, there is no systematic publication of government assets. (IMF 2004, p. 17; OA 2005, p. 399)

In compliance with Russia's SDDS membership, both the central bank and the MoF produce advance release calendars for debt information and for central and general government operations. The data is almost invariably released in timely fashion (OA 2005, p. 399)

The Budget Code requires the release of all non-confidential information pertaining to approved budgets and their execution, including issues raised during budget deliberations. Accordingly, all budget preparation documents are released shortly after they are approved by the federal government, and budget execution reports, including the federal law on the Report on Budget Execution approved by the Duma, are published with the full revenue and expenditure breakdown. Publication practices in the area of fiscal statistics are broadly in line with the IMF SDDS. (IMF 2004, pp. 18-19)

Independent assurances of integrity.

EN

Oxford Analytica (OA), in its 2005 Report on Fiscal Transparency in Russia, rates Russia's compliance with this principle as "Enacted." The quality of fiscal data disseminated by the authorities has increased dramatically in recent years. Russia's Special Data Dissemination Standard (SDDS) subscription in January 2005 constitutes an important recognition of this, as well as formalizing the commitment to international best practice. Most observers deem Russian fiscal data to be comprehensive and quite accurate, even if budget projections have tended to a bias towards caution. Information on fiscal activities is disseminated in a timely fashion. In many areas, methodological discrepancies between Russian organizations, and deviations from international standards, create problems from the viewpoint of consistency and reliability. A particular problem exists with expenditure data classified by type, which is published with a long delay of up to one year. The government fiscal data is based on Treasury records, which are reconciled with spending units. As a rule, information on the methodological aspects of data collection is not available. The Treasury is currently working on consolidating the accounting practices of the Treasury and the various budgetary organizations. A Treasury general ledger system will be introduced in the coming years. (OA 2005, p. 405)

Most fiscal flows in Russia are reported on a cash basis. The Ministry of Finance (MoF) is currently holding discussions concerning the unified methodology for accounting principles, although many difficulties remain. Russia has signaled that it intends to move towards a system of data reporting on an accrual basis, gradually replacing the cash based system. The MoF is currently working on a Budgetary Chart of Accounts on an accrual basis. The Chart would be integrated with the budget classification and would further incorporate the provisions of Government Finance Statistics (GFS) 2001. (OA 2005, p. 403)

The International Monetary Fund (IMF), in a 2004 Report on the Observance of Standards and Codes (ROSC) for Fiscal Transparency in Russia, states that comprehensive and reasonably reliable data are available on a timely basis, particularly for the federal government, including data on the now limited number of extrabudgetary funds, both for budget estimates and actuals. Tax policy across the board has been substantially modernized to best practices in industrial countries, and the scope for administrative discretion, particularly in terms of tax collections, significantly reduced. Many quasi-fiscal activities (QFAs) have been removed or narrowed in their impact, but some important ones remain. There is reasonable transparency on the nature of Russia's debt obligations. The control and audit process, particularly in terms of the reconciliation of federal expenditure estimates and actuals, is quite rigorous. (IMF 2004, pp. 26-27)

Budget data are fairly reliable, but initial projections have an appropriately cautionary bias. The variance between budgeted and actual outturn of main fiscal aggregates is disclosed to the legislature and the public and is usually analyzed and explained in budget amendment proposals. Deviations between the annual budget and the actual outcomes are generally related to external factors (in particular oil price and interest rate changes) and to policy changes during the year. The processes of accounts reconciliation and fiscal reporting are quite effective. At the same time, there is no established mechanism for detailed tracking and reporting on the accuracy of macroeconomic projections and detailed budget estimates. (IMF 2004, pp. 24, 25)

External audit is independent of the executive branch. External audit is governed by Articles 102 and 103 of the Constitution, the Federal law "On the Accounting Chamber of the Russian Federation," and the Budget Code. The Chairman of the Accounting Chamber is appointed by the Duma (parliament). The Accounting Chamber of the Russian Federation (ACRF) has extensive powers to control the execution of the budget and the implementation of Duma decisions. (IMF 2004, p. 25)

Strengthening of audit capacity is ongoing and external scrutiny of macroeconomic assumptions is encouraged. The principal body responsible for auditing government activities in Russia is the ACRF. The 1994 federal law "On the Accounts Chamber" grants the body institutional independence. It submits an annual report, along with separate audit report on the final accounts to the Duma. The reports of the ACRF are made available to the public, with the exception of audits of confidential military or security expenditures. The ACRF provides an assessment of the draft budget, including the macroeconomic assumptions and projections. The budget documents are widely distributed and are subject to extensive scrutiny and discussion from independent research institutions, financial analysts, and journalists. (IMF 2004, pp. 25, 26)

According to the OA report, internal control and audit procedures have improved considerably in recent years but are still deemed to fall short of international standards. The main internal auditor is the newly constituted Federal Service for Financial-Budgetary Surveillance, which operates under the auspices of the Ministry of Finance. Most internal audit still focuses on procedural control. (OA 2005, p. 402)

External scrutiny of macroeconomic assumptions is encouraged. The Accounting Chamber provides an assessment of the draft budget, including the macroeconomic assumptions and projections. The budget documents are widely distributed and are subject to extensive scrutiny and discussion from independent research institutions, financial analysts, and journalists. (IMF 2004, p. 26)

The ACRF is legally responsible for controlling the timely execution of the federal budget and for evaluating the validity of income and expenditure categories in it. It can investigate any discrepancies in the budget and recommend measures for their elimination, and can do the same with extra-budgetary funds. The ACRF is further responsible for auditing the use of state property (including privatizations). (OA 2005, p. 405)

The audit of sub-national governments in Russia remains more problematic. The ACRF is authorized to review the books of regional and local authorities, as well as other entities, only in as much as they use federal funds. This provision is typically applied only to so-called targeted funds that are specially earmarked for particular projects. However, most federal funds are untargeted. Regional auditing chambers that are created by, and accountable to, regional parliaments audit the accounts of regional governments. Municipalities typically set up committees for external audit. However, there is no unified nationwide standard on the sub-national level and the quality and scope of audits varies a great deal. The provision to employ external auditing firms is seldom exercised. All organizations with a minimal state stake of 25% are subject to a compulsory annual audit, and a 2002 decree governs the procedure for appointing the auditors for such audits. (OA 2005, p. 406)

The main administrative authority responsible for the compilation and dissemination of statistical data in Russia is the newly constituted Federal Service for State Statistics (FSGS), which operates on the basis of the July 2004 government resolution on the Federal Service for State Statistics. An independent scientific and methodological board supervises the quality of FSGS activities. (OA 2005, p. 406)

The MoF, in accordance with a joint agreement, compiles the fiscal data disseminated by FSGS. FSGS is not able to conduct checks to verify the quality of fiscal data once an agreement has been concluded. The Government Finance Statistics unit of the Ministry of Finance, which was created in 1999, compiles most fiscal data. The unit publishes a yearbook, albeit with a considerable lag. Considerable methodological problems remain with expenditure data. While the quality of fiscal data is generally good, there are evident incentives at the local level to misrepresent things. As of now, there is no effective performance accounting in the financial sphere. (OA 2005, p. 406)