The New Russian Budget System: A Critical Assessment and Future Reform Agenda

Abstract

One of the major challenges faced by transitional economies has been to adjust institutions that were designed to function in a planning environment to function in an increasingly market-oriented environment. One of the most important of these institutional reforms has been the restructuring of the budget system. The latter should be interpreted quite widely to encompass the institut ional framework as well as the administrative procedures that determine the means whereby resources are transferred to government, how the use of these resources is prioritised and directed to agreed policy objectives, and then subsequently managed, controlled, monitored and reported on. Such systems must be defined in terms of a legal framework. This legal framework can consist of the Constitution, organic budget law, and financial rules and regulations issued by the legislature or the Ministry of Finance. It is evident that in pursuit of compliance and stabilisation objectives, the Russian budget system presently features a high degree of centralisation and a complex set of budgetary restrictions. These taken together have diminished the allocative and operational efficiency of budget execution with budget managers operating with little responsibility or incentive to deliver results. The next stage of budget system reform will involve a fundamental reorientation of the budget system – as has already been evidenced in OECD member countries – to provide greater inducement for managers to focus on possible improvements in allocative and operational efficiency in service delivery. This reorientation will require substantial capacity building in skills, which are currently in short supply. The present highly centralised budget system discourages the development of financial and allocative skills in spending agencies.