In the conditions of the post-crisis development and, accordingly, given the need for maintaining the financial stability, the public expenditure annual increase model is far from being effective. That is why it is the objective of fiscal deficit cutbacks in tandem with the need to bolster return on each Ruble out of public funds that have come to the front burner. In its quest for attaining such ambitious goals, the government focuses primarily on organizing most agencies’ budgets on the basis of program-target methods, which suggests a substantial RUSSIAN ECONOMY IN trends and outlooks increase in the proportion of target programs in the budget and transition to a program-wise classification of budget expenditures. Another vector of improvement of the quality of budget management lies in reforming the public procurement program and its fundamentals, particularly towards a substantial increase in the proportion of public expenditures on the innovational sector.
We believe main avenues of increasing efficacy of the budget expenditures have been picked quite adequately; meanwhile, the overall progress in the quality of control over budget resources may become possible only under a comprehensive approach to the problem, which would enable one not only to embrace a maximum broad array of the employed regulative instruments, but structure their employment in time. More specifically, in the nearest future (2010-2011), it appears mandatory to center primarily on problems of increasing accessibility of the public social services. The objective is realistic and achievable through restructuring the budget network. As well, a focal point will remain incentivizing the grass-root level of the government to consume budget funds more efficiently, improving the public procurements system, optimizing individual budget procedures (introducing assessment of the regulating impact into the technology of managerial decision-making that bear budgetary ramifications).
Once the respective institutional conditions arise in the country, a further improvement of such fairly sophisticated managerial mechanisms as result-oriented budgeting, program-target operations, public-private partnership may evolve into a critical factor of the rationalizing of budget expenditure and increasing of the budget process on the whole. This bloc of measures should be implemented between 2010 and 2015.
As concerns the medium-term fiscal policy priority avenues, it is worth noting the following ones:
Reforming the budget institution network in main sectors of the budget sphere.
The ultimate objective of the budget institution network reform should be bolstering its operational efficiency by introducing fundamentals of competition and assiduity in public spending, which arises thanks to liquidation of duplication of functions and discontinuation of delivery of similar services by different public agencies. Meanwhile, those institutions which, by their nature or operational conditions, appear unadapted to survival in the market environment or whose reorganization may entail unfavorable socio-economic effects, should not become subject to restructuring.
To attain the ultimate reform objective, the whole budgetary network should be restructured. But there exist objective challenges associated with updates on the state of the regional and municipal budget institutions sub-networks, as well as with the absence of inter-level coordination and the subfederal networks reorganization procedures, etc. That is why an appropriate mission for the upcoming 2-3 years would be centering on the federal element of the budget institutions network.
We believe the main mechanism of optimization of the federal budget institutions (FBI) network lies in the necessity of modifying the legal status of the existing budget organizations. The modification process can be two-fold – either the budget organizations keep their newly affirmed status that would suggest they are granted with the right for a non-restricted control over their income and assets acquired using that, or their transition into treasury enterprises that are subject to estimate-based financing, while their proceeds are to be collected to their founders’ budgets.
In tandem with the aforementioned optimization procedures, wherever possible, one should also complete:
Section Monetary and Budgetary Spheres - amalgamation of small-sized institutions into larger ones;
- liquidation of poorly performing institutions or those with a thin contingent of customers, with their powers reassigned to peer institutions operating within a given or neighboring territories;
- reassignment of a string of FBIs for the sake of observance with the sectoral operational profile principles;
- reassignment of FBIs, which exercise powers falling under the mandate of public administration agencies of the RF Subjects or under local self-governance bodies’ mandate, under control of the RF Subjects’ public administration agencies or local self-governance bodies, respectively;
- privatization of FBIs that do not fall within a given department’s mandate (e.g. sanatoria, etc.) or their reassignment to respective ministries and agencies (e.g. medical and educational institutions.
While pursuing optimization procedures, one should consider sectoral peculiarities of the FBI network and care to develop a performance monitoring system for restructured institutions.
Increasing efficiency of the public procurement management procedures In order to shape a uniform integrated cycle of planning and placing of the public order, and executing of public contracts which should secure a peremptory fulfillment of the government’s obligations, an adequate to the state needs quality of supplied goods, works and services, an efficient consumption of resources, a reliable management of technological, economic and corruption risks, it appears appropriate to accomplish the following moves:
- optimization of the technology of awarding the public order and conditions of selection of qualified suppliers by means of extending the use of e-auctions. That would allow one to abandon the routine “paper” procedures, give entrepreneurs a chance to take part in such auctions via remote access, substantially lower bid-rigging schemes. These measures should be complemented with the fine-tuning of order placement procedures with regard to complex R&D, development or technological projects that should enable the customer to enjoy the possibility for specifying the subject of a contract with account of alternative technological solutions put forward by bidders;
- -consideration of a possibility for centralization of procurement under the aegis of the general manager of budget funds (to secure economies of scale) and development of a system of incentives to securing an even cash execution of limits granted to customers;
- Fixing with customers the right for an independent spending of funds they have received as a payment of a fine (penalty), as well as funds they have received due to the public agency’s failure to honor its obligations with regard to securing a customer’s auction bid and fulfillment of the public contract;
- Improvement of procedures of monitoring of, and control over the progress with execution of the public contract by optimizing the inventory system with regard to conditions of concluded public contracts; development of procedures of auditing of efficiency of public procurements and recommendations on bringing to account public customers (penalties, lowering their volume of budget funding, suspension of the contract, etc.), introduction of an automated monitoring system (AMS), which should allow one to evaluate the progress in execution of a public contract in real time, supply necessary information to all the participants and make decisions on correcting measures.
RUSSIAN ECONOMY IN trends and outlooks Improving the budget decision-making technology and other result-oriented budgeting instruments Today, particularly challenging became the problem of organization of assessing the potential impact a regulating act has on the economy and society on the whole yet at the stage of its development. That is why in order to enhance the quality of managerial decisions it appears justifiable to obligate agencies, which are engaged in development of normative documents, to run a comprehensive evaluation of prospective and ongoing socio-economic policy measures. Methodological fundamental of the measures should be formed by the cost-benefit analysis method as the most acceptable vehicle that takes into consideration all significant effects from a proposed regulatory measure.
The need to increase the efficiency of the interdepartmental planning system makes it appropriate to undertake the following steps:
- to form a report on budgeting agents’ operational results and main avenues (BA Report) in a hierarchical fashion, by setting objectives for BA as an upper target margin for their subordinated agencies of executive power;
- to include in the final version of the Report only the budget programs underway. Unapproved (under development) programs may be enumerated in the limits of the budget of assumed obligations only until the budget law for next year has been passed; afterwards a program either is granted with the status “in progress”, or it is excluded from the Report;
- to modify the form of the register of expenditure obligations by adding margins hereto, to reflect BAs’ objectives and programs;
- one should consider departmental target programs (DTPs) as a grouping of measures implemented by BAs to tackle tactical tasks stipulated in the Report, with specification of the aggregate volume of expenditures, the program’s control system and possible risks associated with failure to attain performance benchmarks;
- to establish that executive agencies form DTPs on their own, without an external evaluation and approval. It is the agency’s performance results fixed in the Report that should become subject to the external evaluation (and control); meanwhile the right to select a mechanism of its implementation - that is, the DTPs’ composition and substance, is assigned to the executive agency. Fixing simpler procedures with regard to development, coordination and, essentially, organization of implementation of DTPs (due to their smaller scale vis--vis (long-term target programs (LTTPs) will enable one a in the nearest future to formulate a maximum possible number of programs and ensure a faster transition to the program-target principles of budget execution;
- to fix approved DTPs in the register of expenditure obligations as a target budget expenditure item (while individual measures under the aegis of a program are to be fixed as kinds of budget expenditures);
- to form model methodologies of evaluation of a program implementation efficiency of and the respective budget spending by providing for respective forms in the composition of budget reports;
- to specify the role and designation of an agency’s analytical programs in order to preclude the civil service from their use only for allocating of the available funds.
Improving the public investment management mechanism, particularly in the frame of development of the public-private partnership.
Section Monetary and Budgetary Spheres It is imperative to enhance the operative management of investment projects that have been already selected and are currently financed out of the investment Fund of RF. More specifically, this should imply tightening responsibility for failure to meet the respective timelines. But as with its peculiar procedures for the possibility of transfer of unused cash balances to next year the Investment Fund forms an exception from the general procedures of public finance administration set by the Budget Code of RF, it appears appropriate to relinquish this instrument of organization of the government’s investment activity in favor of budget target programs.
It seems appropriate to introduce amendments to the federal act “On special economic zones in the Russian Federation” and the respective bylaws in order to simplify procedures of selection of regions aspiring to have special economic zones within their territories, revise the amount of co-funding of projects on creation of such zones to increase the proportion of regional and municipal budgets in them, bolster incentives for (obligations of) investors with regard to transfer of rights for the use of technologies developed by them upon the 5-year period of their residence and scale of their operations in Russia’s territory.
It is imperative to organize training and retraining programs on public private partnership for civil and municipal servants and specialists from the private sector.
Whereas budget resources for encouragement of investments into individual sectors are scarce, an alternative to direct budget expenditures is a mechanism of provision of government guarantees. In order to develop this mechanism, it is necessary to:
- create reserves for the whole term of effect of the guarantee, albeit not in a full volume, but with a due account of risks of a rise of a guarantee event;
- create a reserve fund at the expense of appropriations from the National Welfare Fund;
- exercise flexibility with regard to provision of a collateral for guarantee by the principal on obligations underwritten by the government.
It is equally important to promote the practice of engaging commercial banks in funding and managing investment projects in the infrastructural sphere. More specifically, it seems plausible to more vigorously engage the largest commercial banks in the process of monitoring of implementation of state-funded investment projects and, in the future, to commission the public customer functions to them. It is envisaged that this would allow a greater efficiency of the public investment management and lower construction costs coupled with a greater quality of implementation of such projects.
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