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ANNEX 2.2 CATEGORIES OF FEDERAL CIVIL SERVANTS IN THE RUSSIAN FEDERATION Table A2.1: Federal Civil Servants in the Russian Federation Categories in Accordance with the Current Legislation Category Definition Legislative branch Executive branch Judiciary branch Other Category A State positions determined by Chairmen and Deputy Federal Ministers, Heads of the Chairmen of courts of all levels, Chairmen and Deputy Chairmen the Constitution, federal laws Chairmen, members highest executive bodies in the their deputies, General Prosecutor of Accounting Chamber (AC) (for federal civil service), of Commissions of subjects of Federation of the Russian Federation, judges and Central Election regional constitutions and the Federal Commission (CEC), statutes. These positions assure Assembly, similar Plenipotentiary on Human execution of the authority of positions in the Rights, AC Auditors, CEC state bodies. subjects of Federation Members, similar positions in the subjects of Federation Category B Positions that support the Heads of Offices of Heads of Presidential Heads and Deputy Heads of Heads and Deputy Heads of AC execution of the authority by the Federal Assembly Administration (PA), Government Supreme, Constitutional, Higher Secretariat, Heads and Deputy Category A positions Chambers, similar Office (GO), Heads and Deputies of Arbitration Courts Secretariats and Heads of AC Auditors positions in the Presidential Office, Heads of Secretariats of Federal Arbitration Secretariats, Assistants, Advisors subjects of Federation Secretariats of Chairmen of Courts in the subjects of and Referents to the AC Government, Assistants, Advisors Federation, Assistants, Advisors Chairman, auditors; similar and Referents to the President and and Referents to the Chairmen of positions in the subjects of Government Chairman, Federal Supreme, Constitutional, Higher Federation Ministers, similar positions in the Arbitration Courts, similar subjects of Federation positions in the subjects of Federation Category C Positions determined by federal Example: Council of Example: Federal Ministry Example: Higher Arbitration Example: Accounting Chamber and regional authorities to Federation Court ensure the execution of their authority and responsibilities Top 1st Deputy Head of 1st Deputy Minister, Deputy Head of Division to Head of Head and Deputy Head of AC Federal Council Minister, Head of Department Separate Unit Apparatus, Department and Office to Unit Head Division Head and Deputy Head, Head of Inspection Category Definition Legislative branch Executive branch Judiciary branch Other Chief Deputy Unit Head, Head of Division, Deputy Head of Deputy Head of Separate Unit, Deputy Inspection Head, Head Head of Federal Department, Deputy Head of Head and Deputy Head of Unit in and Deputy Head of Unit in Council Head Division, Head of Unit (if this Unit the structure of the Department, Department/Division, Chief Secretariat to Advisor is not a part of Advisor Inspector Division/Department) Lead Consultant, Expert Deputy Head of Unit if this Unit is Chief Consultant, Senior Lead Inspector, Consultant, not a part of Division/Department); Consultant Senior Inspector, Expert Head and Deputy Head of Unit in the structure of a Department/Division; Advisor Senior Lead Specialist Consultant, Chief Specialist, Lead Chief Specialist, Consultant, Lead Lead Specialist Specialist Specialist Junior Specialist, 1st Specialist, 1st Category; Specialist, Specialist, 1st Category; Specialist, Specialist, 1st Category Category 2nd Category 2nd Category Note: Positions presented in the Matrix are examples, not exhaustive lists. Draft Law on State Civil Servants introduced by the President to the State Duma establishes a new set of categories of civil servants in Russia, although position groups (Top to Junior are retained). The specific lists of positions for each category/group has to be approved separately, but tentative structure is presented in the Table A2.2.

Sources: Presidential Decree No.33 dated January 11, 1995, On Register of State Positions of Federal Civil Servants; Presidential Decree No. 981 dated September 3, 1997, On Approval of the List of State Positions of Federal Civil Servants.

Table A2.2: Tentative Classification of Civil Service Positions in Accordance with the Draft New Legislation Category Definition Group Top Chief Lead Senior Junior 1. Managers 1.1. Positions hold on regular basis or for a defined term of authority 1.2. Positions hold on regular basis 2. Assistants Term positions established to support execution of authority by state (Advisors) body heads or persons holding state positions 3. Specialists Regular positions established to ensure professional performance of functions and tasks of the state body 4. Executors Regular positions established for organizational, information, documentary, financial and other support to the activities of the state body Source: Draft Law on State Civil Service of the Russian Federation.

ANNEX 2.3.

CLASSIFICATION OF CIVIL SERVANTS REWARDS The basic classification of civil servants rewards used for cross-country comparisons is presented in the figure below.

Figure A2.2: Civil Servants Rewards Classification Contractually-provided Noncontractual/intangible Monetary In-kind 1. Base 2. Health 3. Job security, Base wage/salary insurance prestige, social rewards privileges Current rewards 4. Transportation, 5. Transportation, 6. Trips abroad, housing, meals, housing, meals, training Allowances telephone, travel, travel cost-of-living Future expectations 7. Pension 8. Housing, land, 9.Reputation, etc. re-employment after retirement Source: World Bank Public Administration Website.

Most of the rewards listed in the figure are also applicable to federal and subnational civil servants in Russia. However, the structure of monetary rewards included in the wage bill is more complicated than shown in this figure. In addition to base wage/salary it usually includes allowances for grade, years in employment, as well as performance bonuses and other cash payments. It should be noted that there is a tendency to substituting in-kind allowances for transportation, housing, meals and travel (especially in the police service and armed forces) with cash allowances.

ANNEX 2.4.

INTERNATIONAL PUBLIC SECTOR PAY AND EMPLOYMENT DATA, 19962000* Countries Public Sector Employment (%of Total Central Govt. Average population) Wage bill (Civilian central and Armed Forces) govt. wage to per Civilian Subnational Education % of % of capita GDP Central Government and Health GDP govt.

ratio Government Employees expend.

High-Income OECD Countries Australia 0.8 2.1 3.8 2.1 2.6 1.Canada 1.1 2.1 5.0 1.6 10.4 1.France 3.6 2.4 3.2 4.5 15.9 1.Germany** 1.0 5.1.. 1.0 7.9 0.United Kingdom 3.1 3.4 3.0 1.5** 5.9 1.United States 1.0 5.9 3.8 1.4 8.4 1.Transition Economies Bulgaria 0.4 0.4 2.2 5.2 7.9 1.Czech Republic 4.8 2.3 1.0 2.7 8.1 0.Hungary 1.5 1.6 4.5 7.3 8.6 0.Kazakhstan 0.0 0.5 5.1 4.9 9.7 0.Poland 0.4 0.3 2.1.. 7.6 1.Russia*** 0.4 0.5 6.0 1.2 4.5 1.Ukraine 1.1.. 3.9 8.7.. 1.Developing Countries with Federal System Brazil 0.3** 1.3** 1.8** 12.2 16.5..

India 0.3 0.6 0.4 1.8 11.0 4.Mexico 0.7 0.7 0.3 2.6** 24.9 1.Regional Averages**** Africa 0.9 0.3 0.8 6.7.. 5.Asia 0.9 0.7 1.0 4.7.. 3.Eastern Europe and 1.0 0.8 5.1 3.7.. 1.Former USSR Latin America and 1.2 0.7 1.1 4.9.. 2.Caribbean Middle East & 1.4 0.9 1.6 9.8.. 3.North Africa OECD 1.8 2.5 3.4 4.5.. 1.Overall 1.2 1.1 2.4 5.4.. 3.*Data are for the latest year available.

** Latest data available is for 1991-95.

***For Russia data is for 2002, Central Government includes employees of the federal authorities (both HQbased and deconcentrated, but does not include Ministry of Interior.

****Regional data is for early 1990s based on sample cross-country survey.

Source: World Bank Public Sector Employment and Wage Database, Roskomstat, Schiavo-Campo, et al., Government Employment and Pay in Global Perspective: A Selective Synthesis of International Facts, Policies and Experience, World Bank (1997).

ANNEX 2.5.

ASSUMPTION ON CORE GOVERNMENT ADMINISTRATION ATTRITION RATES Table A2.3: Significant Administrative Reform (Attrition Rates) Employment Reduction Assumptions, Executive, Category C Group Federal HQ Federal Deconcentrated Subnational Top 25% 25% 35% Chief 20% 20% 30% Lead 20% 20% 30% Senior 15% 15% 25% Junior 15% 15% 25% Other 20% 20% 30% Table A2.4: Fair Administrative Reform (Attrition Rates) Employment Reduction Assumptions, Executive, Category C Group Federal HQ Federal Deconcentrated Subnational Top 10% 10% 20% Chief 10% 10% 20% Lead 10% 10% 20% Senior 7% 7% 17% Junior 7% 7% 17% Other 7% 7% 17% Table A2.5: Assumption on Attrition Rates in Civilian Public Sector Employment Adjusted by Demographic Projections (2001 2010) 2001 2002 2003 2004 2005 2006 2007 2008 2009 Education Sector Higher Education 26.9% 25.7% 24.4% 23.2% 21.9% 20.7% 19.5% 18.2% 17.0% 15.7% General Education 23.3% 25.4% 27.5% 29.6% 31.6% 33.7% 35.8% 37.9% 40.0% 42.0% Vocational Education 10.5% 14.4% 18.3% 22.3% 26.2% 30.1% 34.0% 37.9% 41.8% 45.7% Health Sector State 20% 20.0% 20.4% 20.9% 21.3% 21.7% 22.2% 22.6% 23.0% 23.5% Regional & Municipal 20% 20.0% 20.4% 20.9% 21.3% 21.7% 22.2% 22.6% 23.0% 23.5% Other Civilian Service 10% 10.0% 10.4% 10.9% 11.3% 11.7% 12.2% 12.6% 13.0% 13.5% ANNEX 2.6.

INTERPRETATION AND ANALYSIS OF RESULTS: IMPACT OF INDIVIDUAL FACTORS As shown in Table 2.12 of the main text, the estimated annual fiscal costs of the reform scenarios vary significantly both in the mid-term perspective (between 1.3 and 3.GDP p.p. for 2006 as compared to 2003) and in the long term (between 1.2 and 4.2 GDP p.p.

for 2010 as compared to 2003). In this annex we analyze the sensitivity of these results to the key parameters used in the simulations (macroeconomic parameters, extent of pay reform, pace of reform and extent of administrative reform). Our cost estimates are generated as additional government expenditures (in p.p. of GDP) needed to finance operations of both government administration and civilian public sector as a result of the proposed reforms.

Sensitivity to macroeconomic parameters. The results of the simulations proved that potential fiscal costs of civil service reform are quite sensitive to relative growth rate of private sector wages, and respectively to the changes in the share of the total payroll in GDP.

To illustrate this sensitivity, three groups of reform scenarios were selected:

(i) radical pay reform combined with significant administrative reform implemented at a high pace, i.e., within 2004-2006 (scenarios 4, 16, and 28);

(ii) moderate pay reform combined with fair administrative reforms and implemented at a medium pace, i.e., in the period from 2004 to 2008 (scenarios 8, 20, and 32);

and (iii) moderate pay reform implemented during 2004 2010 with no administrative reform (scenarios 5, 17 and 29).

Within each group, there is a considerable variation of the growth (relative to GDP growth) in private wages, as described in Table 2.5 in Section D.

Figure A2.3: Sensitivity of Civil Service Reform Costs to Real Wage GrowthSource: Staff estimates.

Scenarios 4, 16, and 28 all assume a radical pay reform undertaken at high pace and accompanied by significant administrative reforms, but they differ by the growth rate in private sector wages. Respectively, scenarios 8, 20, and 32 all assume moderate pay adjustment at medium pace, and fair administrative reform effort, but the same difference in private wage growth. Scenarios 5, 17, and 19 assume moderate pay reform at a low pace and no administrative reform at all, while the same variation by wage growth remains intact.

As may be seen from Figure A2.3, the same reform scenario implemented in a situation when the real wages growth rate exceeds the GDP growth rate by 2 p.p. (Scenarios 4, 8 and 5) will be significantly more expensive for the budget that the one implemented in a situation when the share of real wages in GDP doesnt change over time (Scenarios 28, 32, and 29). As a result, variation in total budget costs within each group of scenarios amounts to 1.1 to 1.4 p.p. of GDP. A decrease in relative real wages growth by 1 p.p. leads to about 0. 0.7 percent of GDP in annual budget saving for the end of the reform period.

It is notable that the degree of sensitivity to changes in relative wage growth varies among different groups of scenarios: it is higher for scenarios without any administrative adjustments (Scenarios 5, 17, and 29), and lower for scenarios with administrative reform (Scenarios 4, 16 and 28 that assume radical pay adjustment and Scenarios 8, 20, and 32 that assume moderate pay changes). Such cost variation is explained by the fact that Scenarios 5, 17 and 29, while leaving a significant residual pay gap, assume no any attrition. Thus, a much larger number of core government administration and particularly civilian public sector employees benefit from the pay increase, and the stronger effort to close the compensation gap leads to more serious fiscal implications relative to the scenarios assuming significant attrition in civilian public sector and at least some attrition in core government administration. Overall, the more ambitious the pay reform, the more volatile are its fiscal costs.

The above findings with respect to sensitivity of total reform costs to changes in the real wage growth remain valid when we look separately at the variation of costs associated with a narrower task reform of the core government administration only (Figure A2.4).

Figure A2.4: Sensitivity of Civil Service Reform Costs to Real Wage Growth (for Core Government Administration Only)Source: Staff estimates.

See the previous footnote for a description of the scenarios.

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