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One of the shortcomings of this financing arrangement is its difficulty of administration because it envisages a need for conformance inspec tion of each specific contract signed between consumer and provider to the conditions of granting subsidies and making payments to the large number of providers.

At the same time, subsidies can be successfully granted in cases when the government (municipality) considers it necessary to assist to certain categories of consumers in purchasing services, which accord ing to a general rule are paid by consumers. Expediency of such assis tance can be determined by belonging of consumers to a certain social group or by increased in comparison with an average level of expenses incurred by individual categories of consumers for purchasing of these or those social services if such excess is conditioned by objective fac tors. For instance, the government (municipality) can subsidize pur chase of additional educational services by children from poor families or by especially gifted children. Compensation of increased in compari son with the average expenditure level of individual categories of con sumers for purchasing social services can be conditioned, for example, by a disease, which cure requires medical treatment, which are not part of the Program of government guarantees for rendering free of charge medical assistance to the citizens.

3.4. Implementation of performance based budgeting arrangement As was shown in previous chapters, contents of the public network reform should consist in transition from the proper public institutions funding to the social service delivery funding. In addition according to international experience the performance based budgeting arrange ment is applicable not only at the level of public institutions but also at the level of government bodies. Furthermore, performance of individual public institutions is logically to evaluate according to similar criteria, which are used for performance evaluation of the whole industry, and visa versa. The structure of budgetary network and methods of its man agement should be determined by ongoing priorities and perspective goals of governmental policy. Managers and operated should have the same goals and have a general idea about what is considered to be their performance result. This presupposes the closest connection be tween two avenues of the public sector restructuring: reorganization of the public institutions, on the one hand, and implementation of per formance based budgeting arrangements, on the other.

Performance based budgeting got a foothold in Russia only recently.

In presupposes new approaches to the budget planning. Until recently, applications of ministries, departments and agencies were based on the calculation of the current financing of subordinate branches and sectors of the economy and social sphere adjusted to the inflation, amendments in legislation and changes in the structure of the public network. As a result, budgetary policy was very conservative: from year to year once developed proportions of funding were recreated. Besides departmental budgets existed target programs99. Their due dates as a rule went beyond the framework of a fiscal year. However, they can be considered an element of medium term planning according to results only nominally. First, because target programs are samples and do not represent all aspects of socio economic development. Second, be cause different target programs are badly coordinated with each other.

In the majority of cases there is no their systemic evaluation from the point of view of inputs volume to be carried out in medium term period and cumulative benefits. Majority of target programs does not have definite criteria, which allow following their efficiency. In those cases where such criteria exist, there is no monitoring of the level of their achievement. Moreover, target programs cannot be considered stable instrument of the financial policy because there are no restrictions to their annual revision and reduction of financing. As a result, target pro grams often are not financed on the projected level. Thus, up till re cently program targeted planning was not applied in the budgetary process.

Shaping of the 2005 draft federal budget started by consolidating by the subjects of the budget planning, the federal ministries, departments and agencies, of the reports on the results and plans of their activity for the medium term perspective. In the future these reports should be come the main instrument in the justification of the requirements of subordinate departments in budgetary allocations and evaluation of expenditure efficiency.

However, at present such two venues for pursuing the reform as the budgetary sector restructuring and implementation of the performance based budgeting are separated from one another. Restructuring of the budgetary sector should be implemented at the bottom, at the level of public institutions. Implementation of the performance based budgeting should be implemented at the top, with the principal budgetary man According to the notion provided in Procedure for the Elaboration and Implementation of the Federal Target Programs and the Intergovernmental Target Programs, with the Russian Federation Taking Part in Their Implementation adopted in the Decree of the RF Government of June 26, 1995 No.594, the federal target program represents a package plan, coordinated in the sphere of the resources, executors and periods of implementa tion, of the R & D, production, socio economic, organizational and economic and other measures ensuring the effective solution of the problems in the sphere of state, eco nomic, ecological and socio cultural development of the Russian Federation. agers. This gap represents one of the possible risks for successful im plementation of the ongoing reorganization. That is why we decided it necessary to examine both aspects of the budgetary reform.

In this chapter we give general characteristics of the implementation of the performance based budgeting and describe yearly practical steps taken in this direction of the federal level.

1. The concept of the budgetary reform The first priority goals of the implementation of the performance based budgeting are formulated in the Concept of the Budget Reform in the Russian Federation in 20042006, which was adopted by the De cree of the Government of the Russian Federation on May 22, 2004, No. 249 (hereinafter Concept), which presupposes a transition to dis tribution of budgetary resources between the managers of budget funds and implemented by them budgetary programs taking into ac count or in direct dependence of results achievement. Principal goals of the transition to performance based budgeting formulated in the Con cept are:

1) Bring the budgetary classification of the Russian Federation close to the international standard requirements, introduction of integrated with the budget planning plan accounts of the budgetary accounting based of the accrual method and assuring calculation of expenditures by functions and programs.

2) Improve procedures of shaping and reviewing of the budget through analytical division of ongoing and newly assumes expenditure liabilities. Current liabilities are subject to unconditional inclusion into the expenditure side of the budget is a decision on their annulment or suspension was not taken. New expenditure liabilities should be as sumed only on availability of corresponding financial capacity for the whole period of their life and on condition of compulsory evaluation of expected efficiency.

3) Introduction in the prospective fiscal plan annually shifted for a year distribution of allocations between the subjects of the budget planning100 for the three year period. The Government of the Russian Federation is to approve the prospective fiscal plan.

The term subject of the budget planning introduced by the Decree of the RF Govern ment No. 249 somewhat differs from the already used term principal budgetary man 4) The budgetary process should include development of depart mental targeted programs, which should include considerable share of the budgetary expenses incurred currently on an estimate based prin ciple. Orientation of the federal targeted programs to the solution of large and long term investment, scientific and technical and structural projects of intersector character with clearly formulated and quantita tively measurable performance indicators.

5) Transition to distribution of the budgetary resources between managers of the budget funds and budgetary programs depending on the projected level of the goals to be achieved in accordance with the medium term priorities of socio economic policy and within the limits of long term forecast of the budgetary resources volume.

6) Widening of the sphere of implementation of the assistance mechanisms for the selected on a competitive basis regional and mu nicipal budgetary reform programs in the framework of the Fund of re gional and municipal fiscal reform, which is being created from 2005.

On the federal level implementation of the Concept is to be pursued by way of adopting a number of normative legal acts by the Government of the Russian Federation and introduction of amendments in the RF Budgetary Code, which relate to the budget regulation. It is envisaged that this federal law will be enacted on January 1, 2006. It will create a legal basis for the new system of budget organization starting with the budget process for the year 2007.

Important premise for the performance based budgeting consists in improving efficiency of the medium term budget planning, which pre supposes shaping of the budget for the next year on the basis of ap proved during the previous period main parameters of the medium term fiscal plan for the current year as well as adjustment of available and development of the new budget plans for the coming years. This guarantees succession of the government policy and predictability of public allocations and allows introducing into them by using clear cut and transparent procedure annual adjustments according to changing government policy priorities and socio economic conditions.

Requirement to develop the prospective fiscal plan a document containing data on forecast budget capacity to mobilize revenues, at ager because it does not include federal agencies and services subordinate to minis tries.

tract public borrowings and financing of principal budget expenditures was envisaged in the original version of the 1998 Budgetary Code of the Russian Federation. However, as is stressed in the Concept of budget reform currently the role of the prospective fiscal plan in the budgetary process is limited due to the lack of clear cut methodology for adjusting previously adopted plans, evaluation mechanisms of stability and risks, links with goals and priorities of the medium term government policy and conditions of its implementation, formation of marginal expenditure volumes for the managers of budget funds for the three year period.

In an effort to eliminate these shortcomings the RF Finance Ministry together with the RF Ministry of Economic Development and Trade de veloped a draft Rules on the development of a prospective fiscal plan in the Russian Federation and draft federal law on the federal budget for the next fiscal year (hereinafter Rules). They define format for prospec tive financial plan and procedures for reviewing its parameters and their use in shaping of the draft budget, development of priorities and goals of the government policy and in planning of the budget policy outcome.

This document was adopted by the Decree of the RF Government on March 6, 2005, No.118.

From the point of view of the performance based budgeting the in troduction in the prospective financial plan of annually shifted for a year ahead division of allocations between the subjects of budget planning for the three year period became an important step forward. This fact extends the planning period for budget programs, creates incentives for the optimal budget funds expenditure, contributes to the formation of indicators for budget expenses efficiency, increases objectivity of evaluation of ministries performance, speeds up shaping process and the quality of the draft budget.

Besides, The Rules define methodology coordination of the me dium term budget revenue forecast with scenario macroeconomic conditions; between evaluation of forecast revenues consistency to the changes in macroeconomic parameters (including those depending of foreign economic conditions) and fiscal legislation. Scenario conditions for Russias economy performance for a medium term perspective and main indicators of the prospective financial plan should be developed in two versions: parting from the forecast by RF Ministry of Economic De velopment and Trade and reference oil price101.

Draft prospective financial plan is being developed in three stages.

In the stage the Government develops and approves major directions of the fiscal and customs policy and scenario conditions for Russias economy performance for a medium term period. The RF Ministry of Finance (regarding issues of the customs policy together with the RF Ministry of Economic Development and Trade) develops main direc tions of the fiscal and customs policy, which comprises analysis of the concept of draft normative legal acts aimed at improving fiscal and cus toms legislation, the influence of amendments introduced into the fiscal and customs legislation on the public revenues in the Russian Federa tion. The Budget commission examines and the RF Government ap proves them.

Scenario conditions comprise expected in the current year and fore cast for the planned period the following indicators: price of crude oil Urals, dynamics and the structure of the current and the future GDP;

growth rates of major industrial branches; inflation forecast and fore cast of tariffs on goods and services of the natural monopolies; ruble exchange rate to the US dollar and Euro, and other indicators.

On the second stage the Government develops and approves major indicators of the prospective financial plan and main venues of the debt policy. Among main indicators of the prospective financial plan are:

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