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Chapter 3. Tendencies in the Federal Budget Financial Aid Allocation to the Subjects of the Russian Federation: 1992 to 2001

Financial aid rendered to the subjects of the Russian Federation from the federal budget constitutes a basic component part of the interbudgetary relations system. The research goal is to overview and analyze the key tendencies in rendering federal finacial assistance to the regional budgets since 1992. It is notable, that a historical overview of the interbudgetary relations development in the Russian Federation and the legal provision for the relationships between the budgets of different levels (inclusive of financial aid distribution) is represented in the following papers done within the bounds Consortium for Economic Policy Research and Advice (CEPRA): Trounin I.V. "The Record of Interbudgetary Relations Development in Russia" and Zolotaryova A.B. "Legal aspects of interbudgetary relations in the Russian Federation.

For the above reason the issues are not addressed in detail below.

Total for federal support for the period of 1992 to 2000 is illustrated by Table 1. The figures show that the aggregate amount of funds allocated to the Subjects of the Federation fluctuated within a relatively wide range during the nine years in point: from 1, 37% of GDP in 1999 to 3,4 % of GDP in 1994. Apart from that, it is notable that the spread-spectrum fluctuation of total for financial aid to the regions was basically caused by the changes in the aggregate funding amount transferred via such distribution channels as "funds assigned through mutual settlements", "subventions" and through other varieties of non-regular financial support. In contrast to the aggregate financial assistance rate, which volatility would be difficult to ascribe to economic reasons (this inconstancy rather arises from the political situation of each period), the very structure of the federal financial aid reveals more comprehensible tendencies. Thus, after 1995, a growth of the FFSR (Fund for Financial Support to the Regions) transfer share of total for Federal support delivered to the Subjects of the Federation is evidenced - all after this kind of financial aid was introduced in 1994, at which time the transfers' aggregate value was relatively low and accounted for 10% only (this low transfer share was also for the reason, that transfer funding, in fact, came into effect in mid-1994)1.

In 1995, a large increase of FFSR transfer share of total for the Federal funding allocated to the regions is displayed (to 64 %). In effect, the year 1995 is to be treated as the first full-fledged effect year for such a kind of financial support, as FFSR transfers, since it is for the first time that the Ministry of Finance made a calculation for FFSR transfers within the budgetary process, provided for by Russia’s new Constitution, which accounts were later adopted by the State Duma as part of the 1995 Federal Budget Act. It should be noted, however, that the increased FFSR transfer share of total for the federal financial aid can be just partly accounted for by the convertion of the formula distributed transfers into the dominant financial aid for that period. The resolution adopted a year before to make FFSR transfers a key financing source of interbudgetary equalization, was accomplished by the federal government to a major extent, however, a possibility to finance a FFSR transfer by offsetting a region's VAT revenues against the federal budget, dated the same year, shall be considered. Table 1 depicts, that the year 1995 evidences the maximum transfer share growth owing to the federal VAT share of total for the federal financial support to the regions (17%) for the whole observation period.

In 1996 through to 1997, a certain decrease of FFSR transfer share of total for the federal funding can be traced. Such a reduction is elucidated by two facts: in 1996, a share growth of funding allocated to the RF Subjects as funding assigned through mutual settlements (up to 35% of total for financial aid) took place, and 1997 earmarks funding regional budgets' expenditures by budget loans, assigned by the federal budget (around 25% of the aggregate funding allocated to the regions)2.

The federal support funding policy made tougher in 19983, it resulted in an increase of FFSR transfers share of total for the federal aid. It should be observed, that alongside of FFSR transfer share growth within the federal finacial aid bounds, there's a contraction for the funds appropriated at the account the federal VAT share (both in absolute and relative values). Consequently, in 1999 and 2000 the amount of transfers from the federal budget settled at 0,98% of GDP, and their percentage share of the federal financial support structure accounted for 71% and 67%, respectively.

Thus, the following observations could be made with respect to the structure of the financial aid delivered by the federal budget. The period of 1992 to 2000 marks the following sources of the federal support to the budgets of the RF Subjects as the major ones:

- subventions (the federal budget appropriations allocated to the budgets of the RF Subjects for a special purpose), which was a major variety of financial aid to the subjects in 1992 (53%). An emphasys should be placed upon the growth of the subventions share within the federal support structure for 1999 (up to 14%), however, since that year, the federal funds appropriated for north supply (calculated by a scheme similar to that of FFSR distribution) has taken the form of subventions, while this has also been the case for some other kinds of finacial aid for a special purpose, included in a FFSR transfer;

- funds transferred to the RF Subjects via mutual settlements (a to-the-region gratuitous transfer channel for appropriations made available for the current financial aid goals during the federal budget performance period) retained a status of one of the basic financial aid types for 1992 to 1998, while the biggest share of funding awarded to the regions via this channel is characteristic of 1993/94 (at 72% and 74%, respectively);

- FFSR transfers (a major kind of the federal general financial support, delivered to the Subjects of the Federation on the basis of a unified scheme) have been a key channel to allocate funds among the Subjects of the Federation since 1995, its share having increased from 10% to 70% for its whole lifetime.

- eventually (in 1996 and 1997), the budget loans unrepaid to the RF Subjects tend to possess high shares (10% and 25%, respectively).

- the whole observation period exhibits a steady increase of the grants share of total for the federal budget's financial aid (appropriations transferred from the federal budget to those of>

Table 1. Amount and Structure of Federal Aid to RF Subjects rendered by federal budget for 1999 – 2000.

1992

1993

1994

1995

1996

1997

1998

1999

2000

Grants

% of GDP

0,00%

0,02%

0,09%

0,06%

0,09%

0,13%

0,10%

0,06%

0,16%

% of financial aid

0%

1%

3%

3%

4%

5%

6%

4%

11%

Subventions

% of GDP

0,79%

0,69%

0,42%

0,12%

0,12%

0,09%

0,02%

0,20%

0,03%

% of financial aid

53%

26%

12%

7%

5%

4%

1%

14%

2%

Total for FFSR transfers

% of GDP

0,00%

0,00%

0,36%

1,17%

1,04%

1,22%

1,12%

0,98%

0,98%

% of federal aid

0%

0%

10%

64%

44%

49%

70%

71%

67%

Inclusive of :

Transfers

% of GDP

0,00%

0,00%

0,36%

0,86%

0,68%

0,86%

1,00%

0,98%

0,98%

% of financial aid

0%

0%

10%

47%

29%

35%

62%

71%

67%

Transfers at the account of VAT

% of GDP

0,00%

0,00%

0,00%

0,31%

0,36%

0,36%

0,12%

0,00%

0,00%

% of financial aid

0%

0%

0%

17%

16%

14%

8%

0%

0%

Funds assigned through mutual settlements

% of GDP

0,61%

1,95%

2,54%

0,42%

0,81%

0,43%

0,36%

0,14%

0,29%

% of financial aid

41%

72%

74%

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