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The Russian Federation sets forward a specific kind of regional expenditure funding for special purposes - that of financing some goods’ pre-shedule supply to hard-to-reach regions. Financial aid of this kind is applied to provide a preschedule oil, fuel and food supply to the low-access regions during the navigation period or any other access period for the regions pointed out. For the regions as a whole, around 10 % of the aggregate regional expenditures for North supply funding is covered by the federal appropriations, however, some of the regions appear remarkably dependent on the 'north supply' federal transfers. The support assignments for 'north supply' are directed to the regional authorities that carry out open tenders for goods supply and distribute the funds between shipping organizations.

The federal budget funds for supporting 'north supply' are still very significant items for financial aid to the regions on the federal level despite the considerable decrease of the 'north supply federal financing for the last nine years. Thus, while around 200 bln roubles, or 1,1% of GDP (accounting for 5,1% of the federal budget expenditures) was transferred to the targeted regions as 'north supply support' is 1992, the respective value for 1997 accounted for 3,5 bln roubles in denominated rouble value (or 0,13% of GDP as 0,86% of total for the federal expenditures). A 3 bln roubles (which is around 0,07% of GDP (0, 45% of the federal budget expenditures) being the case for 1999, funds committed to the regions for 'north supply' are projected at 3 bln roubles (0,056% o GDP as 0, 35% of total for the federal budget expenditures) by the 2000 federal budget law, while the 2000 federal budget law grants 6, 65 bln roubles (0,086% of GDP, 0,56% of total for the federal expenditures) for the same purpose.

Particular attention should be given to issuing budget loans for goods supply as specific kind of 'north supply' financing. In 1994/95, the federal budget didn’t sponsor just oil and fuel transportation only, but the procurement of the above products as well, for which purpose budget loans amounting 1,2% of GDP (1994) and 0,5% of GDP (1995) were issued. Later on, as the regional aouthorities failed to repay the above amounts, a decision was made to pass those funds into the trust of the RF subjects' administration inclusive of the interest added. Specifically, an amount equivalent to 0,5 % of GDP was passed into the regions' trust in 1999. Of this amount, part was charged off during the recent years, while part of the funds (basically passed into the trust of high fiscal capacity regions) was transferred to the federal budget revenues.

Funds transferred to the Subjects of the Federation as mutual settlements.

Mutual settlements represent one of the most significant big-amount channels for transferring the federal budget funds to the regions, via which compensation funds of the regional budgets' additional expenditures are transferred, the latter associated with certain decisions made by the federal government (for instance, those concerning effecting payments in accodance with On Veterans federal legislation), also, funds for the compensation of the expenditures for passing departmental housing to the budget of the local administration and other regional budget expenditures, also including those occuring during the process of cash deficit coverage. Funds distributed as mutual settlements represent some of the few federal budget items, which amount is not set in the federal budget law and which allocation between the recipient regions is not set by the State Duma and the Federation Council. For different periods of Russia' latest history, all RF subjects happened to be the recipients of funds transferred as mutual settlements. Table 1 depicts, that the type of financial aid focused on accounted for 2% of GDP (50%-70% of total for the federal support) in early 1990-ies, as mutual settlements (along with subventions) were the major federal aid rendered to the regions, to 0,2%-0,4% of GDP (10% to 20% of total for the federal financial aid) for the recent years. (Table 5).

Table 5. Dependency by RF Subjects on funds assigned through mutual settlements in 1992 to 2000.










funds assigned via mutual settlements as percercentage share of budget revenues










funds assigned via mutual settlements as percercentage share of budget expenditures










Source: RF Ministry of Finance; estimates by the authors

For 1992 to 2000, the dependency by the RF subjects on the federal budget for the funds awarded as mutual settlements is represented as their share of the regional budget expenditures and revenues by Table 5. For the Russian Federation as a whole, the Table depicts a gradual decline of the dependence on the stated financial aid type, it accounting for 1,5% to 2% of the regional budgets for the recent years. Nonetheless, the analysis has revealed essential unconstancy for the dependence rate in terms of regarding mutual settlements in the regional context - unlike the FFSR case, the analysis of the data for the past 6 years has failed to outline a group of regions steadily dependent on the federal support of this kind, although an eventual mutual settlements' share of the expenditures for some ergions accounts for up to 20%. The same is due for the interregional allocation of this kind of the federal suppoprt - for the past 6 years, it is imposible to outline a stable group of regions the basic funding amount of which is allocated in this mannner.

Such results above the non-formalized distribution of the funds under analysis put the financial aid of this kind as utterly uneffective, it being distributed by unobjective criteria. Further to the above, the increase of total for funding coming as mutual settlements in 2000 as well as the growth of its share of total for the federal support to the regions, rising the dependency rate of the regional budgets on the federal aid of this kind appear unfavorable.

Budget loans. Those granted on a repay basis are a way of providing the federal funding for the purpose of compensation of the cash defecit while executing the budgets of the R subjects, and also for other purposes (specifically, end-1997, ponderous amounts were granted to the public emplyees as budget loans under the payroll debt comensation campaign). Peculiar for this kind of financial aid, its repay nature pressupposes that the budget loan aggregate annual value can have both positive and negative sign (a region might be either a sheer recipient or a sheer repayer of the federal funds previously loaned). For this reason, the federal budget loans could be worth including in the federal financial aid provided, that there has been a firm positive balance in their accounting within several years, i.e. in case this mechanism is applied by the federal center as a means of gratuitous financial support by allowing adjournments and deferred payments of the loans offered, and also by offering more loans.

This was the case to observe about the Russian Federation for 1992 through to 1997. However, since 1998 the federal center-to-regions policy was toughened to a high degree for this kind of the federal support: while around 2,5% of the regional budget expenditures was financed by the budget loans proper granted to the RF subjects from the federal budget in 1997, (for the regions repaying the federal budget loans to the federal budget the figure is 3,4%), the respective figure for 198 - 1999 was a negative value, i.e. the regional budgets tended to repay the previous budget loans rather than to obtain new funds.

In reference with both the interregional budget loan distribution structure stability and the dependance by the regional budgets on this kind of financial aid in the regional context, the case is notably similar to that for the funds allocated as mutual settlements (namely, the rates tend to display volatility to a high degree). For this reason, performing an in-depth analysis of the key tendencies in the distribution of this kind of financial support to the RF Subjects proves inexpedient.

* * *

The analysis of the above kinds of the federal financial aid to the regions (which account for around 30% of the federal support to the regions and finance around 3% of the regional budget expenditures) depicts that their big variety, as well as the non-formalized distribution, demand that the approaches to federal funding of some subnational budget expenditures be reconsidered. Thus, funding executed on the basis of mutual settlements doesn't display an evident justification of its existence. It is essential to introduce a formalized scheme of grant distribution to the budgets of>

Varieties of the federal financial aid the the Subjects
of the Russian Federation

The above overview was made to regard the delivery of the federal financial aid, which is viewed as the channels of a direct federal support to the regions. Above all, there's a number of types for financial flows coming from the federal budget, which can also be considered as federal support to the regions. First and foremost, these are federal programs of regional development and the grants from the federal Road fund to the respective regional funds, and also (to a certain extent) the federal budget expenditures on the regions' territory.

The implementation of the federal programs of regional development, as a kind of the federal budget expenditures, could be ranked among the federal support to the regions, since all the financial resources, assigned by the federal budget in such a way are consumed within the territory of the RF subjects, also constitute the tax base of the regional budgets and are, in fact, budget-substituting expenditures in relation to the regional budgets. The key goal of the federal programs is accomplishing particular tasks within the domain of specific regions' development (in the field of culture, education, health-care), such as the reconstruction or building social or cultural sphere facilities within the territory of the regions, also, rendering support to some specific population groups or nations inhabiting the area of one or several regions etc. Taking a decision to establish a federal program for the development of a particular region rests with the government of the Russian Federation, while the funding amount awarded under the program is settled as an agreement between the Ministry of Finance and the regional authorities. A peculiar feature of funding the federal programs for regional development implies offering direct grants to the recipients, no intermediation like regional budgets supposed. Thereby it is notable, that the expenditures of funding the federal programs of regional development are not given as a special line in the federal budget performance accounting up to now.

Since 2000, the funds directed to the objectives of regional development programs are assigned from a particular Regional Development Fund, which was created within the Financial Aid to other levels of government federal budget section. The 2001 federal budget law assigns funds for the implementation of 42 federal programs of regional development, the aggregate value of funding for these objectives accounting for 3,3 bln. roubles (0,3% of the federal budget expenditures).

The relationships for funding highway construction and operation appear to be a specific kind of center-to-regions financial relationships. The expenditures for the above state services rest with the federal and territorial road funds, which are replenished by some specific tax revenues. In most regions, a status of budget funds of a special purpose is awarded to the territorial , besides, this was the case for the federal road fund prior to 2001. The fiscal capacity interregional equalization is carried out by the federal Road Fund as dotations to the respective regional funds, which are allocated on funding requirements criteria, as put by the federal Road Service (an authority in charge of the allocation of federal Road Fund assets). For the recent period, the aggregate value of funds granted as dotations to the territorial road funds, has decreased from 0,34% in 1997 to 0,11% of GDP in 2000.

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