“Effective finances” project: this year’s results

In November 2012 the Ministry of Finance of the Kaliningrad region and the Ministry of Regional Development of the Republic of Poland signed the Grant Agreement within the framework of the Lithuania-Poland-Russia Cross-border Cooperation Programme 2007-2013. The agreement entails the financing and implementation of the project «Good governance and cooperation – response to common challenges in public finance», developed by the Ministry of Finance of the Kaliningrad region in cooperation with the municipalities of Gdansk and Gdynia.

Viktor POREMBSKY, the Minister of Finance of the Kaliningrad region
The total project cost is approximately 1.28 million Euros. 890 EuroK were planned for the project activities in the Kaliningrad region, 800 EuroK is the grant funds, and the remaining amount is provided within the «Improvement of the effectiveness of the budget expenditures in 2012-2015» programme.

The prime objective of the project «Good governance and cooperation – response to common challenges in public finance» is the development of mechanisms of the public finance management providing the reduction of the budget expenditures. The major tasks are the dissemination of the experience of Kaliningrad financiers and their Polish colleagues in the municipalities of the Kaliningrad region and the automation of budgetary processes and synchronization between the municipal and regional management levels.

The project covers 12 separate areas. Among them are the long-term financial planning, the improvement of the register of expense obligations, monitoring of the financial management, the modern forms of provision of the state services, the capital investment planning, the public procurement issues, increasing of the awareness level on public finance and etc. In the framework of these areas 160 different activities must be implemented.

Analytical studies

During the first year of project implementation ten analytical studies on various aspects of the financial planning system in the Russian Federation and foreign countries were pursued; the relevant development trends of public finances in Russia were identified in the framework of studies. The result of pursued studies is the development of guidelines on the most important issues for public authorities, adapted to Russian conditions, and in particular, to Kaliningrad conditions.

The comparison study of the financial systems of the Russian Federation and foreign countries allowed us to look at the existing problems from the outside and give an impulse to redefine approaches to their solution. Considering that in Russia the task of improving the efficiency of local government has become one of the most important, the demand for the study of international experience and implementation of best practices is increasing. For example, the experience of Lithuania in the implementation of the system of headmen, who are the representatives of the local government (the headman is elected by universal suffrage and could head a city part in big cities as well as groups of rural settlements), is interesting to us.

One of the most significant factors constraining the development of PPP is the lack of elaboration of the legislative framework.

The important parts of the project are analysis and study of the experience of public-private partnerships and the involvement of private sector to the problems of social and economic development. In the course of analysis it was revealed that one of the most significant contacting factors of the development of PPP is the lack of elaboration of the legislative framework and the necessity of application of the budget legislation and state and municipal procurement laws, poorly adapted for the implementation of projects using the PPP instruments. In addition, the inability to channel the financial assistance funds (except the investment fund resources) for the implementation of projects using the PPP instruments plays an adverse role. We hope that these problems will be resolved with adoption of the PPP law, which will provide the ability to use mechanisms and instruments of public-private partnerships to the full.

At the present time, due to slackening of the rates of economic growth, the sharp questions of improvement of the effectiveness of budget expenditures and exemption of non-productive expenditures not focused on or have a little effect on the achievement of the goals and objectives of social and economic development comes up. The most effective mechanism of interconnection of the strategic aims with the budget expenditures is the development of the long-term financial plans. Considering this, a special attention was paid to the analytical studies on the long-term financial planning and in the connection with the strategic planning, the transition to the formation of the programme based budget. Analysis of the financial planning practice revealed that the most economically developed countries shape long-term plans for the period from ten years in Canada to 75 years in the United States. In this vein, the experience of Polish colleagues in shaping of long-term financial plans and budget aims, based on American planning model, is being applied for about ten years, is attractive to us.

Workshops and study tours

From a practical standpoint, workshops and study tours, within the framework of which public authorities and local authorities employees get to acquaint with the results of the conducted analysis studies, share experiences, exchange views, are interesting to us. In 2013 one of such activities was the onsite workshop and the meeting of Kaliningrad financiers with their colleagues from Krakow, where the practice of financial management tools of the result-oriented budgetary instruments is successfully implemented. The topics of the meeting are the financial planning and budgeting, the budget formation considering the objectives, the use of registers of expense obligations in Polish practise. Polish colleagues participated in two-day workshop, which covered the practical issues of their activities and answered to the questions from Kaliningrad financiers. This year a series of conferences – meetings with polish colleagues from Gdynia and Gdansk are planned.
The planned project activities have been implemented by our Polish colleagues as per schedule. The most interesting of them are the long-term financial forecast and the report on the applied principles and practices of long-term financial planning in the municipality, prepared by specialists from Gdansk and Gdynia respectively.

Implementation difficulties

The difficulties emerged during the project implementation should not go unspoken. First of all, we had difficulties with the synchronising of the requirements of Russian legislation and requirements of Grant Contract, especially in terms of the government procurement. In particular, the possibility of grouping the related events was not foreseen in Grant Contract and that led to the necessity to close separate state contracts for each activity. The average price of the implementation of analytical study and drafting of recommendations amounted approximately 200-300 K Roubles. As a result, such works did not arouse the major contractor’s interest, and the companies with the lack of sufficient skill level bid for the project. In addition, there are additional risks associated with the need to synchronize the actions of contractors running the related works. As a result there was a delay of project activities implementation, and the majority of activities which had been planned for the year 2013 were postponed to 2014. However, considering the gained experience, the work with contractors was established in the end of last year and this year the project will be implemented to the fullest extent.

The principle directions of the project

Monitoring of the financial management

This direction is equally important to the Kaliningrad region and the Polish municipalities. Currently, the system optimization of evaluation of financial position indicators of the municipalities is needed as well as the optimization of financial management quality. Indicators of financial management should be soundly analysed.

The controllership should develop in the direction of authorizing it for audit functions. Financial control should become not only a way of determining the weak pockets and mistakes of the financial management but also a source of providing recommendations for easing of the situation.
Moreover, it is necessary to cover the municipal statistics in the analytical documents. The proper statistic collection and usage will help to positively identify the socio-economic indicators and, consequently, the financial requirements of municipalities for the provision of municipal services. In addition, it will simplify the identification of the taxable capacity of municipalities to optimize the inter-budget relations.

The implementation of modern forms of public services provision

Up to now, many of the budgetary institutions operate without applying modern approaches to the development, management and not adhering to the principles of optimality and adequacy. The expenditures planning in the budgetary institutions should be implemented proceeding from the scope of provided services, rather than the need to maintain the existing rates of work. Also the intensive revision of the structure of many state-financed organizations with the purpose of the operational costs optimization and improvement of their effectiveness and, consequently the improvement of citizen satisfaction with the received services is necessary.

Four seminars for employees of state-financed institutions for the development of the bookkeeping and managerial accounting are planned. These activities will take place in Russia with the participation of Polish experts.

In addition, the transition from state-financed institutions to independent happened proactively, and the work towards this should be continued and developed, and it requires additional methodical ware.

Capital investment planning

Strategic planning in the present-day municipalities is inherent in the capital investment. It is necessary to increase the transparency of investment processes, to develop the practical methods of objects assessment current and proceeded investments are directed on and the investment project selection. This can be done by the harmonization of procedures such as decision-making on the new capital investment projects, the monitoring of their implementation, the allocation and application of capital investments and funds.

The cities of Gdansk and Gdynia have the extensive experience in preparing plans for capital investment, which can be used by the Kaliningrad region, and will improve the quality of capital contributions of the municipalities of the region. The project assumes that the study trip of the representatives of Kaliningrad and Gdynia to Gdansk will bring an opportunity to exchange the experiences and find the general solutions to establish the process of investment planning.

Public procurement

It is necessary to promote the transparent, competitive, fair and effective system of public procurement. Planned activities provide an opportunity to attract maximum number of participants from the border areas of Poland and Lithuania to the public procurement. In the future, to involve the representatives of the Russian and Polish businesses in public procurement, the training seminars will be given.

Popularization and improvement of the quality of the public finances functioning

In order to improve the quality of knowledge in the field of public finance, a special library consisting of the literature on public finance, the selection of current regulatory and legal acts in the field of regional and municipal financial management is being composed. The systematized electronic database consisting of the financial literature, legal and regulatory acts, translated if necessary, will be formed.

The «Budget» magazine, April 2014