It’s time to make predictions

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Last year, the Federal Law of the 28th of June, 2014 № 172 FL «On the strategic planning in the Russian Federation» was passed, according to the law regions and municipalities of Russia, as well as the Federation in general, in the near future should develop a package of special documents. This is the a socioeconomic development forecast for the period of not less than six years, the budget forecasts, the system of government programmes, industry documents. The conference, which has become one of the series of similar events organized and conducted by the Ministry of Finance of the Kaliningrad region referred to the problems of the long-term budget forecasting, construction of government programmes and the experience of the Kaliningrad region on the implementation of the «E-Budget» system.

The difficulties of forecasting

The topic of the long-term budget planning is on the agenda since 2007, though the long-term budget forecast has not been developed yet. But now is the time when the question: «Do you have a plan? » – is defined. Amendments to the Budget Code were updated in last October; they regulate the use of regional budget forecasts in drafting of the budgets as of 2016 – 2018.

Consequently, at this point, the subjects of the Russian Federation should already have an available forecast of socioeconomic development for the long- run period, the procedure of the development of the budget forecast and the budget forecast itself. But for now, as it was mentioned by A. Byrukov-the Deputy Director of the long-term strategic planning of the Ministry of Finance of the Russian Federation, the methodological approaches to the implementation of legislative innovations at the federal level are still not defined. Nevertheless, it is time for regions to begin this work.

Biryukov talked to the audience of the Kaliningrad financiers about the experience of the Ministry of Finance of the Russian Federation in the development of long-term forecasts, about the surfaced problems in the process of the development. For example, at the time when the budget forecast was called the budgetary strategy a systemic methodological problem was revealed. Developed document was supposed to correspond not only to the financial indicators, but also the instruments of political matters. In the process of working it has become clear that some special long-term directions of tax, budgetary and if truth be told of debt policy largely beyond the three-year plan does not simply exist in the country. Another difficult question was the forecasting of the expenditure commitments. If the expenditures of the Pension Fund are quite curtain, when it comes to the other expenditures the question was not clear. Therefore, the Ministry of Finance followed the path of least resistance and did an extrapolation of the existing cost structure. As it turned out it was a wrong move, and these days an alternate based on the idea of existence of the ideal structure of expenditure commitments is being developed and should be formed in 5-10 years. We have to aim for it and it, in turn, will affect the revenue part, the conditions of servicing and redemption of the national debt and etc.

An additional point is that in the long-term planning a large set of risks is formed objectively. The instance of managerial decisions that significantly increase the costs of some expenditures changing their structure is always possible.

The complexity of the long-term budget forecasting is that there is no primary document – the forecast of socio-economic development. Formally in 2010, this kind of forecast was prepared by the Ministry of Economic Development. But since then, the government of the Russian Federation has not taken any decisions on estimate changes, that is why its truthfulness leaves much to be desired.

The important factors such as escalation, external account, GDP, index of industrial production, payroll budget have been changed by life itself. Even the reform of the so-called program-target method, which is now being implemented in the form of government programmes, as a matter of principle, can be achieved only while meeting the number of basic conditions. One of the most important – a complete predeterminacy of exactly what kind of resources can be spent on the implementation of relevant programmes. «The fact that we already have the two-year programme but the resource estimates still do not exist, with critical appraisal to the question can be assessed that the programmes themselves worth nothing,» – said Biryukov.

The programme budget

A priori it is understood that the state programmes – is something elaborated, stable and rigidly fixed. In fact, the state programmes appeared to be the budget. The budget – an annual or three-year – in a particular programme does not specify anything, does not expand, but only authorizes the planned expenses. This way it should be ideally. In practice, it occurs to be different. Just within one budget cycle, for example, the federal government programmes are being changed repeatedly. They are being specified for two months after the adoption of the budget, and then in April, based on the new scenario conditions are being developed for the socio-economic development forecast.

Then, the programmes are being corrected in June, when the key decisions on the main characteristics of the federal budget are being accepted, then in August, when the main preparation stage of the draft budget for the next period ends, and then is specified at the time of the passage of the budget in the lower house of the Russian parliament at the end of the year and is being corrected in accordance with the identified errors.

«From a formal standpoint – said Biryukov, -the long-term, crucial financial issues document does exist, but in practice the specified tasks are not fully implemented». Therefore, municipalities relevant to the formal application of the program-target method of budget planning should not face any difficulties, according to a representative of the Ministry of Finance. «The federal government programmes have emerged not because of any goal that deserves special approaches, – said Biryukov. – The content of the current federal programmes – is simply recalculated expenditures of the Federal Budget of 2010 taking into account the escalation, exchange rates and everything else».

Of course, it is necessary to try to do something different, allowing implementing the advantage of the programmes from the point of view of a breakthrough expenditure management. For example, it would be preferable to provide a greater degree of the risk coverage and protection of the responsible officer against the financial reduction of the activities as result of amending in the operating budget or the budget planning period. «Here, everything is in your hands», – the speaker addressed to the financiers.

The E-Budget

A. Danilov the Head of the Department of the budgetary policy and inter-budget relations of the Ministry of Finance of the region talked about the adoption of the E-budget into the practice of the Kaliningrad region. The development and implementation of the system aimed simply not to automate the elements of the budget process, but to interconnect them. It is possible if the framework for the automation of the entire budget process is one software.

As long as at that time there was a lack of the software that meets all the requirements of the Ministry of Finance of the region, it was decided to develop its own concept of the “E-Budget” system. The objectives of the development of the system were formulated as follows:

  • improving the efficiency and effectiveness of intercommunication of participants of the budget process;
  • improving the openness and transparency of the budget process;
  • providing the necessary information for making managerial decisions to the participants of the budget process;
  • formalization of the planning and budgeting procedures at all stages of the budget process.

Regarding to the appropriation of the system, Kaliningrad financiers have decided to split it into its constitutive parts:

  • long-term planning;
  • medium-term planning;
  • budget planning;
  • cash planning;
  • activity planning of the institutions;
  • implementation of the budget (estimates, operation plan of the financial and management activities);
  • monitoring and control.

In the Kaliningrad region with the financial support of the European Union the Lithuania-Poland-Russia ENPI Cross-border Cooperation Programme 2007-2013 is being implemented since 2007. Under this programme, the Ministry of Finance of the Kaliningrad region in cooperation with the Municipality of Gdansk and Gdynia (Poland) developed the project «Good governance and cooperation – response to common challenges in public finance» which started in 2012. The main purpose of the project – the contribution to the economic and social development of the territories by improving the quality of public finance management.

These subsets are developed to provide the information to the management of the financial authorities, employees of the regional offices of the Ministry of Finance, employees of the public authorities and local government, state and municipal institutions of the region, as well as entities and individuals interested in the budget process in the Kaliningrad region. The system must provide simultaneous operation for 5K users.

Several principles formulated as the result of the problem analysis emerging in the work of the financiers were laid to the basis for the concept. For example, there is a necessity for regular adjustment of the ruling financial documents. Now the budget and state programs require the constant adjustments, the long-term budget forecast will require the adjustment in the near future. Therefore, one of the most important principles – the higher system must differ from the inferior, but along with this it must form the limits and reference points to the inferior system.

«In this case, when we plan at the lower level, we will be able to determine whether the variance is on the normal level, or critical, requiring a review of indicators of a higher level. And the system must allow this analysis» – said Danilov.

The planning is implementing in terms of three component parts at every level of the system. These are the incomings in terms of tax, non-tax, non-repayable income, current and capital expenditures and sources of the deficit financing. For example, at the level of long-term planning the income is planned, and at the medium-term level it is not planned and as the result we get a failure in the planning. It is not exactly correct to use the indicators of the extended forecasts in the budget planning, because in any case, the incomings on the medium-term level are also planned, even if they are not formalized by any documents. The same situation is with the current and capital expenditures. If in the long-term plan the costs are not divided in current and capital, it will be impossible to do either at the level of the medium-term, or at the level of the budget planning. Therefore, detailed planning should be a cross-cutting- to be presented at every level.

It is important for each line in the plans to be marked by three factors: a certain volume indicators, standards, evaluating the cost of the implementation of the unit of volume indicator, and the totality. These indicators should be presented at every level, because to plan the finances for the long-term, medium-term periods and in the budgeting in default of any volume indicators which directly or with maximum effect influence on certain expenses is impossible. The principle of indexation used in the budgeting works well if planning for 1-2 years, but for a period of more than six years misses the mark.

Another principle – the output information from each subsystem should be the regulatory document. When the state programme is formed – there should be the document on mandatory performance, when the budgeting is completed – there should be the document on the budget execution. And the final principle –to assure the compliance of the plans of different levels, meaning that every inferior plan should be a detailed plan of the higher one.

At present, the e-budget is in the active planning stage. The active implementation of it in all the authorities and public institutions of the Kaliningrad region is planned in 2015.

S. Martynenko, «Budget» magazine, March 2015