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World Bank Supports Efficient Public Finance Management in Russia

September 13, 2013

WASHINGTON, September 13, 2013 - The World Bank’s Board of Directors today approved a US$50 million loan to co-finance with the Russian Federation a US$133.571 million Public Finance Management Technical Assistance Project  in Russia. The project will assist the Ministry of Finance, as well as the Federal Tax Service, the Federal Treasury, the Ministry of Economic Development, and Rosfinnadzor to improve transparency and results focus in public financial management and build institutional foundations for improved budget efficiency, effectiveness and accountability.

“The project directly supports one of the main themes of the Bank’s Country Partnership Strategy for the Russian Federation of improving governance and transparency,” said Michal Rutkowski, World Bank Country Director for Russia.  “It will also help ensure that public investments and service delivery are more efficient and fiscally sustainable, in turn fostering income growth for the bottom 40 percent of the population. Taxpayers should benefit as a result of changes in the Federal Tax Service’s approach to taxpayer service and improved dispute resolution processes, and businesses can benefit from changes in tax policy and administration that contribute towards a better climate for business and investment.”

The project’s strategic objectives will be achieved through support to the following four main areas of activity:

  • Enhancing the economic efficiency of Russia’s tax system through changes in key areas of tax policy and improving the services provided to taxpayers by the Federal Tax Service,
  • Streamlining methods of financing the country’s sub-national governments, strengthening their focus on results at all stages of the budget cycle, and building  their capacity to manage public finances,
  • Enhancing the quality, flow and accessibility of budget information through implementation of an integrated financial management information system ( E-budget),  contributing to improved transparency  and accountability, and
  • Strengthening budget preparation, control and monitoring processes to ensure greater focus on expenditure efficiency, effectiveness and results.

The project is designed to help achieve the following results:

  • Reduced time spent by small and medium sized enterprises  on tax calculation and payment, as measured by the Doing Business Indicators,
  • Increased number of regions with satisfactory performance in public finance management,
  • Improved budget transparency scores for Russia, as measured by the Open Budget Index, and
  • Increased use of performance measures in the federal budget, to depict the goals and results of government spending programs.

The project builds on a long history of cooperation between Russia and the Bank in the areas of budgeting, tax policy and tax administration.  This includes the Regional Fiscal Technical Assistance Project, Fiscal Federalism and Regional Fiscal Reform Project, two Tax Administration Modernization Projects, and the Treasury Development Project. The new project will support the strategic directions for change that have already been laid out by the Government in policy documents on tax policy and administration, budget efficiency and inter-budgetary relations, and E-budget.

Over the past few years, the Russian Federation has undertaken significant public financial management and institutional reforms, incorporating good international practice and laying the foundations for a modern public finance management system. The most notable achievements include:

  • The successful implementation of a modern Treasury Accounting System and a single treasury account,
  • The regulation of the overall budget process and introduction of three-year federal budgets,
  • The creation of the Oil Stabilization Fund,
  • The reform of regional fiscal relations and the establishment of fiscal rules for the sub-national governments,  and
  • The modernization of the tax administration, leading to a cultural shift from the traditional command-and-control approach to a modern service-oriented approach.

“Notwithstanding these reforms, revenue shortfalls across all government levels, inefficient budget spending, weak investment in public infrastructure modernization, and rigid financial management models in public institutions hamper the government's ability to pursue an effective fiscal and economic policy,”  said John Ivor Beazley, World Bank Lead Public Sector Specialist and Team Leader for the Project.  “These problems are especially acute at the regional and local levels, where they are exacerbated by a weak revenue base, under-funding and widely different degrees of public finance management capacity. Also, the challenges of improving the efficiency of revenue and expenditure management are not new but they have been exposed and aggravated by the global financial crisis.”

The project will be financed by a Technical Assistance Loan on IBRD terms, with project implementation over a four-year period.  Most of the financing will be for technical assistance. US$3.275 million has been allocated for the purchase of hardware and software to create the infrastructure of information and reference services to taxpayers in the local tax offices.

Russia joined the World Bank (IBRD-member and IDA-donor country) in 1992. Today, IBRD is financing 9 investment projects in Russia for the total amount of US$596 million

Given Russia’s size and strong financial position, engagement with the World Bank Group has been selective and strategic. Over the last 20 years, the Bank has worked with Russia on maintaining prudent macroeconomic policies, making public administration more efficient, restructuring the health sector and educating children starting from kindergarten age.  IFC’s strategy in Russia is to support private sector development and encourage economic growth.

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PRESS RELEASE NO:
2014/075/ECA