Three ideas from Russia

By on 21/10/2015 | Updated on 23/10/2015

Ilya Sokolov, director of the Budget Policy Department at Russia’s Ministry of Finance, tells Winnie Agbonlahor how he has tried to improve fiscal management

Ilya Sokolov is in charge of setting Russia’s budget policy, managing budget legislation – including the budget code – and promoting budgetary transparency and literacy. Previously an expert consultant advising government on tax administration, budget systems and budget policy, he became director of the Budget Policy Department in Russia’s Ministry of Finance just under two years ago.

He decided to join the government after gaining experience in “as many different areas as possible”: he worked in the banking sector and insurance industry, and served as associate professor at Lomonosov Moscow State University. His career also included a stint at Russian Railways. He holds a degree and PhD in economics and a degree in law – and though he’s never practiced the latter, he says that “everyone can benefit from having a law degree. It’s important to know one’s duties as a citizen, but it’s also important to know your rights.”

Here, we pick out three aspects of Sokolov’s work: balancing the budget; improving transparency; and developing ‘participatory budgeting’.

Balancing the Budget

Russia is enduring its first recession since the financial crisis in 2008-2009, partly because US and European Union sanctions – imposed over the conflict in Ukraine – have limited the country’s access to international capital markets and curbed imports of production equipment such as drilling technology. Russia’s counter sanctions on agricultural and food imports from the West have also hit state revenues, cutting customs duties. At the same time, a fall in oil prices has had a major impact on the country’s GDP and budget revenues. Altogether, Sokolov says, federal budget income decreased by Rub 2.5tr (£26bn) in 2015 – mainly due to lower oil and gas revenues, which led to a reduction of Rub 2tr (£21bn). The effect of the sanctions is difficult to assess as a whole, he explains, but he believes it comprises no more than 10% of the total decline in GDP and budget revenues.

To counteract the loss of income, Sokolov explains, the Russian government has cut spending by Rub 0.3tr (£3bn) in both 2015 and 2016. “We had to change the budget law in April this year to enable the spending reduction,” he explains, adding that the government made up the rest of the shortfall by tapping into its reserves.

Asked where reductions were made, Sokolov says that the number of protected spending areas – health, education, social contributions, national security and local government – left the government few options. It had to cut spending on state procurement programmes and investments, and freeze public sector wages “for the first time since the last major crisis in 1998.” Whether wages will be frozen for another two or three years, he says, depends on what happens to the oil price and the dynamics of economic growth.

Budget Transparency

Over recent years, Russia’s Ministry of Finance has worked to increase budget transparency and make information about its spending decisions more accessible to the general public. Transparency International’s measure of popular perceptions of corruption ranks Russia at a lowly 136th out of 175 countries, and the government is using budgetary transparency to improve public engagement and satisfaction.

The International Budget Partnership, which works to improve governance and reduce poverty around the world, ranks countries on budget transparency every two to three years as part of its Open Budget Index. The index, which is part of the Open Budget Survey, put Russia in 11th place out of 202 this year and in 10th place out of 100 in 2012 – revealing good progress on its 21st place out of 94 in 2010 and its 22nd out of 85 in 2008. The top three spots in both 2012 and 2010 were occupied by South Africa, New Zealand and the UK, and this year New Zealand came first followed by Sweden and South Africa.

To achieve this, Sokolov says, the government has been working with the Public Expenditure Management Peer-Assisted Learning network (PEMPAL): a group bringing together public expenditure management professionals from 22 governments in Europe and Central Asia. These professionals – Sokolov included – benchmark their PEM systems against one another, and exchange information on good practice.

The initiative was initially conceptualised in 2005 by the World Bank and the UK’s Department for International Development, in a bid to improve institutional controls on public expenditures. The network, Sokolov explains, provides an opportunity to “share experience in public finance.”

One of the factors behind Russia’s climb up the Open Budget Index, Sokolov says, lies in its efforts to “provide more information about the budget system and its execution to the general public, using the official website of the ministry and the publication of ‘citizen’s budgets’” – non-technical presentations of budgets. Since 2013, the ministry’s website has featured a ‘Joint Budget System Portal’, currently in BETA form, where citizens can examine spending decisions and give their opinions. “We are facilitating a dialogue between citizens and authorities,” says Sokolov. The hope is that, eventually, the joint portal will bring together budget information from all three levels of government – federal, regional and local.

Participatory Budgeting

At the federal level of spending, people’s input through the Joint Budget System Portal is limited to giving feedback on decisions that have already been taken; but citizens are being brought into spending decisions at the local level, Sokolov explains. Six Russian regions have already adopted a World Bank initiative called ‘participatory budgeting’, which gives people the opportunity to vote for their favourite projects to win funding – and, if they wish, to contribute money to them. Local authorities store each contribution in a separate account, and their money is released under public supervision to finance projects selected by a majority of of votes, Sokolov explains.

These participatory budgeting schemes began as pilots around seven years ago. Successful projects have included improvement work to roads and water supply systems, according to World Bank data, but by far the most popular schemes are cultural centres and landscaping work. So far, more than 1,200 projects have been carried out in Russia in this way, and the World Bank estimates that they’ve benefited more than 1m people. On average, Sokolov says, the funding contributed by the community makes up between 5% and 15% of the total cost.

The system “really involves people in the decision-making process,” comments Sokolov. “If you give money towards something, you are really going to care about it.”

About Winnie Agbonlahor

Winnie is news editor of Global Government Forum. She previously reported for Civil Service World - the trade magazine for senior UK government officials. Originally from Germany, Winnie first came to the UK in 2006 to study a BA in Journalism & Russian at the University of Sheffield. She is bilingual in English and German, and, after spending an academic year abroad in Russia and reporting for the Moscow Times, Winnie also speaks Russian fluently.

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