## Fiscal Transparency Evaluation Update for Russia — IMF Mission (May 2019)

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### Preface and mission
- IMF team visited Moscow between May 12 to 23, 2019 to conduct a Fiscal Transparency Evaluation Update for Russia.
- Mission lead: Richard Hughes; team members: Slavi Slavov and Oksana Dynnikova.
- Supported by: IMF European Department Team and Resident Representative’s Office in Moscow.
- Objective: review Russia’s progress in improving fiscal transparency and responding to the recommendations of the Fiscal Transparency Evaluation for Russia published in May 2014.
- Meetings held with: Ministry of Finance, Federal Treasury, Ministry of Economic Development, Federal Statistics Service (Rosstat), Accounts Chamber of the Russian Federation, Economic Experts Group, and Gaidar Institute.
- Evaluation based on information available at the time it was completed in May 2019.
- Findings and recommendations represent the views of the IMF mission team and do not necessarily reflect those of the government of the Russian Federation.
- Unless otherwise specified, data in the report are estimates made by the IMF mission team and are not official estimates of the government of the Russian Federation.

### Executive summary — context and 2014 baseline
- Russia piloted the IMF’s new Fiscal Transparency Evaluation (FTE) in October 2013; report finalized and published in May 2014.
- 2014 FTE highlighted nine priority recommendations including:
  - Strengthen disclosure and oversight of more than 30,000 public corporations with liabilities of at least 127 percent of GDP;
  - Expand public sector balance sheet coverage to recognize estimated 200 percent of GDP in sub-soil oil and gas reserve assets and 287 percent of GDP in liabilities from public pensions and PPP arrangements;
  - Enhance disclosure and management of 2-3 percent of GDP in revenue foregone from tax expenditures;
  - Reduce share of the Federal budget classified as secret (16 percent noted) and eliminate opportunities for extrabudgetary domestic investment via sovereign wealth funds;
  - Provide greater independent scrutiny of official macroeconomic and fiscal forecasts (GDP growth, inflation, oil prices and volumes);
  - Improve disclosure and analysis of fiscal risks by including alternative macro-fiscal scenarios, publishing a comprehensive statement of fiscal risks, and producing long-term fiscal projections for the next 30–50 years.

### Progress since 2014 (high-level)
- Improved disclosure and analysis of fiscal risks: advanced standing against 5 of 12 principles in Pillar III.
- Specific improvements:
  - Fiscal reporting: annual publication of detailed account of cost of tax expenditures; adoption of a program classification as the basis for budget appropriations; publication of first official (conservative) estimates of volume and value of sub-soil oil, gas, and mineral reserves.
  - Fiscal forecasting and budgeting: adoption of a new fiscal rule based on a conservative estimate of the oil price; publication of the first Citizens’ budget for the Federal Budget; participatory budgeting pilots in more than half of Russia’s regions and municipalities.
  - Fiscal risk analysis and management: publication of Russia’s first Fiscal Risks Report in 2015; annual production of 17-year macroeconomic and fiscal forecasts beginning in the 2018 Budget.

### Areas of limited progress or regression
- Integrity of fiscal statistics and the annual budget under pressure:
  - Little material progress in improving transparency or oversight of Russia’s public corporations.
  - Production and dissemination of government finance statistics remains with the Federal Treasury (an agency of the Ministry of Finance).
  - Rosstat placed under control of the Minister of Economy in April 2017; its Head replaced in December 2018.
  - Proportion of the Federal budget classified as secret: increased from 10 percent in 2009 to 14 percent in 2013 and 17 percent in 2018.
  - 35 percent of public procurement contracts in 2018 were classified as secret and not subject to open and competitive tendering procedures.
  - Use of the National Welfare Fund (NWF) for extrabudgetary transfers: bank recapitalizations account for 20 percent of total assets; financing of infrastructure projects account for 16 percent of total assets.
  - NWF will, in principle, have legal authority to invest future receipts domestically once its liquid foreign assets reach 7 percent of GDP.
  - Amendments to budget execution regulations allow unlimited carryover and reallocation of resources into, between, and within the 13 National Priority Projects (accounting for more than one-tenth of the Federal budget) without recourse to a supplementary budget.
  - Little progress on disclosure or management of fiscal liabilities and risks associated with almost 2,500 PPP projects with an estimated value of over 2 trillion rubles (2.2 percent of GDP) in 2017.

### Ten further reform recommendations (summary)
1. State-owned enterprises (SoEs): Produce a summary document on the financial performance of the SoE sector and publish audited financial statements for all SoEs.
2. Statistical integrity: Make Rosstat fully independent of Government and produce and publish metadata explaining how main fiscal indicators or datasets are compiled.
3. Public-private partnerships: Publish annual estimates of total government obligations under PPP contracts.
4. Forecast credibility: Publish comparisons between government economic and fiscal forecasts and those of independent bodies and explain any material differences in budget documentation.
5. Fiscal rules: Adhere to the latest fiscal rule to accumulate sufficient assets in NWF to both stabilize macroeconomy and compensate for declining oil and gas revenues over the long-term.
6. Budgetary integrity: Ban extrabudgetary domestic investment by the NWF, review and reduce the proportion of expenditure classed as secret, and disclose costs of quasi-fiscal policy mandates on SoEs in an appendix to the Budget and SoE accounts.
7. Supplementary budget: Return to normal in-year virement rules for the 13 National Projects.
8. Fiscal risks report: Publish an updated Fiscal Risks Report (FRR) every 3 years and require government to respond within 2 years.
9. Long-term analysis: Incorporate 30-to-50-year macroeconomic and fiscal projections into the FRR to assess intergenerational fairness under various oil price, production, employment, and health and welfare spending scenarios.
10. Natural resources: Publish annual estimates of the volume and value of Russia’s natural resource reserves under different price and production scenarios, and consider evaluating natural resource management against Pillar IV of the IMF’s Fiscal Transparency Code.

### Fiscal reporting — key updates and outstanding issues
- Adoption and classification:
  - Government adopted GFSM2014 standards for classification of institutions to the general government.
  - MoF Directive No 221n of November 30, 2016 defines boundaries of general government and public sector in line with GFSM2014.
  - Rosstandart Directive No. 781-st of October 16, 2018 on Sector Classification aligns with GFSM2014 and SNA 2008.
- Non-produced assets and sub-soil estimates:
  - Directive no 431 of September 4, 2018 requires annual publication of estimates of the volume and value of sub-soil natural resource reserves.
  - March 2019 first annual report estimated value of gas, oil, and mineral resources at 55.2 trillion rubles ($844.58 billion) or 60 percent GDP in 2017.
  - Valuation methodology based on Rosstat form N1-RSPI under Rosstat Directive No 863 of December 25, 2017 includes only resources with an exploitation license and approved work plan.
  - Approach is more conservative than earlier estimates of 170 to 230 percent of GDP cited in the 2013 FTE report.
  - MoF, Rosstat, and Ministry of Natural Resources target initial statistical estimates of value of all non-produced assets in line with GFSM2014 in 2021.
  - MoF Directive no 34n of February 28, 2018 requires non-produced assets to be recorded from 2021 where expected economic benefit and credible appraisal exist.

### Coverage of tax expenditures and classification improvements
- MoF began publishing a detailed breakdown of the cost of tax expenditures in 2017.
- Major Directions of Budgetary, Tax, and Customs Tariff Policy includes estimates by state program and by function since 2017.
- MoF estimate costs of tax expenditure at 3.4 trillion rubles or around 3.2 percent of GDP in 2018.
- Legislation for rollout approved: Law No. 494-FZ of December 25, 2018 and Resolution 439 of April 12, 2019.
- Program classification adopted as basis for appropriation covers 58.5 percent of the Federal Budget and the bulk of Federal non-social security expenditure.
- Reconciliations: GFSM2014-based statistics include reconciliations between fiscal balance and financing and between debt issued and change in debt holdings, but reconciliations are limited to GFS framework and not validated against external data sources (no reconciliation between Treasury-reported debt issued and Central Bank-compiled holdings provided).

### Fiscal forecasting, budgeting, and National Welfare Fund (NWF)
- Citizens’ Budget and participation:
  - MoF published first Citizens’ Budget in 2013; all 85 regions produced Citizens’ Budgets from 2016.
  - Participatory budgeting pilots in municipal governments in 53 of 85 regions.
- Fiscal rule history and parameters:
  - 2013 rule: deficit < 1 percent of GDP based on 5-year average oil price (around US$100/barrel then), surplus to Reserve Fund.
  - Rule suspended after 2015 oil price collapse.
  - 2017 rule: balance Federal Budget (excluding debt interest) based on $40/barrel from 2019.
  - 2018 revision: allow 0.5 percent of GDP deficit (based on $40/barrel) over six years for 13 National Projects.
  - From 2025 onward the government expected to balance Federal Budget (excluding debt interest spending) based on $40/barrel indexed by 2 percent per year from 2019.
- NWF composition as of April 2019 (3.8 trillion rubles total):
  - 2.2 trillion rubles in liquid foreign assets (58 percent);
  - 755 billion rubles in assets acquired through bank recapitalizations (20 percent);
  - 613 billion rubles in assets from financing of infrastructure projects (16 percent of total assets);
  - 256 billion in other assets (7 percent) including 30 billion in assets earmarked for SME lending and US$3 billion of Ukrainian sovereign bonds.
- Constraint and legal authority:
  - Government committed to accumulate at least 7 percent of GDP in liquid foreign assets in NWF; once this threshold met, legal authority exists to invest future receipts domestically outside the budget or in higher-risk foreign assets.
- Procurement and classified expenditure:
  - 35 percent of procurements (2.4 trillion rubles in 2018) were classified as secret and excluded from open competitive tendering; classified expenditure disclosed only at aggregate level.
  - Classified Federal Budget expenditure increased from 14 percent in 2013 to 17 percent in 2018 and forecast to reach 20 percent by 2021.
  - 14 percent of classified expenditure in the 2018 Federal Budget fell outside functional definition of defense and national security.

### Fiscal risks analysis, natural resources, and sector exposures
- Fiscal Risks Report and forecasts:
  - 2015 Fiscal Risks Report (Public Council of MoF) covers macroeconomic and specific fiscal risks; 17-year macroeconomic and fiscal forecasts published starting April 2018 and updated April 2019 up to 2036.
  - April 2018/April 2019 forecasts include baseline and conservative scenarios and alternative assumptions for oil price, exchange rate, interest rates, GDP, productivity, investment, wage growth, and unemployment.
  - Limitation: scenarios assume expenditure adjusts automatically to meet fiscal rule, limiting analysis of long-term mismatches between revenue potential and expenditure pressures.
- Pillar evaluation changes since 2014:
  - 3.1.1 Macroeconomic Risks: Basic → Good
  - 3.1.2 Specific Fiscal Risks: Not met → Good
  - 3.1.3 LT Fiscal Sustainability: Not met → Basic
  - 3.2.1 Budgetary Contingencies: Advanced → Advanced
  - 3.2.2 Asset & Liability Management: Basic → Basic
  - 3.2.3 Guarantees: Good → Good
  - 3.2.4 Public Private Partnerships: Not met → Not met
  - 3.2.5 Financial Sector Exposure: Basic → Good
  - 3.2.6 Natural Resources: Basic → Good
  - 3.2.7 Environmental Risks: Basic → Basic
  - 3.3.1 Sub-National Governments: Advanced → Advanced
  - 3.3.2 Public Corporations: Basic → Basic
- Financial sector exposures (from 2015 Fiscal Risks Report):
  - State’s direct holdings of banking sector assets: 60 percent of assets in 2015.
  - Implicit exposure to systemically important banks: 70 percent of assets in 2017.
  - Direct exposure in form of state-backed deposit insurance fund: 0.3 percent of GDP in 2015.
  - Historical budget outlays to support financial sector: around 2–3 percent of GDP between 2008–11.
- Natural resources published values (2017 base):
  - Total estimated value: 55.2 trillion rubles ($844.58 billion) or around 60 percent of GDP in 2017.
  - Composition:
    - 9.04 billion tons of oil reserves worth 39.6 trillion rubles (43 percent of GDP);
    - 14.47 trillion cubic meters of gas worth 11.3 trillion rubles (12 percent of GDP);
    - coking coal worth 2 trillion rubles (2 percent of GDP);
    - iron ore worth 0.8 trillion rubles (1 percent of GDP);
    - 375 million metric carats of diamonds worth 0.5 trillion rubles (0.5 percent of GDP);
    - 1,407 tons of gold worth 0.5 trillion rubles (0.5 percent of GDP).
- Environmental risks:
  - Ministry published a 900-page report in September 2018 on potential impact of climate change; report did not include estimates of economic or fiscal cost.

### Public corporations, accounting reforms, and oversight
- Accounting reforms and timetable:
  - Law on Government Accounting No. 402 amended December 6, 2011.
  - MoF Directive No. 45n of March 19, 2019 “On Approval of the Program for Developing Federal Accounting Standards for Public Sector Entities for 2019–21.”
  - Program envisages adoption of two Federal accounting standards: September 2020 (“Consolidated Accounting and Financial Reporting”) and October 2022 (“Information on Accounting (Financial) Reporting Indicators by Segment”).
  - Reforms will require publication of consolidated reporting of the public corporations sector and whole public sector for 2022.
- Treasury control over subsidies and ledger accounts:
  - 2016: ledger accounts in the Federal Treasury established for all legal entities receiving government funding; debiting performed only as funds are required with Treasury authorization; unused balances retained by the Treasury.
- Public corporations disclosure:
  - Around 8,000 public corporations in form of joint stock companies publish audited financial statements according to IFRS (out of over 30,000 public corporations).
  - No progress reported on publishing an annual report on the public corporations sector.

### Recommendations to increase transparency and scrutiny of official forecasts
- Publish a comprehensive Fiscal Strategy each spring to provide framework for budget preparation (Major Directions document exists; discussed by State Duma Committee).
- Provide a more comprehensive reconciliation of changes to key fiscal aggregates between successive fiscal forecasts (detailed reconciliations exist but not consolidated for borrowing).
- Seek published input from independent experts on official macro and fiscal forecasts (State Duma Committee includes external expert commentary).
- Improve analysis and disclosure of macroeconomic risks (2015 report and 17-year forecasts include sensitivity analysis; further enhancement recommended).
- Publish a comprehensive fiscal risk statement (2015 Public Council report provided this model).
- Publish long-term fiscal projections for the next 30–50 years (current practice: 17-year forecasts up to 2035/2036; recommendation to extend to 30–50 years).
- Enhance financial oversight of public enterprises:
  - Require all public corporations to publish audited financial statements and present statements in format facilitating public sector consolidation.
  - Require disclosure and quantification of all quasi-fiscal activity.
  - Publish annual report on the public corporations sector (no progress reported).

- Cross-cutting fiscal risk and governance recommendations reiterate:
  - Publish comparisons between government and independent forecasts and explain material differences;
  - Ban extrabudgetary domestic investment by the NWF and reduce proportion of expenditure classed as secret;
  - Publish updated FRR every 3 years with government response within 2 years;
  - Incorporate 30-to-50-year projections into FRR;
  - Publish annual estimates of natural resource reserves under different scenarios.

*Italic: Source — IMF mission team, Fiscal Transparency Evaluation Update for Russia (May 2019).*

### PREFACE _________________________________________________________________________________________ 4

### PREFACE

### Mission and objective
- An IMF team visited Moscow between May 12 to 23, 2019 to conduct a Fiscal Transparency Evaluation Update for Russia.
- Mission lead: Richard Hughes; team members: Slavi Slavov and Oksana Dynnikova.
- Supported by: IMF European Department Team and Resident Representative’s Office in Moscow.
- Objective: review Russia’s progress in improving fiscal transparency and responding to the recommendations of the Fiscal Transparency Evaluation for Russia published in May 2014.
- Meetings held with: Ministry of Finance, Federal Treasury, Ministry of Economic Development, Federal Statistics Service (Rosstat), Accounts Chamber of the Russian Federation, Economic Experts Group, and Gaidar Institute.
- Evaluation based on information available at the time it was completed in May 2019.
- Findings and recommendations represent the views of the IMF mission team and do not necessarily reflect those of the government of the Russian Federation.
- Unless otherwise specified, data included in the text, figures, and table of the report are estimates made by the IMF mission team and are not official estimates of the government of the Russian Federation.
- Mission thanks Russian authorities and participants for collaboration; particular thanks to Anna Belenchuck, Vladimir Tsibanov, and Dmitrij Nikolskii of the Ministry of Finance.

---

### EXECUTIVE SUMMARY

### Background and context
- Russia piloted the IMF’s new Fiscal Transparency Evaluation (FTE) in October 2013; report finalized and published in May 2014.
- The IMF’s Fiscal Transparency Code was refined and published in June 2014.
- As part of the 2019 Article IV surveillance mission (May 2019), Russia’s progress since 2014 was evaluated; this report summarizes changes and makes recommendations.

### 2014 evaluation main findings (summary)
- Russia was one of the best performing emerging market countries in the 2014 FTE, but the evaluation highlighted areas needing reform.
- Nine recommendations in 2014 focused on:
  - Strengthening financial disclosure and oversight of more than 30,000 public corporations with liabilities of at least 127 percent of GDP;
  - Expanding public sector balance sheet coverage to recognize estimated 200 percent of GDP in sub-soil oil and gas reserve assets and 287 percent of GDP in liabilities from public pensions and PPP arrangements;
  - Enhancing disclosure and management of 2-3 percent of GDP in revenue foregone from tax expenditures;
  - Safeguarding budgetary integrity by reducing the 16 percent of the Federal budget classified as secret for national security purposes and eliminating opportunities for extrabudgetary domestic investment via several sovereign wealth funds;
  - Providing greater independent scrutiny of official macroeconomic and fiscal forecasts (GDP growth, inflation, oil prices and volumes);
  - Improving disclosure and analysis of fiscal risks by including alternative macro-fiscal scenarios in budget documentation, publishing a comprehensive statement of fiscal risks, and producing long-term fiscal projections for the next 30–50 years.

### Progress since 2014 (high-level)
- Significant progress in several areas, especially disclosure and analysis of fiscal risks (improved standing against 5 of 12 principles in Pillar III).
- Specific improvements:
  - Fiscal reporting: annual publication of detailed account of cost of tax expenditures; adoption of a program classification as the basis for budget appropriations; publication of first official (conservative) estimates of volume and value of sub-soil oil, gas, and mineral reserves.
  - Fiscal forecasting and budgeting: adoption of a new fiscal rule based on a conservative estimate of the oil price; publication of the first Citizens’ budget for the Federal Budget; participatory budgeting pilots in more than half of Russia’s regions and municipalities.
  - Fiscal risk analysis and management: publication of Russia’s first Fiscal Risks Report in 2015 with comprehensive discussion of macroeconomic risks, financial sector exposures, and specific fiscal risks; annual production of 17-year macroeconomic and fiscal forecasts beginning in the 2018 Budget.

### Areas of limited progress or regression
- Integrity of fiscal statistics and the annual budget under pressure.
- Specific concerns and developments:
  - Little material progress in improving transparency or oversight of Russia’s public corporations.
  - Responsibility for production and dissemination of government finance statistics remains with the Federal Treasury (an agency of the Ministry of Finance). Rosstat placed under control of the Minister of Economy in April 2017; its Head replaced by a former Economy Ministry official in December 2018.
  - Proportion of the Federal budget classified as secret: increased from 10 percent in 2009 to 14 percent in 2013 and 17 percent in 2018.
  - 35 percent of public procurement contracts in 2018 were classified as secret and not subject to open and competitive tendering procedures.
  - Use of the National Welfare Fund (NWF) for extrabudgetary transfers: bank recapitalizations account for 20 percent of total assets; financing of infrastructure projects account for 16 percent of total assets.
  - The NWF will, in principle, have legal authority to invest future receipts domestically once its liquid foreign assets reach 7 percent of GDP in the next few years.
  - Amendments to budget execution regulations allow unlimited carryover and reallocation of resources into, between, and within the 13 National Priority Projects (accounting for more than one-tenth of the Federal budget) without recourse to a supplementary budget.
  - Little progress on monitoring, disclosure, or management of fiscal liabilities and risks associated with almost 2,500 public-private partnership projects with an estimated value of over 2 trillion rubles (2.2 percent of GDP) in 2017.

### Ten further reforms recommended
1. State-owned enterprises (SoEs): Produce a summary document on the financial performance of the SoE sector and publish audited financial statements for all SoEs.
2. Statistical integrity: Make Rosstat fully independent of Government and produce and publish metadata explaining in an accessible way how the main fiscal indicators or datasets are compiled.
3. Public private partnerships: Publish annual estimates of total government obligations under PPP contracts.
4. Forecast credibility: Publish comparisons between government economic and fiscal forecasts and those of independent bodies and explain any material differences in budget documentation.
5. Fiscal rules: Adhere to the latest fiscal rule to accumulate sufficient assets in NWF to both stabilize macroeconomy and compensate for declining oil and gas revenues over the long-term.
6. Budgetary integrity: Ban extrabudgetary domestic investment by the NWF, review and reduce the proportion of expenditure classed as secret, and disclose the costs of quasi-fiscal policy mandates on SoEs in an appendix to the Budget and SoE accounts.
7. Supplementary budget: Return to normal in-year virement rules for the 13 National Projects.
8. Fiscal risks report: Publish an updated Fiscal Risks Report (FRR) every 3 years and require government to respond within 2 years.
9. Long-term analysis: Incorporate 30-to-50-year macroeconomic and fiscal projections into the FRR to assess intergenerational fairness under various oil price, production, employment, and health and welfare spending scenarios.
10. Natural resources: Publish annual estimates of the volume and value of Russia’s natural resource reserves under different price and production scenarios, and consider undertaking an evaluation of natural resource management against the recently updated Pillar IV of the IMF’s Fiscal Transparency Code.

### Notes on the remainder of the report
- The report provides a detailed summary of changes since the 2014 evaluation.
- Appendix I provides a detailed update on progress against the nine recommendations made in the original 2014 FTE report.
- Preliminary results from the evaluation update were included in the Staff Report and Selected Issues Paper following the 2019 Article IV mission.
- Preliminary results were revised based on further information shared after the mission, resulting in improvements in ratings from Basic to Good for Principles 1.3.2 (Internal Consistency), 1.3.3 (Historical Revisions), 1.4.3 (Comparability of Fiscal Data), and 2.4.1 (Independent Evaluation).
- These rating improvements are reflected in the final results presented in this report.

---

### FISCAL TRANSPARENCY EVALUATION: SUMMARY TABLES (HIGHLIGHTS)

### Table 1: Overall summary of changes since 2014 (selected entries)
- Coverage of Tax Expenditures (1.1.4): Basic → Good
- Classification (1.3.1): Good → Advanced
- Internal Consistency (1.3.2): Basic → Good
- Historical Revisions (1.3.3): Basic → Good
- Comparability of Fiscal Data (1.4.3): Basic → Good
- Budget Unity (2.1.1): Good → Basic
- Public Participation (2.3.3): Basic → Good
- Independent Evaluation (2.4.1): Basic → Good
- Macroeconomic Risks (3.1.1): Basic → Good
- Specific Fiscal Risks (3.1.2): Not met → Good
- Long-term Sustainability Analysis (3.1.3): Not met → Basic
- Financial Sector Exposure (3.2.5): Basic → Good
- Natural Resources (3.2.6): Basic → Good
- Public Private Partnerships (3.2.4): Not met → Not met
- Public Corporations (3.3.2): Basic → Basic

---

### I. FISCAL REPORTING

### A. Introduction — Key developments since 2014
- Progress has been made in coverage and detail of fiscal reporting, but assurances of quality and integrity remain incomplete.
- Notable developments:
  - Government adopted GFSM2014 standards for classification of institutions to the general government.
  - Published first estimates of the country’s sub-soil hydrocarbon and mineral reserves.
  - Published a detailed breakdown of the cost of tax expenditures by policy area.
  - Introduced a program classification as the basis for budget appropriation.
  - Committed to producing statistics for the public corporations sector by 2022.
- Remaining concerns:
  - Fiscal statistics continue to be produced by the Federal Treasury (an agency of the Ministry of Finance).
  - Rosstat had responsibilities for policy and legal regulation regarding official statistics transferred to the Ministry of Economy.

### B. Updates to the 2014 Evaluation (selected principle updates)
- 1.1.1 Coverage of Institutions (Remains Good)
  - 2016: Government formally adopted IMF’s GFSM2014 for preparation of government finance statistics and classification of institutional units.
  - MoF Directive No 221n of November 30, 2016 defines boundaries of general government and public sector in line with GFSM2014.
  - Rosstandart Directive No. 781-st of October 16, 2018 on Sector Classification defines basis for classification and consolidation of entities into institutional sectors in line with GFSM2014 and SNA 2008.
  - 2015 was the first year GFSM2014 used to prepare official fiscal statistics following trial presentations starting 2014.
  - 50 percent rule applied in principle to distinguish market and non-market producers; no reclassifications yet based on new standard.
  - 2017: MoF and Rosstat launched pilot exercise to apply classification on the general government–public sector boundary.
  - Government plans publication of consolidated public corporations sector and public sector statistics described under Principle 3.3.2.
- 1.1.2 Coverage of Stocks (Remains Good)
  - 2016: Government adopted fair value basis for recognition of assets and liabilities in public sector balance sheets.
  - Ministry of Finance Decree 256n of December 31, 2016 "On Approval of the Federal Accounting Standard for Public Sector Organizations: Conceptual Basis of Accounting and Reporting of Public Sector Organizations" mandates individual assets and liabilities be recognized at fair value; main valuation methods: market price and depreciated replacement cost.
  - Ministry of Finance Decree 257n of December 31, 2016 N 257n “On Approval of Federal Accounting Standard for Public Sector Organizations: Fixed Assets” requires fixed assets intended for sale to the private sector to be valued at market prices.

*Italic: Source — IMF mission team, Fiscal Transparency Evaluation Update for Russia (May 2019).*

### 10.      The government published its first estimates of the volume and value of its sub-soil

### 10.      The government published its first estimates of the volume and value of its sub-soil

### Estimates of sub-soil volumes and values
- The Ministry of Natural Resources and the Environment issued Directive no 431 on September 4, 2018 requiring the annual publication of estimates of the volume and value of Russia’s sub-soil natural resource reserves.
- In March 2019, the Ministry published its first annual report which estimated the value of Russia’s gas, oil, and mineral resources at 55.2 trillion rubles ($844.58 billion) or 60 percent GDP in 2017.
- These estimates were recognized in Rosstat’s general government balance sheet for national accounts in 2017.
- The valuation methodology is based on Rosstat form N1-RSPI issued under Rosstat Directive No 863 of December 25, 2017 and includes only those resources for which an exploitation license has been issued and work plan approved.
- This approach to valuation is considerably more conservative than estimates of 170 to 230 percent of GDP included in the 2013 FTE report and other independent estimates which include all of Russia’s proven and unproven reserves respectively.

### Accounting standards, coverage, and planned improvements
- The MoF, Rosstat, and the Ministry of Natural Resources are working to produce statistical estimates of the value of all non-produced assets (including sub-soil assets and land) in line with GFSM2014 principles, with initial estimates expected in 2021.
- Following issuance of two December 2010 Ministry of Finance Decrees on government accounting (157n and 162n), annual government accounts have included estimates of non-produced assets (including natural resources) on the government balance sheet; however, coverage and valuation appeared to understate true value (as noted in the 2013 FTE report).
- The only non-produced asset currently recognized in government finance statistics produced by the Treasury is land currently being used in the provision of public services.
- From 2021, MoF Directive no 34n on Federal Accounting Standards for Organizations in the Non-produced Assets Sector of February 28, 2018 requires non-produced assets to be recorded as part of nonfinancial assets on the balance sheets of all public sector entities, provided that:
  - the entity expects to receive economic benefits or potential utility from the asset; and
  - its initial value can be credibly appraised.
- The subsoil assets category group will recognize all reasonably assured surface, subsoil, and seabed mineral resources including oil, natural gas, ore and non-ore resources, including mineral and thermal sources.
- The standard will also apply to land not currently deployed in the delivery of public services (such as forests), which are also not currently recognized in the public sector balance sheet.

### Coverage of tax expenditures and review program
- The MoF began publishing a detailed breakdown of the cost of tax expenditures in 2017.
- Since 2017, the annual Major Directions of Budgetary, Tax, and Customs Tariff Policy has included estimates of the costs of tax expenditure by state program and by function.
- MoF estimate the costs of tax expenditure to be 3.4 trillion rubles or around 3.2 percent of GDP in 2018.
- In 2019, the MoF launched a program to review the value for money of tax expenditures under each ministry’s policy area to inform the 2020 Budget.
- Legislation for the rollout of the methodology across all tax expenditures and all levels of government has been approved:
  - Law No. 494-FZ of December 25, 2018 on “Amendments to the Budget Code”; and
  - Resolution 439 of April 12, 2019 on “Rules for Creating a List of and Assessing Tax Expenditures”.
- The government does not set a numerical limit on the size or growth of tax expenditure but has set an objective of reducing or eliminating those found to be inefficient.

### Classification, internal consistency, and historical consistency
- A program classification adopted as the basis for appropriation of expenditure by the State Duma in the 2014 Budget:
  - The program classification covers 58.5 percent of the Federal Budget and the bulk of Federal non-social security expenditure.
  - Budgets and fiscal statistics now include a complete set of administrative, economic, functional, and program classifications in line with international standards.
- Fiscal statistics now incorporate internal consistency between flows and between flows and stocks:
  - Annual GFSM2014-based statistics include reconciliations between (i) the fiscal balance and financing and between (ii) debt issued and change in debt holdings.
  - These reconciliations apply only to flows and changes in stocks within the GFS collection framework and are not validated against external data sources.
  - Reconciliations of the stock position between total government debt issued by the Treasury and total holdings of government debt compiled by the Central Bank are not provided.
- Revisions to historical statistics are reported with an explanation for each major revision; data are generally considered final when first released and most revisions are minimal.
- Due to revisions to the Fiscal Transparency Code between the draft 2013 version and the final 2014 version, historical consistency merits a Good rating under this principle.

### Statistical integrity, external audit, and comparability
- The Ministry of Finance determines fiscal statistical methodology while the Federal Treasury is responsible for production and dissemination of government finance statistics; decisions about adoption and application of GFSM2014 standards remain with the Ministry of Finance.
- In April 2017, responsibilities for policy and legal regulation in official statistics were transferred to the Ministry of Economy; the head of Rosstat was dismissed and replaced in December 2018.
- In 2018, the Ministry of Finance, the Ministry of Economic Development, Rosstat, and the Treasury established a joint working group to harmonize classifications, introducing changes such as distinction of transactions by form, nature, and type of payments, and an Order to classify institutional units across economic sectors in accordance with GFSM 2014 and the 2008 SNA (Rosstandart No. 781-st dated October 16, 2018 “On the Classification of Sectors”).
- In 2019, Rosstat, the Treasury, and Central Bank of Russia established a joint working group to harmonize classifications and accounting treatment between national accounts and fiscal statistics; changes include splitting transfers between sectors into current and capital components.
- External audit arrangements remain unchanged; the Accounts Chamber of the Russian Federation does not provide a “true and fair view” opinion but focuses on whether the Federal Budget was executed in accordance with the law, consistent with a Basic rating under the 2014 Code.
- Work is ongoing at the Accounting Chamber to prepare changes to Standard SGA 203, “Follow-on Monitoring of Federal Budget Performance,” to stipulate a formal opinion on accuracy of audited statements on federal budget performance in the annual report on federal budget performance, including for 2018.
- Reforms to treatment of taxes and nonfinancial assets have improved comparability of budgets, statistics, and accounts, but transparent reconciliations between the three are still not provided.
  - From 2016, fiscal statistics included provisions for taxes unlikely to be collected.
  - Changes to the Budget Code in 2017 reduced budgetary provisions for guaranteed loans to amounts taken up by the beneficiary.
  - From 2020, fiscal statistics are expected to include provisions for non-repayment of loans.
  - Nonfinancial assets intended for sale are now valued at market value.

### Further recommendations (C. Further Recommendations)
- State-owned enterprises (SoEs): Produce a summary document on the financial performance of the SoE sector and publish audited financial statements for all SoEs.
- Statistical integrity: Make Rosstat fully independent of Government and produce and publish metadata explaining in an accessible way how the main fiscal indicators or datasets are compiled.
- Public-private partnerships: Publish annual estimates of total government obligations under PPP contracts.

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### II. Fiscal Forecasting and Budgeting — key updates and issues
- Progress since 2014 has been mixed: the MoF published its first Citizens Budget and began piloting citizen participation at regional and municipal levels.
- The National Welfare Fund (NWF) has been used as a vehicle for domestic extrabudgetary investments, undermining budget unity and integrity.
- The proportion of Federal expenditure classified as secret increased from:
  - 14 percent in 2013 to 17 percent in 2018 and is forecast to reach 20 percent by 2021.
  - Classified expenditure is disclosed only at aggregate level; around 35 percent of public procurement contracts in 2018 were classified as secret and not subject to open and competitive tendering.
  - 14 percent of classified expenditure in the 2018 Federal Budget fell outside Russia’s functional definition of defense and national security and included general public services, economic affairs, health, and education.

### National Welfare Fund (NWF) specifics and composition
- Russia’s two sovereign wealth funds were merged into a single National Welfare Fund in 2018.
- The NWF’s role has included direct investment in domestic infrastructure, recapitalization of domestic banks, and policy-driven lending abroad.
- As of April 2019, the National Welfare Fund’s 3.8 trillion rubles in assets comprised:
  - 2.2 trillion rubles in liquid foreign assets (58 percent),
  - 755 billion rubles in assets acquired through bank recapitalizations (20 percent),
  - 613 billion rubles in assets from the financing of infrastructure projects (16 percent of total assets),
  - 256 billion in other assets (7 percent) including 30 billion in assets earmarked for SME lending and US$3 billion of Ukrainian sovereign bonds.
- The NWF’s capacity for further extrabudgetary investment is constrained in the near term by the government’s commitment to accumulate at least 7 percent of GDP in liquid foreign assets in the NWF; once this 7 percent of GDP threshold is met, the Government will, in principle, have legal authority to invest future receipts domestically outside the budget or in higher-risk foreign assets.

### Investment projects and procurement
- Russia requires all major projects financed from the Federal budget to be contracted via open and competitive tender, sufficient for a Basic rating under the 2014 Code.
- This requirement does not apply to the 35 percent of procurements (2.4 trillion rubles in 2018) deemed classified for national security purposes; these include procurements by Roscosmos and Rosavtador.
- Cost-benefit analyses are routinely undertaken but not published.
- Federal budget expenditure limits for the following year and planned limits for the subsequent two years are disclosed annually in a Ministry of Economy Order, but the value of total obligations under multi-annual investment projects is not routinely disclosed.

### Fiscal rules, public participation, and budgeting processes
- Fiscal rule history and parameters:
  - The fiscal rule adopted in 2013 required the Federal Government to keep the Federal budget deficit less than 1 percent of GDP based on the average oil price over the previous 5 years (around US$100/barrel at that time) and deposit any surplus revenue in or finance any additional deficit from the Reserve Fund.
  - The rule was suspended following the collapse of the oil price in 2015.
  - The rule was resurrected in 2017 with a requirement that the Federal Budget (excluding debt interest spending) be balanced based on an oil price of $40/barrel starting from 2019.
  - The fiscal rule was revised in 2018 to allow for a 0.5 percent of GDP deficit (based on a $40/barrel oil price) over the next six years to accommodate the additional cost of the 13 priority National Projects announced by the President in 2018.
  - From 2025 onward the government will be expected to balance the Federal Budget (excluding debt interest spending) based on an oil price for $40/barrel indexed by 2 percent per year from 2019.
- Public participation:
  - The MoF produced its first Citizens Budget in 2013; the Citizen’s Budget provides accessible summaries and implications for 17 demographic groups.
  - From 2016, all 85 regions have produced Citizen’s Budgets explaining their own devolved budgets.
  - The MoF is piloting participatory budgeting at regional and municipal levels:
    - Amendments to the Budget Code and the Local Government Act were presented to, but not yet approved by, the Cabinet in 2019 to enable citizens to propose projects for municipal budget financing.
    - Municipal governments in 53 of 85 regions have conducted participatory budgeting pilots.
    - Examples: St. Petersburg used a randomly selected citizen panel to propose and allocate earmarked resources; the Sakhalin Region invited citizens to vote via a dedicated website.
  - The MoF is considering how to incorporate participatory budgeting into the results-based performance budgeting framework.

*IMF staff report excerpt (2019) — Chapter 10 and Section II summaries.*

### 27.      The government has considerably expanded its legal discretion to reallocate

### 27. The government has considerably expanded its legal discretion to reallocate resources between priority national projects without legislative approval

### Legal changes to reallocation of resources
- In November 2018, the government amended the law on budget execution to allow for it to approve unlimited carryover and reallocation of resources into, between, and within the 13 National Priority Projects without recourse to passage of a supplementary budget by the Duma.
- According to the law 457 from 28.11.2018 which amended Article 130 of the Budget Code, these reallocations must be approved by a trilateral commission on intergovernmental relations which includes representatives of the parliament (the State Duma and the Federation Council).
- The 13 National Projects announced by the President account for more than one-tenth of total Federal expenditure.

### Progress in fiscal forecasting, disclosure, and contingency analysis
- Publication milestones and reports:
  - Fiscal Risks: Identification, Prevention, and Management (the 2015 Fiscal Risks Report) prepared by the Public Council of the Russian MoF; a 100+ page report covering macroeconomic and specific fiscal risks.
  - The MoF published its first longer-term macroeconomic and fiscal forecast covering the next 17 years.
  - First Budget Forecast of the Russian Federation up to 2035 first published in April 2018; the most recent forecast published in April 2019 includes baseline and conservative scenarios and extends discussion to 2036.
- The April 2018/April 2019 forecasts include alternative scenarios based on alternative assumptions for: oil price, exchange rate, interest rates, GDP, productivity, investment, wage growth, and unemployment.
- Limitation noted: both forecast scenarios assume that the path of expenditure adjusts automatically to meet the fiscal rule in the long-run, which prevents usefulness for analysis of potential long-term mismatches between revenue potential and expenditure pressures (including pensions and health).

### Fiscal risks analysis and management — evaluation updates
- Summary of pillar evaluations (changes since 2014) for Fiscal Risks Analysis & Management:
  - 3.1.1 Macroeconomic Risks: Basic → Good
  - 3.1.2 Specific Fiscal Risks: Not met → Good
  - 3.1.3 LT Fiscal Sustainability: Not met → Basic
  - 3.2.1 Budgetary Contingencies: Advanced → Advanced
  - 3.2.2 Asset & Liability Management: Basic → Basic
  - 3.2.3 Guarantees: Good → Good
  - 3.2.4 Public Private Partnerships: Not met → Not met
  - 3.2.5 Financial Sector Exposure: Basic → Good
  - 3.2.6 Natural Resources: Basic → Good
  - 3.2.7 Environmental Risks: Basic → Basic
  - 3.3.1 Sub-National Governments: Advanced → Advanced
  - 3.3.2 Public Corporations: Basic → Basic

### Specific fiscal risks and sector exposures
- Financial sector exposure (from the 2015 Fiscal Risks Report):
  - State’s direct holdings of banking sector assets: 60 percent of assets in 2015.
  - Implicit exposure to systemically important banks: 70 percent of assets in 2017.
  - Direct exposure in the form of the state-backed deposit insurance fund: 0.3 percent of GDP in 2015.
  - Historical precedent: budget outlays to support the financial sector were equivalent to around 2–3 percent of GDP between 2008–11.
- Natural resources valuation advances:
  - Ministry of Natural Resources and the Environment Directive no 431 of September 4, 2018 requires annual publication of estimates of the volume and value of Russia’s sub-soil natural resource reserves.
  - Valuation methodology is based on Rosstat form N1-RSPI issued under Rosstat Directive No 863 of December 25, 2017 and includes only resources for which an exploitation license has been issued and work plan approved.
  - This conservative approach contrasts with earlier estimates of 170 to 230 percent of GDP included in the 2014 FTE report and other independent estimates.

### Natural resource reserves — published values (2017 base)
- Total estimated value: 55.2 trillion rubles ($844.58 billion) or around 60 percent of GDP in 2017.
- Composition:
  - 9.04 billion tons of oil reserves worth 39.6 trillion rubles (43 percent of GDP);
  - 14.47 trillion cubic meters of gas worth 11.3 trillion rubles (12 percent of GDP);
  - coking coal worth 2 trillion rubles (2 percent of GDP);
  - iron ore worth 0.8 trillion rubles (1 percent of GDP);
  - 375 million metric carats of diamonds worth 0.5 trillion rubles (0.5 percent of GDP);
  - 1,407 tons of gold worth 0.5 trillion rubles (0.5 percent of GDP).

### Environmental risks
- The Ministry of Natural Resources and the Environment published a 900-page report in September 2018 on the potential impact of climate change on Russia, including Russia’s contribution to global greenhouse gas emissions (the fourth largest after China, the United States, and India) and regional impacts.
- The report did not include any estimates of the economic or fiscal cost.

### Public corporations and accounting reforms
- Legal and timetable commitments:
  - Law on Government Accounting No. 402 amended on December 6, 2011; MoF Directive No. 45n of March 19, 2019 “On Approval of the Program for Developing Federal Accounting Standards for Public Sector Entities for 2019–21.”
  - Program envisages adoption of two Federal accounting standards: September 2020 (“Consolidated Accounting and Financial Reporting”) and October 2022 (“Information on Accounting (Financial) Reporting Indicators by Segment”).
  - These reforms will require publication of consolidated reporting of the public corporations sector and whole public sector for 2022.
- Treasury control over subsidies:
  - In 2016 ledger accounts in the Federal Treasury were established for all legal entities, including public corporations, in receipt of government funding; debiting performed only as funds are required with Treasury authorization, and unused balances retained by the Treasury.

### Recommendations (from the evaluation)
- From section C (Further Recommendations, fiscal forecasting and budgeting):
  - 4. Forecast credibility: Publish comparisons between government economic and fiscal forecasts and those of independent bodies and explain any material differences in budget documentation;
  - 5. Fiscal rules: Adhere to the latest fiscal rule to accumulate sufficient assets in NWF to both stabilize macroeconomy and compensate for declining oil and gas revenues over the long-term;
  - 6. Budgetary integrity: Ban extrabudgetary domestic investment by the NWF, review and reduce the proportion of expenditure classed as secret, and disclose the costs of quasi-fiscal policy mandates on SoEs in an appendix to the Budget and SoE accounts; and
  - 7. Supplementary budget: Return to normal in-year virement rules for the 13 National Projects.
- From section C (Further Recommendations, fiscal risk analysis and management):
  - 8. Fiscal risks report: Publish an updated Fiscal Risks Report (FRR) every three years and require government to respond within two years;
  - 9. Long-term analysis: Incorporate 30-to-50-year macroeconomic and fiscal projections into the FRR to assess intergenerational fairness under various oil price, production, employment, and health and welfare spending scenarios; and
  - 10. Natural resources: Publish annual estimates of the volume and value of Russia’s natural resource reserves under different price and production scenarios, and consider undertaking an evaluation of natural resource management against the recently updated Pillar IV of the IMF’’s Fiscal Transparency Code.

*Source: 1rusea2019003 - 27.*

### 6. Increase Transparency and Scrutiny of Official Forecasts

### 6. Increase Transparency and Scrutiny of Official Forecasts

### Increase transparency and scrutiny of official forecasts
- a. Publish a comprehensive Fiscal Strategy each spring to provide a framework for budget preparation
  - The MoF’s Major Directions of Budgetary, Tax and Customs Tariff Policy sets out the broad guidelines for fiscal policy over the medium term and includes an aggregated expenditure limit for budget preparation determined by the fiscal rule.
  - The document is discussed by the State Duma Committee on Budget and Taxation during its Spring Session (in July in both 2017 and 2018).
- b. Provide a more comprehensive reconciliation of changes to key fiscal aggregates between successive fiscal forecasts
  - Separate detailed reconciliations of changes to revenue and expenditure are included in the documentation accompanying the annual budget.
  - This information is not consolidated into summary reconciliation of changes to borrowing due to economic determinants, policy, statistical revisions, and other factors.
- c. Seek published input from independent experts on the official macro and fiscal forecasts
  - The State Duma Committee on Budget and Taxes report on the draft Federal Budget law includes analysis and commentary from economic experts in universities and think tanks on the macroeconomic and fiscal outlook for the budget and medium term.

### Improve disclosure and analysis of fiscal risks
- a. Improve analysis and disclosure of macroeconomic risks
  - 2015 Fiscal Risks Report described below includes analysis of the sensitivity of the public finances to fluctuations in GDP, the exchange rate, and oil prices and volumes.
  - The MoF’s 17-year macroeconomic and fiscal forecast mentioned in 8a below includes both a baseline and alternative (conservative) scenario for the oil price.
- b. Publish a comprehensive fiscal risk statement
  - In June 2015, the Public Council of the Russian MoF, comprised of government and external experts, published a 100-page report entitled “Fiscal Risks: Identification, Prevention, and Mitigation.”
  - The report included analysis and discussion of a range of fiscal risks including near-term GDP, oil price and exchange rate volatility; explicit and implicit exposure to the financial sector; financing conditions in domestic and external markets; sustainability of sub-national governments; demographic pressures on the pensions and health system; declining oil and gas revenue; and rising tax gaps for other taxes.
  - It also made nine recommendations for enhancing Russia’s resilience to fiscal risks.

### Publish long-term fiscal projections
- a. Publish long-term fiscal projections for the next 30-50 years based on a range of underlying assumptions
  - In April 2018, the MoF began annual publication of the Budget Forecast of the Russian Federation up to 2035 which included a 17-year macroeconomic and fiscal forecasts in accordance with Article 170.1 of the Budget Code.
  - This forecast was updated and extended to 2036 in April 2019, and the intention is to make this 17-year forecast an annual publication.

### Enhance the financial oversight of public enterprises
- a. Require all public corporations to publish audited financial statements
  - Public corporations in the form of joint stock companies publish audited financial statements according to IFRS.
  - These account for around 8,000 of the over 30,000 public corporations.
- b. Require all public corporations to present their financial statements in a format which facilitates public sector consolidation
  - As part of the aforementioned 2019-21 Federal Standards Development Program for public sector entities, work is underway to harmonize the classification of operations of the general government sector with the requirements of international standards on government finance statistics and the system of national accounts and extend these to other public sector entities.
- c. Require public corporations to disclose and quantify all quasi-fiscal activity
  - The Treasury has taken initial steps to improve the control of and accounting for government subsidies to public corporations and other legal entities.
  - In 2016 leger accounts in the Federal Treasury were established for all legal entities, including public corporations, in receipt of government funding.
  - Debiting of funds from these accounts will be performed only as the funds are required and with the authorization of the Treasury, and any unused balances will be retained by the Treasury.
- d. Publish annual report on the public corporations sector
  - No progress to report.

*Source: 1rusea2019003 - 6. Increase Transparency and Scrutiny of Official Forecasts*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1rusea2019003.pdf_