Russia’s Budgetary System: How Much Sustainable?

Abstract

The article clarifies the concept of fiscal sustainability and its main indicators and assesses fiscal sustainability of Russian regions. The topic is chosen due to importance of managing the risks of the budgetary system ceasing to perform its functions. Academic research and regulatory documents are reviewed, and the IMF data are analyzed. The paper distinguishes between fiscal and debt sustainability. It is established that fiscal sustainability means a functioning of the budgetary system when achievement of its goals in the present does not reduce achievability of the goals in the future. Debt sustainability provides the conditions for countercyclical fiscal policy, an essential element of fiscal sustainability. Thus, fiscal sustainability depends not so much on the amount of debt, but on the fiscal and public administration institutions. Russia's fiscal sustainability risks are highest at the regional level, where the authorities have a small amount of powers, including the regulation of debt parameters. New federal governmental methodology for assessing the regional debt sustainability (article 107.1 of the Bud­get code) reflects creditworthiness, provides flexibility and correctly differentiates regulatory measures based on the amount of debt. However, it does not fully reflect the institutional and economic aspects (which we propose to include in our fiscal sustainability index (FSI)), but further restricts fiscal independence of lagging regions. We conclude that it is more effective to limit only the debt powers of those regions without additional restrictions on spending.