THE International Monetary Fund (IMF) has advised Russia to adhere to the latest fiscal rule to accumulate sufficient assets in its sovereign wealth fund named the National Welfare Fund (NWF). This initiative is required to both stabilize macro economy and compensate for declining oil and gas revenues over the long term. This is one of the 10 recommendations made by IMF in its Technical Assistance Paper released on October 31, 2019. Captioned ‘Russian Federation Fiscal Transparency Evaluation Update’, it takes stock of progress the country has made in implementing recommendations contained in Fiscal Transparency Evaluation for Russia that was issued in May 2014.

For budget integrity, the Update has called for banning extra budgetary domestic investment by the NWF. It has also mooted review and reduction of the proportion of expenditure classed as secret. The proportion of the Federal budget classified as secret has increased from 10 percent in 2009 to 14 percent in 2013 and 17 percent in 2018 while 35 percent of public procurement contracts in 2018 were classified as secret and therefore not subject to open and competitive tendering procedures.

The Update has urged the authorities to disclose the costs of quasi-fiscal policy mandates on State-owned enterprises (SoEs) in an appendix to the Budget and SoE accounts. The Government has used NWF as a vehicle for extra budgetary transfers of public resources to the domestic economy in the form of bank recapitalizations (20 percent of total assets) and financing of infrastructure projects (16 percent of total assets). The NWF would, in principle, have legal authority to invest future receipts domestically once its liquid foreign assets reach 7% of GDP in the next few years.

Another suggestion calls upon the Government to produce a summary document on SoEs’ financial performance and publish audited financial statements for all SoEs. As put by the Update, there has been little material progress in improving the transparency or oversight of Russia’s public corporations. The Update has suggested that the Government should publish a Fiscal Risks Report (FRR) every 3 years. The Government should respond to issues raised in FRR within 2 years. In June 2015, Russia had published a comprehensive FRR titled‘Fiscal Risks: Identification, Prevention, and Mitigation’. FRR should incorporate 30-to-50-year macroeconomic and fiscal projections to assess intergenerational fairness under various oil price, production, employment,
and health and welfare spending scenarios. The Update has also recommended that Rosstat should be fully independent of Government and produce and publish metadata explaining in an accessible way how the main fiscal indicators or data sets are compiled.