Implementation of the IMF recommendations in compilation of government finance statistics of the Russian Federation A comparative analysis of Economic classification recommended by the IMF and Classification of expenses used by the Ministry of Finance of the Russian Federation Slide 1 Agenda item 2

Progress in the work of the Ministry of Finance of the Russian Federation in implementation of the IMF recommendations on GFS - During recent years the Ministry of finance of Russian Federation has undertaken efforts to implement the IMF recommendations on GFS. - As a result of these efforts a number of documents under the general title “ Budgetary classification “ has been prepared, the latter includes: - classification of revenue - classification of expenses - classification of sources of finance of budget deficit - classification of transactions of the general government sector (CTGGS) These classifications are broadly in line with the provisions of the IMF Manual on GFS (2001), referred below as MGFS  Thus in CTGGS a distinction is made between : - current transaction - transactions with non-financial assets - transactions with financial assets  At the same time a detailed analysis reveals substantial differences between CTGGS and MGFS at the level of individual heading. Slide 2

Similarity and differences between the general structures of Classification of expenses used by the Ministry of Finance of the Russian Federation and Economic classification in MGFS Economic classification in the MGFS Classification of expenses of the Ministry of Finance of RF Compensation of employees Wages and salaries, payments akin to social benefits and employer actual social contributions ( code 210) Use of goods and services Payments for works, services (code 220) Interest Servicing the state debt (code 230) Subsidies Unrequited payments to organizations (code 240) Grants Unrequited payments to the budgets (code 250) Social benefits Social insurance (code 260) Other expensesOther expenses (code 290) Consumption of fixed capital Depreciation of fixed assets and non- material assets ( code 271) Similarity : approximate correspondence of the major headings of the classifications Differences : - In Classification of the Ministry of Finance of RF Subsidies and Grants are not identified as separate headings - Instead of “ Use of goods and services “ there is the heading “ Payments for works and services” Slide 3

Differences in the coverage of economic transactions and in the content of individual headings of Classification of expenses of the Ministry of Finance of the Russian Federation and Economic classification in MGFS  Differences in the coverage of economic transactions are due to : - differences in definition of the general government sector - differences in the coverage of transactions in kind  Differences in the contents of the individual headings are due to the lack in Classification of the Ministry of Finance of RF of precise distinction between : - current transactions and capital and financial transactions - subsidies and capital transfers - payments for goods and services and their actual use - compensation of employees and social benefits - actual and imputed contributions to social insurance Slide 4

Differences in definition of general government sector in the documents of the Ministry of Finance of RF and MGFS In the documents of the Ministry of Finance of RF : There is no comprehensive definition of general government sector, There is no register of the institutional units included in the general government sector, There are no clearly defined rules of making distinction between the units to be allocated to general government sector and to the sector of corporations; these rules are particularly needed for treatment of borderline cases, such as, for example, autonomous agencies which can finance their expenses both from state budget allocations and sales of services, There are no recommendations on compilation of statistics for the public sector, the part of which is the general government sector. Slide 5

Capital transfers are not identified in the Classification of expenses of the Ministry of Finance of RF) The list the of most characteristic capital transfers for Russia : unrequited financing of capital investments of corporations from the state budget, free privatization of state property, sale of state property at prices which are well below market prices, one time financial injections from the state budget to corporations in conditions of financial crisis, forgiving debts, restructuring debts, unrequited construction for other countries, compensation of losses of producers accumulated for a number of years. Slide 6

Other differences between Classification of expenses of the Ministry of Finance of the Russian Federation and Economic Classification of MGFS In Classification of RF: Subsidies are not identified as a separate heading of classification Definition of subsidies is not consistent with definition in MGFS and SNA Expenses on own account construction are treated as current expenses while in MGFS they are allocated to capital formation Land rent is treated as an item of payments for work and services (together with rentals for use of produced assets) Payments for work and services (a counterpart of “Use of goods and services”) include some outlays on investments Distribution of payments for servicing external and internal debt depends on the type of currency rather than on the criteria of residency Transactions with the rest of the world are not identified as separate headings Slide 7

Table of reconciliation of headings “Payments for works, services“ in CEMF and “Use of goods and services“ in MGFS Code of headings in CEMF Transition from the heading “Payments for works, services“ in CEMF to the heading “Use of goods and services“ in MGFS A. Original data of CEMF element of subheading 220Payments for works, services B. Adjustments a) adjustment for removing differences in the coverage of the general government sector Minus: - payments for works, services by the Pension Fund of RF and funds of compulsory medical insurance - payments for works, services by the other units which do not belong to the general government sector Plus: - payments for works, services by the units which should be included in the general government sector b) adjustment for removing differences in the content of headings of the CEMF and the Economic classification of the MGFS Minus expenses pertaining to wages and salaries in the MGFS: element of subheading 222- payments for transportation of military servicemen and members of their families to the place of vacation and back home as well as compensation of the above expenses Minus expenses treated in the MSGF as social benefits: : element of subheading 226-purchases of vouchers provided to employees for medical treatment in sanatoriums - provision of medical services to military personnel by medical institutions Minus expenses treated in the MGFS as “other expenses”: element of subheading 222-compulsory insurance of responsibility of owners of means of transportation - insurance premiums for compulsory insurance of passengers element of subheading 224- land rent element of subheading 226- insurance of life, health and property - payments of compensations to persons for their participation in the parliament activity for whom this activity is not a principal one - payments to jurymen Minus expenses treated in MGFS as gross fixed capital formation: Slide 8

( continued) element of subheading 225- capital repairs and restoration of fixed assets - repairs of engineering systems and communications, in particular, heating and water supply systems element of subheading 226- installation of security and fire signaling devices, local computing systems, video monitoring and access control systems - installation of other equipment -purchases of computer software and data bases -expenses on mineral exploration Minus payments for works and services for own account construction Plus expenses from other headings of Classification of transactions allocated in MGFS to use of goods and services: element of subheading 212- compensation of expenses of employees on transportation in connection with resettlement from the Far North regions - compensation to employees for keeping at home dogs used for official purposes - installation of telephones for employees at the places of their residence - compensation for using personal cars for official purposes element of subheading 213- expenses on measures undertaken for reduction of traumatism and professional illnesses in the production (purchases of uniforms used for work) element of subheading 290- purchases (production) of souvenirs and gifts - entertainment and similar expenses for delegations Plus expenses from other headings of classification which are treated in MGFS as use of goods and services Payments to independent individual experts for their services C. Total use of services in production (A+B) D. Use of goods in production activity of units of the general government sector (other than goods used for own account construction) E. Adjustment for differences in valuation of goods used in production (between prices at the moment of purchases of goods and prices at the moment of their use) F. Total use of goods in production (D+E) G. Total “Use of goods and services” consistent with definitions in the Economic Classification of MGFS (C+F) Slide 9

Conclusions Using Classification of expenses of the Ministry of Finance of the Russian Federation for compilation of national accounts requires introduction of a number of adjustments. The adjustments can be made with the help of the reconciliation tables. The use of reconciliation tables can not solve radically the problems associated with implementation in Russian statistics of finance of the provisions of the MGFS. There are considerable differences between other parts of the Budgetary classification of the Ministry of Finance of RF and MGFS in respect of: i) revenue ii) transactions with non- financial assets iii) transactions with the financial assets The CIS countries have to continue the work on improvement of national GFS on the basis of the IMF recommendations. In the course of this work it would be desirable to take into account the relevant provisions of the SNA The assistance to this work by the IMF and other international organizations would speed up the progress. This assistance can be provided by organizing seminars and workshops. Slide 10