Region performance measurement methods are changed far too often

A package of measures developed by the Ministry of Finance of Russia and aimed at stimulating executive authorities of the constituent territories of the Russian Federation to invite investments to regions was considered at the Russian Government meeting held on March 28.

It was suggested to combine two currently existing mechanisms of performance measurement and distribution of stimulating non-purpose transfers, namely subsidies and other intergovernmental fiscal transfers. The first mechanism provides for the allotment of Rb 10bn of stimulating subsidies to the constituent territories of the Russian Federation which have achieved best results in enhancing their regional taxation potential over the three last years. Twenty five regions received such financing (between Rb 233.6m and Rb 794.3m) in 2012 against 20 regions in 2011 (average financial support ranged between Rb 206.8m and Rb 2bn).
The second mechanism is implemented through annual allocation of Rb 1bn of other intergovernmental fiscal transfers to the regions whose executive government authorities have shown most efficient performance. This mechanism has been in place since 2008 and provides for the distribution of Rb 1bn among 10 regions which have been awarded top scores in terms of effectiveness. This performance measurement method have repeatedly been modified and upd ated, thereby increasing the number of its indicators (up to 329 indicators by 2012) and making it less user-friendly. As a result, в August 2012 the method was substantially adjusted towards decreasing the number of the foregoing indicators (to 14 indicators per region). Distribution of transfers under this method is scheduled for 2013.


It is suggested to combine both mechanisms to make a single one, while retaining the same amount of financing, Rb 11bn. On the one hand, the measure to combine the two similar-purpose mechanisms seems to be a logical solution to avoid duplicating similar indicators. On the other hand, again it would be another performance measurement method for executive government authorities, thereby making it difficult for regional government authorities to adapt to constantly changed methods.


However, no matter how perfect the new mechanism of stimulating constituent territories of the Russian Federation to invite investments is, it would have a se t of drawbacks as follows.
First, since the indicators that are used in the methods reflect the performance of government authorities in a previous period of time, they are unlikely to always take account of the economic system conditions at the moment when such assets are utilized.

Second, not all of the measured economic indicators depend directly on decisions made by government authorities.
Third, efforts to stimulate financially efficient regions can hardly be regarded as effective utilization of limited financial resources, given a relatively small amount of allocations with a comparably large number of regions to be awarded.


As a result, this mechanism will scatter budget funds, rather than have a significant effect on prioritization of regional government authorities. Furthermore, it is unreasonable to increase the amount of stimulating transfers нецелесообразно, because it would contradict the principles of fiscal equalization and increase imbalance in the development of rich and poor regions.

All in all, the mechanism of stimulating constituent territories of the Russian Federation to invite investments through allocation of additional non-purpose consolidated transfers is eligible, but its amount and update frequency must be restricted.


Alayev A.A. - researcher, Budget Federalism Department