Policy Documentation Center

Monitoring Matrix on Enabling Environment for Civil Society Development: Regional Report (Balkan Civic Practices # 12)

Carrera, Sergio

Guild, Elspeth

The European Council\u2019s guidelines for the area of freedom, security and justice 2020: Subverting the \u2018Lisbonisation\u2019 of justice and home affairs?

Fuchs, Michael

Gasior, Katrin

EuropEan CEntrE • EuropäisChEs ZEntrum • CEntrE EuropÉEn
poliCy BriEf april 2014
Social Reform Microsimulation 
(SORESI). A web-based citizens’ 
tool to model the social impact 
of taxes and benefits in Austria
Michael Fuchs and Katrin Gasior
the aim of this policy Brief is to describe the main features of the micro-
simulation model sorEsi. it explains the background and process behind 
the development of this online tool and gives an example of how the 
model can be used to analyse and assess the impact of reforms. sorEsi 
is a web application that offers the user the possibility to get informed 
about the current Austrian social benefits and tax regulations as well as to 
test the effects of reforms on the social situation of the austrian popula-
tion. 
starting point of sorEsi is the regulatory impact assessment (ria) in 
the framework of the austrian federal budget law 2013 (BhG 2013), 
which entered into force on 1 January 2013. it introduced a new system 
of outcome-oriented impact assessment for drafts of acts and regulations 
which also takes into account the social impact of reforms. altogether 
nine different impact dimensions have to be taken into account. sorEsi 
aims at providing impact assessment in the field of social affairs including 
the Europe 2020 social target group. it is a tool to simulate policy reforms 
in the fields of social insurance contributions, income tax and monetary 
benefits and to analyse their social impact. The web-based tool is not only 
available for policy-makers and representatives of austrian federal minis-
tries responsible for the ria but also for the broader public, see
http://soresi.bmask.gv.at
the work on the model started in 2012 and was completed with the 
launch of the web-based tool in July 2013. updates to the latest policy 
year, relaunches and add-ons to the model will be carried out on a yearly 
basis.
Michael Fuchs and Katrin Gasior are 
researchers at the European Centre 
for social Welfare policy and research, 
Vienna 
http://www.euro.centre.org/fuchs 
http://www.euro.centre.org/gasior
Policy Briefs are a publication series 
providing a synthesis of topics of 
research and policy advice on which 
European Centre researchers have been 
working recently. 
series Editor is Pieter Vanhuysse, 
Deputy Director and head of research
vanhuysse@euro.centre.org
Keywords: microsimulation model,  
EUROMOD, web-tool, impact assessment, 
income distribution, poverty 
sorEsi is based on the Eu-wide micro-
simulation model EuromoD funded 
by the European Commission and the 
EuromoD-based microsimulation 
model mEfisto developed in flanders.  
it is funded by the austrian federal 
ministry of labour, social affairs and 
Consumer protection.
Michael Fuchs / Katrin Gasior • soCial rEform miCrosimulation (sorEsi)
poliCy BriEf april 2014
2
I Features of SORESI
sorEsi is based on the microsimulation model EuromoD, an Eu-wide 
tax and social benefits microsimulation model funded by the European 
Commission. It is a flexible tool that enables research on the effects of 
policy reforms on the distribution of income and the risk of poverty. it 
makes possible an analysis and assessment of the impact of policy changes 
on the micro-level. The change of single components of a tax/benefit 
system can be analysed for different population groups (such as by age, 
gender, income source and household type). 
the model uses the latest austrian national Eu-silC 2011 dataset for 
the input micro-data. Eu-silC is a representative sample of austrian 
private households covering data on personal characteristics and house-
hold composition as well as on income and living conditions. Disposable 
income is calculated for each household in the dataset by using elements 
of income taken from the survey data (e.g. original income from employ-
ment) combined with components that are simulated by the model (taxes 
and benefits).
the areas of policies covered by EuromoD and sorEsi include social 
security contributions (both of employees and employers), income tax 
as well as cash benefits. Not covered are, for example, indirect taxes (e.g. 
value-added tax) and benefits in kind (e.g. free access to health and edu-
cation services). furthermore, the underlying micro-data usually does not 
include information on social insurance contribution histories. thus, it is 
not possible to fully simulate social benefits that are contributory (pen-
sions, unemployment benefits, sickness benefit, maternity benefit, etc.). 
Compared to EuromoD, sorEsi makes more extended use of the un-
derlying EU-SILC data instead of simulating specific income components. 
With this approach, the status quo can be modelled more accurately, 
although this also implies that these components cannot be modified by 
the user of the web-tool.
sorEsi is a static microsimulation model which allows an approach that 
holds most influences constant and enables one to focus on the “pure” 
effect of reforms of the tax/benefit system (day-after effect). In other 
words the question can be answered what would have happened if noth-
ing but policy rules had changed. SORESI measures the “first-order” or 
“overnight” effects of policy changes, abstracting from effects of demo-
graphic, macro-economic and behavioural changes.
SORESI measures the over-
night effects of reforms.
SORESI is a tax and social 
benefit microsimulation 
model that is based on the 
EU-wide model EUROMOD.
Simulation possibilities in 
SORESI include social secu-
rity contributions, income 
tax and cash benefits, but 
not indirect taxes, in-kind 
benefits, or benefits based on 
prior contributions.
Michael Fuchs / Katrin Gasior • soCial rEform miCrosimulation (sorEsi)
poliCy BriEf april 2014
3
the target group of the web-model are not only civil servants. Everyone 
interested in the effects of policy reforms and the Austrian tax-benefit 
system can register and use the website. it is available in German and in 
English language and provides help texts to become familiar with austrian 
regulations. Users may apply changes to policy regulations in three fields: 
social cash benefits, social insurance contributions and income tax. It is 
not only possible to change one parameter but to apply multiple changes 
and to test the effects of a reform package rather than the effects of 
single policy changes.
once all changes are applied, the user has to click on the start button to 
run the microsimulation model in the background. the calculations are 
performed for the basic scenario as well as for a scenario applying all 
changes. the output tables of sorEsi offer quantitative information on 
the impact of planned or hypothetical reform measures on the national 
poverty rate, income inequality indicators and the income situation of 
different population groups as well as a detailed analysis of fiscal impacts. 
for combined reform measures (e.g. changes in the amount of family al-
lowances and simultaneous variations in tax rates), the cumulative effect 
of such a reform package can be analysed.
the basic output from the microsimulation is the micro-level change in 
household disposable income as a result of changes in taxes and/or social 
benefits. This provides a basis for the calculation of:
• impacts on measures of poverty and inequality,
• differential effects on groups of socio-economic interest, classified by 
individual or household characteristics,
• estimates of aggregate effects on state revenue and expenditure.
. 
A user-friendly input mask 
enables users, including  
citizens, to try out the out-
comes of policy reforms.
Picture 1: 
screenshot of the sorEsi input 
mask related to family benefits
Michael Fuchs / Katrin Gasior • soCial rEform miCrosimulation (sorEsi)
poliCy BriEf april 2014
4
2 Applying SORESI: The 2013 reform  
 proposal of family allowances
international comparison shows that families in austria are well sup-
ported by the tax-benefit system. This is especially due to the high 
expenditure for family allowances, child tax credits (both universal trans-
fers) and childcare benefits (at most up to the age of 3 years; de facto 
means-tested for the personal income of the receiving mother or father). 
together, these amount to approx. 1.8% of  GDp. in 2013, the Council of 
ministers presented a new support model for families which focused on 
the modification of the family allowance benefit to increase the amount 
of this benefit as well as to make its administration simpler and more 
transparent. the idea was to increase both the basic amounts of the 
family allowance across age groups, and the supplements for households 
with two and more children and for disabled children. on the other hand, 
the tax credit for children, the annual school start bonus and the means-
tested multiple child bonus were to be abolished (see table 1).1
Status quo Reform proposal
Basic amount (monthly)
age 0-2 105.4 180
age 3-9 112.7 180
age 10-18 130.9 200
age 19-23* 152.7 220
Supplements (monthly)
2 children in the household 12.8 15
3 children in the household 47.8 75
Every additional child 50 60
multiple child bonus** 20 -
Children with disability 138.3 150
Tax credit for children (monthly) 58.4 -
School start bonus (annual) 100 -
What are the effects of the reform proposal? What output does sorEsi 
provide to analyse the impact? The reform would cause an insignificant 
effect on the poverty rate and the income situation of families with 
children. the poverty rate decreases by just 1 percentage point for single 
parent households and families with 3 or more children. for households 
with children the disposable equivalised net income would increase by 
1 the 2013 reform proposal was not implemented. a slightly different increase of the 
family allowance is planned for mid-2014.  as not all details are announced yet, we 
stick to the 2013 reform proposal.
Table 1: 
family allowance reform 
proposal 2013, in Eur
note: 
* if in full-time education and taxable 
income of the child < 10,000 Eur per 
year. ** from the 3rd child onwards and 
taxable family income < 55,000 Eur 
per year.
The effect of the 2013 family 
allowance reform proposal 
on poverty is not significant, 
while the increase in dispos-
able equivalised net income 
is small. Yet this reform in-
creases state spending by 205 
million EUR.
Michael Fuchs / Katrin Gasior • soCial rEform miCrosimulation (sorEsi)
poliCy BriEf april 2014
5
just 8 Eur per month on average. the highest increase would result for 
families with 3 or more children with 10 Eur per month on average (see 
table 2).
23
Status 
quo
Reform 
proposal
Differ-
ence
At-risk-of-poverty rate2 
households with children (age 0-19) 14% 14% 0 pp.
single parent households 27% 26% -1 pp.
households with 3+ children 22% 21% -1 pp.
all households 12% 12% 0 pp.
Monthly equivalised household net income3 
households with children (age 0-19) 1,817 Eur 1,825 Eur +8 Eur
single parent households 1,412 Eur 1,419 Eur +7 Eur
households with 3+ children 1,651 Eur 1,661 Eur +10 Eur
all households 2,021 Eur 2,025 Eur +4 Eur
The total net fiscal cost of the reform would amount to 205 million EUR. 
Compared to the present benefit structure this would represent an extra 
outlay of 4.7% (see table 3).
2013 Reform proposal
family allowance (incl. school start bonus) 3,077 4,543
tax credit for children 1,261 -
Total 4,338 4,543
2 poverty is assessed using poverty rates that indicate the share of persons with equiv-
alised disposable income (see footnote 3) below the poverty line. the poverty line is 
defined as 60% of median equivalised disposable income.
3 as a standard for household incomes, equivalised incomes are used. the disposable 
net income of all household members is summed up and a proportion of this sum 
is assigned to each household member. the proportion is computed by dividing the 
household sum by a factor that accounts for economies of scale, i.e. the fact that 
larger households are better off than smaller ones by sharing certain resources (e.g. 
heating). the modified oECD equivalence scale is used as divisor, which gives a weight 
of 1 to the first adult in the household, a weight of 0.5 to each further adult and a 
weight of 0.3 to each child (below 14 years of age). Example: a monthly household 
net income of 3,000 Eur for a couple and a child implies an equalised net income of 
1,666.67 Eur (=3,000/1.8) for each member of the household.
Table 2: 
impact of the 2013 reform 
proposal: poverty risk and 
income situation
Table 3: 
fiscal impact of the reform, 
in million Eur 
(simulated figures)
Michael Fuchs / Katrin Gasior • soCial rEform miCrosimulation (sorEsi)
poliCy BriEf april 2014
6
the example of the reform proposal demonstrates how the web applica-
tion can be used to analyse the impact of reforms. readers are encour-
aged to try out the model themselves! 
3 Conclusions and future developments  
 of SORESI
We have illustrated the use of the sorEsi model for simulating overnight 
effects of policy reforms by applying the model to the case of the austri-
an family allowance policy reform proposal of 2013. in sum, the decrease 
of poverty risk and the increase in disposable income for families with 
children caused by the reform proposal would be rather low, especially 
given the extra cost of the reform for the state budget (205 million Eur). 
this cost would be twice as high as the foreseen additional annual invest-
ment in child care provision (100 million Eur per year). in other words, 
the 2013 reform proposal further reinforces the already high emphasis 
in Austrian family policy on direct cash benefits as opposed to in-kind 
benefits.
in future, sorEsi will be developed and relaunched on a continuous basis. 
the following steps are planned:
• Nowcasting (corrections for changes in the employment and unem-
ployment rates between the actual and the data year).
• Provision of results for model households or persons.
• Provision of output also on the individual level (appropriate for origi-
nal income, social insurance contributions, income tax and “personal” 
cash benefits).
Test SORESI:
www.bmask.gv.at/soresi
... implement a 
at-tax model?
... increase family          
benets?
... change employer’s 
social insurance 
contributions?
What would you 
do if you became 
the minister of 
nance or social 
affairs?
Michael Fuchs / Katrin Gasior • soCial rEform miCrosimulation (sorEsi)
poliCy BriEf april 2014
7
• Improvement of the simulation of certain benefits (e.g. unemployment 
benefits, minimum income benefit) depending on the data availability 
and data quality in Eu-silC.
• Annual update with new income data and policy years (next in 2014: 
Eu silC 2012 and policy year 2014).
4 Further reading
the simulated results for income tax in sorEsi were validated in detail 
with special reference figures provided by Statistics Austria. The valida-
tion results according to gender, income groups, tax allowances and tax 
credits can be downloaded here:
fuchs, michael & Gasior, Katrin  (2013): Evaluierung der simulierten 
Einkommenssteuer in SORESI bzw. EUROMOD anhand von speziel-
len Referenzstatistiken der Statistik Austria für 2010. Europäisches 
Zentrum für Wohlfahrtspolitik und sozialforschung im auftrag des Bun-
desministeriums für arbeit, soziales und Konsumentenschutz. 
http://www.euro.centre.org/data/1392113841_18692.pdf (in German)
5 Acknowledgements
the development of the austrian microsimulation model sorEsi was 
based on a close cooperation between the austrian federal ministry of 
labour, social affairs and Consumer protection as the contractor and 
coordinator of the project and the following project partners (in alpha-
betical order):
• European Centre for Social Welfare Policy and Research, Austria: 
http://www.euro.centre.org/index.php
• Federal Computing Centre (Bundesrechenzentrum), Austria:  
http://www.brz.gv.at/
• Institute for Social and Economic Research (ISER), University of Essex, 
uK: http://www.iser.essex.ac.uk/
• Katholieke Universiteit Leuven, Belgium:  
http://www.kuleuven.be/kuleuven/
• makingChoices.be, Belgium:  
http://www.makingchoices.be/easycms/home
• Statistics Austria (Statistik Austria), Austria: http://www.statistik.at/
Michael Fuchs / Katrin Gasior • soCial rEform miCrosimulation (sorEsi)
poliCy BriEf april 2014
8
sorEsi is based on the Eu-wide microsimulation model EuromoD, 
which is funded by the European Commission. it uses the national Eu-
silC (European union statistics on income and living conditions) data 
provided by statistics austria as input micro-data. for the input mask the 
Austrian Federal Computing Centre (“Bundesrechenzentrum”) adapted 
mEfisto, a user-friendly EuromoD-based microsimulation model de-
veloped in flanders. the European Centre Vienna was responsible for the 
modeling of the Austrian tax/benefit-system in SORESI, the editing of the 
underlying EU-SILC data and the specification of links for the web-model.
poliCy BriEf april 2014
EuropEan CEntrE • EuropäisChEs ZEntrum • CEntrE EuropÉEn
for soCial WElfarE poliCy anD rEsEarCh für WohlfahrtspolitiK unD soZialforsChunG DE rEChErChE En politiquE soCial
About the European Centre 
for Social Welfare Policy and Research
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Email: ec@euro.centre.org 


Social Reform Microsimulation. A web-based citizens\u2019 tool to model the social impact of taxes and benefits in Austria

Levi, Nicolas

Insanity or part of a plan? Prospects for changes to North Korean domestic and foreign policy

 
 
STATEMENT 
  
 
A network of policy centres in   
Central and Eastern Europe and 
Central Asia 
	
	
Sdružení pro podporu otevřené společnosti – PASOS, registrováno Ministerstvem vnitra ČR pod č.j. VS/1-1/58 438/04-R 
sídlo:Těšnov 1699/3, 110 00Praha 1, IČ: 26 67 54 04  
Communications Manager Alfredo Azula 
Executive Director Jeff Lovitt 
Tesnov 3    110 00 Praha 1   Czech Republic 
Tel: +420 2223 13644 
Email: info@pasos.org 
www.pasos.org 
 
Catherine Ashton, Vice-President, European Commission,  
and High Representativeof the EU for Foreign Affairs and Security Policy, European Council 
ŠtefanFüle, European Commissioner for Enlargement and Neighbourhood Policy 
Martin Schulz, President, European Parliament 
Anne Brasseur, President, Parliamentary Assembly, Council of Europe 
 
 
Prague/Baku, 31 January 2014 
 
 
PASOS urges President of Azerbaijan to reject  
restrictive amendments to NGO legislation  
 
Dear High Representative, Dear Commissioner, Dear President of the European Parliament, Dear Ministers, Dear 
President, Parliamentary Assembly of the Council of Europe, 
Restrictive amendments to the NGO Act and associated legislative amendments passed by the Parliament of Azerbaijan 
on 17 December 2013 would impose administrative burdens and arbitrary controls, and the resulting regulations could 
requirenon-governmental organisations (NGOs) to re-register with the Ministry of Justice every 90 days. PASOS, a 
network of independent think-tanks spanning 28 countries in Europe and Central Asia,calls upon the support of the heads 
of EU institutions and the European Commission and External Action Service, as well as the Council of Europe, to 
mobilise diplomatic pressure on the President of the Republic of Azerbaijan, IlhamAliyev, not to sign the legislation into 
force.  
PASOS members, leading independent think-tanks in Azerbaijan, are among the 60 members of the Civil Society Defence 
Committee, an alliance of NGOs trying to head off the repressive legislation. As the decision of the President is anticipated 
in the coming days, appeals to his office are necessary as soon as possible to prevent the enactment of additional 
restrictions on the activities of civil society actors in Azerbaijan. 
If the amendments came into force, Azerbaijan authorities would gain enhanced powers to arbitrarily fine, and close 
down, non-governmental organisations that perform important monitoring functions and serve as an independent critical 
voice towards government policies. Furthermore, the changes would create new administrative burdens for NGOs upon 
receipt and reporting of grants. 
The legal changes would limit the legal forms available to registration of new non-governmental organisations, and would 
allow the courts to close down an NGO if it has been served notices for infringing any legislative requirements more than 
twice in one year. The Parliament of Azerbaijan passed the legislation a day after a three months’ detention order was 
imposed on AnarMammadli, the Chair of the Election Monitoring and Democratic Studies Center (EMDS), a respected 
civil society organisation that criticised the conduct of the Azerbaijan Presidential elections of 9 October 2013. The 
charges against him are entirely unfounded. EMDS is one of the human rights and pro-democracy civil society 
organisations in Azerbaijan that has repeatedly been denied permission to register.  
It is important that all EU and Council of Europe representatives travelling to Azerbaijan meet with human rights 
defenders and representatives of civil society, and vocally support their calls for freedom of association and the removal 
of restrictions on civil society. 
 
PASOS is a network of more than 56 independent think-tanks spanning 28 countries in Central and Eastern Europe and 
Central Asia. 
 
Signatories of statement, 31 January 2014 
 
PASOS Board: 
PASOS members: 


PASOS urges President of Azerbaijan to reject restrictive amendments to NGO legislation

Pergolizzi, Emanuela

Energy crossroads: shifting dynamics in the troubled triangle between Ankara, Erbil and Baghdad

Kubiak, Katarzyna

A little-known success story: Implementation of the NSS goals in Central Europe

Rostowska, Maya

  
1 
 
No. 11 (94), July 2014 © PISM 
Editors: Marcin Zaborowski (Editor-in-Chief) . Wojciech Lorenz (Managing Editor) 
Jarosław Ćwiek-Karpowicz . Aleksandra Gawlikowska-Fyk . Artur Gradziuk . Piotr Kościński 
Łukasz Kulesa . Roderick Parkes . Patrycja Sasnal . Marcin Terlikowski  
  
Russia’s Hidden Underbelly of Debt 
Maya Rostowska 
Despite the reigning consensus that the Russian economy is facing trouble ahead, some indicators 
suggest that the situation is not as dire as first appeared. Moreover, it may seem that the fiscal 
situation in the country—particularly its copious foreign currency reserves and substantial sovereign 
wealth funds—could still help extricate Russia from its economic difficulties. However, the very difficult 
budgetary situation in the regions and the staggering levels of debt of its companies suggest that 
economic problems could hit the country hard. Investors should remain vigilant of social and political 
tensions and the possible further deterioration of the business environment in Russia. 
 
It is a truth universally acknowledged that the Russian economy’s vital signs—including investment, 
consumer confidence and industrial production—are deteriorating. Not only that, they are likely to suffer 
even more from Western sanctions and a worsening business climate linked to a lack of reform. It may 
therefore surprise some that the country’s debt is under control and its reserves are still strong. Savings in 
its two sovereign wealth funds and its foreign currency reserves have got Russia out of economic hot water 
before. Today they seem substantial enough to do it again. But a closer look at the country’s regional 
budgets reveals the dark underbelly of Russia’s fiscal situation and suggests that path may not be available 
this time around. 
 
Russia’s Economy: More Smoke than Fire? 
Much has been said and written about the economic difficulties facing Russia. In July, the International 
Monetary Fund (IMF) published a report showing that sanctions had had a deep impact on the Russian 
economy, particularly affecting investment. The IMF predicts a growth rate of 0.2% for Russia in 2014.1 
Former Finance Minister Alexei Kudrin has predicted recession for 2014, and current Minister of the 
Economy Alexei Ulyukayev has said growth will be around zero for the first quarter of the year.2 In March, 
the World Bank predicted growth of 1.1% in 2014 in its low-risk scenario (which assumes peaceful 
containment of the crisis in Ukraine and a lack of further sanctions) and 0.8% in its high-risk scenario 
                                                          
 
1 International Monetary Fund, Russian Federation: 2014 Article IV Consultation, IMF Country Report No. 14/75, July 2014, 
www.imf.org, p. 34. 
2 O. Tanas, “Russian Growth Slowest since 2009 on Sanctions, Poll Says,” Bloomberg, 14 May 2014, www.bloomberg.com. 
2 
 
(which assumes an intensification of political tensions and heightened uncertainties regarding the possibility 
of further sanctions).3 
These forecasts seem well-founded. Even before the crisis in Ukraine heated up, the Russian economy was 
already in a state of slowdown, with growth at 1.3% in 2013, failing to reach the World Bank prognosis of 
3.6%.4 This is due to falling investment, industrial production and consumption (linked to falling wage 
growth and consumer confidence).5 All this has been exacerbated by Russia’s actions in Ukraine. The first 
quarter of the year saw capital flight in excess of $51 billion (compared to $60 billion in the whole of 
2013).6 Sanctions and falling energy prices are likely to further dampen growth as they affect exports and 
export income. Meanwhile, corporate debt is ballooning, and increasingly reliant on external sources. 
Russian companies’ foreign debt reached 30% of GDP ($628 billion) in the first half of 2013, approaching 
the pre-crisis peak of 35.4% and exceeding the international reserves of the CBR.7 Many of these 
companies are for all intents and purposes state-owned, and may struggle to find external financing if 
sanctions against Russia are extended or the political situation in the country deteriorates. 
Meanwhile, pressure on the budget is rising. Federal spending is likely to rise due to President Vladimir 
Putin’s 2012 electoral pledges, costs linked to the annexation of Crimea,8 and upcoming infrastructure 
projects, including those related to the 2018 World Cup, the planned gas pipeline to China, and the Kerch 
bridge to Crimea. Russia is also likely to incur more military expenditures: last year it overtook the U.S. in 
relative terms, spending a staggering 3.4% of GDP (i.e., $73.2 billion) on defence; now it has announced an 
increase of 18.5% on those figures in 2014, with a further 21.7% increase in 2015.9 The aging population 
also foretells of ballooning expenditures in years to come: pension spending is expected to rise to 14% of 
GDP in 2030 (from 9% in 2012).10 What is more, Russian government bond ratings have been cut to BBB-, 
on par with Azerbaijan,11 in a move that will make financing federal government expenditures more difficult 
and expensive.  
However, many of the indicators that seemed to suggest serious economic difficulties ahead for Russia have 
seen a recovery. Following Moscow’s annexation of Crimea in March, Russian markets plummeted—
massive selloffs caused the RTS index to fall by 13.8% to its lowest level since the 2009 crisis, and the 
trading of several stocks was suspended after they fell by more than 20%. But the RTS has now recovered 
to its January 2014 levels. Meanwhile, the Central Bank of Russia (CBR) was able to soon restore 
confidence in the rouble—which was undergoing speculative attacks—by spending $11.3 billion of its 
international reserves on 3 March to support the exchange rate (about 2.3% of its total reserves).12 Finally, 
although it has been increasing minimally in recent years, Russia’s government debt is still very small 
compared to that of other countries (Russian public debt came to 12.7% of GDP in 2013, compared to 
101.5% for the U.S., 90.6% for the United Kingdom, 78.4% for Germany, 50.7% for Poland, and 22.4% for 
China).13 
 
                                                          
 
3 World Bank, “Russian Economic Report: Confidence Crisis Exposes Economic Weakness,” no. 31, March 2014, p. 24, 
www.worldbank.org. 
4 Ibidem, p. 21. 
5 Ibidem, p. 23. 
6 International Monetary Fund, op. cit., p. 14. 
7 C. Weaver, C. Glover, “Russia’s Sergei Storchak Warns on Corporate Foreign Currency Debt,” Financial Times, 5 September 
2013, www.ft.com. 
8 A. Dyner, ”The Annexation of Crimea: A Challenge for Russia to Balance the Books,” PISM Bulletin, no. 71 (666), 22 May 2014, 
www.pism.pl. 
9 C. Caffrey, “Russia Commits to 18% Budget Rise,” Janes, 3 April 2014, www.janes.com. 
10 Standard & Poor’s estimate. H. Meyer, “Putin Balks at Pension Threats as Aging Russians Hold Trump Card,” Bloomberg,  
22 October 2012, www.bloomberg.com. 
11 A. Andrianova, “Russia Debt Rating Cut to Step Above Junk at S&P,” Bloomberg, 25 April 2014, www.bloomberg.com. 
12 World Bank, op. cit. 
13 International Monetary Fund, “Data and Statistics,” www.imf.org. 
3 
 
Reserves to Cushion the Fall 
As well as recovery in these indicators, it would seem that the Russian coffers are substantial enough to 
cushion a fall. In the past, Russia has been able to mitigate difficult economic situations thanks to its large 
reserves, accumulated in foreign currencies and its sovereign wealth funds. 
As Russian export revenues increased with oil prices in the early 2000s, domestic investment did not follow 
suit, leaving the country with large amounts of foreign currency savings. In 2004, the Oil Stabilisation Fund 
(OSF), Russia’s first sovereign wealth fund, was created. As soaring world oil prices (from $33.7/bbl in 2004 
to $99.6/bbl in 2008)14 brought ever-higher revenues, in 2008 the OSF was split into two separate entities: 
the Reserve Fund (RF) and the National Welfare Fund (NWF). Both received portions of oil and gas 
revenues. The RF was designed to act as a stabiliser, conservatively investing energy profits and budget 
surpluses to cushion the economy in the event of a fall in oil prices. The NWF would pursue the OSF’s 
savings objectives by investing in higher-risk, higher-return assets and be used to fill funding gaps in the 
pension system. 
Prudent fiscal policy and use of funds from the RF staved off the impact of the international financial crisis 
on Russia until 2009. The government provided enterprises and the financial sector with conditional 
support, such as lowered tax burdens. Nevertheless, when the crisis finally hit, Russia’s GDP contracted by 
a substantial 7.9%. Government expenditures rose and income fell, causing the country’s first budget deficit 
in a decade. As money was transferred to cover the budget deficit, the RF was depleted, decimated by 
about $57.56 billion in 2009 and $34.19 billion in 2010 in outflows to finance the federal budget deficit 
(Figure 1).15 Meanwhile, the Russian Central Bank sold foreign currency reserves to achieve a gradual 
devaluation of the rouble to help exporters (Figure 2). This tapping of its reserves allowed Russia to 
cushion the effects of the global financial crisis on its economy. The federal budget deficit was stemmed 
(shrinking from -7.9% of GDP in 2010 to -3.9% in 2011, and a surplus of 0.8% in 2012).16 Growth returned 
relatively quickly (from -7.9% in 2009 to 4.5% in 2010).17 
It would seem that the current fiscal situation in Russia would allow for a re-run of the 2009-2010 strategy 
of cushioning the crisis with transfers from the sovereign wealth funds and international reserves. After all, 
at $175.6 billion, funds in the RF and NWF are already above the 2009 total of $168 billion, and edging 
towards pre-crisis levels (Figure 1).18 International reserves are at $467.2 billion, of which $423.8 billion is 
in foreign currency reserves (Figure 2).19 Moreover, although the federal budget is once again running a 
deficit after one year in the black (it ran a surplus of 0.8% of GDP in 2012), this is planned to be only -0.5% 
of GDP in 2014—hardly an insurmountable figure.20 
 
 
 
 
 
 
 
                                                          
 
14 “World Oils,” www.worldoils.com. 
15 Ministry of Finance of the Russian Federation, “Funds flow on the Federal Treasury’s account with the Bank of Russia in rubles in 
2010,” www.minfin.ru.  
16 Trading Economics, “Russia Government Budget,” www.tradingeconomics.com. 
17 World Bank, “GDP Growth (Annual %),” www.data.worldbank.org.  
18 Ministry of Finance of the Russian Federation, “National Wealth Fund,” “Reserve Fund,” www.minfin.ru. 
19 “International Reserves of the Russian Federation,” www.cbr.ru. 
20 Trading Economics, op. cit. 
4 
 
Figure 1. Russia’s OSF, RF and NWF (2006–2014, in $ billions) 
 
Source: Ministry of Finance of the Russian Federation; 1 December each year, except 2014 (1 May). 
 
Figure 2. Russia’s international reserves (2006–2014, in $ millions)21 
 
Source: Central Bank of Russia. 
 
 
                                                          
 
21 Here, “international reserves” refer to foreign exchange reserves, SDRs, reserve position in the IMF, and gold. See: “International 
Reserves ...,” op. cit. 
5 
 
The Hidden Threat: Sub-Par Subnational Budgets 
Although federal finances seem to be ticking along nicely, the fiscal picture at the sub-regional level is 
nowhere near as rosy. Regional governments are responsible for spending in areas such as healthcare, 
education, social welfare, and housing. These expenditures are financed by revenues from a share of federal 
taxes, grants from the central government, and some regional taxation—although subnational governments 
have very restricted autonomy in terms of tax policy. While regional governments account for 28% of 
general government revenue, their share of overall expenditures is almost 37%.22  
The regions’ fiscal situation has been going downhill since the 2000–2001 reforms that significantly 
increased the share of the central government in the consolidated budget to their detriment (from 44% in 
1999 to 66.2% in 2007). This was exacerbated by a 2005 law that redirected the bulk of profitable tax 
revenue to the central budget away from the regions, including excise taxes23 (although the regions were 
accorded slightly higher shares of corporate income tax and some excise taxes following the financial 
crisis). Moreover, several subnational taxes were abolished outright, including those on housing and 
utilities.24 As a result, the dependence of subnational budgets on transfers and grants from Moscow has 
grown considerably. 
Moreover, federal subjects have access to far fewer debt reduction mechanisms than the central 
government. Most rely on high-interest short-term bank loans and a limited supply of bonds and budget 
credits, such as federal loans, to finance their debt.25 Although most regional governments managed to keep 
their debt in check until 2008, since the global economic crisis the majority have seen their debt more than 
double (Figure 3). Aggregate regional public debt has risen from $18.5 billion in 2008 to $58 billion in 
2014—and it is expected to rise to $103 billion by next year.26  
 
Figure 3. Russian regional debt, 2008–2014 (in $ billions) 
 
Source: Ministry of Finance of the Russian Federation; Standard & Poor’s (* denotes estimate). 
                                                          
 
22 E. Jarocińska, Institutions of the Russian Fiscal Federalism: 20 Years of Evolution, CASE Network E-briefs No. 02/2014, June 2014, p. 1, 
www.case-research.eu. 
23 J. RogoŜa, Federation without Federalism: Relations between Moscow and the Regions, OSW Studies No. 49, April 2014, pp. 13–14, 
www.osw.waw.pl. 
24 E. Jarocińska, op. cit. 
25 Ibidem. 
26 Standard & Poor’s estimate; “Russia’s Growing Debts Threaten Stability,” Stratfor, 20 January 2014, www.stratfor.com. 
6 
 
 
In fact, of the 83 Russian regions, it is estimated that 63 will be facing bankruptcy by 2015.27 This is because 
the regions will bear much of the financial brunt of President Putin’s electoral promises, such as increasing 
regional and municipal wages (to the tune of some $56.6 billion over the next two years) and replacing all 
dilapidated housing by 2016 without any help from Moscow.28 
What is more, the situation could deteriorate further in the mid-term. The Kremlin is planning mass 
reindustrialisation of the regions in an attempt to diversify the economy and reduce its reliance on energy. 
The idea is to construct factories and plants across Russia, with a goal of creating 25 million industrial jobs 
by 2020, in sectors as diverse as processed food, meat, dairy, metals, the auto industry and mining. But this 
strategy is set to put further financial pressure on the regions. Although the details of how the plan will be 
funded have not yet been revealed, it will be done through regional, federal and foreign investment. Given 
the current geopolitical situation—which is scaring off foreign investors and creating new costs for the 
federal budget—the regional budgets are likely to feel the pinch even more once this plan is set in motion. 
Finally, the fiscal situation of Russia’s regions is also likely to be put under pressure by future oil prices. 
There are many signs that Russia is in for a rough ride, fiscally speaking. While executing the federal budget 
as planned is likely to require oil prices as high as $115/bbl,29 these averaged $110/bbl in 2013. The price of 
oil is as important for regional government budgets as much as it is for the federal budget. Sub-national 
governments have limits imposed on their deficits, debts and borrowing, which are set in accordance with 
the average oil price for the last five years. Meanwhile, world energy prices are expected to lag in the long 
term. In the case of oil, this could result from rising supplies of unconventional oil, efficiency gains, as well 
as substitution away from oil. In the case of gas, substitution and efficiency gains could be exacerbated by 
the potential arrival on world gas markets of U.S. gas in the wake of its shale gas revolution.30 
Conclusion 
The increasingly difficult fiscal situation of the regions reflects the overall deteriorating situation in the 
Russian Federation. Under President Putin’s tenure, elections for governors have been scrapped and 
governors and speakers of regional parliaments have been excluded from the Federation Council, the very 
body that is supposed to promote the interests of the regions in Moscow. Now, the constantly changing 
fiscal regulatory framework, set entirely by the federal centre, creates an unpredictable environment for 
subnational governments, and makes it difficult for them to forecast and plan revenues and expenditures.31 
Falling revenues have further forced many regions to cut investment programmes, including infrastructure 
projects, even in the more developed parts of the country, such as Irkutsk or Sverdlovsk. Others have had 
to make unpopular cuts in social spending, including reductions in benefits and school closures.32 Public 
dissatisfaction is spreading, and could likely spur a crackdown on civil society and regional governments.  
Combined, all these factors suggest a deteriorating political and business environment for foreign investors 
in Russia. Spending by the central government may be squeezed as it is redirected towards new 
expenditure commitments and Moscow is forced to increase transfers to struggling subnational budgets. As 
a result, the government’s ability to provide stimulus packages to boost the lagging economy will suffer. The 
corporate sector may struggle to finance its activity if further sanctions are imposed on Russia. With public 
dissatisfaction growing and the economy wilting, further tightening of the screws can be expected, on 
foreign business (in the form of administrative pressures or even expropriations and nationalisations) as 
much as on civil society, as has been the form in President Putin’s Russia in the past.  
                                                          
 
27 Ibidem. 
28 “Russia’s Growing Debts …,” op. cit. 
29 Alfa Bank estimate, “Rise in Russian Oil Output Supports Overstretched Budget,” Reuters, 2 January 2014, www.reuters.com. 
30 M. Rostowska, “Energising TTIP: A Step towards Better EU Energy Security,” PISM Bulletin, no. 57 (652), 30 April 2014, 
www.pism.pl. 
31 E. Jarocińska, op. cit., p. 2. 
32 J. RogoŜa, op. cit., p. 38. 


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