The article assesses the important challenges to fiscal management which Russia faces as an oil-producing country. Among the critical questions regarding fiscal policy and the management of oil revenues and wealth which Russia has to consider the authors emphasize the following: how to assess the fiscal stance to better inform policy decisions; how to shield public expenditures and the non-oil economy from the high volatility in (and uncertainty about) oil revenue; and how to address sustainability and intergenerational equity issues.

The authors’ analysis shows that though many aspects of Russia's fiscal policy framework are close to best practice on paper, actual practice in recent years has been moving away from best practice. In particular, the continued focus on the overall rather than the nonoil balance, and the regular use of supplemental budgets to spend windfall oil revenues contribute to procylicality of fiscal policy, risking costly boom-bust cycles.

Against this background, this paper suggests several improvements to the framework for fiscal policy. A well-designed and consistently applied fiscal framework is needed to promote more effective policy implementation. Given the massive fiscal stimulus Russia undertook in response to the crisis, there is an urgent need to unwind the crisis-related measures and return to a sustainable fiscal position while oil prices are still high. A strengthened fiscal framework, alongside a more ambitious fiscal consolidation, would create a virtuous circle with reduced fiscal (and economic) vulnerabilities, increased credibility, and higher growth.

The paper suggests specific recommendations to strengthen Russia’s fiscal framework to bring it in line with best practice. It includes the international best practice, an overview of the current Russia’s framework, and assessment of how it compares to best practice.