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Table 4 M nmi Indicators

|Country|Deficit as a<br>% of<br>GDP (1990)|Subnational<br>Deficit as a<br>9 of GDP|laflation<br>(1991r|Current Account<br>Balance as<br>%<br>ofGDP(1990)|M3 growth<br>(1991-2)|
|---|---|---|---|---|---|
|Hunguy|-4.3|-.4|32.0|+1.0 l.|29.3|
|Poland|-2.4|N.A.|249.0|+4.8|45.0|
|Romania|+0.9|+.3|161.1|-12.4|100.8|
|Bulgaia|-13.0 _/|-.8|334.0|-2.7|N.A.|
|CSFR|-2.0 I/|+.0|54.0|+2.7|26.7|
|Russia|-20.6|N.A.|382.0|-7.2 I/|75.6 I/|
|China|-1.8|N.A.|_5.3_|+3.7|26.7|
|Vietnam|-4.1|N.A.|36.4 2/|-2.0|19.6|

# Source: Recent Economic Indicators, IMF.

1. For 1991; 2. Average inflation for 1990. The end of period inflation for 1990 = 67.2%; 3. For 1M. 4. For Bulgaria a more meaningful measure is the cash deficit (net of foreign interest arreanrs) which was _8.5 %._ 0 Most receat year after price libmlization.

91. Shiftina Ex&enditure Responsibilities sDownstairs". Current stabilization concoens have led the central government to view fiscal decentaization as an opportunity to reduce centra expenditures. This is being done in two ways: First, by spinning off expdiiture rsponsibilities to the subnational level, thereby reducing its own deficit, and second, as an opportunity to reduce fiscal tnsfs, purpordly to make local governts more "idependent, but with the welcom side offect of reducing centl outlays. In paricular, a number<sup>of countries</sup> are trmsfernng icresing responsibility for social expenditures and the social safety net to local govemnt. In Hungry, for example, the responsibility for "welfari expeditures was tansferred to the localities. In Russia, the contral government trmnsfered social expenditurs equivalent to some 6 % of GDP M992) to the local level by this means, with the objective of "pushing the deficit downa, presmably in the hope that the subnaional govemnents would perform the politically painfiul utting required - even though the demand for these services is likely to grow with the worning conomic situation. More rcnly, responsibility for key national, interurisdictional investments (e.g. in transport)- has al8o been transferred to the subuational sector.

92. Even some of the extensive asset tansfers to local govenmments that have taken place in most countries appear to have been partly motivated by budgetay concerns. Some of tho 'assets' transferred - notably housing - and some entepises a really liabilities given the heavy burden of maintenance and operation of these units and the fact that rental income (last adjusted in the Russian Federation in 1928!) does not cover even a small<sup>part of thes</sup> costs.

93. Reducing Untersovemmental Tansfers. _The_ fiscal difficulties at the national level have also led some Finance Ministries to focus on reducing intergovernmental transfers as one way out.<sup>Transfers have been seen as</sup> the ,compressible dimnion" of the federal budget. The principle of "budgetay<sup>independence" mentioned above</sup> has been interpreted to mean that subnational governmets should be financialy self-sufficient,<sup>which in turn implies</sup> that direct transfers should be reduced and even eliminated. In reality, however, in most of the transition economies central transfer to local goverment sector are very large, reflecting both the rudimentary tax base available to local - govemnments and the center's reluctance again to avoid fiscal vulnerability<sup>-</sup> to part<sup>with any of the major tax</sup>