Direct transfers between the former Soviet Union central budget and the republics: Past evidence and current implications

This paper examines the magnitude of direct transfers between the former Soviet Union central buget and individual republics. It shows that Kazakhstan and Central Asian republics were primary recipients of large net transfers of funds from the Soviet central budget amounting in some cases to about ten percent of their GNP. On the contrary, Russia was the single largest net donor of funds to the Soviet central budget through more transfers paid to the union budget than received from it, both in rouble terms and as a share of the GNP.With the dissolution of the central budget in November 1991, these transfers were discontinued. This has caused a dent in fiscal budgets and a large negative income shock in recipient republics. To some extent, external saving is suggested as the way to ease up the burden of the loss of income induced by the collapse of the fiscal system and the system of direct transfers within the former Soviet Union.