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Russian regions’ debts keep snowballing

November 11, 2015, 17:20 UTC+3 Alexandrova Lyudmila
© Artiom Geodakyan/TASS

MOSCOW, November 11. /TASS/. Amid the economic crisis the debts of Russian regions keep snowballing. The authorities acknowledge that something has to be changed in the relations between the federal center and regional authorities. Experts warn, though, that unequivocally good relations of this problem just do not exist.

The Russian regions’ state debt is estimated at 2.116 trillion rubles ($32.8 billion). Since 2012 it has in fact doubled, Finance Minister Anton Siluanov said recently. At the end of the year the regions’ public debt will reach 2.3 trillion roubles ($35.7 billion), the Audit Chamber forecasts. In combination with municipal debts the regions’ overall debt at the end of the year will stand at nearly 3 trillion roubles ($46.6 billion), the rating agency Standard and Poor’s said in its Public Finance System Overview: the System for Russia’s Regions.

The head of Russia’s Audit Chamber Tatyana Golikova said just recently that the existence of 90 different types of budget subsidies produced an uncontrollable situation: the regional authorities have no time to find their bearings among the existing programs. "Time is ripe for changing something cardinally in relations with the regional budgets, and not take face-lifting measures," Golikova said.

The regions’ worst debts are to Russian and foreign commercial banks, and also to international financial organizations: 37.6% of the overall debt. Budget loans account for another 37.7%.

"The situation for the regions is catastrophic, indeed," the head of the regional economics department at the Higher School of Economics, Aleksey Skopin said.

"The debt had begun to grow ten years ago, but it was only after the 2009-2010 crisis that it became an insoluble problem. After that crisis the federal authorities transferred many budget liabilities to the level of regions - everything that concerns the health service, education and the entire budget-financed sphere. The debt growth rates soared. The regions started cutting budget-financed jobs. In the private sector the social tax on businesses was raised and businesses responded with more dismissals of employees. That entailed another slump in the incomes of regional budgets. The sanctions turned from bad to worse: the regions lost access to western lending resources."

It would be wrong to say that there are no such problems in other countries, he acknowledged. "The Americans are in a no easy situation, too. Their regional and municipal debts are possibly not smaller than the federal debt, but they keep printing money. When their Congress decides to increase the national debt that means that they will print several hundred billion or several trillion."

The debts emerge mostly because the regions have to spend more, first and foremost to act on the presidential decrees to increase budget-financed wages, while regional incomes shrink due to two factors, the director of the Regional Reforms Research Institute under the presidential academy RANEPA, Aleksandr Deryugin, has told TASS. "Profit tax reduction is one and cuts in the inter-budgetary transfers in real terms are the other. The country has budget problems. The federal authorities try to save wherever they can. Financial assistance to regions - both subsidies and grants - are affected, too."

The issue can be addressed in two ways. Either the parameters of the presidential decree concerning budget-financed wages will have to be reconsidered fundamentally, or all regional spending on non-working population will have to be transferred to the federal level. "But then the question arises. This problem may be taken away from regions to be handed over to the federal authorities. But the federal treasury does not have the money. An unequivocally good decision just does not exist. Some very grave decisions will have to be taken. For instance, the retirement age will have to be increased."

The regions are to be helped with federal budget money to pay the debts taken from commercial banks. There is no other way out, says the deputy head of the public finance department at the Higher School of Economics, Dmitry Kamnev. "The regions’ debts are a rather complex issue, but not a critical one," he told TASS. "But when the debts begin to be accumulated, this affects mostly the population of regions, their development and their attractiveness to investors."

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