Sixty Federal Subjects Running Deficits and Lack the Ability to Borrow to Cover Them, Economists Say

Paul Goble

            Staunton, Oct. 5 – Sixty federal subjects of the Russian Federation – nearly three-quarters of all of them – are currently running deficits and running out of options for borrowing to cover these. As a result, unlike the better off regions, these now face a real crisis in which they may have to cut spending on many things to try to balance their accounts.

            That is the conclusion several prominent Russian economists offer on the basis of analysis of the budget process at the regional level this year, Arsen Shaakhmetov, a commentator for the Rex news agency, says (iarex.ru/articles/82774.html). And this budgetary crisis is certain to spill over into Russian politics in the coming months.

            According to the Rex commentator, many Russians dismissed Primorsky Kray governor Oleg Kozhemyako’s recent suggestion that he would have to cut spending on the apparatus of the regional parliament to fund other priorities as a Russian version of what in the US is called “the Washington monument ploy.”

            That is, the governor had no intention of taking the step he threatened just as those in the US Congress who talk about closing the Washington monument won’t do that. Instead, Kozhemako simply wanted to attract attention. He has, leading analysts say; and the problem he is addressing is increasingly dire in much of the country.

            There are many reasons regional governments are facing such difficulties, including both deindustrialization which means they have fewer resources of their own and Moscow’s policies which even before the pandemic sought to cut the amount of money going to the regions so that the center could use its income for other purposes, including in the security area.

            But these underlying trends, both in place well before last year, have been exacerbated by the pandemic, a crisis which led Moscow to impose a large number of often unfunded liabilities on the regions even as the incomes of the regions were falling. The better-off regions have weathered the situation well, but the vast majority are suffering.

            For example, as far as spending on medicine is concerned, rich Moscow as able to increase its spending by 2.3 times last year without cutting back elsewhere. But poorer regions which weren’t able to boost medical spending by nearly as much nonetheless had to cut back elsewhere to deal as best they could with the pandemic.

            The federal government provided some additional funds to the regions but not enough to meet the demands that Moscow insisted the regions meet on their own. The regions have fallen into debt, and today neither the federal government nor the banks appear ready to bail them out this time around.

            Again, the wealthier regions will continue to do all right; but the others will suffer. And that is likely to lead to an increase in demands that either the center take over responsibility for more things or allow the regions to retain more tax and other incomes so that they can do so. If neither of these things happen, many depressed regions are likely to become hotbeds of dissent.