2020 was a Hard Year for Russia’s Regions; 2021 will Be Even Worse, Experts Say

Paul Goble

            Staunton, February 28 – The pandemic and declining oil prices hit the budgets of Russia’s regional governments hard. They ended 2020 with record deficits given that they had to spend 70 percent more on healthcare. They were kept afloat by transfers from the federal budget and borrowing, but the first is slated to decline and the second will be harder to maintain.

            According to experts at the Higher School of Economics, the combined deficit of regional governments reached 677 billion rubles (10 billion US dollars), the largest figure since 2006. Fifty-seven of the more than 80 subjects ended the year with deficits, up from 35 in 2018 and 15 in 2019 (hse.ru/pubs/share/direct/document/446644357.pdf).

            The combined incomes of regional governments rose only 0.1 percent. In 32 regions, the income of government fell and in 11, the decline exceeded 10 percent. Those regions dependent on oil and gas sales – Tyumen, Yamalo-Nenets, Komi, Tatarstan and Bashkortostan – were hit the hardest in this regard.

            Regional governments would have collapsed without massive transfer payments from Moscow, the HSE study says, and without borrowing from banks. Moscow increased its transfers to the regions by 54 percent or there would have been disaster. But now, officials say, the center plans to cut transfers by 25 percent in 2021 (profile.ru/economy/dyra-v-kazne-deficit-byudzhetov-rossijskix-regionov-stal-rekordnym-721344/).

            If that happens, the regional governments will either have to borrow more or cut back in services and in payments to various accounts such as healthcare and pensions. And consequently, many analysts are urging Moscow to reconsider. But there seems to be little interest at the center in doing so, and 2021 is likely to be a very hard year in the regions.

            If the regions don’t receive more transfer payments than are now planned and if they have difficulties refinancing existing debt or assume more, the situation will likely prove disastrous, something one might have assumed the Kremlin would have wanted to avoid in an election year (ng.ru/economics/2021-02-28/1_8091_economics1.html).

            One possible development not yet receiving much attention but likely in such a crisis will be demands by the regions across the country for greater ability to tax their own population rather than have to depend on Moscow’s return of money they take in on the basis of federally established levies.

            If that should happen, Moscow would have to pay a far higher price politically than it hopes to save financially by cutting subsidies to the regions to the bone. After all, Russia consists of regions and so if they are hurting, the country will be as a whole whatever Kremlin propagandists manage to claim.