Russian regions are launching budget cuts and slashing social spending, due to a growing revenue crisis that has affected two-thirds of Russia’s regions.
Rostov Region Governor Yuri Slyusar demanded urgent proposals to reduce local spending this week. He stated that a decision had been made to forego bank loans to cover the deficit, as their interest rates are too high.
“We’ll live on what we collect for the budget by the end of the year. Expenditures will have to be cut,” Slyusar said, promising that the cuts would not affect teachers’ and doctors’ salaries.
Earlier, the Irkutsk Region announced spending cuts of 2.2 billion rubles under the “Education Development” programme and another 2.7 billion rubles under the “Healthcare Development” programme. According to estimates from the local Ministry of Finance, the regional budget is failing to meet its corporate income tax targets, with the treasury losing 9.7 billion rubles. At least nine regions sharply reduced payments for contracts with the Ministry of Defence this fall. These include Samara Oblast, Bashkortostan, Tatarstan, Chuvashia, Mari El, Nizhny Novgorod and Ulyanovsk Oblasts, the Yamalo-Nenets Autonomous Okrug, and Orenburg Oblast. Teachers in 12 regions have faced salary cuts. In Karelia, Bashkortostan, Udmurtia, Ryazan, Orenburg, Irkutsk, Tula, and Oryol Oblasts, as well as in Krasnodar, Krasnoyarsk, Kamchatka, and Khabarovsk Krais, teachers are complaining about the cancellation of additional payments, which constitute a significant portion of their earnings.
Economist Natalya Zubarevich notes that regional budgets are “crumbling .” They ended the first half of the year with a deficit of 397.8 billion rubles, which had grown to 724.8 billion by the end of September. Every third region (26) recorded a decline in nominal revenue, while real revenues—adjusted for inflation—fell in 53 regions.
Sixty-seven regions closed the first half of the year with a “hole” in their local finances. The Kemerovo Region (34% of revenue), Arkhangelsk Region (31%), Komi (30%), Murmansk (28%), Vologda (25%), and Irkutsk Regions (24.6%) led the way in deficits.
Although the regions’ problems are growing, federal authorities are cutting transfers to support them because “there’s no money,” Zubarevich explains: “Costs are being cut; it’s called budget consolidation.”
Federal oil and gas revenues fell by 20%, customs duties by 19%, and VAT collections, according to the Ministry of Finance, will be 8% lower than originally planned. The budget deficit will be five times higher than planned at 5.7 trillion rubles instead of 1.2 trillion.
To plug the gaps in three regions—Yaroslavl, Ulyanovsk, and Dagestan—authorities are considering raising taxes for small businesses. Meanwhile, bills to increase the transport tax have been submitted to regional parliaments in the Orenburg and Novosibirsk regions and Krasnoyarsk Krai.
Economist Vyacheslav Shiryaev believes that de facto defaults have begun in the regions. This, he believes, is evidenced by the government forgiving 160 billion rubles of debt owed to the regions on budget loans.
“Essentially, regions can’t pay their debts. Regions with the largest budget deficits are the first to find themselves in this situation,” Shiryaev points out. “Regional defaults have begun, but the government isn’t publicising them.”
The Moscow Times
