Page 72 - RusRPTNov20

6.1.4​ Budget dynamics - regions
Russia’s regions face a fresh debt crisis as they struggle to cope with the coronavirus pandemic
After a near-miss debt crisis in 2015-16 Russia’s Ministry of Finance cracked down and introduced a “manual control” control system after several of Russia’s poorer regions nearly went bankrupt. The next few years saw the system put back on its feet. But since the start of the coronavirus (COVID-19) epidemic earlier this year many of the regions are being rocked by the shock of the extra spending needed to combat the virus and a new debt crisis is looming.
Regional debt has always been a major headache for the Kremlin. While the federal government earns buckets of money from the export of oil, gas and metals, the regional governments on the whole have to rely exclusive on personal income and corporate profit taxes for their income.
At the same time if the federal government needs to save money it can scale back military spending or​ p​ lay with the mineral extraction tax (MET) on raw materials​ to boost revenues, and it is currently doing exactly that to create more cash to deal with the corona-shock. Regions, on the other hand, have very little wiggle room as 70% of their outgoings are on essential public services like schools, hospitals, road repairs and fire stations.
“In a normal year, most Russian regions do not have enough income to cover their budgetary expenses, given the ​centralization​ of budget revenues in the past two decades. This means that they have to rely on federal budget transfers, borrowing, or, in most cases, both,” Andras Toth-Czifra said in a paper​ published by the Institute of Modern Russia entitled “Russia’s pre-existing conditions” that takes an in-depth look at the state of regional debt.
In the last crisis Finance Ministry was forced to try and defuse a​ ​ticking time
72 ​RUSSIA Country Report​ November 2020 www.intellinews.com