Page 56 - bneMag bne_December 2020_20201201

56 I Eastern Europe bne December 2020
The region of Ingushetia is about to become the first Russian region ever to go bust
Ingushetia's public debt ballooned by around 64% in 2020 and now stands at almost 125% of planned annual budget revenue, Novaya Gazeta reports.
The terrible state of Ingushetiya’s finances is despite the fact that it was already one of the most subsidised regions in Russia, where federal funds account for 80% of its budget revenues. Unless something changes it will go bust very soon.
Not the first time
Russia’s regions had a near-miss debt crisis in around 2016 when they started to run big bills thanks to Russian President Vladimir Putin’s so-called May Decrees that dramatically lifted the cost of things like teachers and doctors' wages, while at the same time the Ministry of Finance sharply cut subsidies to the regions as it was itself struggling to fill a RUB2 trillion ($25.8bn) hole in the budget.
A similar thing is going on this year, as all of Russia’s regions have been hit by sharply inflated healthcare costs as they scramble to beef up public services in the face of the coronavirus epidemic, but at the same time are seeing revenues tumble as unemployment has doubled and the economy contracts sharply due to the lockdowns earlier this year.
The pandemic is expected to create RUB830bn ($10bn) hole in Russian regional budgets in 2020, according to Gazprombank. And to make things worse, despite the growing second wave of infections which is worse than the first, the Kremlin actually plans
Ben Aris in Berlin
Russia’s southern region of Ingushetia is about to become the first ever region in the country to go bankrupt, Novaya Gazeta reported on November 11, after its debt service obligations soared to 125% of its income thanks to spiralling costs incurred by tackling the coronavirus (COVID-19) epidemic.
Russia’s regions are running out of money and the country is facing another regional debt crisis, as bne IntelliNews recently reported. While the federal government makes plenty of money from duties on the exports of raw materials and oil, the regions have to rely solely on personal income and corporate profit taxes for their revenues, as well as subsidies from the centre.
“Formally, there is a [procedure for declaring insolvency] which can be applied, in accordance with our Budget Code, if the region has overdue debt
in the amount of more than 30% of its own tax and non-tax revenues. It is quite probable that such a state of affairs in the Republic of Ingushetia has come,” said Vladimir Klimov, director of the
www.bne.eu
RANEPA Regional Policy Centre, as cited by the liberal paper Novaya Gazeta.
Ingushetia may be the first to fall, but “Spoiler: there will be plenty in the coming months,” Novaya Gazeta said in its report.
The tiny autonomous republic in Southern Russia has now been added to the “red” regions in the Ministry’s traffic light graduation system, which means its debt management is now under “manual
“The Kremlin has chosen austerity over prosperity, as it sees these reserves as a strategic weapon
in an economic war it is fighting with America”
control.” Regions in the green category can manage their own debt. Those
in the yellow category have to have their borrowing plans approved by the Ministry. And the Ministry simply takes direct control of the debt management of regions in the red category.
to decrease federal budget transfers six-fold next year, according to the new 2021-2023 budget plans.
As a result, almost all regions will start running deficit budgets and be forced to turn to the most expensive loans