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Eastern Europe
November 17, 2017 www.intellinews.com I Page 19
Russia’s finance ministry to get tough with indebted regions
IntelliNews Pro
Russia's Ministry of Finance will punish regions that pay their debts to the centre late. The Min- istry has developed a regional debt restructuring programme, under which the local governments delaying the repayment of cheap federal fund- ing would have to pay out the entire restructured amount at once, RBC reported on November 14 citing the ministry's draft.
Formally this would mean that troubled regions would have to default on federal debt, excused by the ministry only by force majeure circumstances and the change of the region's governor.
Analysts surveyed by RBC believe that the ministry is unlikely to put troubled regions automatically into default and will be flexible, since many local governments rely on banking debt and a default on federal funding would cause an across-the- board revaluation of financing conditions for the region in question.
However, the move is part of a larger drive to revise the federal funding, such as scrapping the crediting programme for Russian regions that was launched 10 years ago. Most recently a number
of country's far flung regions have been feeling financial strain and are asking the centre for help.
Regional fiscal health has been a major concern for Russia since 2014, when a bne IntelliNews report warned that regional financial troubles threaten to drag down central financing ability.
Some of the local governments have been caught between a rock and a hard place, due to growing spending needed to comply with the notorious "May decrees" issued by President Vladimir Putin in 2013.
The decrees that stipulated large pay raises and other social benefits that had to be paid out of regions' expenses, coincided with an economic downturn and falling revenues in the regions.
Overall, individual regional balances in January- June 2017 varied considerably. Of the 85 regions in the Russian Federation, six recorded a surplus of over 15% of revenue, while seven posted
a deficit of greater than 10%, with the remainder in the intervening range.