Page 69 - RusRPTFeb19

Russia’s regions. Amendments to the Budget Code were considered by the government on December 12.
The key proposal is to reduce marginal debt service costs from 15% to 10% of total regional spending. The limit of annual payments for its maintenance and repayment is 20% of the regional budget revenues, taking into account subsidies.
The regions themselves Ministry of Finance proposes to classify into three risk groups. Regions with low debt sustainability (the share of debt servicing costs exceeds 8%, follows from the Ministry of Finance materials) will be able to enter the debt market only to refinance debt and according to the approved solvency restoration plan, the Finance Ministry suggests. With average (expenses above 5%) - to coordinate loan programs. Regions from the non- risky group are exempt from such restrictions. The region can return to such a group only three years after it has fallen into the risk zone.
In 2017, the regions spent more than RUB110bn on interest on debt, with the Krasnoyarsk Territory and the Moscow region spending most: RUB6.8bn and RUB6.6bn respectively.
The national average debt service expenditure in 2017 was 1.2%, says Andrei Chernyavsky from the Development Center of the Higher School of Economics. And the cost of servicing the debt in January-September 2018 decreased by 18.3% compared to the same period of 2017, analysts at the RANEPA and the Gaidar Institute said out.
There is a group of disadvantaged regions where such expenses are high, and such a tightening will help the Ministry of Finance to limit the growth of their new debt, Chernyavsky said.
In 2017, about half of the regions' debts exceeded 60% of their revenues, and six regions had 100%. With the cancellation of budget loans (their government began issuing in 2013–2014 to reduce the growth of commercial debt) the risks of growth in bank loans are returning again, analysts of the S&P rating agency warn. According to the forecast of the Ministry of Finance, for 2018, the regions will attract RUB1.3 trillion in bank loans and will issue bonds for RUB335bn, which is 1.5 times more than a year earlier. The number of bond issuers will also grow, the Ministry of Finance predicts.
The division of regions into groups is another deviation from fiscal federalism, Redkin warns. If now the region can occupy the market to finance state programs and expenditures, with this differentiation, the weak regions will simply be taken to the budget estimates. But debt does not always indicate the problems of the region, sometimes loans are needed for development, and the Ministry of Finance puts risks first, limiting opportunities, he continues. As a result, the measure will further consolidate regional inequality: the rich will continue to grow rich, and the poor to grow poor, he complains. “The Ministry of Finance is again introducing manual control,” Redkin concludes.
The government has been tightening financial control over the regions over the past two years, S & P analysts say, but the problems of imbalances in revenues and expenditures and fiscal rules that do not prevent debt accumulation have not yet been resolved.
Every year, about 10 regions exceed the government’s budget and debt deficit
69 RUSSIA Country Report February 2019 www.intellinews.com