A lion’s share of the Russian regions face serious economic difficulties following growing debts obligations, a new study from Standard&Poor’s concludes. According to the report, the accumulated debts of the Russian regions have increased with 50 percent over the last three years. The debts could grow with another 100 percent to more than three trillion rubles over the next two years.
The development is now gradually undermining the financial stability in the regions, the market intelligence and rating company warns.
Among the Russian Barents regions, the Republic of Karelia now has the highest debts with 73,8 percent of annual incomes, followed by Arkhangelsk Oblast (56,9%) and Murmansk Oblast (21,8%). The oil-rich Nenets Autonomous Okrug is on the other hand the only of all 83 Russian regions without any debts, a survey from newspaper Vedomosti shows.
Several negative trends affect the situation in the Russian regions. On the one hand, the federal centralization of the state tax regime has reduced the regional income base and given less incentive for development. The situation is being aggravated by additional obligations imposed on the regions by the federal government but not followed up with corresponding financing. In addition, President Putin’s order on salary increases for regional officials is putting further strain on the regional budgets. According to Vedomosti, the salary boost will alone in 2013 account for a seven percent increase in the regional budgets. In 2014, an additional 10 percent increase is immanent, the newspaper writes.
The trend in Northwest Russia is the same as in the rest of the country. Regional budget deficits give increasing debt burdens. Information from the regional administrations in Murmansk Oblast and Arkhangelsk Oblast show that the two regions in 2014 will have budget deficits of 16,6 percent and 12,3 percent respectively.
Also the federal budget is likely to have a deficit in 2014. According to the adopted budget law of the government, the country will next year spend 2,8 percent more than it earns.
The regional budget deficits come as a parallel to a generally difficult economic situation. In the Barents Region, all the federal subjects, with the exception of the Komi Republic, have over the last two years had negative industrial production index.
