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One of the news that generated significant interest in the past week was the “bankruptcy” of Ingushetia, a N Caucasian region. But this isn't exactly what's happening. What Ingushetia is going through is close to bankruptcy but not exactly that. A THREAD. https://novayagazeta.ru/articles/2020/11/11/87916-russia-explained
Russia’s regions faced a significant centralisation of political power and revenues in the past two decades, after the 1990s when certain regions with significant revenues declaring de facto or de jure independence seemed like a real threat. 2/?
This has left most of Russia’s regions heavily dependent on federal financing. Regions have been required to transfer an ever-growing share of their income to the federal budget, which then redistributes this money. You can read more about this here. 3/? https://imrussia.org/en/analysis/3084-governors-redux
Regions were, at the same time, obliged to fork out more money to implement policies set on the federal level, notably Putin’s 2012 “May Decrees” and the National Projects set up in 2018. But of course... 4/? https://imrussia.org/en/analysis/3091-the-labors-of-sisyphus-why-russia%E2%80%99s-national-projects-are-put-on-hold
regional govs also have to fulfil their main role: keep voters reasonably satisfied & elite conflicts at bay. And unlike the fed budget where you can cut big projects, military expenses etc. 70-80% of regional expenses go on health, social aid, education https://publications.hse.ru/books/149966735
Moreover, while the federal budget has a $124bn rainy-day fund, only the wealthiest regions have reserves that could see them through more than a couple of weeks of fiscal troubles. (And they had a lot of trouble this year. More on this here. 6/? https://imrussia.org/en/analysis/3181-russia%E2%80%99s-pre-existing-conditions
In short, up until 2016 many regions borrowed heavily to stay on top of their fiscal duties, which almost led to a serious debt crisis. Then the federal government stepped in and gradually replaced risky loans with cheaper loans from the budget. 7/?
In addition the FinMin started monitoring regions’ budgeting more strictly, putting them into green, yellow, and red bins with “yellow” regions not allowed to take out fresh debt w/o higher approval, and red regions only allowed to refinance debt. 8/? https://www.interfax.ru/russia/671425
Indebted regions also have to agree w the federal government on steps to reduce their debt servicing costs. The Ministry then evaluates progress and decides whether a region has done enough to be promoted; unless freshly appointed, governors can also suffer consequences. 9/?
2019 was a good year altogether, as several regions managed to reduce their debt burden and some even built up reserves. But this progress has been wiped out entirely by the COVID crisis and the federal government’s aid has been insufficient (see article on this above). 10/?
But what about Ingushetia? Well, the region was one of the worst performers to begin with. Heavily subsidized and according to a MinFin report on 2019 overdue debt made up 17.1% of its budgetary expenses, more than in any other region. 11/?
https://minfin.gov.ru/common/upload/library/2020/11/main/Rezultaty_otsenki_za_2019_god.pdf
https://minfin.gov.ru/common/upload/library/2020/11/main/Rezultaty_otsenki_za_2019_god.pdf
It also missed the targets on raising revenues, debt servicing, the ministry’s fiscal roadmap, fiscal legislation, the effectiveness of budgetary funds, the quality of fiscal management and it added budgetary expenses that were not approved. 12/?
Then in January-September this year its debt increased by 64% to 3.3 billion rubles. This is not exceptionally much, but over the same period its budgetary expenses increased by 36%, more than in most regions. The two together are problematic. 13/?
https://ach.gov.ru/upload/iblock/0a4/0a49d375c1a2ec1ad52c23c11de3f335.pdf
https://ach.gov.ru/upload/iblock/0a4/0a49d375c1a2ec1ad52c23c11de3f335.pdf
Some of this was of course due to the multiplication of health care expenses (for which the federal government gave some – though uneven and limited – help to regions), but expenses on housing and education also increased in Ingushetia. 14/?
It has to be added that Ingushetia is also one of the most cash-strapped regions when it comes to municipal budgets, and had the worst unemployment (26%) even before the pandemic, which then made this number even worse (more than 30%). 15/?
https://tass.ru/v-strane/9460941#:~:text=%D0%A3%D1%80%D0%BE%D0%B2%D0%B5%D0%BD%D1%8C%20%D0%B1%D0%B5%D0%B7%D1%80%D0%B0%D0%B1%D0%BE%D1%82%D0%B8%D1%86%D1%8B%20%D0%B2%20%D0%98%D0%BD%D0%B3%D1%83%D1%88%D0%B5%D1%82%D0%B8%D0%B8%20%D0%B2,%D0%BF%D0%BE%D1%81%D0%BB%D0%B5%D0%B4%D1%81%D1%82%D0%B2%D0%B8%D0%B9%20%D0%BF%D0%B0%D0%BD%D0%B4%D0%B5%D0%BC%D0%B8%D0%B8%20%D0%B8%20%D1%82%D0%B5%D0%BD%D0%B5%D0%B2%D0%BE%D0%B9%20%D0%B7%D0%B0%D0%BD%D1%8F%D1%82%D0%BE%D1%81%D1%82%D0%B8.&text=%D0%A0%D0%B0%D0%BD%D0%B5%D0%B5%20%D1%81%D0%BE%D0%BE%D0%B1%D1%89%D0%B0%D0%BB%D0%BE%D1%81%D1%8C%2C%20%D1%87%D1%82%D0%BE%20%D1%81%D0%B0%D0%BC%D1%8B%D0%B9%20%D0%B2%D1%8B%D1%81%D0%BE%D0%BA%D0%B8%D0%B9,%D0%BF%D0%BE%20%D0%A0%D0%BE%D1%81%D1%81%D0%B8%D0%B8%20%D0%BF%D0%BE%D0%BA%D0%B0%D0%B7%D0%B0%D1%82%D0%B5%D0%BB%D1%8C%200%2C5.
https://tass.ru/v-strane/9460941#:~:text=%D0%A3%D1%80%D0%BE%D0%B2%D0%B5%D0%BD%D1%8C%20%D0%B1%D0%B5%D0%B7%D1%80%D0%B0%D0%B1%D0%BE%D1%82%D0%B8%D1%86%D1%8B%20%D0%B2%20%D0%98%D0%BD%D0%B3%D1%83%D1%88%D0%B5%D1%82%D0%B8%D0%B8%20%D0%B2,%D0%BF%D0%BE%D1%81%D0%BB%D0%B5%D0%B4%D1%81%D1%82%D0%B2%D0%B8%D0%B9%20%D0%BF%D0%B0%D0%BD%D0%B4%D0%B5%D0%BC%D0%B8%D0%B8%20%D0%B8%20%D1%82%D0%B5%D0%BD%D0%B5%D0%B2%D0%BE%D0%B9%20%D0%B7%D0%B0%D0%BD%D1%8F%D1%82%D0%BE%D1%81%D1%82%D0%B8.&text=%D0%A0%D0%B0%D0%BD%D0%B5%D0%B5%20%D1%81%D0%BE%D0%BE%D0%B1%D1%89%D0%B0%D0%BB%D0%BE%D1%81%D1%8C%2C%20%D1%87%D1%82%D0%BE%20%D1%81%D0%B0%D0%BC%D1%8B%D0%B9%20%D0%B2%D1%8B%D1%81%D0%BE%D0%BA%D0%B8%D0%B9,%D0%BF%D0%BE%20%D0%A0%D0%BE%D1%81%D1%81%D0%B8%D0%B8%20%D0%BF%D0%BE%D0%BA%D0%B0%D0%B7%D0%B0%D1%82%D0%B5%D0%BB%D1%8C%200%2C5.
At the same time, it is one of the so-called “protest regions” (a land swap that benefited Chechnya and was approved by the regional government and Moscow sparked protests in Magas in 2018-19), therefore the government is encouraged not to take unpopular decisions. 16/?
In short, there was no way to resolve Ingushetia’s situation without the federal government stepping in, but the government is already doing similar things in other highly indebted regions, e.g. Mordovia, Kostroma and Khakassia. 17/? https://www.finanz.ru/novosti/aktsii/regiony-bankroty-perevedut-pod-vneshnee-upravlenie-1028221402
The govt requested Ingushetia (& Magadan) to sign an agreement & effectively cede control over their finances to the federal gov until the situation is stabilized. The regional govs won’t be able to start new investment projects or take out new loans 18/? https://news.rambler.ru/world/45125448-ingushetiya-i-kolyma-zaklyuchat-soglasheniya-o-merah-po-vosstanovleniyu-platezhesposobnosti/?updated
What this doesn’t tell us is how Ingushetia's finances will be stabilized. Will they be forced to cut expenses? Where? Will the federal budget pay or excuse some of its debts? If yes, how to ensure that other regions won’t go down this road? 19/?
The problem is exactly that regional budgets are stretched thin and as Natalya Zubarevich, an expert on regions warned, due to falling revenues many faced deficits in the middle of the year that they would normally face at the end of the year 20/? https://www.rbc.ru/economics/25/09/2020/5f6b3d3f9a7947e43c7e2427
Ingushetia may be a small region, and this may be a standard procedure, but several other North Caucasian and South Siberian regions face similarly unbalanced finances, which will cause problems in the near future, especially as the 2nd covid wave puts revenues in danger. 21/end.
If you'd like to read the above on one page, do click below.
The new dispatch on the blog: Regions and bankruptcy
http://www.noyardstick.com/?p=830
#Russia #COVID19 #Ingushetia
The new dispatch on the blog: Regions and bankruptcy
http://www.noyardstick.com/?p=830
#Russia #COVID19 #Ingushetia
