Russia: Moscow's Plan to Relieve Regional Debt

Analysis

The Russian government has begun drawing up a program to help its regions address their skyrocketing debts. The initial plan -- agreed upon by the Ministry of Finance, State Duma and Federation Council -- will allocate $1.76 billion in 2014 for the 20 most indebted regions. The Tver, Ryazan, Nizhny Novgorod and Astrakhan regions will receive the most funds. The program will also implement emergency tax provisions and subsidies. Regions with debts that exceed 50 percent of regional budget revenues will also collectively receive budgetary loans of approximately $2 billion from the federal government.

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The Russian regions' debt has skyrocketed since the 2008 global financial crisis because the Kremlin has allowed the regions to take the brunt of the country's economic decline while maintaining the health and strength of the federal government. The debt increases have also resulted from over-taxation by the federal government, decreases in federal subsidies, high interest rates from bank loans and the overall stagnation of the Russian economy during the past year. Most of the 83 Russian regions' debt has risen by more than 100 percent in the past five years from a total of $35 billion in 2010 to $78 billion in 2014. The debt is estimated to top $100 billion without government intervention.

The form of the program as announced by the Russian government will not be enough to help the Russian regions in light of the continually weakening economy. Prime Minister Dmitri Medvedev has been tasked with creating a comprehensive program to address these problems, and the Kremlin is expected to announce more measures in July and August. These measures could include debt write-offs from the Russian banks and more bailouts. For now, the regional debt problem remains a threat to Russia's internal stability at a time when Russia is combating a series of issues, including its overall economic stagnation and pressures from abroad that could lead to international sanctions and instability on its borders.

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