Finance Ministry Takes over Russian Regions’ Debt

The Russian government is moving to take tighter control of debt in the country’s regions, the build-up of which nearly caused a crisis only two years ago, RIA news agency reports.

The State Duma Committee on Budget and Taxes is supporting a proposal by the Finance Ministry to tighten control over expenditures and debts of the regions as part of an extensive overhaul of financial control that has been in place since economic growth stalled in 2013.

The tax system has been overhauled and the tax service given a new IT system that saw the tax take increase by 20 percent in 2018, despite the fact that the tax burden remained largely the same. Likewise, the powers of the Audit Chamber, now headed by former finance minister Alexey Kudrin, have been expanded and given permission to inspect regional finances.

Regional debt ballooned during the “silent crisis” years to the point where some regions had debt servicing costs equal to their entire revenues. At the same time, the cash-strapped government slashed loans and disbursements to the regions.

The Finance Ministry estimates that regional debt will grow from the current $33.2 billion to $45.3 billion in the next three years, Interfax wrote in February with reference to a presentation by the Finance Ministry prepared for the meeting of the State Duma Committee on Budget and Taxes.

In that presentation, the ministry divided regions into three categories: low (green), medium (yellow) and high (red). In the green regions, total debt should not exceed 50 percent of the value of the total tax take and servicing costs should not be more than 5 percent of total spending. In the red regions, the numbers are 85 percent and 8 percent, respectively.

According to the Finance Ministry, 38 regions are in the green zone, including Moscow and the Moscow Region, St. Petersburg and the Leningrad. The yellow group includes 43 regions, among them Krasnoyarsk Territory, and Kaliningrad, Tver, Nizhny Novgorod, and Smolensk regions. The red group is small and contains the Far Eastern Jewish autonomous region, the Oryol region, the Pskov region, and the Republic of Mordovia.

On April 15 this system was formalized by law and included changes that will reduce regions’ cost of debt servicing by nixing some taxes.