russia’s Regions Are on the Brink of a Budget Crisis

russia’s regions are facing their deepest budget crisis in decades. By September, most of them had exhausted their financial reserves, and six federal subjects had less than one percent of their annual budget in their accounts – enough money to cover only a few days of spending.

Arkhangelsk region, with an annual budget of 156 billion rubles, has only 50 million reserves – 0.03 % of planned expenditures. Kalmykia has 40 million left, Volgograd region has 100 million, and Belgorod region has 200 million rubles. Ulyanovsk, Irkutsk, and Murmansk regions have retained no more than 0.5–0.7 % of their annual funding.

The lack of liquidity has already led to sequestration. Irkutsk region is cutting 4.9 billion rubles in education and healthcare. Teachers’ salaries have been cut in 12 regions. To make up for the deficit, local authorities in Yaroslavl and Ulyanovsk regions and Dagestan are preparing to raise taxes on small businesses, while in Orenburg and Novosibirsk regions and the Krasnoyarsk Territory, they are preparing to raise transport taxes.

The cumulative deficit of regional budgets increased from 397.8 billion rubles in June to 724.8 billion in September. Revenues declined in 26 regions in nominal terms, and in 53 regions – when adjusted for inflation. In the first half of the year, 67 federal subjects ended the year with a hole in their local finances. The largest deficits – in Kemerovo (34 % of revenues), Arkhangelsk (31 %), Murmansk (28 %) regions, and the Komi Republic (30 %).

The financial pressure is reflected in the social situation. In September, russians purchased 1.94 million packages of antidepressants worth 13.8 billion rubles –  by 33 % more than last year.

By the end of the year, the situation with regional budgets will only get worse: there are no new sources of income, while expenses continue to grow.