The federal budget is lenient towards the regions

The government continues to expand the possibilities of writing off regional debts on budget loans – now the budget for the sake of investing in regional economies is already forgiving the constituent entities of the Russian Federation debts in the amount of tax revenues to the federal budget from the implementation of investment projects. In the new structure, provided for by the White House resolution on this issue, the regions will be written off their debt even for projects that have not passed the investment phase. The government does not name the amount of additional support, but they expect that the decision will additionally support regional public finances – the share of budget loans in the volume of sub-federal debt is steadily growing.

The government has adjusted the mechanism for writing off the regions’ debts on budget loans, follows from government decree No. 1280 of August 4. The regions that are actively developing the infrastructure for launching new investment projects now have the right to write off debts on them, while the amount of write-off depends on the amount of taxes that go to the federal budget from the implementation of investment projects. The projects themselves should also be implemented in priority sectors, according to the government, such as agriculture, tourism, manufacturing, mining (except for oil and gas), housing and road construction.

The government document expands the possible volumes of write-offs – now you can take into account tax revenues received from the implementation of projects even in the investment phase, for example, when the first stage of an enterprise is launched. The resolution also provides for the possibility of writing off debt on budget loans provided to the regions in 2021-2022. The government does not name the amount of additional support for the regions. When launching the mechanism for writing off regional debts, the Ministry of Economy estimated the possible volume of debts released during the restructuring at more than 400 billion rubles. until 2024.

The government expects that the adjustment of the mechanism will reduce the debt burden on regional budgets and allocate additional funds for the development of other priority projects. It should be noted that since the beginning of the military operation of the Russian Federation in Ukraine, the debts of the regions have been steadily growing and a kind of softening of the policy of the federal Ministry of Finance in relation to the sub-federal component of the consolidated budget looks justified in terms of their medium-term stability. However, the scale of the growth of public debt at the regional level is impressive only in nominal terms: according to the Ministry of Finance, in 2022, the debt of the regions increased by 12.6% (314 billion rubles), and by July 2023 since the beginning of the year – by almost 9% more (238 billion rubles) and exceeded 3 trillion rubles.

In 2022, the center helped the regions pay off debts on bonds and bank loans, but the process of replacing commercial debt with budgetary debt is spurring the launch of numerous lending programs for the regions – these are infrastructure loans, special treasury loans, and so on. The Ministry of Finance has repeatedly warned about the risks of the regions’ debt burden, fearing that trillion-dollar infrastructure loans could lead to the fact that the regions will not be able to borrow for their usual budget spending. If at the beginning of 2022 budget loans amounted to 1.4 trillion rubles. (55% of the total debt), then in January 2023 – almost 2 trillion rubles. (over 70%), and by July – almost 2.3 trillion rubles. (76%). However, in the economic bloc, budget lending is still regarded as one of the key mechanisms for stimulating investment in the regions. In particular, the Ministry of Economy is counting on the emergence of stimulating budget loans – this mechanism should replace subsidies in compensating for shortfalls in regional income due to the provision of investment tax deductions to businesses.

Diana Galieva