The state debt of the regions rose to 2.5 trillion rubles: what are the risks for the Russians

“The most vulnerable will suffer”

The Accounts Chamber announced the amount of public debt of the Russian regions, which at the beginning of 2022 amounted to 2.5 trillion rubles. The situation does not look critical, but it cannot but be alarming. The main risk, well understood by the Ministry of Finance, is associated with a growing cash gap: on the one hand, the revenue side of local budgets is steadily shrinking, but at the same time, the regions need more and more money – for social policy, for infrastructure projects, for paying tranches from the federal center.

Compared to 2017, the volume of public debt of the territories increased by 5.2%. The main share of borrowings came in 2020, according to the materials of the Accounts Chamber based on the results of checking the use of state loans provided to the constituent entities of the Russian Federation in 2017-2021, using the example of seven regions. As Aleksey Savatyugin, auditor of the Accounts Chamber, said, “the largest increase in debt was noted in St. Petersburg – 6.2 times, Moscow and Sverdlovsk regions – 2.7 times and 37.8%, respectively.” According to the department, the checked regions received loans from the federal treasury in the amount of more than 896 billion rubles. During the audit, it turned out that the money went mainly to pay off debt obligations (more than 50%) and pay current expenses (47%). Roughly speaking, for plugging holes. Sheer crumbs were spent on investment purposes.

Among the shortcomings, the Accounts Chamber noted the practice of attracting market (bank) borrowings in the presence of significant balances in the accounts of local budgets. According to the department, the regions carry out economically unjustified operations, taking advantage of gaps in the legislation: “regulatory legal acts do not contain restrictions on obtaining a loan depending on the balance of funds and upcoming expenses of the regional budget.” The Accounts Chamber proposes to tighten the procedure for issuing budget loans. In particular, in her opinion, entities should be required to provide the Ministry of Finance with complete information on debt obligations, indicating the amount of debt and the repayment schedule.

“The situation today is such that the territories need more and more money – for social policy, for various projects, for paying for previous tranches, and much more,” says Artem Deev, head of the analytical department at AMarkets. – By the way, the same thing happens with individuals: people who have received loans are faced with a drop in income against the backdrop of high inflation. Their debt load has grown: in order to pay off the banks, they are forced to part with a larger share of their income than before.

Budget revenues are shrinking everywhere, with the possible exception of raw-material territories, which sell a lot of oil, gas, coal, and metals abroad. The main danger of what is happening, according to Deev, is that the regions may declare a default, that is, they admit that they are unable to pay off their debts to the state. In turn, this is fraught with a cascading effect: defaults will follow one after another. The amount of budgetary funds available to the subjects will shrink, while the amount of debt obligations will grow. We will have to cut spending, largely related to social items, with various payments and benefits. As a result, the most vulnerable segments of the population will suffer.

“The main risk is the structure of the debt: regions that once took on commercial loans are having a harder time than those who chose to limit themselves to government borrowing,” says Nikita Maslennikov, a leading expert at the Center for Political Technologies. – The Ministry of Finance has seen this problem since the middle of the last decade, trying to get the constituent entities of the Russian Federation to reduce the share of bank loans and, if necessary, increase the share of budget loans. To do this, Siluanov’s department used additional incentives, for example, the possibility of debt restructuring and ultra-low (up to 0.1%) interest rates. Today, the situation looks better than in 2017-2019, when no more than a dozen regions had a budget surplus. Everyone else could do nothing about the gaping hole in their finances.”