Russia's vast territory is split into 85 official regions. According to the Russian Finance Ministry, only 10 of Russia's 85 official regions are economically or financially stable, down by half since 2015. Of the country's remaining regions, 30 manage to scrape by because direct federal subsidies make up at least 33 percent of their revenues. Half of the $3.5 billion in subsidies that the Kremlin disburses each year goes to just 10 of those regions: Dagestan, Chechnya, Yakutia, Kamchatka, Crimea, Altai, Tuva, Buryatia, Stavropol and Bashkortostan. That leaves more than half of Russia's regions struggling to fulfill their social obligations and meet the federal government's demands for funding.
The Kremlin has historically granted leaders of the country's many regions a fair amount of autonomy to compensate for the fact that Moscow could not possibly tend to all of them at once. This system eased the struggle of controlling the ungainly Russian landmass, but ensuring the regional rulers' steadfast loyalty to the federal government has been a source of constant concern for the Kremlin. Dozens of regions tried to break away or gain more autonomy from Russia after the fall of the Soviet Union. During the 1998 financial crisis, many regional heads bucked the federal government's demands for funding, prioritizing their own financial survival.
Today, the Kremlin is facing a similar problem. At the end of 2016, more than 25 Russian regions had debt-to-revenues ratios of over 85 percent. What's more, the regions have no path to economic recovery outside of increased borrowing — hardly a viable solution. Between their high deficits and their high debt-to-revenues ratios, seven regions are teetering on the brink of financial instability. In growing numbers, regional governments are failing to repay their federal or state bank-issued loans. The Ministry of Finance has even admitted that more than a dozen regions have stopped paying off their government loans over the past two years, and four regions have reportedly defaulted on international loans. Yet the Kremlin has continued its demands for more money. Now, many regions are starting to push back.
Moscow intends to impose tougher economic policies on the regions as a result. Putin has called on Finance Minister Anton Siluanov to implement a new budget code by 2019 to enforce existing standards for regional deficits and debt ratios. Any region that fails to fall in line with the regulations would be subject to sanctions. At the same time, Moscow has cracked down on regional leaders, arresting three different governors on corruption charges in less than two years' time. Putin also signed legislation requiring all governors to disclose their assets and incomes and began appointing regional and district court judges to cut into governors' authority. The Kremlin's response to the regions' economic turmoil and discontent has been mixed, but it will continue to act to pre-empt any unfolding financial crises.
