In Russia, Economic Woes Trickle Down

2 MINS READAug 7, 2015 | 16:28 GMT
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The effects of Russia's economic downturn have begun to trickle down from the federal level, spreading to Russia's 83 regions. Regional governments have long carried a large share of the country's financial burden. Though the country's total debt is only around $300 billion — a relatively small figure considering gross domestic product is nearly $2 trillion — about one-third of that debt is concentrated among regional governments, which do not have as many resources as the federal government.

There are three primary factors underpinning the regions' mounting debts: federal obligations and edicts, economic stagnation and limited credit access. All of Russia's regions must meet a series of burdensome obligations to the Kremlin and social spending. Of the income each region generates, only 37 percent stays in the region itself; the rest goes to the federal government. And in 2012, Russian President Vladimir Putin issued a series of what regional leaders and the Russian media have called "unfunded mandates." These federal decrees have required the regions to raise salaries by 10 percent and to spend money on dilapidated housing — but the federal government has not contributed to the projects.

In addition, the economic stagnation affecting the country as a whole is beginning to reach the regions and cities, even as federal aid to the regions has fallen sharply. The tightened purse strings have not affected all regions equally; politically sensitive and insecure regions, such as Crimea, Chechnya and Dagestan, all receive high levels of funding from the Kremlin. Just last week, the Russian government announced plans for 30 anchor investment projects in Chechnya and Dagestan over the next year. Still, nearly all of the other regions have seen their financial support dwindle.

In response to their mounting financial burdens, Russia's regional governments have already begun to slash their spending. As pressure continues to build at the regional level, Russia's cities and citizens will increasingly feel the effects of economic deterioration. The Kremlin is preparing a series of financial, political and security measures to ensure that the regions remain stable in the years to come. 

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