Opinion: Russia is a mess — the poverty rate is soaring and only 10 of 85 regions are financially stable
By Stratfor analysts
Published: Jan 31, 2017
After two and a half years in a deep economic recession, the Russian economy has taken a turn for the better.
Moscow has tightened its belt, and its efforts are paying off, even though oil prices have not recovered and the economic sanctions against the country remain in place.
In fact, Russia stands to pull out of recession this year. The country’s economy is expected to start growing again in 2017 — by 1.5%, according to World Bank projections — thanks to a budget based on more realistic oil prices and a slimmer spending plan.
Foreign investment has also started trickling back in as the rest of the world grows accustomed to navigating Russia’s sanctions. Western credit rating agencies such as Standard & Poor’s have even raised the country’s outlook from negative to stable.
But despite the overall economic upturn, Russia’s people are still in dire straits. One-quarter of Russian companies cut salaries in 2016, at times even skipping payments to their employees.
The average monthly wage in Russia dropped 8% last year (after falling 9.5% in 2015) to under $450 — less than the mean monthly pay in China, Poland or Romania — while the poverty rate jumped to nearly 15%. And the country’s regional governments are not faring much better, much to the Kremlin’s consternation.
An overwhelming problem
Russia’s vast territory is split into 85 official regions of varying shapes, sizes and designations. (Two of these regions, Sevastopol and Crimea, are not internationally recognized as Russian territory since Moscow annexed them from Ukraine in 2014.)
According to the Russian Finance Ministry, only 10 of Russia’s 85 official regions — most of them commodity producers and metropolitan areas with substantial tax bases — 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% 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.
Seventy of Russia’s regions send 63% of the income they generate to the federal budget, keeping only the remaining 37%. The federal government, meanwhile, returns at most 20% of the money by way of subsidies and intergovernmental transfers.
The Kremlin has raised the amount of income it takes from these regions by 12% over the past four years, and it is set to increase its cut by another 2% this year.
To make matters worse, Moscow foisted much of the burden of social spending off on regional governments after the 2008-09 financial crisis.
Russian President Vladimir Putin then issued a series of decrees in 2011 and 2012, after winning a third term in office, calling for various improvements in the country, from replacing dilapidated housing to increasing salaries for doctors and teachers. The so-called unfunded edicts added tens of billions of dollars to regional budgets. Just a few years later, the country found itself back in financial crisis.
Snip
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%; the Republic of Mordovia’s is nearing 200%. What’s more, the regions have no path to economic recovery outside of increased borrowing — hardly a viable solution.
Standard & Poor’s estimates that regional governments would need to borrow another $20 billion just to cover the debt payments they have due this year. Between their high deficits and their high debt-to-revenues ratios, seven regions are teetering on the brink of financial instability. Yet the Kremlin has continued its demands for more money. Now, many regions are starting to push back.
continued
https://www.marketwatch.com/story/r...-85-regions-are-financially-stable-2017-01-31
By Stratfor analysts
Published: Jan 31, 2017
After two and a half years in a deep economic recession, the Russian economy has taken a turn for the better.
Moscow has tightened its belt, and its efforts are paying off, even though oil prices have not recovered and the economic sanctions against the country remain in place.
In fact, Russia stands to pull out of recession this year. The country’s economy is expected to start growing again in 2017 — by 1.5%, according to World Bank projections — thanks to a budget based on more realistic oil prices and a slimmer spending plan.
Foreign investment has also started trickling back in as the rest of the world grows accustomed to navigating Russia’s sanctions. Western credit rating agencies such as Standard & Poor’s have even raised the country’s outlook from negative to stable.
But despite the overall economic upturn, Russia’s people are still in dire straits. One-quarter of Russian companies cut salaries in 2016, at times even skipping payments to their employees.
The average monthly wage in Russia dropped 8% last year (after falling 9.5% in 2015) to under $450 — less than the mean monthly pay in China, Poland or Romania — while the poverty rate jumped to nearly 15%. And the country’s regional governments are not faring much better, much to the Kremlin’s consternation.
An overwhelming problem
Russia’s vast territory is split into 85 official regions of varying shapes, sizes and designations. (Two of these regions, Sevastopol and Crimea, are not internationally recognized as Russian territory since Moscow annexed them from Ukraine in 2014.)
According to the Russian Finance Ministry, only 10 of Russia’s 85 official regions — most of them commodity producers and metropolitan areas with substantial tax bases — 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% 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.
Seventy of Russia’s regions send 63% of the income they generate to the federal budget, keeping only the remaining 37%. The federal government, meanwhile, returns at most 20% of the money by way of subsidies and intergovernmental transfers.
The Kremlin has raised the amount of income it takes from these regions by 12% over the past four years, and it is set to increase its cut by another 2% this year.
To make matters worse, Moscow foisted much of the burden of social spending off on regional governments after the 2008-09 financial crisis.
Russian President Vladimir Putin then issued a series of decrees in 2011 and 2012, after winning a third term in office, calling for various improvements in the country, from replacing dilapidated housing to increasing salaries for doctors and teachers. The so-called unfunded edicts added tens of billions of dollars to regional budgets. Just a few years later, the country found itself back in financial crisis.
Snip
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%; the Republic of Mordovia’s is nearing 200%. What’s more, the regions have no path to economic recovery outside of increased borrowing — hardly a viable solution.
Standard & Poor’s estimates that regional governments would need to borrow another $20 billion just to cover the debt payments they have due this year. Between their high deficits and their high debt-to-revenues ratios, seven regions are teetering on the brink of financial instability. Yet the Kremlin has continued its demands for more money. Now, many regions are starting to push back.
continued
https://www.marketwatch.com/story/r...-85-regions-are-financially-stable-2017-01-31