Federal budget deficit pressures regions on outlays

The Federal budget deficit will mean regions dependent on Federal support will need to curtail expenditures. That’s likely to see projects delayed as the money runs out.

The current economic crisis is a long-term reality, but might also become an opportunity, Russian officials say. The government had previously promoted regional development and emphasized less reliance on federal budget funding. But with the collapse in revenues from Russia's main exports, such as oil and gas and metals, many regions are struggling to cope.

Krasnoyarsk region is a lucky one. Rich with natural resources-coal and metals- it has experienced significant growth over the last 10 years and is the leading Russian region in terms of industrial production per capita in Russia. But it is unable to set its sights on anything sustainable for more than a month due to current crisis conditions. So government aid, is sought after here, too

The government is keen to help, but has made small and medium enterprises a priority at regional level. But it has also offered aid to regions that are ready to revise their spending plans, according to Presidential Advisor, Arkady Dvorkovich.

“In this situation regions are adjusting their programmes. They are expecting some help and support from the federal budget. It will be provided in the next few months. But in each particular situation, companies and regions should look for the most efficient solutions – for a reduction of costs, and improved management, with the aim to achieve the same results with a lower amount of resources.”

The future for regional governments will be dependent on self-funding, analysts say, with the Federal budget deficit likely to hit 8% this year. That's down from an 8% budget surplus in 2008. Sergey Guriev, Head of the New Economic School, believes those projects which aren’t up and running are likely to be held back.

“The Ministry of Finance revisiting its assumptions for the federal budget, and I think that many investment projects, at least investment projects which are not in the field right now, that are on the paper stage, I think many of them will be delayed. Simply because the government is running out of money.”

That's likely to be a tough message for many of Russia's poorer regions, which have relied on big spending inflows from the Federal Government even in times of plenty.