Translated material
Regions grow with debts
Each sixth region of Russia accumulated public debt, exceeding 90% of all its income in seven Russian regions (Mordovia, Chukotka, Belgorod, Vologda, Saratov regions, as well as Ingushetia and North Ossetia), the volume of accumulated state debt in 2013 exceeded the total amount of their own income - there were only two such a year earlier. In the seven regions (Smolensk, Kostroma, Ryazan and Pskov regions, as well as Mari El, Karelia and Krasnodar Territory), the debt level exceeded 90% of current income - in 2012 in two. Such data was presented at the beginning of the week by the Count of Russia in an operational report on the progress of the federal budget for the first quarter of 2014.
It notes, in particular, that “the main reasons for the complication of the financial situation of the regions are the general deterioration of the economic situation in the country , a decrease in income tax income tax in the income of regional budgets, a significant increase in expenses, including the execution of the decrees of the President of the Russian Federation of May 7, 2012.” We are talking about a package of software decrees on economic and social policy, healthcare, education, science, as well as providing citizens with affordable housing and high -quality improvement of housing and communal services, which were signed by President Vladimir Putin immediately after his third entry off.
During the first quarter of 2014, the accumulated public debt of 83 constituent entities of the Russian Federation increased by 1% to 1.75 trillion rubles. For comparison, the total income of the Russian regions in 2013 also increased by 1%.
It should be said, rather, about the ratio of debt and current income, emphasizes the deputy director of the public finance direction of the Standard & Poor's international rating agency in Moscow Karen Wartpeutov :
- On average, in Russian regions, the amount of accumulated debt in relation to own income (minus financial assistance from the federal budget) exceeds 30%today. Although only a year ago this figure remained about 20%. That is, we see a sharp increase in debt load. Indeed, in the first quarter, the pace of her growth was moderate. But the regions usually carry out their main expenses in the second half of the year, then we can expect a new acceleration of debt growth.
Especially in conditions, on the one hand, stagnating income (this has become obvious last year), and on the other, growing expenditure obligations, which are mainly related to the need to fulfill the presidential decrees, raising salaries to state employees, solving problems with dilapidated housing, etc.
According to your forecasts, how can the debt burden of Russian regions grow in 2014?
- According to our estimates, the unbalanced income and expenses of the regions will lead to the fact that by the end of the year their aggregate coat will exceed 2.5 trillion rubles - this is already approximately 35% of regional income. In international practice, this level is considered in principle low. However, the specifics of the debt of the Russian regions lies in its short -term, which only complicates the refinancing.
In the overall structure of public debt accumulated by Russian regions, according to current data from the Accounts Chamber, 40% falls on bank loans and another 26% for regional bonds. How long are the risks of these debt obligations?
- From the point of view of credit risks, it is obvious that bonds are a more profitable tool, especially in the Russian context. They are usually produced for fairly long terms - at least 3 years, judging by what we see - and have a fairly “smooth” repayment schedule. Bank loans, as a rule, are attracted for a short time. According to our estimates, on average, half of all bank loans that Russian regions attracted are up to 12 months. These are very “short” loans. Yes, they are probably easier to get - for example, quickly holding a competition, and they are cheaper. But such loans are also associated with large risks of refinancing. Indeed, each year, regions need to find new sources, including attracting new bank loans to refinance old debts.
In 2013, the share of income tax of companies and enterprises, the main source of revenues in the treasury for many regions, amounted to 21%in their structure, while back in 2008 - 28%, ”said Natalya Zubarevich , director of the regional program of the Independent Institute of Social Policy.
Conversely, the share of tax on individuals (personal income tax) increased from 27%in 2008 to 31%, and only in 2013 - by 11%. Even more - immediately by 15% - the share of the property tax on the property of enterprises increased in regional income.
Such multidirectional dynamics reflects primarily the general deterioration of the economic situation in the country as a whole and in the regions in particular, the expert of the Higher School of Economics in Moscow Mikhail Gorsta notes:
- The volume of the profit that enterprises receive is falling. Accordingly, income tax revenues are also reduced. In the current conditions, this is a natural process. The growth of income in personal income tax is primarily associated with the execution of the May decrees of the President and the increase in wages to employees of the budget sphere - healthcare, education and other categories of state employees.
As for property tax, this is one of those tools that the regions can maneuver, changing bets, providing additional benefits or, conversely, canceling them. Here they have much more freedoms than in relation to personal income tax. And some regions follow the path of canceling such benefits.
In addition, since 2013, the previously existing benefit in relation to network infrastructure facilities was centralized - for example, railway tracks or power lines. Both that and another are in almost every region. Such objects are now taxed, albeit at a small rate, tax on the property of organizations.
Some experts also call another reason why the income of the treasury of regions in the form of income tax was so sharply reduced - the entry into force of the law on the so -called “consolidated taxpayer” in 2013 ...
Mikhail Gorsta:
- The meaning of this law comes down to the following. Imagine a certain business group, in the structure of which there are enterprises both profitable and unprofitable. And if they are recorded as a “consolidated group of taxpayers”, they will be able to reduce their taxable profit due to losses of other members of the group. Accordingly, the total amount of tax paid by such a group may be reduced as a result.
This law, let’s say, was lobbled by large business structures, in whose interests it, in fact, will work. However, I do not think that in this case the action of this law was prevailing compared to the general deterioration of the situation in the economy. After all, business group enterprises are distributed very unevenly throughout the country. And the reduction in income tax income occurred almost everywhere.
The Ministry of Finance of Russia has repeatedly stated that it is ready to “replace” bank loans to the regions with its cheaper ones. However, in 2013, the total amount of bank loans attracted by the regions even doubled.
Karen Vartaputov:
- The Government of Russia is taking measures to expand budget loans. Another thing is that in terms of growth rates they lag behind banking. Therefore, we see that the share of bank loans in the total debt of regions is growing faster. Nevertheless, if at the beginning of last year the Ministry of Finance planned to provide regions of budget loans for about 80 billion rubles, then in the end he issued them, according to our estimates, almost 135 billion rubles.
According to the statistics that we see, these budget loans were usually going on to those regions that, frankly, faced problems in search of commercial financing. In this sense, help, of course, came by the way. Another question is that its total volumes are certainly insufficient.
Mikhail Gorsta:
- This is a difficult process. After all, the replacement of bank loans is made not just like that, but when the regional authorities fulfill certain conditions. For example, to reduce their own expenses and already accumulated public debt. This is a “piece” process, and I do not think that it will become massive. And from the federal budget of this kind, the replacement of loans carries certain risks. If the region in the end cannot return these debts, they will have to be written off in one way or another. Which is not in the interests of the federal budget.
Even at the end of last year, Standard & Poor's, predicted that a amount of 2% of GDP volume should be additionally spent on financial support of the Russian regions during 2014.
Have these grades changed when it became known that in 2013 the general shortage of regional budgets was several times higher than the previous maximums?
Karen Vartaputov:
- When we talked about 2% of GDP, it was precisely additional support. The federal budget is already transferring to the regions - in the form of various kinds of subsidies and other gratuitous financial assistance - approximately 3.5% of GDP. Last year, the shortage of regional budgets amounted to “unprecedented” 640 billion rubles, the Minister of Finance admitted. And according to our forecasts, it is these additional deductions in the amount of 2% of GDP that will slow down the growth rate of the deficit. This assessment remains in force. But so far, frankly, we do not see from the government some system measures to solve the problem of the urgent regional budgets. Financial assistance in the law on the federal budget is reduced to regions. This year, it is expected to reduce its volumes by 6%, which, due to the stagnation of regional income, looks somewhat ambiguous. The federal authorities are faced with a choice: where to send funds? Help the regions or solve any other problems? For their part, many state banks or corporations achieve recapitalization. There are large infrastructure needs. The amount equal to 2% of GDP is significant enough for Russia to first determine the priorities where to send funds. Needs are growing, and problems in the regions are aggravated.
Judging by some expert estimates, the share of transfers from the federal budget in the general structure of regional budget revenues over the past three to four years has declined by a third. Moreover, the main part of this reduction was for 2010-2011, while the share, for example, personal income tax or property tax of organizations has significantly increased in regional income only last year. What happened?
Mikhail Gorsta:
- There was a change in the budget classification . If you look at the data on the volume of inter-budget transfers in 2010-2011, we will really see the reduction. But it was due to the fact that a rather large amount of transfers sent to the Pension Fund was transferred from this section of the budget classification to another section - “Social Policy”.
Therefore, it would be more correct to evaluate the dynamics of the inter-budget transfers in the federal budget for 2011-2013, and in it this amount remains relatively stable, no sharp reduction took place there. Moreover, if we look at the subsection that is responsible precisely for subsidies to “equalizing budgetary security”, this amount, in billions of rubles, almost does not change.
In any case, the regions, apparently, would like to occupy new funds in the debt market, more than a quarter of all the debt they had accumulated. However, the conditions for such loans have worsened for many large developing countries last year , and so far there is no need to expect their improvements?
Karen Vartaputov:
- The situation has changed dramatically! In the first quarter, we did not see a single placement - not a single region or municipality entered the debt market with its bonds. Business rates have really noticeably grown - both in bank and bond. Moreover, even state Russian companies with high “credit quality” are now reviewing their plans to enter the borrowing market. From the latest placements - except that the issue of bonds by the state company AIZHK (mortgage housing lending agency) , but at a fairly high percentage and even with an annual offer (that is, the issuer’s obligation to redeem them back a year if the owner of the bonds insisted on this. - RS) that only a year ago it was difficult to imagine!
Therefore, most regions that planned to enter the debt market have recently transferred plans for the second half of the year - in the hope that the situation is stabilizing. But so far we see something else in the market: the average Russian region of the “average credit quality” can place, say, its 3-year bonds totaling 5 billion rubles except at rates are much higher than 10%! Moreover, even the Ministry of Finance of Russia had to cancel its auctions on the placement of state securities - OFZ. And this means that it is even more difficult for subnational borrowers to enter the debt market.
It notes, in particular, that “the main reasons for the complication of the financial situation of the regions are the general deterioration of the economic situation in the country , a decrease in income tax income tax in the income of regional budgets, a significant increase in expenses, including the execution of the decrees of the President of the Russian Federation of May 7, 2012.” We are talking about a package of software decrees on economic and social policy, healthcare, education, science, as well as providing citizens with affordable housing and high -quality improvement of housing and communal services, which were signed by President Vladimir Putin immediately after his third entry off.
On average, half of all bank loans attracted by Russian regions falls on loans up to 12 months. These are very “short” loans
During the first quarter of 2014, the accumulated public debt of 83 constituent entities of the Russian Federation increased by 1% to 1.75 trillion rubles. For comparison, the total income of the Russian regions in 2013 also increased by 1%.
It should be said, rather, about the ratio of debt and current income, emphasizes the deputy director of the public finance direction of the Standard & Poor's international rating agency in Moscow Karen Wartpeutov :
- On average, in Russian regions, the amount of accumulated debt in relation to own income (minus financial assistance from the federal budget) exceeds 30%today. Although only a year ago this figure remained about 20%. That is, we see a sharp increase in debt load. Indeed, in the first quarter, the pace of her growth was moderate. But the regions usually carry out their main expenses in the second half of the year, then we can expect a new acceleration of debt growth.
Especially in conditions, on the one hand, stagnating income (this has become obvious last year), and on the other, growing expenditure obligations, which are mainly related to the need to fulfill the presidential decrees, raising salaries to state employees, solving problems with dilapidated housing, etc.
According to your forecasts, how can the debt burden of Russian regions grow in 2014?
- According to our estimates, the unbalanced income and expenses of the regions will lead to the fact that by the end of the year their aggregate coat will exceed 2.5 trillion rubles - this is already approximately 35% of regional income. In international practice, this level is considered in principle low. However, the specifics of the debt of the Russian regions lies in its short -term, which only complicates the refinancing.
In the overall structure of public debt accumulated by Russian regions, according to current data from the Accounts Chamber, 40% falls on bank loans and another 26% for regional bonds. How long are the risks of these debt obligations?
- From the point of view of credit risks, it is obvious that bonds are a more profitable tool, especially in the Russian context. They are usually produced for fairly long terms - at least 3 years, judging by what we see - and have a fairly “smooth” repayment schedule. Bank loans, as a rule, are attracted for a short time. According to our estimates, on average, half of all bank loans that Russian regions attracted are up to 12 months. These are very “short” loans. Yes, they are probably easier to get - for example, quickly holding a competition, and they are cheaper. But such loans are also associated with large risks of refinancing. Indeed, each year, regions need to find new sources, including attracting new bank loans to refinance old debts.
The average Russian region of the “average credit quality” can place, say, their 3-year bonds totaling 5 billion rubles except perhaps at rates are much higher than 10%!
In 2013, the share of income tax of companies and enterprises, the main source of revenues in the treasury for many regions, amounted to 21%in their structure, while back in 2008 - 28%, ”said Natalya Zubarevich , director of the regional program of the Independent Institute of Social Policy.
Conversely, the share of tax on individuals (personal income tax) increased from 27%in 2008 to 31%, and only in 2013 - by 11%. Even more - immediately by 15% - the share of the property tax on the property of enterprises increased in regional income.
Such multidirectional dynamics reflects primarily the general deterioration of the economic situation in the country as a whole and in the regions in particular, the expert of the Higher School of Economics in Moscow Mikhail Gorsta notes:
- The volume of the profit that enterprises receive is falling. Accordingly, income tax revenues are also reduced. In the current conditions, this is a natural process. The growth of income in personal income tax is primarily associated with the execution of the May decrees of the President and the increase in wages to employees of the budget sphere - healthcare, education and other categories of state employees.
As for property tax, this is one of those tools that the regions can maneuver, changing bets, providing additional benefits or, conversely, canceling them. Here they have much more freedoms than in relation to personal income tax. And some regions follow the path of canceling such benefits.
In addition, since 2013, the previously existing benefit in relation to network infrastructure facilities was centralized - for example, railway tracks or power lines. Both that and another are in almost every region. Such objects are now taxed, albeit at a small rate, tax on the property of organizations.
The replacement of bank loans is made not just like that, but when the regional authorities fulfill certain conditions. For example, to reduce their own expenses and already accumulated public debt. This is a “piece” process, and it is unlikely to become massive
Some experts also call another reason why the income of the treasury of regions in the form of income tax was so sharply reduced - the entry into force of the law on the so -called “consolidated taxpayer” in 2013 ...
Mikhail Gorsta:
- The meaning of this law comes down to the following. Imagine a certain business group, in the structure of which there are enterprises both profitable and unprofitable. And if they are recorded as a “consolidated group of taxpayers”, they will be able to reduce their taxable profit due to losses of other members of the group. Accordingly, the total amount of tax paid by such a group may be reduced as a result.
This law, let’s say, was lobbled by large business structures, in whose interests it, in fact, will work. However, I do not think that in this case the action of this law was prevailing compared to the general deterioration of the situation in the economy. After all, business group enterprises are distributed very unevenly throughout the country. And the reduction in income tax income occurred almost everywhere.
The Ministry of Finance of Russia has repeatedly stated that it is ready to “replace” bank loans to the regions with its cheaper ones. However, in 2013, the total amount of bank loans attracted by the regions even doubled.
Karen Vartaputov:
- The Government of Russia is taking measures to expand budget loans. Another thing is that in terms of growth rates they lag behind banking. Therefore, we see that the share of bank loans in the total debt of regions is growing faster. Nevertheless, if at the beginning of last year the Ministry of Finance planned to provide regions of budget loans for about 80 billion rubles, then in the end he issued them, according to our estimates, almost 135 billion rubles.
According to the statistics that we see, these budget loans were usually going on to those regions that, frankly, faced problems in search of commercial financing. In this sense, help, of course, came by the way. Another question is that its total volumes are certainly insufficient.
Mikhail Gorsta:
- This is a difficult process. After all, the replacement of bank loans is made not just like that, but when the regional authorities fulfill certain conditions. For example, to reduce their own expenses and already accumulated public debt. This is a “piece” process, and I do not think that it will become massive. And from the federal budget of this kind, the replacement of loans carries certain risks. If the region in the end cannot return these debts, they will have to be written off in one way or another. Which is not in the interests of the federal budget.
On average in Russian regions, the volume of accumulated debt in relation to own income exceeds today 30%. Although only a year ago this figure remained about 20%
Even at the end of last year, Standard & Poor's, predicted that a amount of 2% of GDP volume should be additionally spent on financial support of the Russian regions during 2014.
Have these grades changed when it became known that in 2013 the general shortage of regional budgets was several times higher than the previous maximums?
Karen Vartaputov:
- When we talked about 2% of GDP, it was precisely additional support. The federal budget is already transferring to the regions - in the form of various kinds of subsidies and other gratuitous financial assistance - approximately 3.5% of GDP. Last year, the shortage of regional budgets amounted to “unprecedented” 640 billion rubles, the Minister of Finance admitted. And according to our forecasts, it is these additional deductions in the amount of 2% of GDP that will slow down the growth rate of the deficit. This assessment remains in force. But so far, frankly, we do not see from the government some system measures to solve the problem of the urgent regional budgets. Financial assistance in the law on the federal budget is reduced to regions. This year, it is expected to reduce its volumes by 6%, which, due to the stagnation of regional income, looks somewhat ambiguous. The federal authorities are faced with a choice: where to send funds? Help the regions or solve any other problems? For their part, many state banks or corporations achieve recapitalization. There are large infrastructure needs. The amount equal to 2% of GDP is significant enough for Russia to first determine the priorities where to send funds. Needs are growing, and problems in the regions are aggravated.
Judging by some expert estimates, the share of transfers from the federal budget in the general structure of regional budget revenues over the past three to four years has declined by a third. Moreover, the main part of this reduction was for 2010-2011, while the share, for example, personal income tax or property tax of organizations has significantly increased in regional income only last year. What happened?
Mikhail Gorsta:
- There was a change in the budget classification . If you look at the data on the volume of inter-budget transfers in 2010-2011, we will really see the reduction. But it was due to the fact that a rather large amount of transfers sent to the Pension Fund was transferred from this section of the budget classification to another section - “Social Policy”.
Therefore, it would be more correct to evaluate the dynamics of the inter-budget transfers in the federal budget for 2011-2013, and in it this amount remains relatively stable, no sharp reduction took place there. Moreover, if we look at the subsection that is responsible precisely for subsidies to “equalizing budgetary security”, this amount, in billions of rubles, almost does not change.
Since 2013, the previously existing benefit in relation to network infrastructure facilities - for example, railway tracks or power lines. Both are in almost every region
In any case, the regions, apparently, would like to occupy new funds in the debt market, more than a quarter of all the debt they had accumulated. However, the conditions for such loans have worsened for many large developing countries last year , and so far there is no need to expect their improvements?
Karen Vartaputov:
- The situation has changed dramatically! In the first quarter, we did not see a single placement - not a single region or municipality entered the debt market with its bonds. Business rates have really noticeably grown - both in bank and bond. Moreover, even state Russian companies with high “credit quality” are now reviewing their plans to enter the borrowing market. From the latest placements - except that the issue of bonds by the state company AIZHK (mortgage housing lending agency) , but at a fairly high percentage and even with an annual offer (that is, the issuer’s obligation to redeem them back a year if the owner of the bonds insisted on this. - RS) that only a year ago it was difficult to imagine!
Therefore, most regions that planned to enter the debt market have recently transferred plans for the second half of the year - in the hope that the situation is stabilizing. But so far we see something else in the market: the average Russian region of the “average credit quality” can place, say, its 3-year bonds totaling 5 billion rubles except at rates are much higher than 10%! Moreover, even the Ministry of Finance of Russia had to cancel its auctions on the placement of state securities - OFZ. And this means that it is even more difficult for subnational borrowers to enter the debt market.