Regional public debt: trends and formation specifics

The paper shows that current problems in the Russian economy are largely internal; external factors only multiply them. A significant reason for the emergence of regional public debt in modern Russia lies in the instability of the main types of budget revenues amid growing expenditure obligations. Their growth was significantly dominated by the directives of the federal center, including the first and second editions of the President’s May Decrees, which are, as a rule, only partially supported with transfers from the federal budget or not supported with them at all. At the same time, the structure of regional budgets has been experiencing a continuous increase in the share of mandatory social expenditures and a continuous decrease in the share of capital investments. We show that in these conditions constituent entities of Russia borrow funds to address social issues rather than to stimulate regional investment development. The “residual” principle of financing the social sphere is replaced by the “residual” principle of financing the regional economic sphere of production development and regional infrastructure. It is empirically established that the investment activity of regional authorities involves intensification of debt activity. Having compared the volume and dynamics of debt obligations of Russia’s constituent entities with the provision of expenditures with budget revenues we see that the rapid growth of debt obligations of the authorities of Russia’s constituent entities and the increase in the debt burden on sub-federal budgets pose an actual threat to the stability of territorial budget systems and economic security of regions and the state. We show that territorial convergence of regional public debt in the context of federal districts hides the territorial divergence of regional debt that has increased under the load of obligations to implement the May Decrees and under the lingering and extremely high differentiation of regional budget revenues.