Chechnya is among eight Moscow-controlled entities that have been ordered to cut budget deficits or face the end of their subsidies, as Russia’s finance ministry deals with the spiraling costs of the war in Ukraine.
Russian newspaper Kommersant reported that a draft government decision on balancing the books has been issued for territories including the Caucasus republic. Its leader, Ramzan Kadyrov, is a Putin loyalist, often called a “warlord”, who has deployed his own troops, called the Kadyrovs, to Ukraine.
In January 2022, Kadyrov said that Russian aid to the Muslim-majority republic he leads totals 300 billion rubles ($3.4 billion) a year and that without it, “I swear by Almighty Allah, we won’t be able to last three months – no even a month.”
But an expert on the Russian economy told Newsweek that the country’s finance ministry is sending a message that the bottomless well is no longer bottomless.
The move follows reports last month that Russia could miss its 2024 revenue target and be forced to raise its business taxes due to soaring military spending and the impact of Western sanctions. Russia’s finance ministry adjusted its budget throughout the year with an emphasis on supporting the military-industrial complex for its war effort.
Other regions ordered to reduce the gap between spending and revenue, or face subsidy cuts, include Ingushetia and Dagestan in the Russian Caucasus, as well as Tuva, in southern Siberia, which contributed many troops to the war.
Territories in Ukraine that Putin said in September 2022 had been annexed — Donetsk, Lugansk, Kherson and Zaporizhia Oblasts — were also listed, which Moscow does not fully control.
The Ministry of Finance told the newspaper that the eight entities are being targeted because, despite a high share of federal subsidies, they have spent over 40 percent in two of the last three financial years.
Kommersant reported that it was uncertain whether “such ‘heavyweights’ as the leaders of Chechnya and Dagestan could easily be forced to comply with these demands.”
Chris Weafer, chief executive officer of strategy consultant Macro-Advisory Ltd., said the Kremlin is sending a message to the recalcitrant regions that Russia’s finance ministry “has been banging on the table all year about the need to enforce spending discipline in all areas of the budget.”
“Several regions have always held that they have special political importance, such as Dagestan and Chechnya, and have relied on the Kremlin to block any criticism or actions to cut subsidies from the government. This is a message for the Kremlin as much as for the aforementioned regions – if you like budget discipline, stop giving these regions coverage of spending exemptions. The days of easy money are over – the bottomless well is now more bottomless,” he told Newsweek.
He said the four annexed territories have been ordered to balance the books to ensure they don’t slip into bad fiscal habits and also assume they can be seen as special political cases with Kremlin support in the future.
Weafer, who has reported on the Russian economy since 1998, said the move came against a backdrop of lower-than-expected oil tax receipts for the first seven months of 2023, during which Russia’s federal budget was in “real trouble” yesterday .
The mid-year deficit stood at 2.5 percent of GDP, although since then higher oil export prices, improved tax collection and currency devaluation have brought the budget within the deficit target.
Kommersant and other Russian media said the governors of the eight entities have until Dec. 18 to sign spending pledges that detail spending on social programs, what revenue will be collected and limits on inflation-linked public sector wage increases.
“The finance minister (Anton Siluanov) has had enough sleepless nights this year and is pushing every opportunity for budget discipline in all areas,” Weafer said, Klix.ba reports.
