Oct. 2 (Bloomberg) -- Russia’s regional governments have no chance of defaulting on their debt even as they increase their borrowing levels, Finance Minister Anton Siluanov said.
“Investors often ask about the possibility of default in the regions -- there can simply be no such thing,” Siluanov said at a conference organized by VTB Capital in Moscow today. “That’s ruled out. Perhaps 15 years ago there was tension of this kind, but now it’s impossible.” Russian regions will increase borrowings this year, he said in another speech at the Federation Council, the upper house of parliament.
President Vladimir Putin warned July 17 that the finances of some regions may spiral out of control if they don’t end their reliance on short-term bank loans. Local governments have grown more dependent on federal funding since the market turmoil in 2008-2009 forced a retreat from the bond market.
Putin, who regained the presidential office in May, enacted social and economic measures that put additional pressure on regional budgets. Regional governments will spend 1.6 trillion rubles ($51.5 billion) in 2013-2015 to fulfill Putin’s orders, especially regarding wage increases, Siluanov said.
The federal government expects regional incomes to grow significantly as well, Siluanov said, adding that Russia sees regional budget revenue in 2013-2015 at about 6 trillion rubles.
S&P in the second quarter downgraded the credit rating of Tver, the first cut for one of Russia’s 83 regional governments in more than a year. The region is now rated B+, or four steps below investment grade and five levels below Russia’s sovereign rating.
“A whole range of regions allowed themselves enormous frivolities, borrowing from banks without a clear understanding of how they would repay them,” Valentina Matviyenko, speaker of the Federation Council, said today. “This is an irresponsible approach. We can’t allow such budget policies in regions.”
To contact the editor responsible for this story: Balazs Penz at email@example.com