Despite robust international support, Ukraine “running out of space” to cope with additional economic stress – IMF
20 hours ago
The coronavirus (COVID-19) story in most of Russia’s regions is bleak. At the start of November, the regions saw a 40% increase in cases and are all experiencing a shortage of doctors, according to the Kremlin.
Kaliningrad’s number of infections is now higher than it was in spring. Many hospitals in Novosibirsk are refusing to admit patients with other illnesses or perform non-urgent medical procedures. St Petersburg has around 600 hospital admissions per day, and one town in the Arkhangelsk region has patients staying on benches. A healthcare worker in Kemerovskaya Oblast died of COVID-19 after being vaccinated, and at least three more medics in Siberia have contracted the virus since receiving the vaccination as well.
Russia’s regions are coming under increasing pressure that is made being worse as they are also running out of money. Most regions were already running fiscal deficits and now face a debt increase of 125%. Khakassia and Mordovia have already been taken under the Financial Ministry’s manual control, while Ingushetia in the south-east is already on the verge of bankruptcy.
Russia’s regions cannot afford another lockdown, yet neither can most of their people. Reporting from that small town in the Arkhangelsk Region, the BBC found that its ambulance drivers take home just $400 a month: barely enough to make ends meet, and savings were already badly eaten into during the last lockdown.
Romir estimates just under half of Russians now spend most of their income on food (up from 30% in 2016). The average salary earned in August 2020 was RUB47,648 ($623). The average salary in the Golden Ring city of Vladimir is even less than that, yet food prices there are comparable to those in Moscow.
For millions across Russia, particularly the young, moving to cities with no, or poorly paid, work and unaffordable accommodation is still more attractive than staying put. According to Rosstat, 4mn Russians moved to bigger cities in 2016 (a trend that has largely continued).
A VTsIOM survey from last year showed around one quarter of the population wanted to relocate, with 61% of that figure preferring the bigger cities. The two most important factors noted were unemployment, or a higher standard of living in another settlement. Another poll by Gallup showed 44% of young people want to emigrate: most were urban based, had some transnational experience and indicated unfulfilled economic expectations.
The fact is, Russians have become increasingly worried about basic quality of life issues in the last ten years. Last year, the talk of the towns was cuts to healthcare spending – a topic that has aged well. The young now view social mobility as beyond their reach, unless their families have appropriate political or business connections, so they are opting for physical mobility instead.
But the nation’s capital cannot continue to expand at its current rate to accommodate millions more pouring in from the regions in search of work that, frankly speaking, is not there. Russia’s unemployment level has doubled and affected urban centres far greater. Rural unemployment actually decreased in September.
City-based jobs are slowly being wiped out and many larger companies started encouraging their employees to work from home last month. Even the Moscow city government is holding off on additional spending without a return to a full lockdown, setting aside RUB700bn of borrowed money to be spent over a period of three years.
The long-term polarisation and regional disparities in Russia are unsustainable going forward.
Historically, and particularly following the USSR’s collapse, the focus has been on those resource-rich peripheries or heavily populated regions. That story is well documented: post 2014, Russia did not wean itself off its heavy reliance on commodities. As statistics from the World Bank show, reliance increased. As oil prices climbed in the mid-2000s, so too did the demand for better accommodation, consumption of new products and entertainment. These demands remain in Russia’s regions, but the economy’s and currency’s position does not.
The result has been uneven development and underperforming, expensive public services. Most regions now face an employment misbalance, lack of resources and institutional capacity to govern. Movement and migration to the cities is adding to the existing development pressures at all levels of government. And this was before the pandemic struck.
Towns with populations less than half a million have been the biggest losers. Russia’s urban population has risen steadily since 2007, but it is more concentrated in the larger cities than ever before. And part of the government’s answer was encouraging people to have more children.
Some attempt was made by Dmitry Medvedev in 2010-11 to develop the regional economy by encouraging innovation in sixteen cities with smaller urban settlements, but these were largely unsuccessful. And to be fair, there were many reasons for this; some were culturally and regionally specific; federal budgetary constraints had an important impact; in some cases, a system of mutual trust between municipal and regional governments, necessary to enact the reforms, never emerged.
Redevelopment funds (around $1.5bn annually) were also helping forty smaller Russian cities with a combined population of 23mn, stretching from Europe to the Far East, including historic towns in Russia’s west. Rail, streets and squares were all being transformed in an effort to boost domestic tourism and increase local living standards. Billions more had been promised but may be put on hold.
Russia’s strongly centralised political system means the national government must fully support an economic rescue package for it to be successful. In the past, it has been rather lukewarm (the two notable exceptions being Sochi for the 2014 Winter Olympics, and the 2018 Football World Cup cities).
Properly addressing this structural imbalance of Russia’s regions is well overdue, but little in the way of solutions or policy is coming out of the Kremlin on this issue. There is still RUB100bn to be transferred to the regions by the end of the year, but it likely is not enough.
The default option, at least for now, seems to be austerity. To put it bluntly, that is the last thing Russia’s regional residents need.
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