The aim of this note is to present andanalyze subnational fiscal trends in Russia in the contextof overall slowing economic growth and falling oil pricesover the last few years. In particular, in 2015, GDP fell by3.7 percent. Despite efforts to cut expenditures, thefederal deficit increased to 2.4 percent of GDP. Subnationalgovernments were also affected by the economic slowdown.Aggregate subnational revenues declined, in real terms, by 6percent between 2014 and 2015. Revenues from taxes(including shares of federal taxes) fell by 4 percent whilefederal transfers fell by 13 percent. Nevertheless, theaggregate fiscal performance of subnational governmentsactually improved over this period. The nadir of subnationalgovernment finances occurred in 2013, when the consolidatedsubnational deficit reached 0.9 percent of GDP. Since then,it has shrunk. In 2015, the deficit was equal to only 0.2percent of GDP. This was largely achieved by drastic cuts inspending. Spending in the social and infrastructure sectorsboth fell by 9 percent in real terms between 2014 and 2015.This note examines the fiscal prospects of subnationalgovernments in Russia, focusing particularly on the natureof these spending cuts and whether they are sustainable overthe medium term.
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