Russia urged to close regional gaps
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Emerging Markets

Russia urged to close regional gaps

Government must tackle gulf between rich and poor areas, experts say

Government must take the lead in reducing the gulf between Russia’s rich and poor regions, experts said this week after a UN report showed that the differential is widening.

The UN Development Programme’s National Human Development Report for Russia concluded that “divisions between regions are increasing” during the oil boom. They are “most marked” in those areas in which Russia is lagging behind developed countries – per capita gross regional product (GRP) and life expectancy.

“The gaps between economic and social development levels of subjects of the Russian federation are widening despite increased redistribution of budgetary resources”, the report, published on Tuesday, stated.

In development terms, Moscow is comparable to the Czech republic and oil-producing Tyumen to Hungary and Poland, while Ingushetia and Tyva are comparable to Guatemala and Tajikistan.

The report said that 68% of Russians live in regions with below-average indicators.

That’s where change must start, Professor Natalya Zubarevich of the Independent Institute of Social Policy in Moscow and a co-author of the report, said. “This is a long-term problem. It won’t be fixed soon,” she told Emerging Markets.

“It’s very important to start with the below-average regions. The federal government must give regions resources, and the responsibility to use them. And it must unite the state with the forces of civil society. The state cannot do this itself.”

Yaroslav Lissovolik, chief economist at Deutsche UFG in Moscow, said that the government had moved from stabilisation policies to a pro-active development programme, addressing the most crucial issues: health, education, agriculture and new housing, spending programmes for which are being supervised by deputy prime minister Dmitry Medvedev.

But everything depends on implementation: “defending property rights, fighting corruption and strengthening the market are also essential”.

Cutting bureaucracy is essential, said Lissovolik. The number of desk-based civil servants in Russia has risen from 600,000 to more than 1.5 million in the last 15 years, with 90% of the increase in regional government.

Boris Kopeykin, Russian local and regional governments (LRGs) credit analyst at Standard & Poor’s, underscored the scale of the challenge. “In Germany, the budget revenues per capita of the poorest region are 90% of the national average because of the equalization mechanism.

“Among the larger Russian regions, the unconsolidated revenues of the weaker regions are only around 40%-50% of the national average , and incomes per capita in the richest regions are 20 to 30 times those of the poorest,” he told Emerging Markets.

Any effort to make the regional government financing system more equal would put huge pressure on the wealthiest local governments like Moscow and Tatarstan, Kopeykin said.

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