The Russian Ministry of Finance has signed new formats of agreements with all subsidy recipients, Izvestiya newspaper reports citing the ministry’s press service. These documents set clear criteria for the regional authorities on budget discipline and stipulate that the regions could lose 5% of funding next year if they fail to meet the criteria. When concluding the agreements, the Ministry of Finance discovered a new problem – a disconnection in regional budget planning from reality.

The Ministry of Finance has long sought a method to tighten responsibility among the regional authorities for executing their budgets. At present, the regions often have highly unbalanced budgets with excessive levels of state debt and deficits, which the federal government has to compensate. A new format of inter-budgetary relations aims to resolve this problem: the Ministry of Finance is concluding agreements with the regions that require them to reduce their level of subsidies, increase tax and non-tax revenues, and also consolidate their budgets.

As of March 1, 2017, the Ministry of Finance had concluded agreements with all the regions that receive subsidies to balance their fiscal capacity, a ministry representative said.

The official also noted that subsidies will be reduced by 5% for the regions next year if they violate the terms of the agreements. The penalty for failing to meet the document’s provisions is expected to be increased in the future.

Under the law on the three-year budget, subsidies are envisaged for 72 regions in 2017. The largest tranches will go to Dagestan (RUB 52 billion), Yakutia (RUB 36.6 billion), and Kamchatka Territory (RUB 37 billion). Issues concerning regional budget stability have become particularly relevant in recent years. The Ministry of Finance believes one of the reasons for the imbalance in the regional budgets is the insufficient quality of forecasting and planning.