Vladimir Putin's Potential Clash with Key Ally

Russia's new fiscal policy targets regional subsidies, stirs debate.

by Nouman Rasool
Vladimir Putin's Potential Clash with Key Ally
© Peter Muhly - WPA Pool/GettyImages

In a recent development that may signal internal strains within the Russian Federation, President Vladimir Putin finds himself potentially at odds with one of his most significant political allies. This comes amid revelations that Moscow intends to redistribute the financial burdens arising from the country’s current challenges, notably the ongoing conflict in Ukraine.

The Kremlin, navigating through a complex financial landscape exacerbated by the Ukraine invasion, appears to be devising strategies to mitigate economic pressures. A pivotal move in this direction, as reported on November 27th by the Russian news outlet Kommersant, involves redirecting a portion of the national budgetary responsibilities to four Russian republics and the territories in Ukraine currently under Russian occupation.

Subsidy Shift Strategy

The essence of this situation is straightforward despite its complex backdrop: regions within the Russian Federation, which have been reliant on subsidies from Moscow, are now facing a redefinition of terms to continue receiving financial support.

Authorities in the four mentioned Russian republics, along with officials in the occupied Ukrainian territories, are expected to consent to new conditions set by the Kremlin, aimed primarily at reducing their budget deficits.

These regions, akin to certain areas in Canada, the European Union, or the United States, receive subsidies to compensate for their lower financial productivity. However, the Russian Ministry of Finance plans to alleviate some of the fiscal strain projected for 2024 by requiring these areas to cut back on their operational costs.

Specifically, the new obligations proposed by the Russian government include a set of four measures. These measures require the leadership of the republics and the occupation zones to limit state employee expansion, control salary increases within inflation levels, target federal fund spending efficiently, enhance revenue collection, and adhere to the government's 2025 budget draft.

Governors and administrators in these areas must agree to these conditions by December 18th to continue receiving financial support from Moscow. The Institute for the Study of War, analyzing Kommersant's report, suggests that these measures resemble an austerity package, potentially leading to tax hikes and cuts in regional programs.

This scenario is particularly significant in the case of Chechnya, led by Ramzan Kadyrov, a key Putin ally. Chechnya's heavy reliance on Moscow's subsidies, as Kadyrov himself admitted in January 2022, is crucial for its survival.

With an annual subsidy of approximately $3.4 billion, the implications of the new financial obligations on Chechnya, and consequently on the relationship between Kadyrov and Putin, remain to be seen. This development could lead to a significant realignment within the Russian political landscape, affecting both internal dynamics and the broader geopolitical context.

Vladimir Putin