Rising communal charges driving more poor Russians into debt

Rising communal charges driving more poor Russians into debt
Russian nominal incomes have been more or less flat but rising in dollar and Euro terms
By Ben Aris in Berlin February 21, 2018

Growing utility and social costs in Russia have caused an alarming increase in the number of poor Russians driven into debt, and arrears have sextupled in the last three years to $11bn.

The poorest part of the population was already under pressure, as spendable incomes have been falling in the last few years in real terms. While real incomes have started to recover last year, partly thanks to the historically low levels of inflation, real disposable incomes – the money left over after food and utilities payments – have not.

Rosstat reported real disposable incomes were flat y/y in January for the first time since 2014, which has been taken as progress. But the amount of cash in a purse that can be used for discretionary purchases has been falling for over three years and rising communal costs in the same period has eaten further into what little spare cash Russians have.

The problem is exacerbated by the cash-strapped regions cutting subsidies on communal housing costs and other support for low income families as municipalities are also short of money. Regions have been struggling to meet wage and social spending hikes ordered by President Vladimir Putin’s May decrees in 2012.

The situation varies from region to region, as the indebtedness of the regions is very uneven. After two years of hell about a dozen of the better off regions are starting to recover and were upgraded to outlook positive by Moody’s in January.

The Supreme Court published statistics on the collection of debts for housing and communal services. In 2014, 2.1mn cases were brought to court, but that rose to 5.4mn in 2017. The recovery of these debts by the courts has doubled, from RUB60bn to RUB120bn in the same period, reports Vedomosti.

All in all the problem is growing but as yet only affecting 3%-5% of the population, as the rest of the population pay their bills on time. But the burden is increasing depending on the region and the local climate, hitting the most vulnerable hardest. According to Rosstat, household spending on housing and communal services increased in 2014-2016 from RUB1511 ($26.7) to RUB1816  per household member, or by 20.2%. That means the share of these payments in total expenditures increased from 10.3% to 11.3% in 2014-2016.

Given that nominal average monthly incomes were RUB38,400 ($679) in January, communal costs already take a big bite out of household incomes. At the same time the share of food purchases has risen from a boom-year low of about 35% to as high as 60% in the worst of the “silent crisis” of the last two years, and once communal charges are added in the average Russia has very little money left over.

Already under budget pressure, many regions have been cutting subsidies for housing and communal services, which has seriously increased the costs of the local population in those regions. For example, in the Kursk region, communal charges accounts for a whopping 25.8% of paid services, and in neighbouring Orel 41.1%, in the Khabarovsk Territory 26.7%, and up to 45.8% in the Amur region.

The poor can afford these increased charges the least. In 2016, expenditures on housing and communal services for families in the lowest decile were 15.2% of all expenditures, reports Rosstat – well ahead of the national average share.

The debts of the population for housing and communal services, according to the Federal State Statistics Service, amounted to RUB111bn in 2014 and rose to RUB135.8bn in 2015, before the growth accelerated at the height of the “silent crisis” in 2016, reaching RUB270bn by October 2016, according to Deputy Minister of Construction and Housing Andrei Chibis. The full year numbers for last year are not in but the preliminary estimate suggests the debt has sextupled in the last three years and reached RUB645bn ($11.4bn) as of July 2017, according to the deputy minister, Vedomosti reported.