One of the first bills the newly convened State Duma discussed in October as part of the government’s budget package concerned regional debt. Namely, the federal government suggested postponing the repayment of federal budget loans maturing in 2027−29 to 2030, giving regions more fiscal space. This comes on top of a range of lending and debt-reduction programs from recent years; the postponement itself had originally been endorsed by Vladimir Putin in April, for debt maturing in 2026.
At the beginning of 2026, total regional debt stood slightly below 3.5 trillion rubles. While this is only 18.9 percent of regions’ own revenue, it represented growth of more than 10 percent year on year. Regional debt is still on a rising trajectory, even though estimates for the end of 2026 have varied between 3.6 and 4 trillion rubles.
Still, this is far from the near-miss debt crisis of 2015−16, when total indebtedness as a share of own revenues was twice the current level. That crisis triggered a federal response: the Finance Ministry introduced stricter rules for regional budgeting while issuing cheap budget loans for regions to refinance commercial debt taken out at much higher rates. Over time, this worked: by 2025, 80 percent of regional debt was held by the state, and debt-servicing costs fell.
But the current situation is not without dangers; they are simply of a different nature. Finance Minister Anton Siluanov spoke openly about concerns over regional debt at the St. Petersburg Economic Forum in June. What now worries decision-makers is the trajectory—or, more simply, what exactly is growing, and where.
A return to commercial debt
2025 saw not only an expansion of regional debt, but also an expansion of commercial lending to regions, reversing some of the gains of the debt-replacement program. Specifically, bank loans tripled to 676 billion rubles, with 17 regions borrowing for the first time. The value of market debt—bank loans and regional bonds—dropped slightly in the first eight months of 2026, despite earlier estimates of further growth, but this is only partial good news.
These loans were provided at steep interest rates. To keep inflation under control—a federal priority—the Central Bank slowed, and in September 2026 stopped, its rate-cutting. Banks lend to regions above the key rate, within a federal cap of 3.5 percentage points. Even so, debt-servicing costs in consolidated regional budgets grew by more than 41 percent in 2025.
Naturally, regions turn to such financing when no alternatives remain and spending on priority goals—public-sector salaries, social support and, increasingly, the war—must be sustained. For most regions, market debt remains manageable. Predictably, the regions where debt-servicing costs rose most sharply are those facing severe fiscal stress because of crisis in their dominant industries, such as coal, metallurgy and timber. A total of 28 regions ended 2025 in deficit for the third consecutive year and faced a bleak choice between cutting key expenditures and finding new revenue.
The emerging picture is not one of an overall debt crisis, but of a bifurcation. Most regions face slowly shrinking fiscal space, but no acute crisis. In a handful, however, matters are moving into a dangerous zone. In January-August 2026, debt-servicing costs in the Arkhangelsk, Murmansk, Tomsk and Kemerovo regions ranged from 6 to 11 percent of own revenues—far above the average of 0.8 percent. Kemerovo’s debt-servicing costs nearly doubled between 2025 and 2026 as a share of own revenues. According to its 2027 draft budget, Arkhangelsk plans to pay commercial banks 18 billion rubles in interest, an increase of more than 40 percent.
Both regions remain able to borrow from banks, but their position is steadily worsening. In September, Arkhangelsk held a procurement tender for bank credit lines at which no bank bid within the rate limits set by the regional government. Kemerovo experienced a similar failed tender in 2024. Then, rather than receiving a federally backed bailout and restructuring after several of its coal mines stopped operating in 2025, the region was left to take on commercial debt at high rates: its debt grew by 76 percent in 2025 and continued growing in 2026. Prioritizing war spending, the federal government was likely reluctant to set a precedent that might encourage other troubled industries to seek bailouts. At the same time, Bank Rossiya, co-owned by Yury Kovalchuk, Putin’s friend, benefited from debt accumulation in several other struggling regions, including Novosibirsk, Irkutsk and Tyumen.
The corruption of the debt write-off program
The new tax package under consideration alongside the 2027−29 federal budget would continue the trend of increasing federal revenue at the expense of regional budgets, while keeping federal transfers flat or allowing them to fall in real terms. The proposed windfall-profit tax on mining and metals companies would further shrink the tax base of regions already struggling with declining profit-tax revenues from the affected sectors. Murmansk Governor Andrey Chibis himself raised the potential damage to regional finances.
At the same time, the federal government has encouraged regions to raise more revenue by whitening the economy, increasing taxes on commercial property and transportation, and cutting tax breaks. There is also an attempt to capture some of the windfall revenue of the domestic tourism sector, which has benefited from Russians’ reduced cross-border mobility. But this benefits municipalities in only a small number of regions, and even there the sums are modest: Finance Ministry data from September showed that municipalities had collected about 7 billion rubles in tourist taxes in 2026 to date, with 10.4 billion forecast for the year.
The most substantial federal response to accumulating regional debt has been the ongoing debt write-off program, a logical continuation of the earlier debt-replacement initiative. Under its rules, two-thirds of regional debt to the federal government outstanding on March 1, 2024 could be written off in exchange for spending on approved purposes, provided regions kept their deficit below a federally approved ceiling. In other words, the government opted to convert unrecoverable debt into still greater control over regional spending. It was therefore no coincidence that, when Ryazan Governor Pavel Malkov asked for compensation for revenue lost to federal tax breaks, and Mordovia’s head Artyom Zdunov asked Siluanov to include such compensation in the write-off program—giving regions more breathing space and autonomy—Siluanov flatly refused.
Around 550 billion rubles of debt had been written off as of mid-October 2026, with 76 regions benefiting and nine having all their eligible debt written off. Notably, the requirement that regions present pre-existing spending to qualify for write-offs makes participation harder for poorer regions. This resembles federal infrastructure loans, whose conditions allowed richer regions with more co-financing capacity to crowd out poorer ones until the Ministry of Economy proposed a cap earlier this year; the program was also criticized by the Accounts Chamber for missed targets.
Yet the policy still had some benefits in this form. However, the prioritization of the war—now the core principle of fiscal planning—has gradually gutted it. Initially, approved expenditures concerned infrastructure development and related procurement; only the 27 regions with the weakest fiscal indicators could finance war-related spending from debt write-offs. From February 2026 onward, all regions have been able to do so. Under amendments to the Budget Code adopted in June 2026, even the minimum 50 percent spending requirement for housing and infrastructure development was removed for regions with below-average fiscal capacity—meaning most regions. A draft bill currently before the Duma would remove the requirement for all regions from 2027.
Already, according to the Finance Ministry’s own figures, at least 58 percent of the funds freed by write-offs as of August 2026 went to war-related spending, while only 17 percent went to housing and utilities—one of the chronic problems regional budgets have long struggled with. The policy’s evolution has thus helped shift regional spending further away from productive investment and toward the short-term political goal of sustaining the war.
A short-term outlook
The same short-term outlook plagues other initiatives intended to improve regions’ fiscal situation. The deferral of roughly 400 billion rubles in budget-loan repayments maturing in 2026−29 reduces costs now, but shifts them to the early 2030s, when debt from government-issued infrastructure loans is also maturing. The federal government likely expects that, by then, the war in Ukraine will have ended in a way that gives the federal budget more room—whether through reallocating defense spending or increasing revenue as sanctions are lifted. But this is a gamble on an uncertain outcome. Overall, the value of the deferral is only slightly above what regions with surplus funds in their Treasury accounts earned in interest payments in 2025: 328 billion rubles.
Short-term federal credits issued at 0.1 percent for a year—or, since June, on demand for a month—and an extra 100 billion rubles set aside in the 2027 budget for regions facing fiscal difficulties can avert acute liquidity crises. They do not, however, fix the structural problems of regional budgets. The governors of Murmansk and Chelyabinsk, and the annexed Sevastopol, have instead demanded longer-term federal credits and indexed grants. This is unlikely to happen before the war ends.
Instead, a government bill in the budget package would reallocate up to hundreds of billions of rubles a year from municipalities from 2028 by cutting the guaranteed municipal share of personal income tax from 15 percent to 7 percent, reallocating agricultural taxes, and generally allowing regions to starve municipalities of tax revenue. This comes as the federal government’s municipal reform and related policies have provoked backlash over worsening access to public services.
The management of these risks will be left to regional governors—and, in a growing number of regions, to operative heads of government sharing responsibility with them. Barring a sudden economic upturn, they will have to decide where to cut spending to balance budgets and manage short-term political risks. Although the degree of fiscal stress varies, almost all regions that had published full 2027 budget figures at the time of writing are planning deficits. Those facing prolonged shortages are typically cutting expenditures already reduced in previous years, especially capital projects and housing. The Irkutsk Region will substantially cut housing, road-construction and utilities-modernization funds; the Samara Region is slashing school and road funding; and Nizhny Novgorod, following Moscow and the Moscow Region, is cutting regional and municipal staff by 15 percent.
Indeed, the ongoing regional debt crisis is not like that of 2015−16. It is smaller in scale and more concentrated. But the biggest difference is that, ten years ago, the federal government had the means and the focus to pursue a systematic solution. Today’s patchwork of fiscal band-aids serves one purpose: to enable the country’s entire budget system to throw even more money at the continuation of the war.
