One of the enduring neuroses of Putinist economic policymaking since 2008 has been the state’s steady retreat from any sense of material obligation to future economic growth. One of the simplest metrics by which this can be measured is the steady diminution of financial commitments and targets for what would otherwise be foundational investments or programs. An announcement last week that the government is seeking to fine-tune the distribution of concessionary loans to regional governments for utilities and infrastructure projects is a case in point. The program offers regional governments 15-year loans at 3% for the construction or modernization of utilities and transport infrastructure, with the terms depending on the region’s ability to raise private capital. Now the government is discussing capping the program at just 10 billion rubles’ worth of these loans per region. The idea is to make the loans more accessible to more regions, since the more economically developed parts of the country have a much easier time raising capital anyway.
What’s surprising in the press coverage is the scale. Kommersant cites ostensibly high demand for these loans, covering up to 450 billion rubles’ worth of projects. This is a pathetic sum. It amounts to roughly 0.2% of GDP, compared to past Duma estimates that up to 60 trillion rubles are needed for modernization. As Natalia Zubarevich notes, regional budget deficits are on track to hit 1.6 trillion rubles in 2026, and it is transport and similar programs that are disproportionately on the chopping block. If two-thirds of regional budgets go to social spending that cannot be touched, and recruitment bonuses cannot be cut given the public’s reticence about the front, then capital investments suffer. Already small and inadequate sums become even less relevant as the regime expects private capital to somehow pick up the slack.
This bias toward exaggerating the importance of any given program underscores that even marginal shifts in spending or investment can be more damaging than a simple 30,000-foot view might imply. The apparent «resilience» of the Russian economy creates something akin to a survivorship bias when reading the data. State companies apparently closed 1.99 trillion rubles’ worth of contracts with small and medium-sized businesses (SMEs) in Q1 — notable given that larger companies may be incurring debts to these vendors. But for reference, these figures would represent less than 4% of GDP if annualized. Not only is that a comparatively small share of activity given the scale of state company procurements (on the order of 30% of GDP), but Opora Rossii data suggests SMEs’ turnover fell 16% in Q1. If the consumer pullback in spending continues, state procurements will become increasingly important to prop up the roughly 20% of GDP that SMEs provide.
Trickling out 10, 100, or even 500 billion rubles here and there through concessionary loans or direct spending — much of which will inevitably be wasted — won’t cut it. When Mikhail Mishustin writes off 9.4 billion rubles of debt for Samara Oblast, the real story should be that 9.4 billion rubles is still a significant sum for a region with over 3 million residents — absurd given the nominal size of the Russian economy — rather than the debt relief itself. For context, 9.4 billion rubles is equivalent to perhaps 4% of what the region’s residents collectively earn in one month based on average salaries, never mind wartime bonuses. Writing off 114 billion rubles across the regions may be welcome news for them, but it isn’t exactly a major event in the broader economy.
This obsession with shrinking the state’s financial commitments compounds the damage of the emerging economic downturn. As demand contracts, the state becomes a more important driver of demand and investment. Yet for sixteen years now, it has at every opportunity sought ways to shift the burden onto private capital to invest and build. Things are clearly getting bad when a chorus of economists recommends adding economic growth to the Bank of Russia’s mandate. It makes sense as a response to the wartime economy, but it is yet another attempt to lay the challenge of growth at Elvira Nabiullina’s feet instead of at the government’s — the ultimate arbiter of who wins and loses through the distribution of resources via the budget. In other words, it is an attempt to dodge the worsening smallness of Russian fiscal policy amid its binge on war spending.
Any attempt to shift the Bank of Russia’s mandate is, at heart, an attempt to resolve the state’s mounting incapacity to make tough decisions about distribution. The timing is terrible. Thus far, the Ministry of Finance is estimating only an additional 200 billion rubles of revenue from higher oil prices — revenue whose upside will remain capped as long as the Trump administration keeps duping markets into believing peace is imminent. That is material, but far from enough to change the overall trajectory of the economy. Heavy rains are disrupting agriculture, which will translate into lower production and higher food prices later in the year as the global squeeze on fertilizer eventually hits. Last week, Russia recorded deflation for the first time in eight months. One in three businesses already report falling demand, and 65% of businesses are pulling back on spending. In this context, temporary deflation or lower rates of inflation point to a relative weakening of demand versus supply rather than anything positive about growth.
The regime has been adept at dodging accountability or meaningful consequences for its economic dysfunction for a very long time by wringing more out of the public. Productivity has certainly risen since the invasion, some of which may be related to IT but most of which comes from simply forcing people to work more. In 2025 alone, the number of self-employed people rose by nearly 27% to 15.4 million in an economy that grew just 1%. Some of this may reflect the formalization of previously informal activity. But it also suggests something else: people need more cash to get by and are doing their best to earn it. Clearly something is holding back a larger collapse in consumer demand, given that GDP declined just 0.5% in Q1. Notably, coverage of the budget’s improvement due to the war in the Middle East makes no mention of any new spending that might support the economy. The regime is all in on lower interest rates at this point. That is a bet in keeping with one of the core governing mantras of late Putinism: expect less.
