2025 proved to be an exceptionally lean year for most Russian regions. The aggregate deficit of consolidated regional finances (which include municipal budgets) reached 1.5 trillion rubles, five times the 2024 amount and significantly larger than even the most pessimistic predictions (the deficit of unconsolidated regional budgets was only very slightly lower).
The aggregate number, high as it is, masks even deeper problems, with certain regions experiencing vastly bigger stress than others. 73 regions in Russia’s regional fiscal system (which includes 83 regions plus the six occupied territories in Ukraine which are also included in the statistics) closed the year with a fiscal deficit, but 28 had deficits for the third consecutive year, all while a handful of Central Russian and Far Eastern regions are still benefiting from the tail end of the war-induced economic boom, essentially a government-funded stimulus via the defense industrial complex. Unused funds on regional accounts declined by a staggering one trillion rubles in the course of 2025 as regions, which could do so, were trying to avoid plugging the gaps in their finances by taking out costly market loans. Not all of them were able to do so: the amount of commercial debt on the balance sheets of regions grew by 450 billion rubles in 2025, even though for almost a decade the federal Finance Ministry had tried to discourage regions from raising their debt servicing costs. Debt servicing costs grew by 47 percent in regional budgets outside of Moscow (which has ample reserves) over the past year, with some (e.g., the Irkutsk Region) experiencing a particularly steep growth to keep the budget moving.
The Novosibirsk Region, too, was forced to double its debt management expenditures in its 2026 budget to more than 23 billion rubles, most of it going to interest payments—about the same amount by which its corporate income tax receipts fell short of targets in 2025. Perhaps the calculation is that the federal government will, over time, expand its ongoing debt forgiveness program (which currently allows regions to apply for debt forgiveness at the expense of investment into infrastructure); however, this has so far not made a substantial dent in the debt burden of regions: in 2025 total regional debt grew to 3.5 trillion rubles. While the federal government has been able to prop up its own revenues that allow it to finance the war by levying taxes on extra profit, raising income taxes, VAT and—most recently—relying on windfall revenues from the blockade of the Strait of Hormuz, regions, which do not have the capacity to substantially increase their fiscal intake, are forced to either cut expenditures on vital services that affect citizens directly or to enter a debt spiral, as long as the federal government is unable or unwilling to help.
A growing gap
An obvious basket case is the Kemerovo Region, which, after two years of crisis in its dominant coal industry, experienced a deficit of 35 percent of its own revenues, and a decline in corporate income tax receipts of over 30 percent over an already bad 2024, all while, in the absence of a wider federal crisis management program, it had to borrow at steep market rates to avoid a liquidity crisis (its monthly debt service costs rose by 590 million rubles as of January 2026). But several other regions depending on industries with ongoing crises, such as metallurgy, car manufacturing and timber processing, are also in the fiscal danger zone marked by collapsing revenues, widening deficits and low reserves (e.g., the Murmansk, Chelyabinsk, Arkhangelsk, Samara, Orenburg, Novosibirsk and Irkutsk Regions). Poorer regions that rely on federal transfers are less likely to experience a sudden shock than regions with a dominant industry that finds itself in a protracted crisis; however, it is worth noting that federal transfers have also stagnated or declined since 2022 (from 3.92 trillion rubles in 2022 to 3.66 trillion planned in 2026) and heavy spending on the occupied territories affected their distribution.
Most regions started 2026 with heavily restricted spending and large planned deficits to reflect new fiscal realities. Nonetheless, regions cannot substantially touch expenditures on social policy in an electoral year, or expenses related to recruitment and veteran integration as long as the war is an unquestionable federal priority. Other headings, however, can and were reduced. The Kemerovo Region slashed its education budget by 20 percent and its health care budget by 30 percent, while the Irkutsk Region (and, to a somewhat smaller extent, many others) adopted wider budgetary sequestration measures. 19 regions reduced health care expenditures substantially. Since 2022, 66 regions have at least once cut their housing and utilities budgets, with 33 slashing expenditures in 2025 and 15 planning to cut them substantially this year, in spite of the declining state of utilities becoming a political risk for the Kremlin.
These trends continued and even worsened in the first months of 2026. Treasury data for January-February 2026 suggests that the revenue squeeze has only intensified, not only in declining industrial regions but also in major financial hubs. Moscow recorded a nominal revenue growth of just 2% in the first two months of the year, a significant underperformance against the 6.5% growth target utilized in its budget planning. Corporate income tax receipts continued collapsing in most regions: only four regions recorded higher receipts from this tax in the first two months of the year than a year ago (albeit quarterly results, which will be published next month, may change this picture slightly) while regions relying on commodities exports lost most of their corporate income tax receipts. Unlike in the first half of last year, this collapse is no longer counterbalanced by higher personal income tax receipts. Meanwhile, regional expenditures have remained flat, widening regional deficits.
Cutting and delaying
To react to the continued contraction, over the past months several regions were forced to cut their budgetary spending or revenue expectations. Following the example of the Moscow Region, the city of Moscow cut its civil servant headcount by 15 percent in March and reduced its investment program. Sakhalin’s government «optimized» its 218-billion-ruble budget, deferring capital expenditures of 4.7 billion rubles and eliminating hundreds of public sector jobs, before adopting amendments to increase the financing of social support measures in March. Primorsky Krai, which ran out of reserves, cut its expenditures by 2.9 billion rubles in February, including on education, sports and even some social programs—the heading that regions usually would not touch when implementing fiscal sequestering. The Chelyabinsk Region, which relies on metallurgy, cut expenditures by 2.2 billion rubles and the Saratov Region cut its planned income by 2 billion rubles. The Novosibirsk Region had announced a budget review for April, even before the forced culling of livestock due to a poorly specified disease outbreak put a further 800-million-ruble burden on the regional budget in the form of compensation payments to farmers. Many other regions are reducing public expenditures without broader budgetary amendments: both the Irkutsk Region and the Kemerovo Region have reduced various payments to the families of war participants. Public employees in at least eleven regions experienced salary arrears in the past months. Many regions are cutting staff in education, health care and public administration.
While regions often amend their budgets in the second half of the year, a wave of amendments this soon after the initial adoption of already conservative budgets signals a deep structural crisis and the realization that the federal government is unwilling to increase transfers to regional budgets substantially, either via subsidized loans or via direct transfers: the total amount of interbudgetary transfers planned for 2026 is the lowest since 2022, even in nominal terms, with subsidies substantially reduced, forcing regions either to cut investment or increase cofinancing. The proportion of cheap federal loans to regional budgets declined in 2025 as the federal government was tightening up its own spending and moved on from placing debt on regions’ balance sheets to forgiving already existing debt. Regions facing protracted liquidity problems must thus either borrow from the market and risk entering a debt spiral due to still-high borrowing rates, or reduce expenditures where regional governments deem the resulting political risk manageable.
There are also some ideas floating around to increase regional revenues. At the St. Petersburg Tax Forum the Union of Financiers of Russia (which consists of representatives of regional finance ministries) proposed introducing a multiplying coefficient on property taxes for individuals who own three or more apartments, targeting the shadow rental market and wealth concentration to fill regional coffers. The proposal was the main element in a larger package of measures, which also included reclassifying e-commerce delivery points as trading objects and taxing car-sharing at the point of sale (to capture revenue from often Moscow-based digital trading platforms). Essentially, regional governments would try to extract more money from local elites, on whom, at the same time, they also rely to share the costs of certain centrally mandated and prioritized policies, e.g. veteran reintegration and social policy, putting further stress on government-elite relations. This would also come with an increased risk of tax evasion.
The windfall revenues from the global oil price boom, which will hit the federal budget from April on, will help the government restrict the size of the ballooning federal deficit, but they are not going to help the budgets of non-oil-producing regions. Theoretically, the government could choose to spend part of this money to aid regional budgets, via subsidized loans, sectoral stimulus, by funding a larger debt forgiveness program or by increasing incidental transfers to regions from the government’s reserves. But there is already an indication that, once again—similarly to earlier tax hikes—the federal government will keep the additional income and spend it on the war. This will keep or perhaps even worsen the current gap between regional budgets, creating areas of elevated risk.
Governors are supposed to deal with these problems themselves. The political overseers of domestic politics, wary of creating further problems, have reportedly lowered the turnout expectation for the September Duma election from 55 to 50 percent, afraid that more aggressive mobilization would produce uncertainties, and quietly downscaled the goal of bringing a large cohort of former war participants into public office in the elections, likely to mitigate tensions with local elites who have previously fought back against these mandates and to reduce unpredictable behavior of elected representatives. But there is little extra money for regional budgets—and without a significant softening of monetary policy or a recovery in the non-defense corporate sector, the subnational landscape will remain defined by austerity, high-cost debt, increasingly aggressive localized taxation and, most importantly, the breakdown of social infrastructure.
Regional finances will not fail everywhere all at once. Regional economies have their own individual structures; but as more key industries experience protracted crises without an easy way out or a federal budget willing to make up for all shortfalls, more regions will feel the pressure to either borrow more or cut spending on what they deem as non-essential expenditures (e.g. maintenance and capital investments) or both. This is a fundamentally political decision, depending on what regional decision-makers, accountable to the Kremlin, regard as acceptable risk in the short run. But some do not have this luxury: regions such as Irkutsk and Kemerovo, which are forced to cut expenditures on vital social infrastructure and salaries, are the canaries in the coal mine. The adjustments adopted in 2026 are notable not because of their size, but because of how early in the year they happened, suggesting that as the wider economic crisis that has the largest impact on regional income takes its own unpredictable course, regions can be sure of one thing: that they cannot count on the largesse of the federal budget any more.
