Problems on the ground. Some of the economic difficulties are hidden in regional budgets

When discussing the state of Putin’s economy and finances (“Important Stories” told about growing problems that are still far from critical), they most often mean data for the entire country and the federal budget. But there is the next, very important level - regions. Their budgets taken together make up approximately half of the federal budget, which pays salaries for doctors and teachers, “increases” for contract workers, and supports housing and communal services. At this level, everything that happens in the economy is clearly visible. And the authorities are shifting many problems there.

The economy began to slow down in the second half of 2024, and last year the war reached the budgets of Russian regions: the situation in them worsened sharply. Especially in rich regions with developed industry. Many have to cut expenses, accumulate debts, delay salaries and payments on government contracts.

The most problematic regions now are not the endangered agricultural hinterland, accustomed to federal support, but the industrialized regions.

The rich cry too

At the beginning of March, Moscow Mayor Sergei Sobyanin announced that it was time to “optimize” city budget expenses. Moscow will cut 15% of civil servants and managers in subordinate institutions (about 3 thousand positions), without affecting those that provide services to citizens. Social expenses will not be affected, but the investment program, costs for landscaping and cultural events will be cut by 10%.

This is not so scary: during the war years, investments, expenses for improvement and renovation increased significantly. In 2025, a record 240 “capital construction projects” (schools, kindergartens, hospitals) were built at the expense of the budget - 4.2 times more than the average in 2011–2020. The commissioning of housing renovations, covering 250 thousand people, is also breaking records. But this is a significant event - the abundance is over.

Such prosperity for show (“how prettier Moscow has become”) is ensured by economic concentration (many large companies are registered in Moscow and pay taxes there) and borrowing. The fact that last year the Moscow budget deficit became the highest of the Russian regions (229 billion rubles) is not scary: in Moscow everything is larger than in others. Its deficit turned out to be half the target. But in January-February 2026, Moscow budget revenues grew three times slower than expected (by 2% instead of 6.5%) and noticeably lagged behind inflation. This is already dangerous, and Moscow has decided to cut costs.

The government of the Moscow Region did this even earlier: in 2025, it laid off 15% of government employees. True, the released employees were not fired, but given other tasks. In this case, the reduction was rather “paper”: empty rates were removed, something was slightly optimized. The Moscow region is cutting spending not because of the deficit , but because of the high level of debt. In addition, by introducing AI and optimizing officials who solve routine tasks, you can earn the praise of the federal Ministry of Finance. And budget loans to the Moscow Region will be very necessary when it is expected to have a deficit of 75 billion rubles.

Other regions are also announcing sequestration. The Chelyabinsk region reduced expenses by 4%, whose deficit reached 17.8% of expenses. Its problems are caused by the decline in the metallurgy industry. The Primorsky Territory has reduced expenses, whose expenses exceed income by 12.7%. Primorye residents had to cut costs on equipping schools, repairing children's camps, equipping libraries, rural subsidies, culture and even social services.

What happened

In the first three years of the war, regional budgets did not experience a shortage of money. In 2022 they broke even, in 2023 the total deficit of their budgets was 0.2 trillion rubles, and in 2024 - 0.4 trillion. But in 2025 it soared to 1.5 trillion rubles - 2.5 times more than in the two previous years.

The regions did not throw money around. Over the past year, their expenses increased by 8.9%, which is approximately the same as the average inflation for the year (8.7%). But revenues grew much more slowly, at just 4.1%. Now, on average, 6.2% of regional spending is not covered by income.

Budget problems have become almost universal: the number of deficit regions in 2025 increased from 50 to 74 (including occupied territories). Only four regions may remain surplus this year.

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This is the result of a slowdown in the economy and the vertical of power built by Putin. One of its elements is the concentration of finances in the federal budget, from where money was transferred to the regions in the form of transfers, subsidies, etc. Almost all of the wartime tax increases were in favor of the federal budget: personal income tax on a progressive scale, an additional income tax, and VAT went there. Raw materials taxes also go to the center. This increases the regions’ dependence on the center: last year, federal transfers provided 17.5% of their income.

Regions have two main sources of their own money: taxes on corporate profits and on the income of citizens. While the economy was swelling with war money, everything was fine, but last year growth slowed sharply. GDP rose just 1% from 4.9% in 2024, and industrial production rose 1.3% from 5.1%. Company profits fell by 3.9% last year (previously by 6.9% in 2024).

Result: income tax revenue decreased by 8.6% (and compared to 2023 by 12.3%). 55 regions were in the red. This was the main reason for the budget problems.

Personal income tax helps, but it cannot solve all problems. Salaries continued to grow , albeit more slowly: by 13.5% after 19% in 2024. The growth of personal income tax received by regional budgets slowed down by 2.4 times.

In 2025, the growth of industry and construction had already stopped in half of the regions, so income taxes fell especially sharply in industrialized regions. In nominal terms, compared to 2024, revenues decreased in 29 regions, and 15 had to reduce expenses. Income fell the most (by 16–20%) in the Sakhalin, Orenburg, Tyumen regions and Yamalo-Nenets Autonomous Okrug. These are all oil and gas regions. The low price of oil and sanctions led to the fact that the profits of oil and gas companies decreased almost threefold (by 64%).

The center is in no hurry to help; last year it itself faced big budget problems. Transfers in real terms remained at the level of the previous year: already good, it could have been worse.

When people’s incomes fall, the share of their spending on the most essential things: food, increases. In the regions, social spending plays this role. Over 2025, their share increased from 54.8 to 56.8%.

Communicating vessels

Growing deficits are not a problem for individual regions, but for the entire budget system. Government budgets are communicating vessels, or pockets, between which the state distributes money. By increasing transfers to the regions, the center reduces their deficits, but increases its own, and vice versa. The federal budget also interacts with extra-budgetary funds (social and others). Journalists traditionally monitor the federal budget the most, but the state of the general, or consolidated, budget is more important.

In 2025, his condition deteriorated sharply. The total deficit reached 8.3 trillion rubles. This is 3.9% of GDP, more (4%) was only in the covid year 2020. The federal budget pulled the budget system down, in which, by the end of the first half of the year, the deficit reached 4.8 trillion rubles. Since the middle of the year, the Ministry of Finance has been desperately saving and, in fact, transferred part of the deficit to other pockets. The total hole in the regions and funds, whose budgets are usually kept to a minimum deficit, has reached 2.7 trillion. Apparently, after looking at these figures, German intelligence officers came to the conclusion that the state of Russian finances is worse than it seems.

Credit bondage

Regional budgets are not the best place to hide deficits. They have enough problems of their own, and covering regional deficits costs more than federal ones.

This is done, as a rule, through borrowing. But government debts are rightfully considered more reliable than regional ones, so the interest on them is lower. At the end of last year, the Ministry of Finance placed bonds (OFZ) at approximately 15% per annum for 7–8 years ( 1 , 2 ), and the Kemerovo region at that time received loans from banks at 20% for just a year (usually the longer the term, the higher the interest).

The budget lends to regions almost free of charge and periodically forgives part of the debt. But now he has no time for them. The share of federal loans in the total debt of the regions in 2025 fell from 78 to 67%. The center's loans to the regions decreased by 5%, while regional debt increased by 10.6%, to 3.5 trillion (almost 19% of their income).

Therefore, the Kemerovo region had to increase the share of expensive bank loans in its debt from 30 to 47.5% in the second half of 2025. Over the year, its debt increased 1.8 times, and by March it reached 134.7 billion, or 68% of the planned income. This is a lot, and now Kuzbass needs federal debt forgiveness .

In addition, the Irkutsk and Tomsk regions especially sharply increased their public debt in 2025, and the Arkhangelsk and Murmansk regions accumulated the largest debt. All of them suffered from industrial stagnation and did not receive support from the center.

Coal dust instead of money

But few can compare with Kuzbass. It was crippled by the crisis in the region's backbone coal industry, which accounts for 30% of the region's industrial production. In 2022, a successful year for coal miners, they paid 90.4 billion rubles in profit tax to the regional budget, but since then revenues have practically dropped to zero due to low coal prices, sanctions and increased transport tariffs: 1.8 billion rubles for January - November 2025. Mineral extraction tax receipts also decreased.

The revenues of the Kemerovo region are steadily declining; this year they are planned at 198 billion rubles, and in 2022 it was 313 billion. Taking into account inflation, revenues have decreased by almost half.

For a long time, Kuzbass officials could not believe that the decline in income would last for a long time, and in 2023–2024 they continued to increase spending and only then moved on to cutting expenses. In 2025, they decreased to 256 billion rubles from 298 billion in 2024, and 215 billion rubles are planned for this year. The belated sequestration will not completely eliminate the budget deficit, but will at least slow down the growth of public debt. The situation is similar in the Kemerovo city budget, which has lost a third of its revenue over the past two years.

As a result, the regional budget literally burst. Salaries for public sector employees have not been indexed since the spring of 2024 ; 550 officials, or every sixth, have been laid off . The region is cutting spending on social services: to pay for kindergarten to the families of war veterans (due to the scandal, this benefit was returned ), to payments to large families and the families of those killed in the war; the number of kindergartens is decreasing . Spending on education, roads, transport, housing and communal services is reduced . Budgetary enterprises in the region are delaying employee salaries. Kuzbass is not starting the construction of new social facilities.

This is not to say that the region is completely poor. It continues to finance several expensive construction projects and renovations, including a 10-kilometer road (9 billion rubles) to a new chemical cluster, for which a special economic zone has been created, and is spending 4.4 billion rubles on the construction and modernization of utility networks at the Sheregesh ski resort. At the same time, a kilometer of new road will cost two to three times more than the average cost per kilometer of a four-lane road.

Finances are slightly better in the Arkhangelsk and Vologda regions, where, due to a sharp drop in income tax and mineral extraction tax revenues from the metallurgy and mining industries, the deficit reached 34–35% of revenue. Regions where the manufacturing industry is stronger also have difficulties. For example, the Omsk region's revenues from it have decreased by half over the past three years: from 50% to a quarter of the income tax it receives.

What to sacrifice

Making ends meet when civilian industry is declining and the federal budget is not helping is a non-trivial task. Salaries for state employees cannot be reduced; they try to touch upon social expenses only in the most extreme cases, as in Kuzbass. Therefore, first of all, the regions are cutting investment programs, spending on repairs and construction of roads, educational, cultural, and healthcare facilities.

Almost a quarter of the regions reduced spending on healthcare this year, saving a total of 107 billion rubles, “Important Stories” calculated . The Kemerovo, Vologda, Irkutsk, Volgograd and Moscow regions, which faced an industrial decline, reduced these expenses the most. In many regions, salary bonuses for doctors in hospitals have been cut . The Irkutsk region is reducing payments for injuries and deaths in war. Real layoffs have also begun: in the fourth quarter of 2025, 3.8 thousand people lost their jobs in education, 4.6 thousand in health care and social services, and 4.9 thousand in government administration. Spending on landscaping and agriculture is being cut. In the Belgorod region, public sector employees stopped paying bonuses for shelling.

At the same time, many regions are ramping up war-related spending, including payments to military personnel and their families and spending on drone production and equipping factories with them. Recently, St. Petersburg and the Leningrad region raised payments to contract workers to 4 million rubles (the region soon added another half a million). Both the city and regional budgets are in a difficult state, but the plan for recruiting soldiers must be fulfilled.

What's next

This year, the regions' budget problems will not resolve. Expert RA expects that the total deficit will decrease from 8 to 6–7% of income, but many regions will remain with a deficit of 15–20%. They will have to borrow and cut costs.

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A more likely scenario seems to be an increase in the deficit, because industrial output is falling and the economy is barely growing . If, following a fall in investment and deteriorating consumer sentiment, GDP continues to decline , then the income tax will also decrease. And the slowdown in personal income growth will hold back personal income tax revenues.

The regions will have to cut costs even more actively and look for new sources of income: an increase in property taxes for owners of more than two apartments is now being discussed .

Another way to, if not reduce, then defer expenses is an increase in non-payments. In Khakassia, accounts of budgetary organizations, including schools, are already being blocked due to debts to contractors. A third of Khakassian enterprises are unprofitable , incomes have fallen, and accounts payable are growing despite federal assistance received in the winter. Reports of non-payments are also coming from other regions: in Murmansk, during the construction of an oncology clinic, workers are on strike due to repeated delays in wages. Builders in occupied Mariupol have been without wages since December.

At the beginning of 2026, regions continued to cut spending. In January-February they were 1.6% lower than a year earlier, although income grew by 4.6%. Income tax receipts fell by 19%, and the regions are staying afloat due to personal income tax, which suddenly accelerated again (+28%). Most likely, this is an anomaly: before the introduction of the progressive scale, many companies shifted the payment of annual bonuses from the beginning of 2025 to December 2024, and have now returned to the usual schedule. In any case, this is a very unsustainable picture: companies losing profits and a public sector with growing deficits cannot indefinitely increase employee wages at this rate.

Rising oil prices due to the war in the Middle East could improve the situation in the federal budget and in oil-producing regions. This will do little for the rest of us.