By Ekaterina Janashia | 2026-03-10

Russia is spending more on war than at any point in its modern history. Its provinces have never been more broke. According to the Federal Treasury, regional budgets closed 2025 with a record collective deficit of 1.538 trillion rubles ($16.9 billion) -- five times larger than the year before and double the previous record set during the 2020 pandemic.

Moscow raised taxes on businesses in 2025, but kept the extra revenue for itself. Regions were left with the same share of a shrinking pie: as industrial profits across Russia collapsed, corporate tax receipts flowing to regional budgets fell 8.5%, even as the regions' war-related bills kept growing.

By year-end, 74 of Russia's 89 regions were running a deficit, according to the ratings agency ACRA -- up from 50 the year before.

"The picture is quite sad," Natalya Zubarevich, a leading expert on Russia's regional economies, said in February, even before the final figures were in.

A map of deficits

The crisis is not felt equally. It is concentrated in the industrial and resource-rich regions -- the very workshops the Kremlin relies on to sustain its war effort.

In Vologda, industrial giant Severstal reported zero profit tax for much of 2025. In Murmansk, a 13% drop in corporate tax forced the region to adopt a 2026 budget with a deficit nearly one-fifth its total revenue. Kemerovo, Tyumen and Arkhangelsk face shortfalls of 20-25%.

Economists describe the underlying dynamic as "budgetary scissors." One blade is the federal mandates: regions must fund the war from their own pockets -- recruitment bonuses reaching up to 3 million RUB ($33,000), support for mobilized soldiers' families, and costly reconstruction of "sister cities" in occupied Ukrainian territories. The other blade is stalled development.

As federal transfers remained flat at 3.96 trillion RUB ($43.6 billion) -- falling in real terms due to inflation -- governors turned to credit markets. Regional debt has ballooned to a 15-year high of 3.5 trillion RUB ($38.5 billion), with many regions taking out commercial bank loans at what officials described as "insane" interest rates.

The federal squeeze

Frustration has boiled over toward regional governors accused of using patriotic rhetoric to hide budget shortfalls. In 2025, several regions including Mari El and Samara slashed recruitment bonuses as war spending drained their coffers, only to restore them in early 2026 as enlistment numbers fell.

Moscow's broader solution has been to tighten the screws further. To fund the 17 trillion RUB ($187 billion) federal war budget for 2026, the government enacted a value-added tax (VAT) increase to 22%, effective January 1, 2026.

Natalia Orlova, chief economist at Alfa-Bank, said the deficits kept growing despite the increased tax burden -- the higher levies were supposed to support the broader budget base, but instead left regions to face the fallout of a cooling economy alone.

The social cost

For ordinary citizens in cities like Kostroma or Kemerovo, the shortfall means delayed hospital repairs, unpaved roads and missed paychecks. Reports have emerged of wage arrears for teachers, doctors and firefighters across multiple regions. Even researchers at the Siberian Branch of the Russian Academy of Sciences have reported missing paychecks as regional liquidity evaporates.

Prime Minister Mikhail Mishustin said he spent "many hours" with President Vladimir Putin and Central Bank chief Elvira Nabiullina discussing how to close the widening budget gaps -- without, so far, announcing a solution.