By Ekaterina Janashia | 2026-04-02

Russia's wealthiest city is running out of money and taking the rest of the country with it.

Moscow has cut its investment program for the first time since the COVID-19 pandemic. The capital, long shielded from wartime austerity, is scaling back infrastructure projects, shrinking its government workforce and diverting its budget surplus toward defense.

Mayor Sergei Sobyanin made the rare admission on his social media channels, where he typically posts about new roads and metro stations. If Moscow is counting kopeks, the rest of Russia's 89 regions are drowning.

"Results for the first two months show revenue growth slowed to 2%, below the 6.5% planned when drafting this year's budget," Sobyanin said. He announced a 10% cut in 2026 investments from 1.2 trillion RUB ($15.3 billion) and a 15% reduction in municipal staff. Major public cultural events and urban beautification projects, long hallmarks of Sobyanin's tenure, are being canceled.

The fortress under pressure

For years, Moscow functioned as a showcase of Russian stability. Under Sobyanin, the capital kept up a relentless pace of subway expansions, road construction and urban development. That model is now being dismantled.

The cuts are concentrated in the city's investment program, a major driver of regional gross domestic product (GDP). The municipal government has framed the reductions as "routine optimization." Independent economists say they are a direct response to federal demands on regional budgets.

The 2026 federal budget allocated 38% of all spending to defense and security -- an unprecedented level in modern Russian history. The federal deficit hit 1.7 trillion RUB ($22.1 billion) in January alone, nearly half of the full-year target of 3.8 trillion rubles ($49.4 billion). The Kremlin has been leaning on wealthy regions and state corporations to fill the gap. Moscow, which contributes a disproportionate share of Russia's non-oil tax revenue, is seeing its surplus redirected to national defense and ruble stabilization.

Because Moscow's revenues alone account for more than 2% of Russia's GDP, its spending retreat sends immediate shockwaves through the national economy. Projects once considered untouchable, like full renovation of the capital's peripheral districts and several high-tech "digital city" initiatives, have been delayed or cut. For the first time in a decade, the city's construction sector is contracting.

A black hole of debt

Moscow is not suffering alone. The number of Russian regions running a budget deficit jumped from 50 to 74 in a single year. Expert RA, a ratings agency, expects regions to post a combined deficit of 1.7 trillion RUB ($22 billion) in 2026, up 13% from last year. Volunteer fighter payments, which in Moscow exceed 5 million RUB ($61,000) per person for the first year, plus payments to their families have also become a burden on regional budgets. As federal support shrinks, regions are turning to expensive commercial loans to cover basic social obligations.

"If economic growth does not resume, some regions will have to cut spending, first and foremost on infrastructure and development," said economist Natalia Zubarevich.

To sustain wartime spending, the government raised value-added tax (VAT) to 22% from January 1 and expanded the base of businesses required to pay it.

"The Russian economy is stuck in a negative equilibrium," Alexandra Prokopenko, a former central bank official, told Carnegie Politika podcast. "It is holding itself together while steadily destroying its own future capacity. By cutting investments in Moscow, the government is essentially sacrificing tomorrow's growth to pay for today's shells."

A market reprieve -- for now

The grim picture shifted somewhat in late March. Instability in the Middle East sent global oil prices sharply higher, giving Russia a temporary revenue boost. Moscow dropped plans to cut non-defense spending by 10% -- reductions that had been under active discussion just weeks earlier.

But analysts warn the reprieve masks deeper problems. Russia's oil and gas revenues for the first three months of 2026 are still expected to come in at roughly half the prior year's figure, because the price surge arrived after those accounts had already closed. Russia's economic development ministry estimates GDP contracted 2% year-on-year in January. A commodity spike, analysts note, cannot substitute for what Russia is actually missing: cross-border investment, technology access and domestic capital formation.

The Kremlin's emergency reserve, the National Wealth Fund, held roughly 4 trillion RUB ($48.5 billion) in liquid assets at the start of 2026 -- down from $113 billion before the invasion of Ukraine. At the pace reserves were being drawn down in early 2026, analysts warned the fund could be exhausted within the year regardless of short-term price movements.