The Russian economy is increasingly struggling to cope with the ongoing war against Ukraine. There is a lot of evidence of this - for example, the financial condition of the regions. At the end of the first quarter of 2026, almost two-thirds of them fell into a budget deficit, while only a year earlier, only about half were in such a state. Revenues are lagging behind inflation, and expenses (mostly military) continue to grow. The situation will worsen further, and this will require the authorities to adopt painful and unpopular measures, experts warn.
What is happening to the budgets of Russian regions
In the first quarter of 2026, the revenues of Russian regions increased by only 0.5 percent, while expenditures increased by 4.3 percent, according to a report by the Accounts Chamber of Russia. Thus, the budgets of as many as 56 regions turned out to be in deficit. A year earlier, 46 regions registered such indicators, and in 2022 - only six.
The number of regions with a high level of deficit has also increased - such as the Kemerovo region, where it reaches 50 percent of the volume of revenues.
How the war against Ukraine affected the financial condition of the regions in Russia
The poor results for the first quarter are not a sudden collapse, but a continuation of a trend: since the beginning of Russia's war against Ukraine, the regions have not been living within their means. In 2025, 73 regions were in the red, and this year the anti-record is likely to be surpassed. Finance Minister Anton Siluanov expects a deficit of 1.9 trillion rubles.
The main reason for the budget imbalances is that the central government in Moscow transferred a significant part of military spending to the regions. War-related spending under the “National Defense” heading has increased from 71 billion rubles in 2021 to 479 billion in 2025, i.e. more than 6.5 times, according to calculations by Finnish banking expert Sinika Parviainen.
Military spending under the “National Security and Law Enforcement” heading (which also includes bonuses for contract fighters) has jumped more than seven times – from 49 billion to 372 billion rubles. Both spending on payments to military personnel and their relatives and spending on civil defense – for example, the construction of bomb shelters – have increased.
Parviainen notes that the war has also had a direct impact on regional budget revenues. Personal income tax revenues have increased by 83 percent in five years, mainly due to wage increases in the military-industrial complex. On the other hand, corporate profits (the second most important source) have begun to decline, which is a worrying sign - the lower the profitability of business, the slower wages grow, and therefore personal income tax revenues.
Russia is trying to find additional money for the war
The state of regional finances was discussed at the International Economic Forum in St. Petersburg - in a pessimistic light. Chelyabinsk Region Governor Alexei Teksler said: “Where there were reserves, they were exhausted. Where there is an opportunity, optimization is being carried out. But in general, some are already pushed to the wall, and others will follow them“.
Moscow is demanding additional funds to finance the war by raising taxes. At the beginning of the year, it benefited from the rise in oil prices caused by the blockade of the Strait of Hormuz. But the regions do not have the opportunity to significantly increase income - “they must either cut spending or take on debt“, notes Andras Tot-Tsifra, a political analyst at the Riddle Russia center.
Given that in the fall of 2026 there will be parliamentary elections in Russia, regional authorities are reluctant to significantly cut social spending. There are also no opportunities to reduce the costs of recruiting contract soldiers - on the contrary, these costs continue to grow.
Education, healthcare, utilities - what else is being saved on in Russia
Economic savings must be made in education, healthcare, and utilities. For example, the Kemerovo region, which found itself in a particularly difficult situation due to the coal crisis, has planned to reduce healthcare spending by 30 percent and education spending by 20% by 2026. Overall, regional healthcare spending in the country has increased nominally by 12 percent over the past five years, but in view of inflation, it has decreased. 66 regions have reduced their utility spending at least once since 2022.
You can't count on help from Moscow - the war is a priority, which is why support for the regions is being cut. That's why they have to take on debt, the total increase in which for 2025 is 11 percent.
"Regional budgets will not collapse simultaneously and everywhere, but more and more regions will be forced to either increase their debt, or cut spending they consider secondary - for example, on infrastructure and investments, or combine both approaches," concludes Tot-Tsifra.
Author: Oleg Loginov