August M
Russia’s regional finances are deteriorating rapidly as the costs of the war in Ukraine continue to mount. New figures show local governments across the country facing record deficits amid weakening economic activity.
Analysts say the widening gap between revenue and spending highlights growing financial pressure across the Russian economy, reports United24media.
Record budget deficit
Russia’s regions ended 2025 with a combined budget deficit of 1.538 trillion rubles, or about $19 billion, according to figures cited by United24 Media.
The shortfall marks a dramatic increase compared with previous years. Regional deficits totaled about 297 billion rubles in 2024 and roughly 200 billion rubles in 2023.
At the beginning of 2025, Russian officials had forecast a deficit of around 300 billion rubles, but the final figure turned out to be roughly five times higher than expected.
Revenues lag behind spending
Regional governments collected about 22.6 trillion rubles in revenue in 2025, while spending reached 24.1 trillion rubles.
The imbalance reflects declining tax income and rising expenditures linked to the war effort.
Personal income tax and corporate profit taxes form the core of regional budgets, but both sources have weakened as business activity slows and many companies face growing financial pressure.
Economic sectors struggling
Several major sectors of the Russian economy have been experiencing prolonged downturns.
Rail freight volumes have been declining for nearly four consecutive years, while car sales have dropped sharply. The coal industry has reported losses, and the timber sector has been affected by international sanctions.
Even food and beverage production has begun to fall, while investment in new projects has declined by about 45 percent compared with 2024.
According to United24 Media, the arms industry remains one of the few sectors still expanding as it benefits directly from military spending.
Public finances under pressure
Russia has increasingly relied on borrowing to finance its spending since launching the full-scale invasion of Ukraine.
The federal government recorded a deficit of more than 5 trillion rubles, or around $60 billion, in 2025.
At the same time, official statistics claim that household incomes are rising. Russia’s state statistics agency Rosstat reported that real disposable incomes grew by 7.4 percent last year, with average monthly income reaching about 74,845 rubles.
However, inflation has eroded much of those gains, and surveys suggest many Russians are cutting spending on electronics, switching to cheaper food products and delaying medical treatment.
Difficult choices ahead
The Kremlin now faces difficult decisions about how to handle the mounting debt of regional governments.
One option would be to use federal funds to cover the deficits, while another would be allowing some regions to default.
Russian media suggest the government is more likely to reduce social spending rather than increase financial support for local authorities.
At the same time, military expenditures are expected to remain high. Western analysts estimate that Russia could spend around $186 billion on the war effort in 2026.
Sources: United24 Media, Rosstat
