Russian finance minister warns of regional budgets' strains, rising debt
Rising Deficits and Economic Challenges for Russian Regions
By Darya Korsunskaya
MOSCOW, April 27 (Reuters) - The combined deficit of Russian regional budgets will grow by 27% to 1.9 trillion roubles ($25.4 billion) in 2026, largely due to lower corporate profit tax revenues and higher social spending, Finance Minister Anton Siluanov warned on Monday.
Impact of War and Regional Debt
The regional budgets bear a significant share of spending linked to the war in Ukraine, such as payouts to war volunteers and their families, and regional debt is rising.
Russian officials tout the federal budget's relatively moderate deficit and debt, backed by the fiscal reserve National Wealth Fund, as a key buffer against Western sanctions. However, a broader measure that includes regional balances shows a weaker picture.
Declining Profit Tax Revenues
Profit tax revenues, which account for up to a third of total regional budget income, have been hit by Russia's economic slowdown, which started in 2025. According to the latest available data for January, corporate profits fell by almost 30% year-on-year, as many companies report lower profits or losses.
Deficit Trends and Regional Variations
"The situation with the regions' budgets is challenging," Siluanov told a hearing at the Federation Council upper house of parliament. He said the biggest deficits arose in regions that had traditionally been running budget surpluses.
Rising Debt and Interest Rates
Siluanov said that the regions' debt as a share of revenues grew by one percentage point to 19% in 2025, as the regions were financing their deficits with bank loans at current high interest rates.
"Our task is to minimize commercial debt. Today, it is costly," he said.
Broader Economic Slowdown
The Russian economy slowed sharply to about 1% growth last year from 4.9% growth in 2024 and contracted in January in February this year due to high interest rates, tax hikes, a strong rouble and weak prices for Russian oil at the start of the year before the war in the Middle East.
Russia's oil and gas revenues are seen falling in the first five months of this year, Reuters calculations show.
Special Purpose Spending and Government Response
Government Criticism and Response
SPECIAL PURPOSE SPENDING
President Vladimir Putin scolded his top officials last week over the poor economic performance and asked them to find ways to boost growth.
"The situation in the economy is actually rather complicated," Putin's top aide on the economy Maxim Oreshkin told state television on Sunday. He blamed labour shortages, slow structural changes and delays in implementing new technologies as the main reasons behind the slowdown without elaborating.
Efforts to Reduce Deficits and Support Regions
Siluanov said that the Finance Ministry was working with regional authorities to cut spending and raise revenues, aiming to cut the expected combined deficit for this year by almost half to 1 trillion roubles. He described up to 20 regions, or over a fifth of all Russian regions, as problematic, without naming them.
Debt Relief Initiatives
Putin supported on Monday an initiative to give the regions an additional 100 billion roubles' worth of relief on debt payments to the federal budget in 2026. The federal budget is expected to run a deficit of 1.6% of gross domestic product this year, but in the first quarter the deficit exceeded this target, rising to 1.9% of GDP as a result of weak prices of oil, Russia's main export commodity, and accelerated spending.
War-Related Spending Pressures
Some participants at the hearings on Monday made veiled references to accelerated spending on war-related needs from the regional budgets.
"Regional budgets are under pressure due to declining revenues amid an economic slowdown and simultaneous increases in expenditures, including special-purpose spending. It is already clear that 2026 will be challenging," said Chelyabinsk regional governor Alexei Teksler.
($1 = 74.9000 roubles)
(Reporting by Darya Korsunskaya; Writing by Gleb BryanskiEditing by Keith Weir and Susan Fenton)
