Russian Regions Starved for Money by Moscow Facing Serious Financial Problems

Russian Regions Starved for Money by Moscow Facing Serious Financial Problems

Executive Summary:

• Ever more Russian commentators are saying the oblasts, krais, and republics of their country are “on the brink of bankruptcy.” The federal subjects’ financial problems are the result of Moscow’s policies. 
• Moscow takes a disproportionate share of the revenues the regions collect and returns only a small portion. Russian President Vladimir Putin and the Kremlin demand that the regions implement their policies, but do not allow them to retain the requisite funds.
• This arrangement is creating serious problems for governors who, instead of the Kremlin, are now the targets of popular anger. This dynamic has the potential to transform regional leaders from loyal servants of Moscow into its opponents if the center’s power weakens.

Ever more Russian commentators are saying the oblasts, krais, and republics of their country are “on the brink of bankruptcy.” They have had to slash spending on many initiatives their populations want while borrowing more money from the center and paying an increasing share of revenues to service that debt (Region Voice, February 6). These very real financial problems, however, are not of the federal subjects’ own making. Instead, they are the result of Kremlin policies that seek to keep the regions on a short leash. Moscow compels these regional heads to fulfill what the center wants, but is not paying for things such as regional bonuses for those who join the military (Idel.Realii, February 8). So far, this arrangement is working for the Kremlin, with people in the regions increasingly protesting against what the governors are doing rather than against Russian President Vladimir Putin, the true source of their problems (see EDM, December 22, 2025). Unsurprisingly, some of the governors are alarmed and, while still loyally carrying out Kremlin orders given that Putin can hire and fire them, are now seeking creative ways to maintain spending. Some are even securing money from still-better-off neighboring regions to protect themselves politically and hiring more bodyguards to protect themselves physically (Important Stories, February 6; Vedomosti, February 9). If these trends continue, they could transform the governors from loyal servants of Moscow into its opponents, especially once Russia moves into a post-Putin succession struggle and the center’s power weakens.

The special features of the Russian tax and budgetary system are driving these developments. The federal subjects collect a large share of all taxes but transfer most of those funds to Moscow. The center then spends most of that money on its own purposes. It returns a smaller share to the subjects, typically less than what all but the most well-off need to cover the center’s mandated expenses. This arrangement has long sparked anger among regionalists and nationalists who want the subjects to retain more of the taxes they collect and have a greater say over how that money is spent (Window on Eurasia, April  9, 2021; Region.Expert, April 10, 2025). This system is especially frustrating for two other reasons. Unlike many central governments, Moscow does not use its tax power to equalize the incomes of the regions and republics. It uses its power to promote its own agenda, giving more money to federal subjects that promote Moscow’s goals and less to those that cannot. This pattern exacerbates existing inequalities (Novaya Gazeta, February 9; and Window on Eurasia, February 10). Moscow has also imposed unfunded liabilities on the regions, which has been especially true since Putin launched his expanded war against Ukraine. The Kremlin mandates that they spend out of their own budgets for programs the center wants without the center providing all or, in some cases, any additional transfer back of tax payments (see EDM, October 24, 2024,  September 23, 2025).  

The heads of the federal subjects have responded in several ways. Despite the political risks of differing from Moscow, some of them have not fully funded programs such as bonuses for military recruitment for Putin’s war against Ukraine (see EDM, November 19, 2024, October 21, 2025). They have also tried to hide how much they have been forced to cut from other parts of their budgets to run the Kremlin’s unfunded programs. This tactic, however, is increasingly ineffective. In some cases, the population has turned against governors with protests, a turn that has so far kept most Russians from protesting against Putin, the real source of the problem (see EDM, December 22, 2025). Still, this public opposition has frightened the governors to a point that they have nearly doubled their spending on bodyguards for personal security, lest they be attacked (Vedomosti, February 9).

Yevgeny Solntsev, governor of Orenburg oblast, has seen his region’s debt rise by 66 percent over the last year. In a move that other governors others are likely to copy, he has received money from another region to cover part of the deficit in his own budget without going further into debt to banks and the Russian government. He likely recognizes that even the servicing of his region’s debt in the future would make it almost impossible for him to keep the region between Kazakhstan and Bashkortostan quiet while meeting Moscow’s demands (see EDM, January 30, 2024; Window on Eurasia, September 13, 2024; Idel.Realii, February 8). In an attempt to forestall disaster, the Orenburg governor has arranged with the government of the Nizhny-Novgorod oblast to provide him with an infusion of funds so that he can at least pay the bonuses promised to those who have joined the Russian army to fight in Ukraine (Important Stories, February 6). 

According to the Important Stories outlet, this is a first. It does recall, however, the arrangements of the first decades of Soviet power, when better-off oblasts were required to help their poorer counterparts. The new arrangement has potentially more serious consequences because the regions themselves, not Moscow, are taking the lead. According to the outlet, Nizhny Novgorod transferred 400 million rubles (about $6 million) to Orenburg in December 2025 to pay for 1,000 bonuses to soldiers that the poorer oblast had promised in the last quarter of that year but did not have the cash to fund. Aleksandra Prokopenko, an expert on Russian politics and economics at the Carnegie Russia Eurasia Center, told Important Stories that this arrangement resembles “a ‘horizontal’ subsidy in which the expenditure obligations of one budget are covered by another.” This is an arrangement that Moscow legalized in August 2019. There have not been reports, however, of this arrangement being used except for cooperative projects such as bridges on roads between regions that are expected to be repaid. In this case, Orenburg will not have to return the funds unless it violates the terms of its agreement. That is highly unusual, she says, given that “usually regions do not finance each other’s expenses.” She speculates that someone in Moscow may have facilitated this deal (Important Stories, February 6). Even if this is the case, the Orenburg–Nizhny Novgorod arrangement may open the way to forms of regional cooperation that could lessen rather than increase central control.

This arrangement calls attention to the ways that governors are seeking workarounds to appear to satisfy the Kremlin but, in fact, protect themselves. Officials whom the Kremlin now counts as its loyal executors could quickly change sides and become defenders of their regions against Moscow if the center continues to press them amid countrywide problems and the looming Putin succession struggle. At the very least, the governors’ steps to defend themselves personally and politically suggest that their moves should be closely monitored.