MOSCOW, March 6 (Reuters) – The city of Moscow, Russia’s wealthiest federal unit, will cut its large investment programme for the first time since the COVID-19 pandemic, a sign of deteriorating regional finances in the fifth year of the conflict in Ukraine.
Mayor Sergei Sobyanin, Russia’s most influential regional leader and a figure widely credited with modernising the capital, made the rare admission in his social media channels, where he typically posts about new roads or metro stations.
“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, announcing a 10% cut in 2026 investments from 1.2 trillion roubles ($15.3 billion), and a 15% reduction in municipal staff.
Moscow’s revenues are projected at about 6 trillion roubles in 2026, or more than 2% of Russia’s GDP. Many Russian companies are headquartered in the capital and pay taxes there, a long-running source of criticism from poorer regions.
REGIONS PUSHED INTO COSTLIER BORROWING
Russian officials tout the federal budget’s relatively moderate deficit and debt, backed by the National Wealth Fund, as a key buffer against Western sanctions, but a broader measure that includes regional balances shows a weaker picture.
Russia’s consolidated budget deficit, which combines federal and regional accounts, widened in 2025 to 8.3 trillion roubles, or 3.9% of GDP, 2.6 times larger than in 2024, well above a 2.6% deficit at the federal level.
“While state-level debt appears to be under control, the government is in effect pushing regions towards more expensive borrowing from commercial banks,” a banking source told Reuters, speaking on condition of anonymity.
Even so, the central government is preparing a major austerity programme aimed at preventing the fiscal reserve fund from being depleted next year.
REVENUE GROWTH SLOWS
Data obtained by Reuters showed the share of concessional loans from the federal budget in regional debt fell to 67% last year from 78% in 2024, while the share of costlier commercial bank debt surged threefold.
Oil and gas taxes that have been falling in recent months, and value-added tax, widely seen as the most stable revenue stream, account for the bulk of federal income.
Regional revenues rely on corporate and personal income taxes, which are more vulnerable to an economic slowdown. Russia’s economy cooled in 2025 after the central bank tightened its lending policy to curb inflation.
In a late-2025 report, Russia’s Audit Chamber linked the rise in regional deficits to weaker corporate profits, which fell 5.5% in January-November 2025, according to official statistics.