A new debt crisis for Russia’s regions?

The newly formed State Duma tackled regional debt during its first October session as part of the government's budget plan. Federal authorities proposed delaying the repayment of loans due in 2027-29 until 2030, providing regions with additional financial flexibility. This move followed a string of lending and debt-reduction initiatives from the past years, with the postponement initially approved by President Vladimir Putin in April for debts maturing in 2026.

In early 2026, regional debt was close to 3.5 trillion rubles, accounting for 18.9% of each region's own revenue, a 10% increase year-on-year. Despite this, regional debt is still on the rise, although estimates for the end of 2026 ranged from 3.6 to 4 trillion rubles. This situation is far less severe than the 2015-16 debt crisis, when the share of total indebtedness in own revenues exceeded twice the current level, prompting a federal response.

Finance Minister Anton Siluanov openly voiced concerns about regional debt at the St. Petersburg Economic Forum in June, highlighting worries over the debt trajectory and growth areas. The expansion of commercial lending to regions occurred alongside the expansion of regional debt in 2025, reversing some of the debt-replacement program's gains.

Bank loans to regions tripled to 676 billion rubles, with 17 regions borrowing for the first time. Market debt, encompassing bank loans and regional bonds, saw a slight drop in the first eight months of 2026, but this is only a partial positive indicator. Banks lent to regions at high interest rates, exceeding the federal cap of 3.5 percentage points above the key rate. As a result, debt-servicing costs in consolidated regional budgets grew by more than 41% in 2025.

Regions with severe fiscal stress due to crises in their primary industries, such as coal, metallurgy, and timber, saw debt-servicing costs rise sharply. Twenty-eight regions ended 2025 in a deficit for the third consecutive year, facing a difficult choice between cutting essential expenditures or finding new revenue sources. Most regions still have manageable debt levels, and no overall debt crisis exists.

However, in a few regions, the situation is deteriorating. Arkhangelsk, Murmansk, Tomsk, and Kemerovo saw debt-servicing costs range from 6 to 11% of own revenues, significantly higher than the average of 0.8%. Kemerovo's debt-servicing costs nearly doubled between 2025 and 2026 as a share of own revenues. The 2027 draft budget for Arkhangelsk projected paying 18 billion rubles in interest to commercial banks, a more than 40% increase.

Both Arkhangelsk and Kemerovo have held unsuccessful procurement tenders for bank credit lines due to banks unwilling to accept rates within the limits set by the regional government. In September, Arkhangelsk's procurement failed, and Kemerovo faced a similar issue in 2024. Unlike previous regions facing debt crises, these areas were left to take on high-interest commercial debt.

The federal government's reluctance to provide a bailout might discourage other struggling industries from seeking aid. The new tax package considering alongside the 2027-29 federal budget would exacerbate the issue, as it would continue increasing federal revenue at the expense of regional budgets while keeping federal transfers flat or allowing them to fall in real terms.