Looking back on September, the new federal budget bill and some of the developments in the region over the summer, I am delving into regional fiscal data to explain where and what will likely be cut in the near future and why. I also discuss a couple of recent cases of nationalization involving regional assets to highlight the interesting evolution of this policy. In the end, as usual, I briefly comment on a couple of notable regional political developments that did not make the Bear Market Brief cut – as well as highlighting some excellent recent writing by colleagues.

An update on the budgets

The federal government’s fiscal plans for 2027-29 and tax package for the next year, which were announced right after the Duma election, confirm several trends in Russian governance. First, defense spending will remain high in the foreseeable future: 27 percent above original 2027 plans adopted in 2025, which predicted a decrease, thus substantially overwriting prior fiscal planning documents. Second, the government is going to raise taxes for a third time since the start of the full-scale invasion of Ukraine, in spite of promises made earlier (including shortly before the election), and in spite of the Kremlin constantly pressuring major employers to pay into the budget voluntarily. Third, just like in previous years, the extra income will benefit the federal budget, but not regions, which are nonetheless asked to carry an increasing share of the war’s domestic burden. 

One could add to this a fourth trend: optimistic planning. For 2024, the government initially set the deficit at 1.59 trillion rubles, only to revise it several times during the year and end up with 3.5 trillion. In 2025, the initial plan of 1.17 trillion was revised twice, and the budget ended up 5.6 trillion in the red. In 2026, the eight-month deficit (at 5.8 trillion) has already exceeded the plans for the full year (3.8 trillion). Moreover, in all three years, the deficit expressed as a percentage of GDP has grown steadily. The latest Finance Ministry forecast has it at 3 percent for 2026, even though original plans saw it drop to 1.6 percent. 

This is the context to Vladimir Putin’s pledge to reduce the deficit to 2 percent in 2027. And it is a problem, because Russia’s ability to borrow is limited, in spite of its relatively low sovereign debt, due to sanctions and high interest rates that push up debt servicing costs. It is unsurprising that the Finance Ministry is changing the budget rule to direct more windfall oil revenues to the National Welfare Fund. 

Officials tried to sound optimistic about the state of regional budgets over the summer. In August, Putin noted that the consolidated deficit of regions in the first half of the year was “160 billion rubles, almost like a year ago”. On September 1, auditor Natalia Trunova said at the Eastern Economic Forum that the consolidated deficit fell almost threefold year on year to 134.2bn rubles. Putin seems to have based his remark on the Finance Ministry’s revised spending data, while Trunova compared unrevised datasets, but both suggested that the situation, on the whole, is not overwhelmingly worrying. 

These aggregate numbers, however, cover up a serious divergence. Treasury data (which the Audit Chamber’s report on the first half of the year also quotes) reveals that Moscow, which, unlike last year, ran a surplus of 309 billion rubles in this period following major cuts on housing, roads and public servants, carries the lion’s share of positive balances. 66 regional budgets out of 83 plus the six occupied Ukrainian territories, are in deficit, 27 of them for the third year. 

Even outside of Moscow, there is a significant bifurcation between stabilizing regions and those with deeper fiscal troubles. The budgets of several oil and gas regions, such as the Yamal-Nenets Autonomous District, Tyumen, Sakhalin, the Krasnoyarsk Territory and Orenburg stabilized after early-year problems, either through windfalls from corporate income taxes or by cutting expenditures (or both). Meanwhile, regions with struggling industries (primarily metals, coal and forestry), such as Kemerovo, Vologda, Irkutsk, Chelyabinsk, Sverdlovsk and Bashkortostan are sliding deeper into their fiscal crises. Several of them – especially Irkutsk and Kemerovo – are also borrowing heavily at market rates. In spite of the federal government’s debt forgiveness program, debt servicing costs in regional budgets more than doubled year-on-year in the first seven months of the year, and while on aggregate they are still below 1 percent of regional expenditures, in seven regions they are higher than 4 percent – a considerable sum, especially at a time of falling revenues and growing expenditures. 

Just like in the federal budget, most of war-related spending is protected in regional budgets as well. Cutting these expenditures represents a risk not so much from the point of view of popular opinion, but from the point of view of governors that constantly need to signal their loyalty towards the Kremlin. But while the federal government is able to raise taxes and replenish reserves if global oil prices remain high, regions do not have access to such instruments. Given that federal transfers have been flat or dropping in nominal terms for several years, they need to rely on instruments such as debt write-offs, a deferral of 2026 repayments to 2030, and short-term treasury credits at 0.1-percent interest, which are assumed only to cover a couple of hundreds of billions of rubles, when overall deficit is projected at anywhere between 1.3 and 1.9 trillion rubles. 

Not universally, but regions have been making cuts to expenditures to be able to keep spending on war-related expenditures. Health care cuts (outside of health insurance funds), at 5.1 percent in January-July on aggregate, are the most visible, but other areas are also suffering. Furthermore, such amendments to regional budgets now clearly pair cuts in education, health care and infrastructure with maintaining or increasing payments to war participants and their families, even when officials are not explicit about this. Recently presented amendments to St. Petersburg’s budget reduce funds earmarked for health care, education, housing and the economy, among others, and increase social payouts to war participants. On a smaller scale, recent changes to the budget in the Tula and Arkhangelsk Regions do the same, by shifting money from other social policy goals to war participants, as did the postponement of salary adjustments in the Sakha Republic. The Stavropol Territory’s budget amendments, presented in July, explicitly named the protection of war-related spending as a rationale for optimization, as have officials in several other regions this year. While several regions have also occasionally been cutting other war-related expenditures, such as “death payments” to servicemen’s families, according to Janis Kluge, a researcher who documents the trends in regional spending on recruitment, cutting  is a calculated risk and the cutting of hiring bonuses is far from a widespread trend. A request, by the governor of the Leningrad Region to exclude defence and security spending from the calculation of budget optimization benchmarks, indicates war spending is getting increasingly ring-fenced at the regional level as well. If, as expected, the fiscal picture for regional budgets deteriorates further in the second half of the year, expect future cuts to fall on “civilian” lines of the budget.

Deprivatization is what you want it to be

A June 2026 codification of a limitation period on disputed privatization cases seems to have led to a change of tactics – a bigger part of these cases are now pursued via anti-corruption channels-  but not a major drop in the amount of private asset seizures (at around an estimated 980 billion rubles in the first eight months of this year). The rationale behind the most recent seizures of European-owned assets (of major French, German and Swiss companies) appears to be sending a signal to European governments that the Kremlin still has some cards up its sleeve. Domestic deprivatization is much more diverse and less clean-cut, as some recent cases from the regions highlight. 

In many cases the objective clearly seems to be the consolidation of strategically important assets in the hands of “trustworthy” businessmen, such as the consolidation of maritime fuel infrastructure assets over summer 2026 under structures linked to Arkady Rotenberg. Other cases are messier and highlight regional power struggles. Often the apparent purpose of a nationalization is to crack down on figures with still-lingering influence from a bygone era, such as businessmen from the 1990s and 2000s fusing their business empire with political influence. Take for example the nationalization of the Dagnefteprodukt oil company in Dagestan: last year, following a series of raids by the Federal Security Service, law enforcement arrested Magomed-Salam Magomedov, a local lawmaker and former influential member of the regional elite. The state then nationalized the oil company, in a move that seemed to benefit both the republic’s political leaders and its most influential – and, from the Kremlin’s point of view, loyal – businessman, Suleiman Kerimov. 

In an ongoing, seemingly similar case in the Ulyanovsk Region, however, the pressure is going both ways. The target here is Alexey Shapovalov, a Samara-based businessman who owns a significant amount of land in Ulyanovsk, acquired during the tenure of former governor Sergey Morozov. In the summer, the regional prosecutor’s office initiated lawsuits to forcibly return these lands to state ownership. Shapovalov currently resides in Dubai, which makes his Russian assets into an easy target. However, the region’s governor, Alexey Russkikh, one of the few remaining regional managers from the Communist Party, himself faced some pressure before the September gubernatorial election, in the form of bad press and rumors of his imminent dismissal. In the end, he kept his position, but the rumors likely served as a reminder that Morozov, who was elected a Duma deputy in 2021, is still able to pull some strings at the federal level. As were, apparently, the Vasilyevs, owners of 45% of the St. Petersburg Oil Terminal who saw their share in the company frozen in August. A month earlier, the rest of the terminal, owned by Dmitry Skigin, a business partner of Ilya Traber, a St. Petersburg businessman with ties to Vladimir Putin and the city’s organized crime, had been nationalized, so taking the rest of the shares into state ownership seemed like a formality. (Traber himself was arrested in June under suspicion of ordering a contract killing but later released.) Yet, in September the court threw out the prosecution’s suit, which, apparently, surprised even the defendants’ legal team. 

And there are more of these cases, potentially: in the Irkutsk Region, rumors over the summer identified the “Eastland” group of companies in the fields of transportation and tourism as the next possible target for a nationalization case, citing, among other things, federal proceedings against Angara Airlines, one of the group’s companies, for violations resulting in a crash last year. There has been no court filing as of this writing (although the background of the case undoubtedly looks like the prelude to several other nationalization cases). The rumors, however, also claimed that ex-governor Sergei Yeroshchenko who built the group, is mobilizing his still-existing network in the local security elite to prevent the takeover, and force the removal of governor Igor Kobzev. 

Whether or not the Irkutsk and Ulyanovsk cases were genuine pushbacks or simply pre-election intrigue, the common thread running through these developments is the increasing use of nationalization cases to crack down on a specific generation of regional elites with the support of the Federal Security Service, and these elites either trying to fight back using their remaining federal channels and, in some cases, perhaps even local law enforcement contacts. Rather than just a policy to concentrate strategically important resources in loyal hands and nudge “unfriendly” governments through their disposessed investors, nationalization via law enforcement seems to be developing into a tool of regional elite control and an area of elite conflict. 

Also-happeneds:

• The mirage of major investment projects: At the close of the Eastern Economic Forum in Vladivostok, deputy prime minister and presidential plenipotentiary Yury Trutnev reported 285 agreements signed at the forum worth 6.66 trillion rubles as a headline figure. The organisers put the tally a little higher, to almost 6.815 trillion rubles; the largest of these are the Mokhe-Naiba international transport corridor in Yakutia, linking China with the Arctic, with a total value of above 1.13 trillion rubles, and a one-trillion-ruble financing mechanism for Arctic and Trans-Arctic infrastructure projects. However, most of these deals are declarations of intentions at this point, with implementation postponed to a future date, and, like much of the investment gains in the macroregion usually touted by the government, they are concentrated in a few megaprojects, which may or may not be realized. The backdrop, meanwhile, is an overall contraction of investment activity: on the sidelines economy minister Maxim Reshetnikov said investment was expected to fall further and would return to growth only from about 2028-29, with the ministry revising its 2026 forecast from -1.5% to -5.4% in late September. 
• A handy reminder of recruitment options: Sibirsky Express readers noticed that the Novosibisk regional waste operator, AO Spetsavtokhozyaystvo, owned by the regional government, has been placing ads to sign contracts with the Defense Ministry on its electronic bills since April. Since then, the point of contact displayed on the bill changed from the “Novosibirsk mayor’s office selection point” to the company’s own selection point. This is just one example of regions shifting recruitment work onto major employers (in this specific case it undoubtedly helps that the regional government controls the company), but at a time when households face steep utility price increases, it looks like an idea as ingenious as it is grim. It reminded me of the long-running practice under Hungary’s previous government, of utility companies being obliged to highlight how much money the government’s “utility fee reduction” policy saved for them. 
• Regional elections: Many may have understandably missed this, but alongside the Duma vote on 18-20 September, regional and local votes also took place: 39 regions elected 1,684 assembly members and nine regional capitals elected 279 city deputies. There were eight direct gubernatorial elections, with regional legislatures choosing the heads of Dagestan, Karachay-Cherkessia and North Ossetia. The contrast between these elections and those of just two electoral cycles ago – e.g. the 2018 gubernatorial votes resulting in four stunning upsets for Kremlin-supported candidates – is striking and shows how the remainders of political pluralism were expunged from the regional level.  For the first time in many years no incumbent governor took part in debates, yet, according to the official results, they won large majorities, from the 66% of Belgorod’s former war participant governor Alexander Shuvaev (who, understandably, given the contrast with his popular predecessor, tried to downplay his war credentials) to the grotesque 99.85% of Chechnya’s Ramzan Kadyrov’s 99.85%. A small handful of more notable results came almost exclusively from lower levels: the list of the liberal Yabloko party cleared the threshold in the legislative election of the Novgorod Region, the only region where it was not disqualified; United Russia won only 3 of 27 seats in the Berdsk city council amid an elite split with the governor-appointed mayor; and a communist candidate won the head of Ust-Abakan district in Khakassia, beating a United Russia incumbent and giving the region’s communist governor another ally in his ongoing conflict with the ruling party’s representatives. Once again, the results suggest that competitive politics is not dead in Russia where elite splits weaken vertical political control; but also that there is a rapidly declining number of such places. 
• Regional patterns of veteran appointments: Along with the September regional and Duma elections, in which a record number of (both actual and official) war participants ran, the appointment of former soldiers to regional positions also continued. A couple of recent examples: Rostov governor Yury Slyusar created a deputy governor post for security related to the “Special Military Operation”, and gave it to major general Igor Mikhailov who will be covering liaison with the military, regional protection and recruitment. In Lipetsk, Roman Zhuraev, a graduate of the regional veteran training programme, became vice-mayor for servicemen’s affairs and civil defence. In Tatarstan, colonel-general Aleksandr Lapin became Tatarstan’s deputy prime minister for support of war participants. These appointments are typical placements for the graduates of regional veteran training programmes, inasmuch as they involve the creation of a new position having to do with war- and veteran-related affairs. As Mikhail Komin explains in a thoroughly researched new report for ECFR, this is likely related both to the Kremlin’s demands to have veterans act as intermediaries, and resource scarcity as opposed to the federal level where veterans graduating from the Time of Heroes training program are more often appointed to positions of actual influence.   
• A bear surge: an increasing number of fatal encounters with bears has become a major issue in Siberian and Northern Russian regions over the summer. Since April at least 20 people have been killed by bears in these regions, and the number could  be considerably higher. Several regions and municipalities introduced restrictions: the Irkutsk Region town of Slyudyanka banned outdoor school events, Magadan’s Nosov proposed changing culling rules, Tomsk banned events on the town outskirts, the Stolby national park near Krasnoyarsk closed, Baikalsk imposed a curfew after attacks, and the Irkutsk Region introduced a region-wide heightened-readiness regime – to name just a few. In a notable protest, highlighted by Sibirsky Express, the residents of Sliznevo in the Krasnoyarsk Territory said they would boycott the Duma vote until the bears were dealt with. About 200 bears were shot in Siberia in August in an attempt to reduce the risks. But, as Leyla Latypova’s excellent Regions Calling newsletter highlights, the issue is much more complex and has to do with both climate change and inconsistent policy planning and implementation. It also has a connection to Russia’s continuing failure to deal with unlicensed waste dumps, which, as readers of this blog will very well know, is one of my hobby horses. 
• Bills from regional parliaments: Before the Duma election, Vedomosti tallied up the bills sent by regional legislative assemblies to the State Duma. Regional assemblies can propose drafts, and it appears that Bashkortostan’s legislature was the most active with 55 bills (on top of 12 that were carried over from the previous convocation), of which however only six were passed, mostly technical regulations. It was followed by Bryansk with 41 and St. Petersburg with 39, with similarly low success rates, suggesting that the number of laws submitted is not commensurate with the lobbying power of regional governors. Regions are often used as laboratories of certain (risky or unpopular) policies, but these are, in most cases, tried out at the regional level before being solidified as a federal norm – and not necessarily in the form of a law. Notably, according to Vedomosti’s collection, the Russian-controlled parliaments of the occupied Ukrainian territories seem to have submitted several laws extending special legal regimes governing these territories, an indication of the halting consolidation of Russian-built legal and administrative regimes in these territories.