The credit rating of the Tyumen Region (hereinafter, the Region) is based on the strong indicators of the regional economy, the Region’s minimal debt load and high budget liquidity. The rating is supported by a highly flexible budget with a large share of capital expenditures funded internally.
The Tyumen Region is located in the Ural Federal District. The Region includes the Khanty-Mansiysk Autonomous Okrug-Yugra (KhMAO-Yugra) and the Yamalo-Nenets Autonomous Okrug (YaNAO), which are also full-fledged subjects of the Russian Federation. The Region’s population is 1.5 million (1% of the population of the Russian Federation), not including the population of the autonomous okrugs. In 2019, the Region’s gross regional product (GRP), excluding the autonomous okrugs, amounted to 1.3% of the total GRP for all regions of the Russian Federation.
KEY ASSESSMENT FACTORS
The execution of the budget with an intermediate surplus is associated with an improvement in the situation in the oil-refining sector. In 2021, the averaged1 ratio of Region's current operations balance to current revenues will decline by 7 p.p. (down to 11%) against 2020, while the averaged modified budget deficit to averaged current revenue ratio will remain negative in 2021. This indicates that the Region's current revenues are still sufficient to cover its current expenditures, but to finance capital expenditures, the Region has to borrow or use accumulated liquidity.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Budget expenditures are highly flexible: the share of capital expenditures in total expenditures (excluding subventions) averaged for 2018–2022 will amount to 28%. The Region finances internally about 95% of its capital expenditures, which, in ACRA's opinion, is an additional reserve for cost reduction.
The share of internal revenues in the total budget revenues (excluding subventions) is high since, when averaged for the period from 2018 to 2022, the share is expected to equal 95%.
According to the Region's Law on Budget for the current year, in 2021, corporate profit tax revenues are forecasted to decrease by 12% versus 2020 and by 42% versus 2019, which will continue to have a negative impact on the dynamics of tax and non-tax revenues (TNTR). In 2021, the volume of transfers will decrease by 21% to RUB 14 bln, so that by the end of 2021, total revenues will decline by 11% and total expenditures will grow by 3%.
In the eight months of 2021, the Region's TNTR grew by 30% y-o-y, but they turned out to be 10% lower than in the eight months of 2019. The TNTR dynamics was mostly impacted by the corporate profit tax revenues in the oil-refining sector. Taking into account a 40% growth in corporate profit tax revenues in the eight months of 2021 against the same period of 2020, it is expected that the planned target will be over-performed, which, in turn, will be positive for the TNTR dynamics.
At the same time, total expenditures decreased by 4% from January to August 2021, resulting in an interim budget surplus of 23% of TNTR.
In the remaining period of 2021, even in the event of a significant increase in expenditures, the regional budget will be supported by a high flexibility of budget expenditures, a very low debt load, and a significant amount of accumulated liquidity.
Minimal debt load. In 2020, the ratio of debt to current revenues amounted to 2%, which is minimal. As of January 1, 2021, the Region’s debt was RUB 2.8 bln and included a budget loan (12% of the debt), which is to be repaid in the period from 2025 to 2034, as well as guarantees issued by the Region for obligations of regional enterprises. By August 1, 2021, the volume of the Region’s public debt had declined by RUB 2 bln, mainly through guarantees, which share had shrunk to 60%; the remaining portion of the debt still includes the budget loan. The debt servicing costs are minimal and not burdensome for the regional budget.
As follows from the Region's Budget Law, the public debt will grow to RUB 14 bln in 2021; nevertheless, the debt load will remain low and will not affect the credit rating of the Region.
The volume of accumulated liquidity is many times greater than liabilities. The Region holds a large volume of funds in its budget accounts and deposits, which, as of August 1, 2021, was several times higher than the total debt and more than five times higher than the Region’s monthly average expenditures over the past 12 months.
The Region's socioeconomic indicators are high. The Region's GRP per capita is high, and the average of this indicator exceeded the national average by 1.3x in 2016–2019.
In 2017–2020, the averaged wage to averaged regional subsistence minimum ratio grew sustainably and exceeded 4x in 2020, while the unemployment rate calculated as per ILO methodology was lower than the national average.
The regional economy benefits from the hydrocarbon production and processing sectors, which generate most of the tax revenues. Another significant share of tax revenues is contributed by companies from the public sector, R&D, construction, wholesale, and land and pipeline transport sectors.
There is an agreement between the public authorities of the Tyumen Region and the autonomous okrugs, which regulates regional social, infrastructure and investment programs and is intended to benefit the entire population of the Region, including residents of KhMAO-Yugra and YaNAO. According to this agreement, 29.5% of income tax revenues collected in KhMAO-Yugra and YaNAO are transferred to the Region's budget to fund the abovementioned programs. The agreement will remain in force until December 31, 2025.
Reducing capital expenditures in the event of reduced budget revenues;
Financing most of this year’s budget deficit with accumulated funds;
The planned growth in the public debt to up 10% of current expenditures in 2021;
Maintaining the agreement between the public authorities of the Tyumen Region and the autonomous okrugs and retaining the current distribution proportion of profit tax revenues collected in KhMAO-Yugra and YaNAO.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the credit rating will most likely remain unchanged within the 12 to 18-month horizon.
A negative rating action may be prompted by:
Change in budget expenditure management policy in favor of increasing current expenditures;
Decrease in liquidity below monthly budget expenditures;
Substantial change in the inter-budget relations in the Russian Federation.
There are no outstanding issues.
The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of the Tyumen Region was published by ACRA for the first time on November 21, 2017. The credit rating of the Tyumen Region and its outlook re expected to be revised within 182 days following the publication date of this press release in compliance with the Calendar of sovereign credit rating revisions and publications.
The credit rating was assigned based on the data provided by the Tyumen Region, information from publicly available sources (the Ministry of Finance, the Federal State Statistics Service, and the Federal Tax Service), as well as ACRA’s own databases. The credit rating is solicited and the Government of the Tyumen Region participated in the rating process.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to the Government of the Tyumen Region. No conflicts of interest were discovered in the course of credit rating assignment.