The credit rating of the Belgorod Region (hereinafter, the Region) is based on the low debt load, comfortable debt repayment schedule, significant amount of balances in the Region's accounts, and well-balanced operating indicators of the budget. The rating is constrained by the dependence of the budget and the regional economy on the metals industry and a projected increase in the need for debt financing, taking into account the mid-term deficits stipulated by the Region's budget law.
The Belgorod Region is part of the Central Federal District. 1.5 million people live in the Region (1% of the population of the Russian Federation). According to the Region's estimates, its gross regional product (GRP) amounted to RUB 998 bln in 2020.
key assessment factors
Coherent budget indicators and a moderate need for using the accumulated funds. The ratio of the current account balance to current revenues averaged1 for 2018–2022 will amount to 17%. At the same time, the current account balance for 2022 will remain positive, which indicates that current revenues are sufficient to finance current expenditures.
The averaged share of capital expenditures in total expenditures in 2018–2022 will amount to around 21%, which, according to ACRA’s methodology, indicates a high level of flexibility of budget expenditures. The Region independently finances most of its capital expenditures.
The averaged share of tax and non-tax revenues (TNTR) in the Region’s revenues (excluding subventions) will amount to 81% for the above period.
The ratio of the modified budget deficit (MBD) to current revenues averaged for 2018–2022 will be 2%, which indicates that capital expenditures are covered mainly by budget revenues. However, the Region will have to use accumulated liquidity, since the MBD is expected to be negative in 2022–2024.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
In 2021, the regional budget revenues exceeded those in 2020 by more than 40%, while TNTR grew by 69%. The profit tax revenues almost tripled, which is mainly due to the favorable prices in the metals market. Taxes on total income also showed a significant increase (by 52%), while transfers decreased by 14%. Budget expenditures grew by only 13%, resulting in a budget surplus of 26% of TNTR or about RUB 33.0 bln (in 2020, the surplus was RUB 39 mln).
According to the Region’s budget law for 2022–2024, this year, TNTR may decline by 7% along with a 34% decline in the volume of transfers compared to last year’s indicators. Lower TNTR is expected mainly due to a decline in profit tax revenues on the back of a possible price decrease in the metals market in 2022. It is assumed that the spending part of the budget will increase by 32%, where both capital and current expenditures are to grow significantly. The expected deficit is 23% of TNTR and it will be fully covered by balances in the Region's accounts.
ACRA is of the opinion that with a possible decrease in prices for raw materials mined and processed in the Region, budget revenues may decrease more significantly in 2022. At the same time, the expenditure part of the budget may also grow but not as much as it is stipulated by the budget law. In this case, the deficit of 21% TNTR will also be covered by the accumulated funds.
Low refinancing risks and debt load; a significant volume of accumulated liquidity. As of January 1, 2022, the Region’s debt amounted to RUB 25.5 bln, which was 22% lower than a year ago. The absolute value of debt has declined mostly due to the repayment of bonds and write-off of some of the Region’s guarantees. As at the start of 2022, the largest portion of the Region's debt (62%) was made up of bonds, 34% of the debt portfolio was made up of budget loans, while the remaining part was government guarantees. The current debt repayment schedule is balanced, without peak repayment periods. Over the next two years, the Region will have to repay or refinance 35% of its debt, and RUB 3.4 bln (13% of the Region’s total debt) is subject to repayment in 2022.
The Region participates in the infrastructure budget loan program, with an approved limit of RUB 4.4 bln. This year, RUB 2.0 bln will be disbursed out of this amount.
As of the end of 2021, the ratio of the Region’s debt to current revenues stood at 17%, which is noticeably less than a year ago (33%). The decline was driven by a decrease in the Region's absolute debt, as well as extra revenues that came from the metals sector. According to ACRA's estimates, in 2022, the ratio of debt to current revenues will slightly grow to 19%, which corresponds to a low debt burden as per the Agency’s methodology.
The Region’s interest expenses are not burdensome: interest expenses averaged for 2018–2022 do not exceed 1.5% of the budget’s total expenditures (excluding subventions).
Since the beginning of 2021, the Region’s account balances have exceed the monthly budget expenditures by three times on average. As of January 1, 2022, the amount of funds held in the Region’s accounts exceeded RUB 39 bln, which is more than one and a half times higher than the total debt. This allows the Region to mitigate any possible debt refinancing risks. In ACRA’s opinion, the most portion of this amount will be used to cover future deficits.
As of October 1, 2021, the Region did not have any overdue accounts payable. In 2021, the Region did not borrow any short-term loans from the Federal Treasury Department.
Moderately developed economy focused on metals industry. According to ACRA’s calculations, the averaged share of the Region’s tax revenues from the metal ore mining and metal production industries exceeded 30% in 2017–2020. For 11M 2021 (latest data available), revenues from these two industries formed about 59% of the Region’s tax revenues, which indicates an increase in the dependence of the regional budget on the metallurgical sector in connection with market changes.
In 2016–2019, the Region's average per capita GRP amounted to 96% of the national average. The ratio of nominal salary to subsistence minimum averaged for 2017–2020 exceeded 3.5. Unemployment in the Region did not exceed 5% in the period from 2016 to 2020, and it is projected by the Region at 4.3% in 2021.
KEY ASSUMPTIONS
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Lower budget expenditures in case of budget revenues are lower than forecasted;
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Financing the projected budget deficit using accumulated liquidity;
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Maintaining the low debt load in 2022.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating most likely will stay unchanged within the next 12–18 months.
A positive rating action may be prompted by:
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Better economic diversification;
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Consistently positive MDB in the medium term;
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Maintaining the significant volume of balances in the Region's accounts.
A negative rating action may be prompted by:
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Ratio of debt to current revenues exceeding 30%;
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Significant decline in available budget liquidity.
ISSUE RATINGS
Belgorod Region Government, 35011 (ISIN RU000A0JXTW1), maturity date: June 11, 2024, issue volume: RUB 4 bln — AA-(RU);
Belgorod Region Government, 34012 (ISIN RU000A100PP0), maturity date: August 5, 2024, issue volume: RUB 2 bln — АA-(RU);
Belgorod Region Government, 34013 (ISIN RU000A100Y84), maturity date: October 15, 2024, issue volume: RUB 2 bln — АA-(RU);
Belgorod Region Government, 34014 (ISIN RU000A101PA0), maturity date: May 16, 2025, issue volume: RUB 3 bln — АA-(RU);
Belgorod Region Government, 34015 (ISIN RU000A101RB4), maturity date: May 29, 2025, issue volume: RUB 2.7 bln — АA-(RU).
Belgorod Region Government, 34016 (ISIN RU000A1025F6), maturity date: September 18, 2025, issue volume: RUB 4.5 bln — АA-(RU).
Rationale. In ACRA’s opinion, the bonds issued by the Belgorod Region listed above are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of the Belgorod Region.
REGULATORY DISCLOSURE
The credit ratings of the Belgorod Region and the bonds (ISIN RU000A0JXTW1, RU000A100PP0, RU000A100Y84, RU000A101PA0, RU000A101RB4, RU000A1025F6) issued by the Belgorod Region were 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 Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit ratings of the Belgorod Region and the bonds (ISIN RU000A0JXTW1, RU000A100PP0, RU000A100Y84, RU000A101PA0, RU000A101RB4, RU000A1025F6) issued by the Belgorod Region were published by ACRA for the first time on June 13, 2017, June 19, 2017, August 5, 2019, October 16, 2019, May 19, 2020, June 1, 2020, and September 18, 2020, respectively. The credit rating of the Belgorod Region and its outlook and the credit ratings of the bonds issued by the Belgorod Region are expected to be revised within 182 days following the publication date of this press release as per the Calendar of sovereign credit rating revisions and publications.
The credit ratings were assigned based on data provided by the Belgorod Region, information from publicly available sources (the Ministry of Finance, the Federal State Statistics Service, and the Federal Tax Service), and ACRA’s own databases. The credit ratings are solicited, and the Government of the Belgorod Region participated in their assignment.
In assigning the credit ratings, 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 Belgorod Region. No conflicts of interest were discovered in the course of credit rating assignment.