The credit rating outlook of the Novgorod Region (hereinafter, the Region) has been changed to Positive to reflect a significant increase in the level of budget liquidity and a change in the debt repayment schedule, which exclude debt refinancing risks this year and will minimize them the next year.
The Region's credit rating is based on the moderate indicators of the budget profile and the regional economy, as well as a moderately low debt load.
The Novgorod Region is located in the Northwestern Federal District and borders four other regions of Russia. According to the Region's estimates as of January 1, 2023, 582,600 people live in the Region (about 0.4% of Russia’s population), and its gross regional product (GRP) for 2022 amounted to RUB 327.2 bln (in 2020, it was 0.3% of Russia’s total GRP). The main railroads and highways connecting Moscow, Saint Petersburg, and the Baltic countries pass through the Region.
key assessment factors
Moderately low debt load and minimal debt refinancing risks. The ratio of the Region’s debt to current revenues (according to ACRA’s methodology) amounted to 33% at the end of 2022 and it may amount to 447% by the end of 2023. These indicators correspond to a low level of risk. The ratio of averaged1 debt to the Region’s GRP will amount to around 6%.
As of January 1, 2023, following the commercial debt restructuring, the Region’s debt was solely made up of budget loans. Debt servicing expenses are not a burden on the regional budget — the ratio of averaged interest expenses to total budget expenses (excluding subventions) will amount to less than 1% in 2019–2023.
In 2022, the Region attracted long-term budget loans to finance infrastructure loans and repay its commercial debt due in 2022. These measures have allowed debt refinancing risks to be lowered. As of January 1, 2023, the Region had to repay 3% of its debt in 2023 and 3% in 2024. The peak of debt repayments will fall on 2025–2028 (19% of the current volume of debt each year).
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Sufficient level of budget liquidity. The Region has liquidity that allows it to meet its expense commitments on time, including interest payments. As of January 1, 2023, the amount of funds held in the regional budget’s accounts exceeded average monthly budget expenditures for 2022 by two times and significantly exceeded the amount of debt due in 2023–2025. The liquidity ratio (according to ACRA’s methodology) may exceed 300% in 2023.
Moderate budget profile indicators. The averaged share of tax and non-tax revenues (TNTR) (excluding subventions) for 2019–2023 in the Region’s total revenues will amount to 70%. The averaged ratio of the current account balance to current revenues will equal 14% for this period, while the ratio of the averaged modified budget deficit to current revenues will be 2.6%. These indicators show that current revenues are sufficient to cover current expenses and a portion of capital expenditures. Averaged capital expenditures in 2019–2023 will account for 20% of total budget expenditures, and a half of them (on average) is financed by transfers from the federal budget.
In 2022, budget surplus amounted to RUB 5 bln (or 11% of TNTR) due to higher profit tax revenues and other tax and non-tax revenues (to a lesser degree). Transfers decreased last year by 6%.
The Region’s budget law provides for execution of the budget with a deficit of 7% of TNTR in 2023, which is planned to be financed with funds accumulated in previous years and additional borrowings. Almost all kinds of revenues are expected to decline, while expenditures should remain almost unchanged.
Diversified economy with a developed chemical industry. The largest local enterprise is Acron PJSC, a fertilizer manufacturer that generates about 40% of the total shipped products of the Region’s manufacturing sector. Tax revenues from the chemical industry equaled 4–15% of the Region’s tax revenues for 2016–2020. Chemical industry companies provided more than 30% of the Region’s tax revenues in 2021 and this share have grown in 2022. Other major sectors of the Region’s economy are transportation and trade, as well as wood processing and the production of paper and paper products. The Region’s GRP per capita was 74% of the national average in 2020. The average salary in the Region exceeded the regional subsistence minimum by more than threefold in 2021. Unemployment in the Region declined from 5.8% in 2020 to 4.1% in 2021, which is lower than the national average.
key assumptions
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Execution of the 2023 budget in line with the budget law.
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Maintaining a high level of budget liquidity.
potential outlook or rating change factors
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Maintaining the current liquidity level and no increase in the short-term portion of debt;
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Achieving a stable ratio of debt to current revenues below 30%;
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Better socio-economic indicators of the Region.
A negative rating action may be prompted by:
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Higher current expenses that are not supported by an increase of current budget revenues;
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Debt load growing to over 50% of current revenues.
issue ratings
None.
regulatory disclosure
The credit rating has been assigned to the Novgorod Region 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 Novgorod Region was published by ACRA for the first time on July 27, 2018. The credit rating and its outlook 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 rating was assigned based on data provided by the Government of the Novgorod 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 rating is solicited, and the Government of the Novgorod Region participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to the Government of the Novgorod Region. No conflicts of interest were discovered in the course of credit rating assignment.
