The credit rating of the Tambov Region (hereinafter, the Region) reflects moderately low debt load, low refinancing risks, positive current account balance, and the moderate need of the budget for borrowings to cover capital expenditures. The rating is constrained by the Region's heavy reliance on federal budget transfers and by its economic development indicators that lag behind the national averages.
The Tambov Region is located in the Central Federal District and is home to slightly less than 1% of Russia’s population. The Region accounts for about 0.4% of the country’s total gross regional product (GRP). The Region estimates that its GRP amounted to RUB 429 bln in 2021 and RUB 499 bln in 2022.
key assessment factors
The share of internal revenues is low and the need to attract borrowed funds for capital purposes is moderate. The averaged1 ratio of the Region's current account balance to current revenues for 2019–2023 will be 8%. At the same time, the current account balance will remain positive by the end of 2023, which indicates that current revenues are sufficient to finance current expenditures in full.
The averaged ratio of capital expenditures to total budget expenditures (excluding subventions) for 2019–2023 will be moderately high and will amount to 17%. On average, about half of capital expenditures is financed annually by capital transfers.
The averaged share of tax and non-tax revenues (TNTR) in the Region's revenues (excluding subventions) for the above period will be 55%, which corresponds to a moderate level of internal revenues. This indicator shows a significant dependence of the Region on the federal budget.
The ratio of the modified budget deficit (MBD) and current revenues averaged over 2019–2023 is projected at -2%. The projected value of the MBD for 2023 indicates the budget's moderate need for borrowed funds to finance the expected capital expenditures this year.
Personal income tax (PIT) dominates the structure of the Region’s tax revenues, the share of which in 2018–2022 will average 34%. Corporate income tax generates about a quarter of tax revenues, while property taxes generate 15% or more. The structure of tax revenues is stable since the share of volatile sectors in the regional economy is low and the share of non-volatile types of taxes in the structure of tax revenues is high. At the same time, the high share of the agricultural industry in the Region’s economy means that the budget is dependent on weather and climate factors.
The Region’s budget for 2022 was executed with an insignificant deficit of 0.1% of TNTR, which allowed the Region to preserve a significant portion of its cash reserves. Budget revenues grew by 13% against 2021, including an 18% increase in TNTR, which was driven by a 35% increase in revenues from taxes on goods and services, a 14% increase in PIT revenues, and a 13% increase in corporate income tax revenues. Transfers grew by 7%. Budget expenditures grew by 21% against 2021, and capital expenditures — by 42%.
According to the current version of the regional budget law, in 2023, TNTR are expected to decline by 9% against 2022, while corporate income tax revenues may fall by almost a quarter and revenues from taxes on goods and services — by 8%. The reduction in transfers may amount to 15%. In this scenario, the total budget revenues will decrease by 11%. It is planned that budget expenditures will be reduced by 5%, while capital expenditures will remain at a level comparable to 2022. The expected deficit will be 14% of TNTR; two-thirds of the deficit will be financed with account balances, the remaining amount is planned to be covered by the budget loan for infrastructure projects.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Moderately low debt load and low refinancing risks. In 2022, the volume of the Region's debt increased by 10% and amounted to RUB 20.5 bln as of January 1, 2023. The debt increase was caused by budget loans received from the federal budget. The Region received RUB 2.6 bln to repay debt obligations, of which RUB 1.05 bln was allocated to municipalities; another RUB 0.9 bln was received to finance infrastructure projects implemented in the Region. As of the beginning of this year, about three-quarters of the debt portfolio were budget loans; the remaining portion included the Region's bonds. The debt repayment schedule does not involve significant refinancing risks, since most of the liabilities are long-term. The Region is to repay 11% of its debt this year and 10% in 2024.
The Region's debt load is moderately low. As of the end of 2022, the ratio of debt to current revenues was 32%. ACRA expects this figure to increase to 40% by the end of 2023 due to the need to cover the expected budget deficit.
The Region’s public debt service expenditures are not burdensome for its budget — the ratio of averaged interest expenditures to averaged total budget expenditures, excluding subventions, for 2019–2023 will amount to about 1%. The ratio of debt to GRP of the Region does not exceed 5% annually.
Account balances will allow the Region to cover most of the expected budget deficit. The volume of account balances exceeded RUB 3 bln as of January 1, 2023. During 2022, the volume of available liquidity was on average one and a half times higher than the monthly budget expenditures. According to the current version of the budget law, almost the entire amount of balances will be used in 2023 to finance the expected deficit.
The liquidity ratio for 2023 will amount to about 74%.
In 2022, the Region did not borrow any short-term budget loans from the Federal Treasury. However, this year, the Region has already borrowed RUB 1.3 bln. As of January 1, 2023, the Region had no contracts with credit institutions. According to the Region, its accounts payable were equal to zero as of October 1, 2022.
Moderate regional economic development indicators result from the dominance of the agriculture industry. The regional agricultural industry and the food industry jointly form over a third of the Region’s GRP. Although the agricultural industry is not highly profitable, it is goods for employment metrics. Therefore, the local unemployment rate is quite low: according to the Region, it amounted to 3.8% in 2022, while the rate averaged for the past four years according to the Agency's methodology is 3.9%. Other notable industries are wholesale and retail trade and repair, manufacturing, public sector enterprises, real estate services, transportation and storage services, and the construction industry. Despite the Region’s agro-industrial character, tax revenues are diversified. The largest share is made up of revenues from public sector enterprises and the manufacturing industry — slightly above 20% each; the manufacturing industry is quite diversified (the maximum share of total tax revenues falls on the food industry: 8% in 2021).
In 2019–2022, the ratio of averaged wage to averaged regional subsistence minimum2 exceeded 3x. The Region’s economy is characterized by relatively low GRP per capita: the ratio of averaged regional GRP per capita to averaged national GRP per capita for 2017–2020 amounted to 57%.
2 For 2022, the subsistence minimum set forth on June 1, 2022 is applied.
key assumptions
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Budget execution in line with the current version of the budget law.
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Continued strong dependence on federal transfers for budget revenues.
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Maintaining a high share of federal transfers in capital expenses.
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Use of most of the accumulated liquidity to cover this year's expected budget deficit.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Increase in current account balance due to growth of budget revenues;
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Sustainable growth of the share of internal revenues;
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Growth of the share of capital expenditures in the total budget expenditures (excluding subventions);
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The Region's debt load declining below 30%;
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Maintaining the achieved level of liquidity after financing this year’s budget deficit.
A negative rating action may be prompted by:
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Increased need for debt borrowings to finance capital expenditures;
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Substantial increase in the debt load (to over 55% of current revenues), along with an increase in the share of short-term debt;
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Significant decline in the volume of accumulated liquidity.
ISSUE RATINGS
Tambov Region Government Bond, 35002 (ISIN RU000A0JWT75), maturity date: September 20, 2023, issue volume: RUB 1.6 bln — BBB+(RU).
Tambov Region Government Bond, 35003 (ISIN RU000A0JXVH8), maturity date: July 12, 2024, issue volume: RUB 3.5 bln — BBB+(RU).
Tambov Region Government Bond, 35004 (ISIN RU000A0ZYJ18), maturity date: December 5, 2025, issue volume: RUB 3.0 bln — BBB+(RU).
Rationale. In ACRA’s opinion, the Tambov Region’s bonds are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of the Tambov Region.
regulatory disclosure
The credit ratings of the Tambov Region and the bonds issued by the Tambov Region (ISIN RU000A0JWT75, RU000A0JXVH8, RU000A0ZYJ18) have 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 Methodology for Assigning Credit Ratings to 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 Tambov Region and bonds issued by the Tambov Region (ISIN RU000A0JWT75, RU000A0JXVH8, RU000A0ZYJ18) were published by ACRA for the first time on July 3, 2017, July 14, 2017, July 11, 2017, and December 13, 2017, respectively. The credit rating of the Tambov Region and its outlook and the credit ratings of the bonds issued by the Tambov Region (ISIN RU000A0JWT75, RU000A0JXVH8, RU000A0ZYJ18) 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 are based on data provided by the Tambov 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 Administration of the Tambov Region participated in their assignment.
In assigning the credit ratings, 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 Administration of the Tambov Region. No conflicts of interest were discovered in the course of credit rating assignment.
