The credit rating of the Tambov Region (hereinafter, the Region) reflects its moderately low debt load, low refinancing risks, positive current account balance, and the budget’s moderate need for borrowings to cover capital expenditures. The rating is constrained by the Region’s heavy dependence on federal budget transfers and its economic development indicators that lag behind national averages.
The Region is located in the Central Federal District and is home to just under 1% of Russia’s population. It accounts for about 0.4% of the country’s total gross regional product (GRP). The Region’s GRP amounted to RUB 429.3 bln in 2021 and an estimated RUB 465.1 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 2020–2024 will be 7%. At the same time, the current account balance will decline over the next three years, but will remain positive by the end of 2023, which indicates that current revenues of the Region’s budget are sufficient to finance current expenditures in full.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
The averaged ratio of capital expenditures to total budget expenditures (excluding subventions) for 2020–2024 is approaching 18%. This high indicator is due to higher capital expenditures in 2022 and their projected growth in 2023. At the same time, about half of capital expenditures is financed annually by capital transfers, and therefore capital expenditures cannot be fully viewed as a source for reducing the spending part of the budget.
The averaged share of tax and non-tax revenues (TNTR) in the Region’s revenues (excluding subventions) for the above period will be 57%, which corresponds to a moderate level of internal revenues. This indicator shows the Region’s significant dependence on the federal budget.
The ratio of the modified budget deficit (MBD) to current revenues averaged over 2020–2024 is projected at -3%. The projected value of the MBD for 2023 indicates the budget’s moderate need for borrowed funds to finance expected capital expenditures this year.
Personal income tax dominates the structure of the Region’s tax revenues, the share of which in 2018–2022 exceeded a third. 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 expects a significant budget deficit this year, which will be financed using funds in accounts and by obtaining infrastructure budget loans. The deficit will be due to lower revenues amid a relatively stable volume of expenditures. TNTR is expected to decline by 6% year-on-year (including corporate income tax revenues declining by 20% and revenues from taxes on goods and services declining by 5%). Transfers may decline by 12%. In this scenario, the Region’s total budget revenues will decrease by 9%. At the same time, the budget for seven months of this year has been executed with a surplus, with corporate income tax revenues exceeding the indicator for the same period last year by 10%.
Moderately low debt load and low refinancing risks. In 2022, the size of the Region’s debt increased by 10% year-on-year 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. As of the beginning of this year, about three quarters of the debt portfolio were budget loans; the remaining part included the Region’s bonds. The debt repayment schedule does not involve significant refinancing risks, since most liabilities are long-term. The Region is due to repay 11% of its debt this year and 10% in 2024.
Debt has grown in 2023 due to a RUB 1.3 bln short-term loan from the Federal Treasury Department and a loan for financial support of infrastructure projects (RUB 580 mln out of a possible RUB 1.5 bln rubles have been raised).
The Region’s debt load is moderately low. The ratio of debt to current revenues was 32% as of the end of 2022. ACRA expects this figure to increase to 41% by the end of 2023 due to the need to cover the expected budget deficit and the decline in current revenues (including current transfers).
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 2020–2024 will amount to about 1%. The ratio of the Region’s debt to GRP the does not exceed 5% annually.
Account balances will allow the Region to cover a large part of the expected budget deficit. During 2022, the volume of available liquidity was on average one-and-a-half times higher than monthly budget expenditures. According to the current version of the budget law, almost the entire amount of funds will be used in 2023 to finance the expected deficit.
The liquidity ratio for 2023 will amount to around 61%.
The Region had no undrawn credit lines from banks as of August 1, 2023. According to the Region, the regional budget did not have any overdue payables as of July 1, 2023.
Moderate regional economic development indicators are a result of the dominance of the agricultural 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 contributes to high employment in the Region. Therefore, the local unemployment rate is quite low (it amounted to 3.3% in 2022), while the rate averaged for the past four years according to the Agency’s methodology is 3.7%. 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. The Region’s 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: 9% in 2022).
In 2019–2022, the ratio of averaged wage to averaged regional subsistence minimum2 was close to 3. 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 2019–2021 amounted to 54%.
2 For 2022, the subsistence minimum set 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 expenditures;
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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 the 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 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 borrowing 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 bond issues of 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 under 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 issue of 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 issues of 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 Government 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 Government of the Tambov Region. No conflicts of interest were discovered in the course of credit rating assignment.
