The credit rating of the Irkutsk Region (hereinafter, the Region) is based on its low debt load amid minimal risks of refinancing liabilities and moderate budget profile indicators. The low liquidity ratio and development indicators of the regional economy that are below the national average limit the Region’s rating.

The Irkutsk Region is located in the Siberian Federal District (SFD). The southeastern border of the Region runs along Lake Baikal, which is the world’s largest natural reservoir of fresh water. The Region is home to 2.3 mln people and had a gross regional product (GRP) of RUB 1.9 tln in 2021. The key economic sectors are aluminum production, wood processing and the pulp and paper industry, oil and gold production, and chemicals production.

KEY ASSESSMENT FACTORS

Low debt load and minimal debt refinancing risks. In 2019–2022, the Region’s public debt was on a growth trend, except for 2021, when public debt was halved due to the repayment of all commercial debt. Prior to 2021, budget loans accounted for around 50% of debt, while the remainder, in different portions, was bonds and commercial loans. Budget loans have accounted for 100% of public debt since 2021. As of January 1, 2023, the Region’s debt was also solely made up of budget loans.

The ratio of the Region’s debt to its current expenditures (as per ACRA’s methodology) was 7% as of the end of 2022, and is expected to be 11% as of the end of 2023. The ratio of debt to GRP at the end of this year will be around 1.3%. In 2019–2022, these ratios did not change; their values correspond to a low debt load.

This year and in the forecast period, the Region plans to obtain commercial loans, however, as of October 1, 2023, they had not been provided and the debt structure was unchanged. At the same time, the volume of debt as the end of ten months of this year had increased by around 20% compared to the start of the year due to the provision of budget loans. Over the year, the Region obtained loans to finance the implementation of infrastructure projects and plans to acquire public transport rolling stock, as well as to replenish the balance of funds in the single budget account for advanced financial support for the expenditure obligations of regions of the Russian Federation.

The current debt structure allows us to conclude that refinancing risks are minimal. The share of debt subject to repayment in the remaining part of this year amounts to 3%, while in 2024 the Region is scheduled to repay 4%. The peak in repayments is planned for 2025–2029, with 14% of the current debt to be repaid each year.

Moderate budget profile indicators. The Region is characterized by a high share of internal revenues in its budget structure. The averaged share of the Region’s tax and non-tax revenues (TNTR) for 2020 to 2024 in the total volume of its revenues (excluding subventions) amounts to 82%. The current account balance has been negative in individual years, however, the averaged ratio of the current account balance to current revenues from 2024 to 2024 will be almost 10%, while the ratio of the averaged modified budget deficit to current revenues is -3%, which indicates the Region’s need to resort to borrowing or use accumulated liquidity to finance its capital expenditures. Averaged capital expenditures for 2020–2024 amount to 17% of total budget expenditures, and on average are more than 60% financed using internal revenues.

In 2019–2020, the Region executed its budget with a deficit, which impacted growth of debt and use of liquidity. Surpluses recorded in the past two years have allowed the Region to accumulate a sufficient volume of liquidity.

In 2023, the Region predicts that it will execute the budget with a deficit of 10% of TNTR; it plans to finance more than 60% of the deficit using its own funds accumulated in accounts. The Region projects that its budget revenues will decline by 4% this year amid a decline in transfers. Expenditures, according to the Region’s latest forecast, will grow by 7% (current expenditures and capital expenditures are planned to be increased by 4% and 22%, respectively).

As of nine months of this year, the budget had been executed with a small intermediate surplus. Corporate income tax proceeds declined by approximately 5% compared to the same period last year (by the end of the year a 9% decline is planned), personal income tax proceeds grew by 15% (by the end of the year they are expected to increase by 19%), and budget spending grew by 9% (by the end of the year it is expected to have grown by 5%). ACRA assumes that the budget will be executed in line with the Region’s forecast this year.

Moderately strong budget liquidity profile. The Region possesses liquidity that as of January 1, 2023 covered around 70% of its debt as of the same date and around 60% of its average monthly expenditures in 2022. As of September 1, 2023, the Region’s account balances had grown by 65% and, as of the same date, exceeded the volume of public debt by a wide margin. The volume of balances as of this date was comparable to the average monthly expenses for eight months of the current year. The liquidity ratio (as per ACRA’s methodology) may amount to 60% this year.

The Region occasionally receives loans from the Federal Treasury Department. The Region has obtained these loans since 2020, with the exception of 2022. In February 2023, the Region obtained a RUB 5.3 bln loan to replenish the funds in its single budget account, which was then repaid in March. The Russian Ministry of Finance set a RUB 12.8 bln limit for the provision of budget loans to replenish the funds in the Region’s single budget account in 2023, with repayment by October 31, 2023. Over the past three years, more than 30 purchases of credit lines have been carried out, under four of which contracts were concluded with a start date for the fulfillment of obligations in November 2021 and an end date for the fulfillment of obligations in September of this year.

An economy with moderate development indicators and a highly developed mining sector. The Region is part of the SFD; 1.6% of the population of the Russian Federation lives in the Region and produces 1.6% of the total GRP of Russia’s regions.

The main share in the structure of GRP is mining. The Region has large reserves of gold, natural gas, coal, oil and other minerals. The Region is one of the five gold-mining regions of Russia, and it ranks first in the country in terms of gold ore reserves. One of the largest undeveloped gold deposits in the world is located here — Sukhoi Log. From 2017 to 2021, the index of the physical volume of GRP grew on average by 2% per year, with the exception of a 2% decline in 2020 on the back of pandemic restrictions. Since 2107, the industrial production index has demonstrated consistently positive dynamics; the dynamics for January to September of this year are just below zero (-1.2%) compared to the same period last year, which is largely due to an almost 5% decline in the index of manufacturing industries. In particular, growth is constrained by the wood processing industry (-17.6%), which is experiencing logistics problems in the eastern direction, and chemicals production (-13%). The Region’s power system is one of the largest in Russia, but the Region itself experiences power deficits. The electricity deficit in the Region is covered by supplies from other regions, mainly the Krasnoyarsk Krai. Manufacturing industries (primarily aluminum production and timber processing) dominate the structure of electricity consumption in the Region. The largest freshwater lake in Russia, Baikal, is located in the Region, which contains 85% of the country’s fresh lake water and 22% of the world’s fresh water reserves. In addition, the lake has significant tourism potential, which is being actively developed by regional authorities.

The Region’s per capita GRP averaged for 2018–2021 amounts to 98% of the national average indicator averaged for the same period. The ratio of the averaged salary for 2019–2022 in the Region to the regional subsistence minimum was 4. Unemployment declined from 6% to 5% in 2022. The share of tax proceeds transferred to the Region’s budget from companies operating in the field of extraction of fuel and energy minerals amounted to 25% averaged for 2019–2022. Manufacturing industries generated 13% of tax revenues over the same period, but the structure of the manufacturing industry in the Region is quite diversified.

KEY ASSUMPTIONS

  • Execution of the budget in 2023 and 2024 in line with the budget law for 2023 and the draft law for 2024;

  • Maintaining sufficient budget liquidity.

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:

  • Higher liquidity;

  • Higher socioeconomic indicators.

A negative rating action may be prompted by:

  • Growing current expenditures that are not accompanied by growth in current revenues;

  • Debt load reaching 30% of current revenues.

ISSUE RATINGS

There are no outstanding issues.

REGULATORY DISCLOSURE

The credit rating has been assigned to the Irkutsk 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 Irkutsk Region was published by ACRA for the first time on June 27, 2018 and then withdrawn on May 15, 2019. 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 Irkutsk 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 Irkutsk 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 Irkutsk Region. No conflicts of interest were discovered in the course of credit rating assignment.

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