The credit rating of the Republic of Tatarstan (hereinafter, the Region) is based on its moderately low debt load with insignificant refinancing risks, strong budget profile with high operational efficiency and flexibility of budget expenditures. The Region’s high economic indicators provide additional support to the rating.
The Region is part of the Volga Federal District and is home to 4 mln people (around 3% of Russia’s population). According to the Region’s estimates, its gross regional product (GRP) amounted to RUB 3,887 bln in 2023.
KEY ASSESSMENT FACTORS
Strong budget profile and high operational efficiency indicators. The averaged1 ratio of the current account balance to current revenues for 2020–2024 will amount to 38%. In 2023, the current account balance amounted to 26% of current revenues, which is indicates that current revenues are sufficient to cover current expenditures and a significant part of capital expenditures. ACRA expects the operational efficiency indicator to also remain positive in 2024.
The averaged share of capital expenditures in total expenditures (excluding subventions) for 2020–2024 will amount to 47%. Capital expenditures are mostly funded by the Region at its own expense. (TNTR) in the Region’s revenues (excluding subventions) will equal 83% for the same period.
The ratio of the modified budget deficit to current revenues averaged over 2020–2024 will be -2%. This indicates that the Region finances its capital expenditures mainly from budget revenues, but it will need to use accumulated liquidity to fund the entire volume of planned capital expenditures. The Agency notes that in accordance with the approved budget assignments in 2024, the Region has no need to use accumulated funds.
According to the Region’s latest data, its budget revenues increased by 8% in 2023 vs. the 2022 indicator, with TNTR growing by 11%. At the same time, transfers from the federal budget decreased by 7% over the year, including current transfers declining by approximately a quarter. In 2023, the Region’s budget expenditures increased by 10% year-on-year, while the volume of capital expenditures increased by more than 15%. The Region ended 2023 with a budget deficit of 6% of TNTR, which was completely covered by attracted budget loans.
According to the current version of the Region’s budget law, TNTR is expected to decline by 18%, in 2024 vs. 2023, amid a 15% decline in transfers, which will result in the Region’s budget revenues falling by 18%. Budget expenditures are expected to be cut by 22%, including capital expenditures that are planned to be reduced by about double. With these budget parameters, there will be no deficit by the end of 2024.
The quality assessment of the budget profile is determined as high. There are no cases of violation of budget legislation; the amount of lost tax revenues due to the use of tax benefits is insignificant for the Region’s budget. The Region is characterized by conservative planning of budget indicators, and the actual budget deficit is often significantly less than the planned indicators, which is often justified by the volatility of income tax revenues.
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 non-commercial nature of debt. In 2023, the Region’s debt grew by 21% and amounted to RUB 125.7 bln. The increase in debt was largely due to the attraction of RUB 25.4 bln in budget loans. For the period from June to December 2023, the Region attracted RUB 15.0 bln in budget loans for the purpose of advanced financing of budget expenditures. Another RUB 10.4 bln were raised in November to December last year in the form of special treasury loans to finance infrastructure projects. At the same time, part of the budget loans in the amount of RUB 7.9 bln, previously issued to partially cover the Region’s deficit, was written off at the end of the year, like for a number of other regions, in accordance with an order of the Government of the Russian Federation. Along with this, by the end of the year, the Region issued a guarantee to TatDorTransInvest JSC, whose founder is the Republic of Tatarstan; as of January 1, 2024, the volume of the Region’s actual liabilities was around RUB 4.3 bln. This guarantee covers funds received from JSC “DOM.RF” (ACRA rating AAA(RU), outlook Stable) for the construction of roads in the Region. In addition, guarantees issued in 2005 for certain liabilities of KAMAZ (ACRA rating AA-(RU), outlook Stable) to the federal budget continue to be valid. As of January 1, 2024, budget loans accounted for 92% of the Region’s debt liabilities, while the remainder of the debt came from government guarantees. The debt repayment schedule is smooth, and there are minor refinancing risks in the short term because the debt is non-commercial. In the next two years, about 14% of the debt is due in total, with the majority of the debt in the amount of RUB 16.1 bln to be repaid in 2024. ACRA assumes that budget loans for advance financial support are short-term and they will be repaid in 2024 out of federal budget transfers.
The ratio of debt to current revenues was 29% at the end of 2023. According to the current version of the budget law, this ratio will be just over 30% by the end of 2024.
Interest expenses are not burdensome for the Region: interest expenses averaged for 2020–2024 will be well below 1% of total budget expenditures (excluding subventions); the ratio of the Region’s averaged debt to projected GRP at the end of this year will amount to less than 3%.
The quality assessment of the debt burden is determined by the Agency at the highest level due to the long weighted average debt repayment period exceeding 3.5 years, the declining debt burden of municipalities and the Region’s balanced debt policy, based on the use of long-term debt instruments of a non-commercial nature.
Accumulated liquidity is sufficient to partially cover the Region’s debt. According to the Agency’s calculations, the Region’s account balance may have increased due to obtaining budget loans. In this case, the accumulated amount, if necessary, will be sufficient to cover the debt repayable the next three years. The amount of accumulated cash has regularly been more than 1.5 times higher than the Region’s budget expenditures over the past 12 months.
The Region’s liquidity ratio may exceed 140% by the end of 2024.
The Agency doubts that companies and financial institutions that are strategically important to the Region’s economy or significantly depend on its budget will need targeted financial support in the medium term.
The quality assessment of budget liquidity corresponds to a high level. The Region does not use credit lines as an instrument of its own liquidity. According to the Region, the budget had no overdue accounts payable as of October 1, 2023. The Region and the Federal Treasury Department have not yet concluded an agreement in 2024, however, limits on the provision of funds have already been determined.
The Region’s economy is developed and moderately focused on the extraction of commodities. ACRA’s calculations show that the oil and gas industry generated the maximum share (23%) of tax revenues in 2019–2022 (averaged over this period). The wholesale and retail trade sector generated around 15% of tax revenues, and the manufacturing sector formed another 23%, including more than 7% contributed by chemical production. The averaged share of industries comprising the state sector of the Region is low (11%). As of December 1, 2023, there were no significant changes in the diversification of the Region’s economy.
The Region’s per capita GRP averaged over 2018–2021 was 107% of the national average. In accordance with the Region’s GRP expectations for 2022, averaged GRP per capita in 2019–2022 may decrease to 104% of the national average. The monthly wage to subsistence minimum ratio averaged over 2019–2022 far exceeds 3.5x. The unemployment rate averaged for the same period and calculated according to the ILO’s methodology is as low as 2.6%. In 2022, the unemployment rate was 2.3%, and for August to October 2023 it was 2.0%.
KEY ASSUMPTIONS
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The 2024 budget to be executed in line with the Region’s budget law;
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No need for commercial debt;
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Short-term nature of budget loans for advance financial support to the Region’s spending commitments and their repayment out of federal budget transfers in 2024.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the credit rating will highly likely remain unchanged within the 12 to 18-month horizon.
A negative rating action may be prompted by:
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A need to provide extraordinary support to state sector companies and financial organizations;
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Substantial changes in inter-budget relations in Russia;
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Persisting growth of the budget’s need for debt financing.
ISSUE RATINGS
There are no outstanding issues.
regulatory disclosure
The credit rating has been assigned to the Republic of Tatarstan 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 Republic of Tatarstan was published by ACRA for the first time on November 17, 2017. 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 Republic of Tatarstan, 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 Republic of Tatarstan 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 Republic of Tatarstan. No conflicts of interest were discovered in the course of credit rating assignment.
