The credit rating of the Republic of Mordovia (hereinafter, the Region) is based on its moderate debt load indicators coupled with significant debt refinancing risks, a moderately low economic profile with a significant concentration on public sector industries, and low internal budget revenues. The rating is constrained by the low assessments of the quality of the Region’s financial profile.
The Republic of Mordovia is part of the Volga Federal District. It has a population of 0.8 mln (0.5% of Russia’s total population). According to the Region’s estimates, its gross regional product (GRP) amounted to RUB 362 bln in 2023.
KEY ASSESSMENT FACTORS
Moderate debt load and significant refinancing risks. The Region’s ability to raise additional commercial debt is limited1. As of the end of last year, the volume of the Region’s debt was practically unchanged vs. January 1, 2023 (decline of RUB 95 mln) and amounted to RUB 33.7 bln. As of January 1, 2024, the Region’s debt portfolio was 91% budget loans, with bank loans accounting for the remaining share. The Region will have to repay or refinance 10% of its debt in 2024. In view of the nature of this debt (97% of it is bank loans), it is assessed as a considerable share which may be refinanced using other, and not necessarily long-term, bank loans. In 2025, only budget loans that made up 16% of the debt as of the start of this year are subject to repayment. If the debt subject to repayment this year is refinanced using short-term bank loans, then the share of debt that needs to be repaid in 2025 will exceed 25%.
As of the end of 2023, the Region’s ratio of debt to current revenues amounted to 62%, which corresponds to a moderate debt load. This indicator may be around 61% in 2024.
In 2023, the ratio of the Region’s debt to tax and non-tax revenues (TNTR) was 94%. ACRA assumes that this indicator will change slightly this year.
The Region’s interest expenditures are low thanks to the replacement of commercial debt with budget loans and its subsequent partial repayment using funds from the federal budget — the ratio of averaged2 interest expenditures to total expenditures for 2020–2024 (excluding subventions) will not exceed 2%. The ratio of the Region’s debt to projected 2024 GRP will be around 9%.
The quality assessment of the debt portfolio is medium, given the significant share of budget loans in the structure of the debt portfolio received under the program to replace commercial debt, and the average weighted debt repayment period of over four years. Prior to 2022, around half of the Region’s debt portfolio was short-term commercial liabilities and there were cases of forced budget loan restructuring. The operational efficiency of the budget was positive in the analyzed period, which indicates that current expenditures were financed using current revenues without resorting to borrowings. The debt load of municipal entities in the Region is very high, but gradually declining. The ratio of the debt of municipalities to their TNTR was 93% in 2023 (a year earlier this indicator was 103%). According to the Region, the financial debt of public sector enterprises exceeded RUB 5.2 bln as of September 30, 2023 and was mainly made up of the debt of two companies — Village Development JSC (RUB 3.0 bln) and Specialized Developer Mordovia Mortgage Corporation JSC (RUB 2.1 bln).
1 In accordance with the conditions stipulated by budget loan agreements signed with the Russian Ministry of Finance.
2 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Moderate accumulated liquidity. Since the start of 2023, account balances on average have covered around 80% of the Region’s average monthly expenditures. After last year’s budget deficit was covered, the volume of account balances declined by 16% and amounted to RUB 2.3 bln as of January 1, 2024. Accumulated funds will partly be used to cover the forecasted budget deficit in 2024.
The budget liquidity ratio will amount to 64% by the end of 2024.
The quality assessment of budget liquidity corresponds to a moderately weak profile. The Region does not have any open credit lines with a drawdown period of more than a year. The Region did not obtain short-term loans from the Federal Treasury Department in 2023. Debt refinancing risks are significant due to the repayment of commercial debt this year. In view of a number of limitations imposed on the Region’s debt policy, difficulties may arise with regard to raising commercial debt if an urgent need for it arises. The Region’s overdue payables amounted to RUB 173 mln as of October 1, 2023.
Positive operational efficiency of the budget and moderate share of internal revenues3. The averaged ratio of the Region’s current account balance to current revenues will be 4% for 2020–2024. At the same time, the current account balance was just below zero in 2023 and is expected to be positive by the end of 2024. In general, the Region’s current revenues are sufficient to finance its current expenditures.
The averaged ratio of capital expenditures to total budget expenditures (excluding subventions) will be 15% for 2020–2024, which is assessed as moderately high. The Agency notes that capital expenditures are largely financed using federal budget transfers, which is negative for the budget expenditure flexibility assessment.
The averaged share of TNTR in the Region’s revenues (excluding subventions) in the specified period will be 58%, which corresponds to a moderate level of internal revenues. This value indicates significant dependence of the Region on the higher budget. ACRA also notes that the Region received a considerable volume of transfers from the higher budget in 2022 to repay its debt liabilities.
The ratio of the modified budget deficit (MBD) to current revenues averaged for 2020–2024 will be around zero. The projected value of the MBD for 2024 indicates that the Region has an insignificant need to use its account balances or raise debt to finance projected capital expenditures.
The quality assessment of the budget profile is based on significant deviations of actual internal revenues and budget expenditures from targets, as well as facts of violation of additional agreements concerning budget loans in previous years. Budget forecasting is partly complicated because a considerable part of revenues is transfers from the higher budget. The volume of lost tax revenues associated with the use of tax incentives is insignificant for the Region’s budget.
In 2023, the revenue side of the Region’s budget declined by 19% compared to the year before, although TNTR increased by 4%. Growth in tax revenues was driven by personal income tax (+15%) and proceeds from tax on total income (+36%). Transfers declined by more than a third last year, mainly due to the fall in the volume of dotations from the federal budget. The Region’s expenditures in 2023 increased slightly, by just over 1%. At the same time, current expenditures increased by 7% year-on-year, and the volume of capital expenditures declined by almost a quarter. The Region’s budget deficit was 1% of TNTR in 2023 and was financed largely using accumulated liquidity.
According to the current version of the Region’s budget law, revenues will decline by 5% year-on-year in 2024. At the same time, TNTR will increase slightly. Transfers are expected to decline by 14%, including capital transfers possibly falling by more than a third. The expenditure side of the budget will decline by 5% due to current expenditures falling by 6% vs. 2023. The budget deficit will amount to 1% of TNTR in 2024, and will mainly be financed using accounts balances.
3 In its budget profile analysis, ACRA excluded from 2022 current expenditures the volume of transfers received by the Region to maintain its budget balance and used to repay its debt obligations. The Agency considers this a one-time event.
Moderately low economic profile focused mostly on the public sector. The largest share of the Region’s tax revenues was generated by manufacturing industries (the averaged share for 2020–2023 was above 32%); the second largest share came from the trade sector (about 13%). ACRA notes a significant concentration of the Region’s economy on the public sector whose share regularly approaches or exceeds 25%.
The Region’s ratio of averaged wages to the averaged subsistence minimum for 2019–2022 exceeded 3.0. The averaged GRP per capita for 2018–2021 was about 49% of the national average. In accordance with the Region’s expectations for GRP for 2022, the averaged GRP per capita in 2019–2022 may have decreased to 48% of the national average. The averaged unemployment rate was 4% for 2019–2022. The unemployment rate in the Republic was 2.4% for September to November 2023.
KEY ASSUMPTIONS
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No need to increase the size of commercial debt;
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No need to support the Region’s public sector enterprises;
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Use of accumulated liquidity to cover the projected budget deficit.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the credit 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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Sustainable growth of the share of internal revenues in the structure of budget revenues;
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Debt load declining below 55% of the Region’s current revenues;
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Formation of a modified budget surplus this year;
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Volume of accumulated liquidity increasing in 2024;
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Sustainable decline in the economy’s concentration on public sector industries.
A negative rating action may be prompted by:
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Ratio of debt to current revenues exceeding 90%;
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Share of short-term debt exceeding 20% of total debt;
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Shrinking volume of available liquidity;
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Emergence of a significant need for borrowings to cover capital expenditures;
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A breach of budget lending rules resulting in early repayment of restructured debt.
issue ratings
There are no outstanding issues.
REGULATORY DISCLOSURE
The credit rating of the Republic of Mordovia has 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 credit rating of the Republic of Mordovia was published by ACRA for the first time on November 8, 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 Republic of Mordovia, 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 unsolicited and the Government of the Republic of Mordovia 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 Mordovia. No conflicts of interest were discovered in the course of credit rating assignment.
