The credit rating of the Republic of Tatarstan (hereinafter, the Region) is based on its moderately low debt load with insignificant refinancing risks, as well as a strong budget profile with high operational efficiency and flexibility of budget expenditures. 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 the country’s population). According to the Region’s estimates, its gross regional product (GRP) amounted to RUB 4,320 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 2021–2025 will be 34%. In 2024, the current account balance may be around 30% of the Region’s current revenues, which indicates that it is able to finance all current expenditures using current revenues, as well as a significant share of capital expenditures.
The averaged share of capital expenditures in total expenditures (excluding subventions) for 2021–2025 will amount to 44%. Capital expenditures are mostly funded by the Region at its own expense. The averaged share of tax and non-tax revenues (TNTR) in the Region’s revenues (excluding subventions) will equal 85% for the same period.
The ratio of the modified budget deficit to current revenues averaged over 2021–2025 will be -3%. This indicates that the Region finances its capital expenditures mainly from budget revenues, but it will need to use accumulated liquidity to finance the entire volume of planned capital expenditures.
The Region executed its budget in 2023 with a deficit of 6% of TNTR, which was fully covered by budget loans from the senior budget.
In accordance with the approved budget assignments as of July 1, 2024, TNTR is expected to fall by 13% year-on-year in 2024, amid a 6% decline in transfers, which will result in the Region’s budget revenues falling by 12%. The key factor in the decline of TNTR is the predicted reduction in corporate income tax revenues by around a third compared to 2023. Budget expenditures are expected to shrink by 12%, including capital expenditures that are planned to be reduced by 34%. With these budget parameters, there will be a budget deficit of 5% of TNTR by the end of 2024, and the Region plans to finance it entirely using account balances.
Over the first six months of this year, the Region’s budget revenues grew by 16% compared to the same period in 2023. At the same time, the Region’s TNTR grew by 14% year-on-year, which was largely due to a considerable increase in personal income tax revenues and revenues from taxes on total income (by 41% and 50%, respectively), as well also almost fourfold growth of revenues from deposited budget funds. Corporate income tax revenues, on the contrary, declined by 5%. Over H1 2024, transfers grew by 25% vs. the same period in 2023, expenditures declined slightly, and the budget’s interim surplus for January to June was more than two times larger than the surplus recorded over H1 2023.
The Region’s budget profile is determined as strong. 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 has conservative budget planning, and the actual deficit is often much lower than the target indicators, which is often due to the volatility of corporate 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% year-on-year and amounted to RUB 125.7 bln. The lion’s share of the debt portfolio (92%) was budget loans, while the remaining part was government guarantees: a guarantee issued at the end of 2023 to JSC TatDorTransNeft (founder is the Republic of Tatarstan) to cover funds received from JSC “DOM.RF” (ACRA rating AAA(RU), outlook Stable) to build roads in the Region, and a guarantee issued in 2005 to KAMAZ PTC (ACRA rating AA(RU), outlook Stable) for obligations to the federal budget. As of January 1, 2024, the Region had a balanced debt repayment schedule, and refinancing risks were minor in the short term because the debt is non-commercial. From 2024 to 2025, the Region had to repay around 14% of its debt, out of which the largest part (RUB 16.1 bln) was due in 2024.
As of July 1, 2024, the Region’s debt was RUB 109.9 bln, which is 13% smaller than the indicator recorded at the start of the year. Since the start of 2024, the Region has repaid RUB 15.0 bln of budget loans (provided for advance financing of budget expenditures) using inter-budget transfers from the federal budget. In addition, the size of the guarantee provided to KAMAZ PTC was reduced by around RUB 0.9 bln. According to the updated debt repayment schedule, the Region has to repay 3% of its debt liabilities over the next two years.
As of the end of 2024, the ratio of the Region’s debt to current revenues will be just below 30%. The Agency has applied an upward adjustment to the indicator for the threshold value, since the current version of the Region’s budget law assumes a decrease in current revenues in 2025 compared to the expected level in 2024, which will lead to the debt load exceeding 30%.
Interest expenditures are not burdensome for the Region — interest expenditures averaged for 2021–2025 will be well below 1% of total budget expenditures (excluding subventions). The ratio of the Region’s debt to projected GRP at the end of this year will amount to less than 3%.
The debt profile is assessed as very strong — the weighted average maturity of debt is well above 3.5 years and the debt portfolio consists only of non-commercial instruments. The budget’s operational efficiency is consistently positive, which indicates the absence of any need to finance current expenditures using debt or accumulated liquidity. There are no cases of overdue debt payments. According to the Region, the debt of its public sector companies was RUB 61.7 bln as of April 1, 2024 and their overdue payables amounted to RUB 13.3 bln. The debt load of municipalities is low. In 2023, the ratio of municipalities’ debt to their TNTR was 34%, with Kazan account for all the debt.
Accumulated liquidity is sufficient to finance the budget deficit expected at the end of the year. As of July 1, 2024, the balances in the Region’s accounts had increased by more than 2.5x compared to the start of the year. From January to June, they exceeded average monthly budget expenditures by more than twofold. In ACRA’s opinion, accumulated funds will be sufficient to finance the budget deficit expected at the end of 2024 in full.
The Region’s liquidity ratio will exceed 140% at the end of 2024.
ACRA 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 budget’s liquidity profile is strong. The Region did not attract short-term loans from the Federal Treasury Department to replenish its funds in 2023 or in the past period of the current year. The Region does not use credit lines as an instrument of its own liquidity. The risks of refinancing debt obligations are assessed as insignificant given the non-commercial nature of the debt. According to the Region, the budget had no overdue accounts payable as of January 1, 2024.
The Region’s economy is developed and moderately focused on the extraction of commodities. According to ACRA’s calculations, the oil and gas industry generated the maximum share (22%) of tax revenues in 2020–2023 (averaged over this period). The wholesale and retail trade sector generated around 14% of tax revenues, and the manufacturing sector formed another 24% (including more than 7% contributed by chemical production). The averaged share of industries comprising the state sector of the Region for 2020–2023 is low (10%).
The largest industrial enterprises in the Region are Tatneft PJSC, Nizhnekamskneftekhim PJSC (ACRA rating AAA(RU), outlook Stable), TANECO JSC, Kazanorgsintez PJSC (ACRA rating AAA(RU), outlook Stable), and KAMAZ PTC.
The Region’s per capita GRP averaged over 2019–2022 was 108% of the national average. According to the Region’s GRP expectations for 2023, averaged GRP per capita in 2020–2023 may decrease to 106% of the national average, which nevertheless will not result in the Region’s GRP category changing. The monthly wage to subsistence minimum ratio averaged over 2020–2023 far exceeds 3.5x. The unemployment rate averaged for the same period and calculated according to the ILO’s methodology is low at 2.3%. The unemployment rate was 2.1% in 2023.
KEY ASSUMPTIONS
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No need for commercial debt;
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Almost complete use of funds accumulated in accounts to cover the projected budget deficit at the end of the year.
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 negative rating action may be prompted by:
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The 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.
