The credit rating of Saint Petersburg (hereinafter, the City) is based on the City’s well-developed economy, balanced budget structure, low debt load, and high budget liquidity.
Saint Petersburg is a city of federal importance and home to 3.8% of Russia’s population (fourth place by size of population). According to data for 2022, the City’s gross regional product accounted for about 7.9% of the total GRP of Russia’s regions. The City ranks second among Russian regions by nominal GDP; it is a major cultural center of the country and the largest transport hub in northwestern Russia. Saint Petersburg has developed maritime, river, railway, air, and motor transport infrastructure.
KEY ASSESSMENT FACTORS
Balanced budget structure and sufficient budget discipline. The City’s budget is highly self-sufficient — for 2021–2025, the averaged1 ratio of tax and non-tax revenues (TNTR) to internal revenues, excluding subventions, will amount to 98%. The averaged share of capital expenditures in the City’s total expenditures (excluding subventions) will amount to more than 25% for the aforementioned period. In 2021–2025, the averaged current account balance to current revenues ratio will exceed 20%, and the ratio of the averaged modified budget deficit (MBD) to current revenues may amount to -1.7%. According to the current version of the budget law and ACRA’s calculations, the current account balance will be positive in 2024 and the MBD will be negative. These indicators show that current revenues are sufficient to cover current expenditures, but it may be necessary to raise debt or draw on accumulated liquidity to finance capital expenditures.
The City executed its budget with a deficit of 2% of TNTR in 2023. According to the current version of the budget law, the 2024 deficit is projected at 14% of TNTR, as the growth of expenditures (14%) will exceed the growth of revenues (3%). In particular, current expenditures are expected to grow by 19%, while capital expenditures will remain at the same level as last year. However, according to the City’s budget execution for H1 2024, personal income tax revenues exceeded the indicator recorded in the same period last year by 32%. At the same time, the current version of the budget law plans for annual growth of only 4% this year. Taking this into account, ACRA expects that the revenue side of the City’s budget will be executed more optimistically than planned by the current version of the budget law. Consequently, the deficit at the end of the year will be below the target, and covering it will not require commercial loans or significant spending of liquidity as stipulated by the current version of the budget law.
The City’s budget profile is assessed as strong. There were no violations of budget laws over the past five years. The budget process is characterized by moderate planning accuracy and the predominance of conservative expectations. Deviations of actual revenues from the forecast figures stipulated by the first version of the budget law are mostly associated with transfers and corporate income tax revenues due to the volatility of the external environment. Such deviations occur for reasons beyond the City’s control.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Low debt load and minimal refinancing risks. In 2023, the City’s public debt, despite the initially planned growth, was practically unchanged and amounted to less than 10% of current revenues. As of January 1, 2024, the debt was made up of bonds to be repaid in 2024–2028 (72%) and budget loans due in 2024–2037 (28%). According to the current version of the budget law, the City’s debt may grow by the end of the year on the back of the planned attraction of budget loans and commercial borrowings. Nevertheless, according to ACRA’s calculations, the debt load will not exceed 20% of current revenues, i.e. it will remain at a low level. As of the start of the year, the City had to repay 24% of its debt in 2024 and 27% in 2025. However, given the low debt load and significant volume of funds in budget accounts, the upcoming repayments do not create refinancing risks. As of August 1, 2024, the City’s debt had declined by 11% due to the repayment of part of its bond and budget loan debt. By the end of the year, the City will have to repay another 14% of its public debt. The ratio of the City’s debt to GDP will amount to less than 2% in 2024.
Debt service costs are not burdensome for the City’s budget and do not exceed 1% of total expenditures.
The quality assessment of the City’s debt load is determined at the highest level by the Agency due to the minimal debt burden of municipalities and the City’s debt policy based on the use of long-term debt instruments. The debt structure is diversified by instruments, the weighted average maturity of debt at the beginning of this year exceeded 3.5 years, and the credit history of the City is positive. The current account balance is positive every year.
High level of budget liquidity. The City fulfills its expenditure obligations on time and regularly places temporarily free budget funds in deposits, and also uses repo operations to manage liquidity. As of January 1, 2024, the City budget’s temporarily free funds exceeded monthly average budget expenditures for 2023 by 2.5x and the size of public debt as of that date by nearly 3x. As of July 1, 2024, the volume of liquidity increased by approximately 30%, which is 3x higher than the average monthly expenses over the past 12 months. The liquidity ratio in 2024 (according to ACRA’s methodology) may be 180%.
The quality assessment of the City’s budget liquidity is high. The City does not need to borrow short-term loans from the Federal Treasury Department to cover cash gaps. According to the City, no credit lines were procured over the past 24 months, as they were unnecessary. As of January 1, 2024 and July 1, 2024, the budget had no overdue debt obligations or payables. Refinancing risks are minimal.
The City’s highly developed economy provides for a diversified tax base. The City’s per-capita GRP is consistently higher than the national average by 1.5x. As a result of a significant increase in nominal GRP in 2021 and 2022, this ratio averaged for 2019–2022 approached 2. Tax revenues are highly diversified by sector — according to ACRA’s calculations, the averaged estimate of the maximum share of a single industry in the City’s tax revenues in 2020–2023 did not exceed 30%. Nevertheless, the Agency notes growth of the share of the trade sector in GRP and tax revenues. Unemployment remains low and did not exceed 2% in 2023. The average monthly wage was more than five times higher than the City’s subsistence minimum in the aforementioned period.
KEY ASSUMPTIONS
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Higher growth of personal income tax revenues than planned by the current version of the budget law in 2024;
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Maintaining a conservative debt policy;
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Maintaining high budget liquidity.
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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Debt load growing above 30% of the City’s current revenues;
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Significant fall in available liquidity.
ISSUE RATINGS
Saint Petersburg, 35001 (ISIN RU000A0ZYHX8); maturity date: May 28, 2025, issue volume: RUB 30 bln — AAA(RU).
Saint Petersburg, 35002 (ISIN RU000A0ZYKJ1); maturity date: December 4, 2026, issue volume: RUB 25 bln — AAA(RU).
Saint Petersburg, 35003 (ISIN RU000A102A15); maturity date: April 13, 2027, issue volume: RUB 30 bln —AAA(RU).
Saint Petersburg, 35004 (ISIN RU000A102K88); maturity date: September 28, 2028, issue volume: RUB 30 bln — AAA(RU).
Rationale. In ACRA’s opinion, the bonds of Saint Petersburg are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of Saint Petersburg.
REGULATORY DISCLOSURE
The credit ratings have been assigned to Saint Petersburg and the bond issues (ISIN RU000A0ZYHX8, RU000A0ZYKJ1, RU000A102A15, RU000A102K88) of Saint Petersburg 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 Saint Petersburg and the government securities (ISIN RU000A0ZYHX8, RU000A0ZYKJ1, RU000A102A15, RU000A102K88) of Saint Petersburg were published by ACRA for the first time on June 27, 2017, December 4, 2017, December 12, 2017, October 22, 2020, and December 17, 2020, respectively. The credit ratings of Saint Petersburg and the government securities (RU000A0ZYHX8, RU000A0ZYKJ1, RU000A102A15, RU000A102K88) of Saint Petersburg 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 were assigned based on data provided by Saint Petersburg, 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 Saint Petersburg 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 Saint Petersburg. No conflicts of interest were discovered in the course of credit rating assignment.
