The credit rating of the Krasnodar Krai (hereinafter, the Region) is determined by the low debt load, insignificant risks of debt refinancing, high share of capital expenditures in total budget expenditures (excluding subventions), and positive operational efficiency of the budget coupled with its low dependence on the higher budget. The rating is constrained by moderate socioeconomic development indicators, the budget’s significant need for additional funds, and low budget liquidity.
The Krasnodar Krai is part of the Southern Federal District. The Region is a stable leader in terms of agricultural production among Russia’s regions and is also a major resort and an important transportation hub. The Region is home to around 4% of Russia’s population. According to the Region’s estimates, its gross regional product (GRP) may have reached RUB 5.8 tln in 2025.
key assessment factors
Positive operational efficiency and low dependence on the higher budget. The averaged1 ratio of the current account balance to current revenues for 2022–2026 may amount to 11%. The operational efficiency continued to be positive in 2025 and the current account balance amounted to around 5% of current revenues. ACRA assumes that the current account balance will remain positive by the end of this year, which indicates that the Region’s current expenditures are fully covered by its current revenues.
The averaged share of capital expenditures in the Region’s total expenditures for 2022–2026 will be 20%. The qualitative assessment of the flexibility of budget expenditures corresponds to the first category. Capital expenditures are mostly financed by the regional budget. The current account balance after taking into account interest income and expenditures is consistently positive. The modified free cash flow is quite volatile and sometimes negative, although only to a small extent compared to the Region’s current revenues. At the same time, the negative modified free cash flow causes a periodic need to use additional funds to finance capital expenditures.
The averaged share of tax and non-tax revenues (TNTR) for 2022–2026 in the Region’s total revenues (excluding subventions) will be around 85%. ACRA has applied an upward adjustment to this indicator because we expect further growth of the share of TNTR on the back of a continuing decline in transfers. This indicator evidences the Region’s low dependence on the higher budget.
The ratio of the averaged modified budget deficit to current revenues for the period indicated above is expected to be -6%. The Region’s need to use additional funds is assessed by ACRA as significant. Nevertheless, the Agency has adjusted the aforementioned indicator to the second category in view of its low debt load.
The qualitative assessment of the Region’s budget profile corresponds to the first category. No cases of violation of budget infrastructure have been identified. The Region additionally transfers to lower budgets part of tax revenues from personal income tax, profit tax, tax levied in connection with the application of the simplified taxation system, and part of revenues from other types of income. The planned volume of lost tax revenues associated with the application of tax benefits was insignificant for the Region’s budget in 2025. The Agency notes significant periodic deviations of some actual budget revenues from targets.
The Region’s budget was executed with a significant deficit in 2025. This deficit was mainly covered using funds in the Region’s accounts.
According to the current version of the budget law, this year the Region plans to increase its budget revenues by 9% compared to 2025, including an 11% increase in TNTR and a 2% decrease in transfers. The increase in the budget expenditures is expected to be insignificant, with current expenditures planned to be 4% lower than last year’s level, and capital expenditures planned to be 17% higher. The target budget deficit will amount to around 1% of TNTR and will be financed mainly using borrowed funds.
ACRA assumes that the Region’s current expenditures may increase by the end of this year at a rate comparable to expected inflation. In this case, while maintaining other budget parameters unchanged, the deficit may be much higher than planned, which, in turn, may require the Region to raise a significant amount of commercial borrowing to finance it.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities under the National Scale for the Russian Federation.
Low debt load and minimal debt refinancing risks. The Region’s debt decreased by 6% to RUB 106.2 bln in 2025. As of January 1, 2026 most of the debt (96%) was made up of budget loans, while bonds accounted for the rest. At the start of the year, the debt repayment schedule envisaged the Region paying of 9% of its debt this year and no more than 6% of debt annually in 2027–2029.
In January 2026, the Region obtained a short-term loan from the Federal Treasury Department (FTD) worth RUB 7.3 bln due at the end of June 2026. As a result, the Region’s debt was around RUB 113.5 bln as of February 1, 2026. There were no other changes to the structure of debt or its repayment schedule.
The Region’s debt load remains low. The ratio of debt to current revenues was 22% in 2025. ACRA assumes that this indicator may increase to 28% this year.
Interest expenditures are not burdensome for the Region due to the non-commercial nature of most of the debt — averaged interest expenditures for 2022–2026 will be less than 1% of total budget expenditures (excluding subventions). The ratio of the Region’s debt to projected GRP this year will amount to around 2%. Both of these indicators will not lead to adjustments of the debt load indicator.
The qualitative assessment of the Region’s debt profile corresponds to the first category. The weighted average debt repayment period significantly exceeds four years. The debt portfolio is almost entirely represented by budget loans. The budget’s operational efficiency is consistently positive. According to the Region, there were no overdue payables as of October 1, 2025. The debt load of municipalities is low; the ratio of debt to total TNTR of all municipalities was 3% at the end of 2025. The financial debt of public sector enterprises by the end of three quarters of the past year amounted to RUB 0.5 bln, and their overdue payables stood at RUB 0.9 bln.
Low level of liquidity. By the end of 2025, the volume of the Region’s account balances had declined significantly because funds were used to cover the budget deficit. Over the past 12 months, the Region’s average account balances were comparable with its monthly budget expenditures. According to the current version of the regional budget law, the Region has no plans to use accumulated liquidity to cover planned deficits in 2026–2028.
The budget liquidity ratio will be 17% by the end of 2026.
The qualitative assessment of budget liquidity corresponds to the second category. The Region has outstanding bonds. Debt refinancing risks are assessed as insignificant thanks to the non-commercial nature of most of the debt and the extension of repayment periods due to debt restructuring. The size of payables at the end of Q3 2025 was insignificant for the Region’s budget. In Q4 2025 the Region entered into several revolving credit facilities for a total of RUB 30.0 bln; however none of the credit lines had been utilized as of the date of this press release. The drawdown period of most credit lines is slightly less one year. In 2026, the Region has already borrowed a short-term budget loan from the FTD.
Diversified economy with development indicators close to the national averages. The main industries that generate the major share of the Region’s GRP are transportation and storage, trade and repairs, and agriculture, and manufacturing. At the same time, in 2023 the largest contribution (22%) to the Region’s GDP was made by the real estate transactions sector.
The largest share of tax revenues in the regional budget is generated by the wholesale and transportation sectors. According to ACRA’s estimates, the averaged share of the wholesale sector, except the motor vehicle and motorcycle wholesale segment, for 2021–2024 amounted to about 12% of the Region’s tax revenues. The transportation sector, except pipeline transportation, amounted to a similar share. No major changes were observed in the Region’s economic diversification indicator by the end of Q3 2025.
GRP per capita remains below the national average mainly due to the Region’s large population. The ratio of the Region’s averaged per capita GRP to the national average per capita GRP for 2020–2023 was 75%. The ratio of the averaged monthly salary to the regional subsistence minimum for 2021–2024 exceeded 3.5. The averaged unemployment rate for the same period, according to ACRA’s estimates, was around 2.5%, and the unemployment rate was 2.0% at the end of 2024.
KEY ASSUMPTIONS
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Execution of the regional budget’s revenue side in line with the current version of the budget law;
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Growth rate of current expenditures in 2026 comparable to the forecast inflation;
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Expected budget deficit to be covered with borrowed funds without using account balances;
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Maintaining a conservative debt policy focused on long-term instruments.
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:
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Consistent growth of the Region’s GRP;
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Lower need of the budget to use additional funds;
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Higher volume of accumulated liquidity.
A negative rating action may be prompted by:
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Sustainable decline in the budget’s operational efficiency;
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Lower share of TNTR in the total revenues of the Region (excluding subventions);
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Growth of the Region’s debt load to over 35% of current revenues coupled with significant growth of the share of short-term debt.
rating components
Standalone creditworthiness assessment (SCA): aa-.
Support: none.
ISSUE RATINGS
Krasnodar Krai, 35003 (ISIN RU000A1011B5), maturity date: November 12, 2026, issue volume: RUB 10.0 bln — АA-(RU).
Rationale. In ACRA’s opinion, the bond issue of the Krasnodar Krai is a senior unsecured debt instrument, the credit rating of which corresponds to the credit rating of the Krasnodar Krai. As per ACRA’s methodology, the simplified approach was applied to determine the credit rating, according to which the recovery rate for the issue belongs to category II, and therefore the credit rating of the issue is equivalent to that of the Region— AA-(RU).
REGULATORY DISCLOSURE
The credit ratings have been assigned to the Krasnodar Krai and the issue of the Krasnodar Krai based on the following methodologies: the Methodology for Assigning Credit Ratings to Regions and Municipal Entities under the National Scale for Russian Federation to calculate the SCA and determine the credit rating and the credit rating outlook of the Krasnodar Krai under the national scale for the Russian Federation, Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale for the Russian Federation to determine the credit rating of the bond issue under the national scale for the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities to ensure consistent and uniform application of ACRA’s methodologies, rating scales, models, and key rating assumptions.
The credit ratings of the Krasnodar Krai and the issue of the Krasnodar Krai (RU000A1011B5) under the national scale for the Russian Federation were published by ACRA for the first time on October 18, 2017 and November 12, 2019, respectively.
The credit rating of the Krasnodar Krai and its outlook, as well as the credit rating of the issue of the Krasnodar Krai, are expected to be revised within 182 days as per the Calendar of sovereign credit rating revisions and publications.
The credit ratings were assigned based on data provided by the Krasnodar Krai, 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 rating analysis was performed using the RAS accounting (financial) statements of the Krasnodar Krai as of January 1, 2026.
The credit ratings are solicited and the Krasnodar Krai 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 Krasnodar Krai during the year preceding the rating action.
No conflicts of interest were discovered in the course of credit rating assignment.
