Analysis of the intra-annual liquidity of non-consolidated regional budgets1
Total balances in the accounts of regional budgets as of the end of Q1 2024 exceeded RUB 3.6 tln. The previous record for accumulated liquidity as of the end of the first quarter — more than RUB 3.4 tln in 2023 — was beaten this year. ACRA notes that the size of liquidity in regions’ accounts in Q1 2024 generally exceeded the figure for the entire previous year. This is largely due to Russian regions finishing the first quarter with an aggregate budget surplus as spending is often carried out closer to the end of the year. This year was not an exception — the total surplus of unconsolidated regional budgets was RUB 570 bln, which made it possible to increase savings. At the same time, the repayment of debt obligations for budget loans, which by the end of 2023 formed 77% of the total debt of regions, has also been shifted for the most part toward the end of the year2, which gives regions the opportunity to not use the accumulated funds to repay this type of debt at the beginning of the year. In some cases, where possible in accordance with the Budget Code, regions can place funds of autonomous and budgetary institutions under their control in their accounts.
1 Excluding the Donetsk and Lugansk People’s Republics, as well as the Kherson Region and the Zaporozhye Region.
2 Excluding budget loans for advance financing of regions’ expenditure obligations with repayment in H1 2024 via transfers from the federal budget.
Sources: UPBS3, ACRA
3 Unified Portal of the Budget System of the Russian Federation (Electronic Budget)
Despite the record volume of balances in Q1 2024, their growth compared to the indicator at the end of the previous year turned out to be one of the weakest in the last five years (+28%). The growth of free funds was lower only in Q1 2020, when they increased by 26% compared to the figure at the end of 2019. At the same time, in the first quarters of 2021–2023, the indicator of account balances increased much more than in Q1 2024. According to ACRA’s estimates, one of the reasons for the lower dynamics of the growth of balances in Q1 2024 could be the significant amount of funds accumulated by regions last year. Account balances at the end of 2023 had increased by 26% compared to the figure for 2022, largely due to regions receiving infrastructure budget loans in Q4 last year, not all of which were immediately directed toward economic development. At the same time, the total surplus of regional budgets in the first quarter of this year was lower than a year earlier, which somewhat slowed the growth of the volume of balances.
Figure 2. Account balances of Russia’s regions at the end of Q1 2024
Sources: UPBS, ACRA
Five regions accounted for almost half (49%) of accumulated balances as of the end of Q1 2024. The volume of liquidity accumulated by Moscow alone exceeded RUB 1.1 tln and accounted for around 31% of the total volume of temporarily idle funds. The other leaders included Saint Petersburg (RUB 0.3 tln), the Moscow and Sverdlovsk Regions and the Yamalo-Nenets Autonomous Okrug (each of these regions had RUB 0.1 tln). The leaders were practically the same in Q1 2023. The Tyumen Region, Vologda Region and the Khanty-Mansi Autonomous Okrug dropped out of the top 10 regions in terms of accumulated liquidity, and were replaced by the Sverdlovsk, Chelyabinsk, and Sakhalin Regions. The Regions that accumulated the least funds as of April 1, 2024 were the Republic of Kalmykia, Republic of Ingushetia, and the Chechen Republic (RUB 0.1 bln, 0.3 bln, and 0.5 bln, respectively), the Chukotka Autonomous Okrug (RUB 1.0 bln) and the Jewish Autonomous Okrug (RUB 1.2 bln). In total, the balances in the accounts of the 10 entities with the smallest accumulated funds at the end of the first quarter of this year amounted to approximately RUB 12 bln, or 0.3% of the total balances in the accounts of regional budgets.
In Q1 2024, the indicator for concentration of account balances, calculated using the Herfindahl-Hirschman index (HHI), worsened compared to the same period a year earlier. The HHI4 was 967 as of April 1, 2023, while at the end of the first quarter this year it was 1,164. If Moscow is removed from the calculation, then the HHI, on the contrary, indicates a decrease in concentration (381 vs. 425 a year earlier) and more balanced distribution of accumulated funds. Therefore, excluding Moscow, which has an enormous budget and is able to form significant savings in nominal terms and receive considerable interest income from placing these funds in deposit accounts, accumulated liquidity for Q1 2024 was more equally distributed among regions.
4 In terms of the share of balances in the total volume of balances.
Figure 3. Regions with the highest and lowest volumes of accumulated funds, RUB bln
* Moscow’s account balances are much higher than the diagram’s limits.
Sources: UPBS, ACRA
In Q1 2024, account balances grew in the vast majority of regions. A relative increase of 1.5 times or more was observed in 22 regions, and in 11 other regions the balances increased by a third or more. Only 13 regions recorded a decrease in the indicator relative to the end of 2023. Balances decreased by two times or more in two regions — the Jewish Autonomous Region (-55%) and the Murmansk Region
(-77%).
Despite a significant increase in balances in Q1 2024, the debt coverage ratio remained virtually unchanged: in Q1 2023, the ratio of the regions’ total idle funds to debt amounted to 117%, while in Q1 2024 it stood at 116%. However, if Moscow is excluded from the calculations, the situation changes drastically: the above ratio was 85% as of April 1, 2024 and 93% a year earlier, which indicates a downward trend in the debt coverage metric of the regions. In Q1 2023, the median value of this indicator for all regions was 76%, and this year the median decreased to 63%. Generally, the debt coverage ratio fell in 52 regions in Q1 2024 compared to Q1 2023. This is mostly explained by an 8% year-on-year increase in the regions’ debt, excluding Moscow, while the volume of temporarily idle funds of the regions, except Moscow, almost did not change (around 1% decrease). Nevertheless, in more than half of the regions (48), account balances as of April 1, 2024 covered half of their debt or more: in 27 regions, account balances exceeded the debt, and in 14 regions, account balances exceeded debt by more than two times.
Figure 4. Debt coverage has decreased *
* In some regions, the indicator is much higher than the diagram’s limit.
Sources: UPBS, Ministry of Finance of Russia, ACRA
According to current versions of regional budget laws at the end of April, account balances will become the main source of covering budget deficits expected by the end of this year. Most regions (75) plan to use these balances to cover their deficits. The share of account balances in the total volume of sources expected to be used to cover deficits may be about 53%, another 21% of the total expected deficit is planned to be covered using bank loans, 11% using bonds. At the same time, according to the regions’ expectations, the share of budget loans as a source to cover deficits will be only 1%.
Figure 5. Regions intend to cover the deficits expected this year mostly using account balances
Sources: UPBS, ACRA
The significant amount of account balances for the first quarter of this year inspires cautious optimism about the regions’ plans to use these funds to cover this year’s budget deficits. A smoother distribution of accumulated liquidity across regional budgets suggests that many regions will be able to cover expected deficits at least partially. At the same time, the aggregate debt coverage ratio is decreasing, which may give rise to debt refinancing risks in the future. On the other hand, it should be borne in mind that most of the regions’ debt (more than three quarters) is represented by budget loans with long maturities, which partially mitigates refinancing risks. In addition, based on the address of the President of the Russian Federation to the Federal Assembly, a mechanism is being developed for partially writing off the regions’ budget loan debt, which is likely to also have a positive effect on the debt coverage indicator and will allow the potential risks associated with a high debt burden to be alleviated.
