The credit rating of the Republic of Tatarstan (hereinafter, the Republic, the Region) has been upgraded in view of a change in the assessment of the Republic’s liquidity and in the assessment of the need to grant targeted financial support to state-owned companies.
The rating is based on the minimum refinancing risk, high regional economic indicators compared to national averages, and the high self-sufficiency and flexibility of the regional budget.
The Republic of Tatarstan is part of the Volga Federal District. The Region’s population is 3.9 mln people (2.7% of the Russian population). In 2017, the Republic’s GRP amounted to around 2.8% of the total GRP of the Russian regions.
Key rating assessment factors
Change in liquidity assessment. The Republic’s liquidity assessment has been improved due to an extensive period during which funds accumulated on budget accounts, which may be used to cover more than half of the Republic’s debt in certain cases. As of October 1, 2019, deposits exceed the planned deficit for 2019 and debt repayable this year (including guarantees that ACRA believes are unlikely to be fulfilled).
Change in assessment of the need to provide support to state-owned companies. In ACRA’s opinion, in the medium-term the likelihood of granting targeted financial support to companies and financial institutions of strategic importance to the Republic’s economy or those heavily relying on its budget is not high.
Well-balanced budget with high self-sufficiency and high capital expenditures. The Republic’s budget is highly self-sufficient. ACRA expects proprietary revenues to have an 86% share in the total budget (excluding subventions) in 2019, which is in line with the indicator for 2018. Subsidies, subventions and other inter-budget transfers account for the largest share of transfers. The share of capital expenses in the budget is consistently high, averaging 38% in 2015–2018. ACRA expects this indicator to remain unchanged in 2019. The Region conservatively assesses budget execution in 2019. Targets point to revenue decreasing by 1% and expenses growing by 8%, which should lead to a budget deficit at 8% of tax and non-tax revenue (RUB 19.4 bln). The planned deficit will be financed from cash reserves held on budget accounts, without recourse to debt financing. We do not expect the Republic to reach this deficit because the budget had a RUB 19.7 bln surplus as of 8M 2019.
Low credit risk. The Republic’s government debt (RUB 94.4 bln as of October 1, 2019) includes budget loans (90% of the total debt) and guarantees (10%) issued by the Republic in 2005 to cover the obligations of KAMAZ PTC (ACRA rating: А+(RU), outlook Stable) to the federal budget. In the period under review, the Republic’s debt was lower than the annual operating balance of the Republic, which indicates a low level of credit risk. Almost all of the Republic’s liabilities are due in 2023–2036. The debt servicing costs of the Republic do not exceed 0.1% of the operational balance of the budget.
Key assumptions
- Adherence to the policy of depositing temporarily free funds;
- Deterioration of the creditworthiness of state-owned companies in the Republic;
- Execution of the budget in 2019–2020 without recourse to commercial debt financing.
Potential outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A negative rating action may be prompted by:
- Implementation of a mechanism that would consolidate the funds of regional and municipal budgets into a single treasury account and loss of the Republic’s ability to manage its own funds;
- Necessity to provide extraordinary support to state sector companies and financial organizations;
- Significant growth of mandatory budget expenditures;
- Breach of budget loan restructuring rules by the Republic;
- Substantial changes in the inter-budget relations in the Russian Federation.
Regulatory disclosure
The credit rating was assigned to the Republic of Tatarstan under the national scale for the Russian Federation based on the Methodology for Credit Rating Assignment to Regional and Municipal Authorities 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 of the Republic of Tatarstan and its outlook are expected to be revised within 182 days following the publication date of this press release as per the Calendar of planned 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), as well as ACRA’s own databases. The credit rating is solicited, and the Government of the Republic of Tatarstan participated in its assignment.
No material discrepancies between the provided data and data officially disclosed by the Republic of Tatarstan in its financial reports have been discovered.
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.
