The credit rating of the Republic of Tatarstan (hereinafter, the Republic, or the Region) is based on the Republic’s high regional economic indicators, high budget liquidity, and a low debt load with minimum refinancing risk.
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 2018, the Republic’s GRP amounted to 2.9% of the total GRP of Russia’s regions.
Key rating assessment factors
Low debt load and non-commercial nature of debt. As of January 1, 2020, the Republic’s total debt amounted to RUB 93.7 bln (35% of operating income). Based on the parameters of the Republic’s budget law, this indicator should fall to 33% in 2020.
Budget loans account for 90% of the Region’s debt portfolio, and most (around 70%) of these loans are scheduled for repayment after 2024. The remaining 10% of debt is guarantees issued by the Republic in 2005 to cover the obligations of KAMAZ PTC (ACRA rating: А+(RU), outlook Stable) to the federal budget. The risks of refinancing debt obligations are assessed as minimal, given the Republic’s balanced debt repayment schedule. Debt servicing expenditures in 2020 will be maintained at their 2019 level and amount to no more than 0.03% of total expenditures.
Significant budget liquidity. The high liquidity assessment is based on the considerable volume of funds held in the Republic’s accounts: as of January 1, 2020, account balances and funds placed in deposits amounted to RUB 36.7 bln. Over the past 18 months, account balances (as of the end of the month) on average exceeded the Republic’s monthly budget expenses by two times. Income from placing budget funds in deposits amounted to around RUB 4.2 bln in 2019, which is more than three times higher than this indicator for 2018.
The Republic’s accumulated liquidity is sufficient to cover debt repayments for the next six years, however the budget law envisages the use of these funds to finance the Republic’s 2020 budget deficit.
Self-sufficient budget with a flexible structure of expenditures. Over the past three years, the Republic’s budget has been executed with surpluses. In 2019, the surplus amounted to 5% of tax and non-tax revenues (TNTR), which is the equivalent of RUB 13.7 bln.
The budget’s revenues grew by 3% (RUB 9.2 bln) in 2019. TNTR grew by 6% due to corporate income tax revenues, which increased by 7% (RUB 7.4 bln) compared to 2018, higher personal income tax revenues (+6% or RUB 3.1 bln), and a 9% increase (RUB 3.0 bln) in excise payments. Transfers from the federal budget to the regional budget fell by 11% (RUB 5.0 bln) in 2019, while budget expenditures increased by 0.04% (RUB 108 mln).
The average1 share of internal revenues in 2017–2019 amounted to 88%; this share will remain practically unchanged in 2020–2022. The share of the Republic’s capital expenditures will average 38% in 2016–2020 and remain largely unchanged until 2022. This high indicator demonstrates the Republic’s capability to maneuver its budget expenditures. The modified budget deficit is primarily positive, which means that the Region does not need to resort to additional debt financing.
1 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
The Republic predicts that TNTR will shrink by 6% in 2020 and expenditures will increase by 13%. As a result, a budget deficit of 15% of TNTR is expected, which is planned to be fully financed by accumulated liquidity. In this case, all the Region’s funds will be used up. However, ACRA views this scenario as unlikely (ACRA’s base case scenario envisages a deficit of 10% of TNTR).
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.
Developed economy with moderate concentration on the extraction of commodities. ACRA’s calculations show that the oil and gas industry accounted for around 32% of the tax revenues of the Republic’s budget in 2018–2019. In 2018, nine of the twenty regional enterprises with the largest revenues operated in this sector. Around 7% of tax revenues are provided by the production of chemical substances and chemical products, and around 10% are contributed by retail and wholesale trade.
The average per capita GRP of the Region in comparison with the national average was 109%. ACRA notes that the real and per capita GRP of the Republic in 2014–2018 grew faster than the average for Russia. The average monthly wage to subsistence wage ratio in the Region exceeded 350% in 2015–2018. Average unemployment, calculated according to the ILO’s methodology, was 3.4% in 2019.
Key assumptions
- Executing the budget with a deficit of no higher than 10% of TNTR in 2020;
- No recourse to additional debt financing;
- Maintaining high budget liquidity.
Potential outlook or rating change factors
The Stable outlook assumes that the credit rating will most likely remain unchanged within the 12 to 18-month horizon.
A negative rating action may be prompted by:
- Necessity to provide extraordinary support to state sector companies and financial organizations
- 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 has been 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 the 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.
