The credit rating of the Tambov Region (hereinafter, the Region) is based on limited flexibility of budget expenses, low liquidity, and a countercyclical economy. The rating is limited by regional economic development indicators lagging behind the national averages.
The Tambov Region is located in the Central Federal District and is home to slightly less than 1% of Russia’s population. The Region accounts for about 0.5% of the country’s total gross regional product (GRP). Based on the Region’s data, its GRP amounted to approximately RUB 347.3 bln in 2019, with agribusiness (agriculture and food production) generating one third of the Region’s GRP.
Key rating assessment factors
The Region’s modest economic development indicators are due to the dominance of agribusiness, a countercyclical industry. Agriculture makes up 22–25% of the Region’s annual GRP; together with food production, it may generate up to one-third of the Region’s GRP. The agribusiness sector is not a high margin industry, but at the same time, not a cyclical one.
Despite the agribusiness specifics of the Region, its tax revenues are diversified. According to ACRA’s estimates, the public sector accounted for 22.6% of tax revenues, the biggest contribution to the Region’s budget revenues. Manufacturing contributed 19.6%, while agriculture, forestry, hunting, and fishing accounted for 11.1%. In aggregate, ACRA attributes 17.3% of the Region’s tax revenues to agribusiness in 2019.
In 2016–2019, the Region’s averaged1 wage to averaged subsistence wage ratio was 2.7, while unemployment was lower than the national average. The Region has a relatively low per capita GRP, with a widening lag behind the national average: 66.9% in 2015, and 55.9% in 2019.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regional and Municipal Authorities of the Russian Federation.
Federal transfers and personal income tax dominate regional budget revenues. The Region’s budget largely depends on transfers from the federal budget. The Region’s averaged internal revenues should amount to 55.5% of total revenues (excluding subventions) for 2016–2020. Personal income tax dominates the Region’s tax revenue structure, averaging a 37.8% share for 2016–2019, while the share of corporate profit tax amounts to 23.2%.
The capital expenses should average 23% in total spending for 2016–2020. On average, the Region finances more than half of its capital expenses with transfers from the federal government intended for agribusiness development.
Throughout 2016–2020, the modified budget deficit metric has been negative, which suggests annual debt increase needs.
Increasing debt load with a balanced debt structure in terms of maturity. The Region’s debt to current revenues ratio was 46.8% as of the end of 2019. At the end of 2020, ACRA expects this ratio to rise to 50.4%.
As of April 1, 2020, the Region’s public debt included government securities (41.3%), budget loans (34.3%), and bank loans (24.4%) and amounted to RUB 19.6 bln.
As of the beginning of 2020, the largest volume of debt repayments/refinancing (27%) was scheduled for 2022. As of April 1, 2020, the largest volume of debt repayments/refinancing was scheduled for 2020 (including budget loans, which are not expected to be repaid this year and a loan from the Federal Treasury Department). The Region is to repay or refinance two thirds of its debt over the next three years.
The Region’s public debt service expenses are not burdensome on its budget (averaged interest expenses should amount to 2.3% of averaged total budget expenses, excluding subventions, for 2016–2020).
The absolute size of the Region’s debt continues to grow and, at the end of 2019, the ratio of the Region's debt to tax and non-tax revenues exceeded the values specified in budget loan restructuring agreements.
Limited budget liquidity. Throughout 2016–2020, the Region has been in need of liquidity, as its modified free cash flow has been exclusively negative (about RUB -2 bln) over this period.
The liquidity assessment features low account balances and undrawn credit lines with a drawing period of more than a year. Over the last 12 months, account balances (as of the end of each month) have amounted on average to one third of the Region’s monthly budget expenses. The Region has executed a short-term budget loan agreement with the Federal Treasury Department.
- Decrease in internal revenues by 15% year-on-year in 2020;
- Continued strong dependence on federal transfers for budget revenues;
- Reduction in capital expenses by 15% in 2020 compared to 2019.
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 positive rating action may be prompted by:
- Increased share of internal revenues in total revenues (excluding subventions);
- Increased budget liquidity.
A negative rating action may be prompted by:
- Decrease in federal budget transfers;
- Substantial debt load increase in 2020;
- Decrease in available liquidity.
Tambov Region Government Bond, 35002 (ISIN RU000A0JWT75), maturity date: September 20, 2023, issue volume: RUB 1.6 bln — BBB+(RU).
Tambov Region Government Bond, 35003 (ISIN RU000A0JXVH8), maturity date: July 12, 2024, issue volume: RUB 3.5 bln — BBB+(RU).
Tambov Region Government Bond, 35004 (ISIN RU000A0ZYJ18), maturity date: December 5, 2025, issue volume: RUB 3.0 bln — BBB+(RU).
Rationale. In ACRA’s opinion, the bonds listed above are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of the Tambov Region.
The credit ratings of the Tambov Region and bonds issued by the Tambov Region (RU000A0JWT75, RU000A0JXVH8, RU000A0ZYJ18) have been assigned under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings 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. In the course of assigning credit ratings to the bond issues above, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation has also been used.
The credit ratings assigned to the Tambov Region and bonds issued by the Tambov Region (RU000A0JWT75, RU000A0JXVH8, RU000A0ZYJ18) were first published by ACRA on July 3, 2017, July 14, 2017, July 11, 2017, and December 13, 2017, respectively. The credit rating of the Tambov Region and its outlook and the credit ratings of the bonds issued by the Tambov Region (RU000A0JWT75, RU000A0JXVH8, RU000A0ZYJ18) 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 ratings are based on the data provided by the Tambov Region, information from publicly available sources (Ministry of Finance, Federal State Statistics Service, and Federal Tax Service), as well as ACRA’s own databases. The credit rating is solicited, and the Tambov Region Administration participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by the Tambov Region in its financial reports have been identified.
ACRA provided no additional services to the Tambov Region Administration. No conflicts of interest were identified in the course of credit rating assignment.