The credit rating of the Republic of Tatarstan (hereinafter, 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 Region is part of the Volga Federal District and is home to 3.9 million people, 2.7% of the Russian population. According to the Region, 2019 GRP amounted to RUB 2.584 tln.
Key rating assessment factors
Flexible budget expenses and significant account balances offset decreased budget revenues. The regional budget law1 assumes a reduction in tax and non-tax revenues (TNTR) by 6%, or RUB 16.1 bln, in 2020. One of the main reasons for this decline is a projected 10% reduction in income tax revenues (RUB 11.1 bln). An increase in transfers by 5% (RUB 2.0 bln) compared to 2019 should partially compensate for decreased budget revenue, which will reduce revenues by only 5% (RUB 14.1 bln). Expenses should increase to 13% (RUB 35.7 bln) compared to last year. The Region plans to finance the resulting deficit of 15% TNTR (RUB 36.1 bln) entirely with accumulated liquidity.
1 Law of the Republic of Tatarstan N 92-ZRT, dated November 30, 2019 (as amended on February 26, 2020) "On the 2020 budget of the Republic of Tatarstan and for the planning period 2021−2022.”
For 7M 2020, the Region’s internal revenues decreased by 22% compared to the same period in 2019. Revenues on income tax (-47%), total income tax (-10%), and personal income tax (-3%) saw the most significant decreases. At however, transfers more than doubled and their actual figure for 7M 2020 is already comparable to the planned figure for the entire year under the budget law. Budget expenses increased by 14% and the budget deficit has amounted to 10% TNTR (RUB 10.9 bln) so far this year.
According to ACRA, tax revenues may drop more significantly than previously expected for 2020, which should lead to a reduction in budget expenses. ACRA believes that flexible budget expenses can reduce the forecast deficit, for example, by reducing capital expenses relative to planned figures.
Internal revenues remain moderately high despite a significant projected increase in transfers. The averaged2 share of internal revenues for 2017−2021 should equal 87%. The averaged share of capital expenses in total expenses (excluding subventions) for 2017−2021 should remain around 36%. The averaged ratio of the current account balance to current revenues should equal 28%, while the ratio of the averaged modified budget deficit to current revenues is expected to be -1.5%. This indicates that current revenues are enough to cover current expenses, but available liquidity will be required to finance capital expenses.
2 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
In the medium term, ACRA doubts that companies and financial organizations that are strategically important to the Region’s economy or significantly depend on its budget will need targeted financial support.
Moderately low debt load and non-commercial debt. As of September 1, 2020, the Region’s total debt amounted to RUB 95.9 bln. Budget loans account for 88% of the Region’s debt portfolio, and most (over 70%) of these loans are scheduled for repayment after 2024. The remaining 12% consists of guarantees issued by the Region in 2005 to cover the obligations of KAMAZ PTC (ACRA rating: А+(RU), outlook Negative) to the federal budget. The risks of refinancing debt obligations are assessed as minimal given a balanced debt repayment schedule. Debt servicing expenses in 2020 will be maintained at their 2019 level and amount to no more than 0.03% of total expenses. ACRA assesses the Region’s debt load as moderately low. ACRA estimates that the ratio of debt to current revenues may increase to 42% for 2020 due to the projected decrease in tax revenues.
Since the beginning of 2019, account balances at the end of the month, combined with deposits placed, on average have exceeded monthly budget expenses by more than 1.5x. The Region has enough accumulated liquidity to repay its debt over the next six years. The regional budget law assumes using accumulated funds to finance the national budget deficit planned for 2020.
Developed economy with moderate concentration on the extraction of commodities. ACRA’s calculations show that the oil and gas industry accounted for around 30% of tax revenues in 2016–2019. In 2019, eight of the twenty regional enterprises with the largest revenues operated in this sector. Around 7% of tax revenues come from the production of chemical substances and chemical products, and around 10% from retail and wholesale trade.
The average per capita GRP of the Region in comparison with the national average was 109%. ACRA notes that the Region’s real and per capita GRP in 2014–2018 grew faster than the average for Russia. The average monthly wage to subsistence wage ratio in the Region exceeded 350% in 2016–2019. The average unemployment, calculated according to the ILO’s methodology, was 3.4% in 2019.
Key assumptions
- Decrease in internal revenues in 2020 by no more than a quarter compared to 2019;
- Reduced capital expenses compared to planned figures;
- Executing the budget with a deficit of no higher than 17% of TNTR in 2020;
- Increase in transfers in line with planned figures;
- Maintaining available liquidity;
- No need for 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;
- Substantial changes in inter-budget relations in Russia.
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.
