The credit rating of the Penza Region (hereinafter, the Region) is based on moderate economic development indicators and a stable budget profile. The rating is limited by low liquidity and a growing need for debt financing.

The Region is located in the Volga Federal District and is home to 1.3 million people (around 0.9% of the Russian population). According to the Region, its gross regional product (GRP) for 2020 was approximately RUB 432 bln (around 0.5% of the aggregate GRP of all Russian regions).

Key rating assessment factors

Stable budget profile indicators. The law on the Region’s budget1 for 2021 assumes a slight (2%) increase in the Region’s tax and non-tax revenues (TNTR) at the same time as a 28% decline in transfers. According to ACRA’s assessments, in 2021 the Region’s total expenditures will decline by 10%. Despite this, the budget will be executed with a deficit (4% of TNTR), which will be financed mainly by borrowed funds.

The ratio of the averaged2 modified budget deficit to the Region’s current revenues should be just below zero for 2017–2021, which means the budget will require additional funds to finance its current expenses.

In ACRA’s opinion, in 2017–2021 the averaged ratio of the current account balance to current revenues should decline slightly (by 1 percentage point) to 7% while remaining at a moderate level. The ratio of TNTR to revenues (excluding subventions) is at a moderately high level: the averaged indicator for 2017–2021 should equal 62%.

The indicator of flexibility of the Region’s budget expenses is moderately high, with the averaged value for 2017–2021 to amount to 16%.

Lower refinancing risks. As of January 1, 2021, the Region’s debt totaled RUB 20 bln and mainly consisted of bank and budget loans (53% and 47%, respectively). In March 2020, the Region refinanced its bank loan liabilities, which allowed it to secure lower interest payments and postpone repayment of the bulk of debt from 2021 to 2024 (the Region must repay 4% of its debt in 2021 and 26% in 2024). In December 2020, the Region refinanced a loan provided by the Federal Treasury Department (FTD) by raising a budget loan worth RUB 0.4 bln.

The Region’s account balances are low: in 2020 they covered around 10% of its monthly expenses. As of January 1, 2021, balances in the Region’s budget accounts amounted to RUB 0.8 bln and covered 13% of public debt. FTD loans allow the Region to avoid cash gaps.

The Region’s debt to current revenues ratio was 31% as of the end of 2020. In 2021, ACRA expects this indicator to be 37% due to the planned fall in transfers. The Region’s interest expenses are not a burden on the budget, with the average level of interest expenses in 2017–2021 at around 1% of aggregate budget expenses (excluding subventions).

 

1 Law of the Penza Region No. 3595-ZPO “On the budget of the Penza Region for 2021 and the planned period of 2022 and 2023” (amended on December 25, 2020).
2 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.

Diversified structure of tax revenues with minor concentration on the public sector. Around 23% of tax revenues are stably generated by public sector enterprises. Wholesale and retail trade make the largest contribution to the Region’s tax revenues in the non-state enterprise sector. Eight of the ten largest regional enterprises by revenue operated in the trade sector in 2019.  Despite this, tax revenues are not heavily concentrated in this sector. ACRA’s calculations show that for 11 months of 2020, it generated around 15% of the Region’s tax revenues; 8% of tax revenues came from the transportation and storage sector, and 7% were from agriculture. Total revenues from the manufacturing industry amounted to 24%, but it is quite diversified: the food production sector (which forms the maximum contribution in this industry) accounts for about 5% of tax revenues.

The Region’s averaged per capita GRP in 2015–2018 was 53% of the national average. The averaged monthly wage to regional subsistence wage ratio in the Region exceeded 290% in 2016–2019.

Key assumptions

  • Total budget revenues declining by 13% compared to 2020 amid higher TNTR (2%) and lower transfers (28%);
  • Budget expenses falling by 10% in 2021 compared to 2020;
  • Executing the 2021 budget with a deficit of no more than 4% of TNTR;
  • Debts growing by no more than 5% in 2021;
  • Maintaining social and economic indicators at the current level.

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 positive rating action may be prompted by:

  • Sustainable growth of budget liquidity;
  • Reduction of debt load;
  • Consistently positive modified budget deficit.

A negative rating action may be prompted by:

  • TNTR falling by more than 24% compared to 2020;
  • Lower share of internal revenues.

Regulatory disclosure

The credit rating has been assigned to the Penza Region under the national scale for the Russian Federation based on the Methodology for Credit Ratings 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 Penza Region was published by ACRA for the first time on September 20, 2018. The credit rating 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 Penza Region, 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 Penza Region participated in its assignment.

No material discrepancies between the provided data and data officially disclosed by the Penza Region in its financial statements have been discovered.

ACRA provided no additional services to the Government of the Penza Region. No conflicts of interest were discovered in the course of credit rating assignment.

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Analysts

Maxim Parshin
Senior Analyst, Sub-sovereign Ratings Group
+7 (495) 139-0480, доб. 225
Ilya Tsypkin
Senior Analyst, Sub-sovereign Ratings Group
+7 (495) 139 03 45
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