The credit rating of the Ryazan Region (hereinafter, the Region) is a result of the Region’s moderate debt load, high share of capital expenditures, and moderate level of socioeconomic development.
The Ryazan Region is part of the Central Federal District and located nearby Moscow area, the largest Russian market of goods and services. The Region is monocentric, as almost all business activities are concentrated in its administrative center, the city of Ryazan, where about half of the Region’s population lives. The Region’s GRP is close to 0.5% of the total GRP of all Russian regions. Nearly 0.8% of the country’s population lives in the Region.
Key rating assessment factors
The share of capital expenditures is high, and a half of it is financed internally. The share of internal revenues in total revenues (excluding subventions) of the regional budget is sufficient: the averaged1 share should equal 72% for 2017–2021, while the averaged share of capital expenditures in total expenditures (excluding subventions) should equal 23%. Generally, the Region finances its capital expenditures out of federal budget transfers and internal revenues in almost equal shares.
The averaged ratio of balance of current operations to current revenue for the abovementioned period should be 14%, which indicates that current revenues in sufficient to cover current expenses. In 2016–2019, the modified budget deficit (MBD) was positive, however it has been decreasing since 2018 and it became negative in 2020. The averaged ratio of MBD to current revenue is also falling. In 2021, this ratio will stand at -0.4%, which indicates the stronger trend for debt growth or a decline in budget account balances.
In 2020, the Region’s tax and non-tax revenues (TNTR) grew by 4% y-o-y, driven mostly by personal income tax, tax on goods and services, and aggregate income tax (8%, 9%, and 6%, respectively). Profit tax revenues grew by 3%.
Gratuitous transfers increased by a third, which pushed the total revenues of the regional budget up by 12%. In 2021, a slight increase in total revenues is expected with an 8% decrease in gratuitous transfers. At the same time, the expected increase in total expenditures in 2021 relative to 2020 will lead to budget execution with a deficit of 6% of TNTR.
1 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
The debt load is stable; the refinancing risk is growing. At the end of 2020, the Region’s debt to operating income ratio stood at 40%. According to ACRA's estimates, this ratio will not change significantly in 2021, despite the projected budget deficit. The deficit will be financed using balances formed at the end of the year, as well as debt financing (mostly market borrowings).
As of January 1, 2021, the Region’s public debt was RUB 23.6 bln and by February 1, 2021, it did not changed and included budget loans and bank loans, 61% and 39%, respectively. The largest volume of debt repayments and refinancing is scheduled for 2022 (41%, mostly, bank loans). In 2021, the Region is to repay 11% of its liabilities, including budget loans of RUB 1.7 bln issued to repay the budget loan granted to replenish the Region's single budget account.
The refinancing risks are mitigated by liquidity accumulated by the Region, which as of January 1, 2021, covered 43% of the liabilities due in 2021–2022.
The Region’s public debt servicing costs are not a burden on the regional budget (in 2017–2021, the average share of interest expenses will amount to 1% of total budget expenditures, excluding subventions).
A portion of accumulated liquidity could be allocated to cover budget deficit. In 2020, the Region’s monthly needs for funding were covered mostly by funds kept in budget accounts at the start of the each month. In January–May 2020, the Region deposited budget funds with commercial banks.
As of February 1, 2021, the volume of balances on budget accounts amounted to RUB 8 bln, which is 1.4 times higher than average monthly expenditures in 2020 (in addition, balances covered 34% of public debt). According to the Region’s current budget law, a portion of the accumulated funds will be allocated to cover budget deficits this year and subsequently.
The diversified economy and relatively low level of unemployment. The level of diversification of the regional economy is quite high. ACRA assesses that the public sector, which is the largest sector of the economy, accounts for around 18% of the regional budget’s tax revenues. In the structure of products shipped in 2018–2019, the share of petroleum products produced amounted to 15%. The stable industry structure of tax revenues and low concentration on volatile sectors of the economy means that the Region is comparatively resilient to negative economic events.
In 2016–2019, the averaged2 salary exceeded the average subsistence minimum by almost three times, while the unemployment rate was below the national average. The average growth rate of GRP per capita in the Region in 2017–2018 was lower than the national average.
2 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
Key assumptions
- 5% growth in TNTR in 2021 against 2020;
- The 2021 budget deficit of no more than 6% of TNTR;
- Allocating accumulated liquidity to cover this year's budget deficit;
- Maintaining a balanced budget policy until 2023;
- Maintaining a high share of internally generated revenues in capital expenditures.
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:
- Refinancing a significant portion of commercial debt with long-term borrowings;
- Reduced budget expenditures against the planned figures;
- Growing indicators of socio-economic development.
A negative rating action may be prompted by:
- Increase in debt load over 55% of current revenues;
- Declining budget liquidity;
- A 5% decline in TNTR against 2020 amid no decrease in expenditures.
Issue ratings
None.
Regulatory disclosure
The credit rating of the Ryazan Region has been assigned 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 Ryazan Region was published by ACRA for the first time on October 16, 2017. The credit rating of the Ryazan Region and its outlook
are expected to be revised within 182 days following the publication date of this press release in compliance with the Calendar of planned sovereign credit rating revisions and publications.
The credit rating was assigned based on the data provided by the Ryazan 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 Ryazan Region participated in the rating process.
No material discrepancies between the provided data and the data officially disclosed by the Ryazan Region in its financial statements have been discovered.
ACRA provided no additional services to the Government of the Ryazan Region. No conflicts of interest were discovered in the course of credit rating assignment.
