The credit rating of the Novgorod Region (hereinafter, the Region) is based on the Region’s moderate economic development indicators and budget profile, as well as medium debt load coupled with an irregular debt repayment schedule and average budget liquidity.
The Novgorod Region is located in the North-Western Federal District and borders four other regions of the Russian Federation. In 2019, 0.4% of Russia’s population lived in the Region; its gross regional product (GRP) was 0.3% of Russia’s total GRP. The main railroads and highways connecting Moscow, St. Petersburg, and the Baltic countries pass through the Region.
Key rating assessment factors
Medium debt load and significant refinancing risk. At the start of 2021, the Region’s debt amounted to 49% of its current revenues (according to ACRA’s methodology), and included budget and bank loans (63% and 37%, respectively). According to ACRA, the Region’s debt to current revenues could increase to 55% by the end of 2021 due to new loans to finance the budget deficit as stipulated by the law on the budget, which points to an average debt load according to ACRA’s methodology. In 2021, the Region will have to repay 12% of its debt liabilities, and in 2022 it will have to repay or refinance almost 40% of its debt including all of its bank debt. Debt servicing expenses are not a burden on the regional budget due to the high share of budget loans in the Region’s debt structure (the ratio of averaged1 of interest expenses to total budget expenses will amount to less than 2% in 2017–2021 excluding subventions).
1 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
Average budget liquidity. The Region has liquidity that allows it to meet its expense commitments on time, including interest payments. As of January 1, 2021, account balances amounted to around 25% of average monthly budget expenses for 2020, while undrawn balances on open credit lines with maturities of more than one year exceeded the amount of debt obligations due in 2021.
Moderate budget profile indicators. The averaged share of tax and non-tax revenues (TNTR) (excluding subventions) for 2017–2021 in the Region’s total revenues will amount to 69%. The averaged ratio of the current account balance to current income will equal 5% for this period, while the ratio of the modified budget deficit to current income will be -4%. These indicators show that current income is sufficient to cover current expenses and that the Region needs to resort to borrowing only in order to finance capital expenses. Average capital expenses in 2017–2021 account for 15% of total budget expenses and are mainly financed by transfers from the federal budget.
Diversified economy with a developed chemical industry. The largest local enterprise is PJSC Acron, a fertilizer manufacturer that generates about 40% of the total shipped products of the Region’s manufacturing sector. Tax revenues from the chemical industry equaled 6–15% of the Region’s tax revenues for 2016–2019. In 2020, the share of revenues from this industry declined to 4%. Other major sectors of the Region’s economy are transport and trade, as well as wood processing and the production of paper and paper products. The Region’s GRP per capita in 2019 was 71% of the national average. The average salary in the Region exceeded the regional subsistence minimum by 2.6x in 2020. The unemployment rate in the Region was lower than the national average in 2016–2019, and in 2019 it amounted to 3.6%. Unemployment grew in the Region in 2020, and reached 7.4% in October–December 2020.
Key assumptions
- TNTR increasing by 17% in 2021 compared to 2020;
- Execution of the budget with a deficit of no more than 8% of TNTR in 2021;
- Decrease in budget expenses if actual revenues are lower than planned.
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:
- Improvement in the commercial debt repayment schedule (reduced refinancing risk in relation to a substantial share of debt within one year);
- Lower relative debt load;
- Stable growth of budget liquidity.
A negative rating action may be prompted by:
- Increase in current expenses not supported by an increase in current budget revenues.
Issue ratings
None.
Regulatory disclosure
The credit rating has been assigned to the Novgorod 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 Novgorod Region was published by ACRA for the first time on July 27, 2018. The credit rating of the Novgorod Region is 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 the data provided by the government of the Novgorod 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 Novgorod Region participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by Novgorod Region in its financial statements have been discovered.
ACRA provided no additional services to the government of the Novgorod Region. No conflicts of interest were discovered in the course of credit rating assignment.
