The credit rating of the Tambov Region (hereinafter, the Region) is based on limited flexibility of budget expenses, low liquidity, and the Region’s countercyclical economy. The rating is limited by regional economic development indicators, which lag behind the national averages, as well as a high share of short-term debt.
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 364.8 bln in 2020, with agribusiness (agriculture and food production) generating around one-third of the Region’s GRP.
Key rating assessment factors
The regional budget’s tax revenues grew despite the COVID-19 pandemic. In 2020, the Region executed its budget with a deficit of 1.3% of tax and non-tax revenues (hereinafter, TNTR). Together with significant growth in aggregate budget expenses (by 15% compared to 2019), TNTR also increased (by 7% in the same period). Income tax revenues increased by 25%. This growth was driven by revenues from the textile industry, trade, and real estate activities (probably due to a new enterprise in the Region). Personal income tax revenues also increased in 2020 (by 9% compared to the year before), while revenues from taxes on goods and services remained almost unchanged, increasing by 1%. At the same time, property tax revenues, which are significant for the Region’s budget, decreased by 6% in the analyzed period as expected.
However, the balance of the regional budget was mainly supported by the federal government, thanks to which the growth in transfers amounted to 34%.
The averaged1 share of TNTR in total budget revenues (excluding subventions) in 2017 to 2021 should amount to 54%.
Personal income tax dominates the structure of the Region’s tax revenues, averaging 36% for 2017−2020, and corporate income tax averaging 24%.
The law on the Region’s budget for this year2 envisages TNTR increasing by 5% in 2021 compared to last year, but total revenues should fall by 7% due to declining transfers from the federal budget. At the same time, the Region plans to cut its total expenses, and consequently the budget is not expected to go into deficit in 2021.
The averaged share of capital expenses in total expenses for 2017−2021 should be 19%. On average, the Region finances more than half of its capital expenses with federal transfers.
The averaged ratio of the current account to current revenues for 2017−2021 should be around 10%, and the ratio of the averaged modified budget deficit to current revenues is extremely negative, indicating that current revenues are sufficient to cover current expenses and that an increase in debt is necessary to finance capital expenses.
Lower current transfers will lead to minor growth of the debt load. The Region’s debt to current revenues ratio was 38% as of the end of 2020. Despite the unchanged absolute amount of debt, minor growth of the Region’s relative debt load (according to ACRA’s methodology) is expected by the end of 2021 due to a decline in current transfers.
1 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
2 Law of the Tambov Region dated December 25, 2020 No. 580-Z (with amendments dated March 3, 2021) “On the budget of the Tambov Region in 2021 and the planned period of 2022 and 2023” (adopted by Resolution of the Tambov Regional Duma No. 1486 dated December 25, 2020).
As of January 1, 2021, the Region’s public debt amounted to RUB 19 bln and included government securities (41%), budget loans (26%, including a budget loan provided to refinance a Federal Treasury Department loan accounting for 8%), and bank loans (33%). As of April 1, 2021, the size and structure of public debt was unchanged.
The largest volume of debt repayments/refinancing (29%) is scheduled for this year. The Region has to repay or refinance 78% of its debt over the next three years.
The Region’s public debt servicing expenses are not burdensome on its budget (averaged interest expenses should amount to 3% of averaged total budget expenses, excluding subventions, for 2017–2021).
Limited budget liquidity. The liquidity assessment is based on low account balances and RUB 2 bln worth of undrawn bank credit lines, which can be used for more than a year. Also, in order to finance the budget deficit, the Region uses the funds of autonomous and state-funded institutions. As of April 1, 2021, the Region’s budget accounts amounted to just over half of average monthly expenses for 2020, as well as half of the volume of debt repayments scheduled for 2021. In 2020, in order to replenish its account balances, the Region attracted a budget loan from Federal Treasury Department three times, which was subsequently refinanced using a short-term budget loan due by July 1, 2021.
The dominance of agribusiness, a non-cyclical industry, results in low regional economic development. Agriculture accounts for 22−26% of the GRP structure annually. Together with the food industry, agriculture can form up to a third of the Region’s GRP. This industry is not high-margin, but it is not cyclical.
Despite the agricultural and industrial specifics of the Region, tax revenues are diversified. In 2020, the maximum contribution to budget revenues, according to ACRA, was made by the public sector, accounting for 22%. Manufacturing accounted for 20%, while agriculture, forestry, and hunting and fishing accounted for 12%. The total share of agribusiness, according to ACRA, did not exceed 18% in 2020.
In 2016–2020, the ratio of the averaged wage to the averaged regional living wage grew and amounted to 2.8 in 2020. The unemployment rate in the aforementioned year was lower than the national average. The Region’s economy is characterized by relatively low GRP per capita, while there is a growing lag behind the national average (66.9% in 2015, 54.2% in 2019).
Key assumptions
- TNTR growing by 5% in 2021 compared to 2020;
- Execution of the budget in 2021 in line with the Region’s budget law for the year;
- Current expenses falling by 15% compared to 2020;
- Continued strong dependence on federal transfers for budget revenues;
- Maintaining a high share of federal transfers in capital expenses.
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 TNTR in total revenues (excluding subventions);
- Maintaining current revenues at the level achieved in 2020;
- Refinancing the current share of short-term debt using long-term financial instruments;
- Increased budget liquidity.
A negative rating action may be prompted by:
- Federal budget transfers lower than the planned volume;
- Growth of current expenses that is not accompanied by higher current revenues;
- Substantial debt load increase in 2021;
- Decrease in available liquidity.
Issue ratings
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.
Regulatory disclosure
The credit ratings of the Tambov Region and the 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 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 Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments Under the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit ratings of the Tambov Region and bonds issued by the Tambov Region (RU000A0JWT75, RU000A0JXVH8, RU000A0ZYJ18) were published by ACRA for the first time 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 data provided by the Tambov 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 ratings are solicited, and the Administration of the Tambov Region participated in their assignment
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to the Administration of the Tambov Region. No conflicts of interest were identified in the course of credit rating assignment.
