The credit rating of the Yamalo-Nenets Autonomous Okrug (hereinafter, the Region) is based on its minimal debt load, high self-sufficiency, sustainability and liquidity of the budget, and high performance indicators of the regional economy.
A standalone administrative entity of the Russian Federation, the Region is also part of the Tyumen Region1 located in the Ural Federal District. The Region is a Far North territory with more than half of its area lying beyond the Arctic Circle. In 2019, the Region’s GRP amounted to 3.3% of the total GRP of all administrative entities of Russia, and the Region’s population was about 0.4% of the Russian population.
1 A certain share of profit tax revenues collected in the Region goes to the budget of the Tyumen Region (set to 29.5% by the agreement between the Tyumen Region and YaNAO).
Key rating assessment factors
The budget deficit caused by a decrease in tax revenues and an increase in expenditures was covered by cash accumulated on the Region's accounts. The 2020 regional budget was executed with a deficit of 21% of tax and non-tax revenues (TNTR). In 2020, TNTR decreased by 18%, which, together with a significant increase in expenditures (by 18%), led to the budget deficit.
The deficit was fully covered by the accumulated cash. TNTR were impaired mainly by a 46% decrease in corporate income tax revenues compared to the previous year. This decrease was caused mainly by lower revenues from the extraction industry, as well as one-off payments made in 2019. On the other hand, personal income tax and property tax revenues grew in 2020 by 13% and 2%, respectively.
The 2021 regional budget law2 provides for a slight increase in the TNTR in 2021 compared to the previous year — by 1%. The growth is mainly expected in corporate income tax and property tax revenues (by 14% and 4%, respectively). The expected decrease in personal income tax revenues (by 12%) is caused by an increased volume of such revenues transferred to local budgets. On the other hand, in Q1 2021, these revenues grew by 5% y-o-y.
Total expenditure growth in 2021 will be 3%, which will lead to the budget deficit of 30% of the expected TNTR.
In the total volume of revenues (excluding subventions), the overwhelming part is made up of internal revenues: in 2017–2021, the averaged3 ratio of TNTR to total revenues (excluding subventions) will be equal to 95%. In 2017–2021, the Region's TNTR will include property tax revenues that will average 39%, corporate income tax revenues (37%), and personal income tax revenues (20%).
The regional budget’s operating efficiency is high, as the average ratio of the current operating balance to current revenues has been sustainably positive and should amount to 22% for the period from 2017 to 2021. However, the ratio of the averaged modified budget deficit to current revenues turned negative in 2020, and this trend is expected to continue in 2021. In this regard, the current expenditures of the Region will be fully covered by budget revenues, but, to finance capital expenditures, the Region will have to use accumulated cash and/or attract external funding. The regional budget is highly flexible due to the high average share of capital expenditures in total expenditures, which should be 29% in 2017–2021. More than 90% of capital expenditures are covered by the Region on its own.
2 Law of Yamalo-Nenets Autonomous Okrug dated Nov. 26, 2020 No. 125-ZAO "On regional budget for 2021 and the planned period of 2022 and 2023."
3 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
Minimal debt load. In 2020, the ratio of debt to current revenues declined by 2 p.p. and amounted to 5.3%. By the end of 2021, according to the regional budget law, this ratio is expected to grow up to 11.6%; nonetheless, the debt load will remain minimal.
As of January 1, 2021, the Region’s debt portfolio of RUB 10 bln was represented by bonds (70%) and state guarantees (30%). By April 1, 2021, the volume and structure of the Region's public debt almost did not change (-RUB 104 mln for state guarantees). Therefore, the debt refinancing risk is minimal.
Public debt servicing costs are not burdensome for the budget (the ratio of average interest expenses in 2017–2021 to the average total budget expenditures excluding subventions should amount to 0.6%). In 2020, interest revenues exceeded interest expenses by over 2.7 times.
The debt load of municipalities was consistently low in 2016–2019, and by late 2020, the public debt of Region's municipalities was fully repaid.
The volume of accumulated liquidity is many times greater than the Region’s debt. The Region has a significant amount of funds held in budget accounts and deposits, which as of April 1, 2021, was 4.9 times higher than the total debt and 2.4 times higher than the average monthly budget expenditures for 2020.
The Region is a contributor to the federal budget, accounting for more than 80% of Russia’s natural gas output. The Region’s economic profile assessment is determined by the high GRP per capita: in 2019, the Region ranked second among Russian regions; in 2016–2019, the averaged GRP per capita was 8.9 times higher than the average value for the national economy.
In 2016–2020, the ratio of the averaged wage to the average regional subsistence minimum grew steadily from 5x to 6.1x, and the unemployment rate estimated as per the ILO’s methodology was lower than the national average and amounted to 2.4%.
The Region’s economy is centered on the extraction and sale of hydrocarbons, which generates, according to the Region's estimates, about 70% of tax revenues.
The Region is one of the core contributors to the federal budget. For 2020, 82% of taxes and charges collected in the Region was transferred to the federal budget with just 18% remaining in the consolidated budget of the Region. In the same period, the Region’s contribution to the Russian budget from mineral extraction tax amounted to 19% (second among Russian regions).
- Maintaining high social economic indicators;
- TNTR growing by 1% in 2021 compared to 2020;
- Total expenditures growing by 3% compared to 2020;
- Lower budget expenditures in case the TNTR decline;
- Use of funds held on budget accounts, along with long-term financial instruments, to cover budget deficits.
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 negative rating action may be prompted by:
- Level of liquidity consistently falling down to the volume of monthly expenditures;
- TNTR going down by over 17% in 2021 against 2020, with expenditures standing still;
- A significant change in inter-budget relations in Russia.
YaNAO, 35004 (ISIN RU000A0ZYM47), maturity date: December 25, 2024, issue volume: RUB 5.5 bln — ААА(RU).
YaNAO, 35003 (ISIN RU000A0ZYD55), maturity date: October 18, 2022, issue volume: RUB 1 bln — ААА(RU).
YaNAO, 35002 (ISIN RU000A0JX0Z8), maturity date: December 6, 2023, issue volume: RUB 20 bln — ААА(RU).
Rationale. In ACRA’s opinion, the bonds issued by the Yamalo-Nenets Autonomous Okrug are senior unsecured debt instruments, and their credit rating is equal to the rating assigned to the Yamalo-Nenets Autonomous Okrug.
The credit ratings have been assigned to the Yamalo-Nenets Autonomous Okrug and bonds issued by the Yamalo-Nenets Autonomous Okrug (ISIN RU000A0ZYM47, RU000A0ZYD55, RU000A0JX0Z8) 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 bond issues listed above.
The credit ratings of the Yamalo-Nenets Autonomous Okrug and the bonds (ISIN RU000A0ZYM47, RU000A0ZYD55, RU000A0JX0Z8) issued by the Yamalo-Nenets Autonomous Okrug were published by ACRA for the first time on June 27, 2018. The credit rating of the Yamalo-Nenets Autonomous Okrug and its outlook as well as the credit ratings of its bond issues (ISIN RU000A0ZYM47, RU000A0ZYD55, RU000A0JX0Z8) are expected to be revised within 182 days following the publication date of this press release in accordance with the Calendar of planned sovereign credit rating revisions and publications.
The credit ratings were assigned based on data provided by the Yamalo-Nenets Autonomous Okrug, 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 Government of the Yamalo-Nenets Autonomous Okrug participated in their assignment.
In assigning the credit ratings, 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 Government of the Yamalo-Nenets Autonomous Okrug. No conflicts of interest were discovered in the course of credit rating assignment.