The credit rating of the Ryazan Region (hereinafter, the Region) reflects its moderately low debt load, high share of capital expenditures, and moderate indicators of socio-economic development.

The Ryazan Region is part of the Central Federal District and neighbors 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 ASSESSMENT FACTORS

The share of capital expenditures is high and a half of it is financed internally. The regional budget has a sufficient share of internal revenues in the total revenues (excluding subventions): the averaged1 share is expected to amount to 72% in 2018–2022. The average share of capital expenditures in aggregate expenditures (excluding subventions) in the same period should equal 24%. On average, the Region finances half of its capital expenditures using transfers from the federal budget, while the remaining portion of expenditures is financed using internal revenues.


1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.

The average ratio of the balance of current operations to current revenue for the above period should reach 12%, which indicates that current revenues are sufficient to cover current expenditures. In 2016–2019, the modified budget deficit (MBD) was positive, however it had been decreasing since 2018, and became negative in 2020. The ratio of averaged MBD to averaged current revenues is also falling: in 2021, it will drop to -3%, which indicates increased possibility of growing debt and lower balances in budget accounts.

In seven months of 2021, tax and non-tax revenues (TNTR) increased by 25% y-o-y (by 22% against seven months of 2019). This growth was mainly driven by an increase in revenues from taxes on aggregate income, taxes on goods, and corporate income tax (by 65%, 36%, and 31%, respectively).

According to the current version of the budget law, total revenues are expected to grow in 2021, while transfers will decrease by 2%. However, in 2021, total expenditures are also expected to increase relative to 2020, which will lead to a budget execution with a deficit of 11% of TNTR.

Stable debt load and growing refinancing risk. At the end of 2020, the Region’s debt to current revenue ratio stood at 40%. According to ACRA's estimates, this ratio is not to change much in 2021, despite the projected budget deficit, which will be financed using balances formed at the end of the year, as well as new borrowings, mostly market loans.

As of the beginning of 2020, the Region’s public debt was RUB 23.6 bln, and by July 1, 2021, it declined slightly after bank loans were repaid. The debt includes budget loans (62%) and bank loans (38%). The peak of debt repayments and refinancing is expected in 2022 (41%), most of which are bank loans. By the end of 2021, the Region will have to repay 10% of its debt, including RUB 1.7 bln of budget loans granted to repay the other budget loan for replenishment of funds held in the Region's budget account.

As of July 1, 2021, available cash covered 91% of the debt the Region has to repay by the end of 2021 and in 2022.

The Region’s public debt service costs are not a burden on the regional budget: the averaged interest expenditures in 2018–2022 will amount to 1% of aggregate budget expenditures, excluding subventions.

A portion of accumulated liquidity may be spent to finance budget deficit. As of July 1, 2021, the volume of budget account balances was two times higher than that at the beginning of 2021 and amounted to RUB 11 bln, which is almost twice as high as monthly expenditures over the last 12 months; moreover, the cash balances covered 46% of public debt. According to the Region’s current budget law, a portion of accumulated liquidity will be used to finance budget deficits of the next year and subsequent years.

In 2020, the Region deposited budget account balances in bank accounts more than once.

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 produced petroleum products amounted to about 15%. The stable industry structure of tax revenues and low concentration on volatile sectors of the economy mean that the Region is relatively resilient to negative economic phenomena.

In 2017–2020, the average wage exceeded the average regional subsistence minimum by more three times, while unemployment was below the national average. Average GRP per capita growth in the Region in 2018–2019 was lower than the growth in the national average indicator in the specified period.

KEY ASSUMPTIONS

  • An 8% growth in the TNTR in 2021 against 2020;

  • The 2021 budget deficit of no more than 11% of TNTR;

  • Using accumulated liquidity to finance the budget deficit this year;

  • Maintaining a high share of own funds 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 using long-term borrowings;

  • Maintaining the positive MBD;

  • Better socio-economic development indicators.

A negative rating action may be prompted by:

  • Debt load exceeding 55% of current revenues;

  • Declining standalone budget liquidity;

  • The averaged ratio of balance of current operations to current revenues declining below 10%.

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 Assigning Credit Ratings to Regions and Municipal Entities 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 re expected to be revised within 182 days following the publication date of this press release in compliance with the Calendar of 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.

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 Government of the Ryazan Region. No conflicts of interest were discovered in the course of credit rating assignment.

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