The credit rating of the Republic of Tatarstan (hereinafter, the Region, or Tatarstan) is based on the Region's moderately low debt load with a comfortable debt repayment schedule and insignificant refinancing risks, substantial amount of funds held in the Region's accounts, strong budget profile with an insignificant need to utilize the accumulated liquidity to finance capital expenditures. High economic indicators provide additional support to the rating.
The Region is part of the Volga Federal District and is home to 3.9 million people, 2.7% of the Russian population. In 2020, the gross regional product (GRP) of the Region amounted to RUB 2,588 bln.
KEY ASSESSMENT FACTORS
Strong budget profile with a low need to use free liquidity. The averaged1 ratio of current operations balance to current revenues for 2018–2022 will amount to 29%. The balance of current operations will remain positive in 2022, which is an indication of sufficiency of current revenues to finance current expenditures and corresponds to the highest grade in the assessment of the operating efficiency of the budget (as per ACRA's methodology).
The averaged share of capital expenditures in total expenditures for 2018–2022 will amount to about 40%, which, according to ACRA's methodology, corresponds to a high level of flexibility in budget expenditures. Capital expenditures are mostly funded by the Region at its own expense.
The averaged share of tax and non-tax revenues (TNTR) in the Region's revenues (excluding subventions) will exceed 82% at the end of 2022.
The ratio of the modified budget deficit averaged over 2018–2022 to current revenues will be less than -2%. This indicates that the Region finances its capital expenditures mainly from budget revenues, but it may need to use some accumulated liquidity.
In 2021, the volume of budget revenues of the Region exceeded RUB 355 bln, which is 21% higher than in 2020. The TNTR increased by over 35%: profit tax revenues almost doubled, gross income tax revenues grew by one and a half times, and personal income tax revenues — by 19%. It is worth noting that revenues have grown from a relatively low base: in 2020, TNTR declined by 17% against 2019. Transfers decreased by 13% and expenditures grew by 8% in 2021. The 2021 budget deficit amounted to about RUB 12 bln or about 4% of TNTR (a year earlier, the deficit was 11% of TNTR).
According to the current version of the Region's budget law for 2022–2024, this year, TNTR may shrink by 12%, mainly due to a 24% decline in profit tax revenues. Moreover, the Region expects the volume of transfers to decrease by 28% against the previous year. Budget expenditures are expected to be cut by 6%. The expected deficit of 10% of TNTR will be fully funded by account balances.
ACRA proceeds from the assumption that the 2022 budget will be executed in line with the budget law of the Region. A portion of capital expenditures will be financed by an infrastructure budget loan (IBL), which will allow the Region to preserve a certain amount of accumulated funds. The accumulated liquidity will be used to finance future deficits.
Moderately low debt load and non-commercial nature of debt. As of January 1, 2022, the Region's debt amounted to RUB 96.6 bln, which is RUB 1.5 bln less than at the beginning of 2020. This decrease is explained by the currency revaluation of the Region's state guarantees and the repayment of some budget loans. Historically, most of the debt (89%) is represented by budget loans, the remainder is guarantees provided in 2005 for certain liabilities of KAMAZ (ACRA rating: A+(RU), outlook Stable) to the federal budget. The debt repayment schedule is smooth, without any significant peaks. In the next two years, the Republic will have to repay no more than 0.5% of the debt annually. The bulk of repayments falls on the period after 2025.
Tatarstan participates in the IBL program. In 2022, the volume of IBLs to be granted to the Region is RUB 10.4 bln. These funds will be utilized to finance a portion of the capital expenditures in the current year.
The ratio of debt to current revenues of the Region was 31% at the end of 2021. ACRA expects this ratio to increase to 40% in 2022 due to the provision of IBL to the Region; nevertheless, the level of debt load will remain moderately low.
Interest expenses are not burdensome for the Region: interest expenses averaged for 2018–2022 will not exceed 0.03% of total budget expenditures (excluding subventions). The ratio of averaged debt to averaged GRP of the Region will amount to about 3%.
The budget surplus allowed the Region to increase account balances. At the end of 2021, the volume of free liquidity was more than one and a half times higher than at the end of 2020. Since the beginning of 2021, the budget account balances of the Region were comparable, on average, to the volume of monthly expenses. In 2022, the Region plans to use most of the accumulated funds to cover a possible budget deficit of the year.
The liquidity ratio of the Region calculated for 2022 will exceed 100%, which indicates a moderately high volume of funds available to repay current liabilities and cover the planned shortage of funds.
In the medium term, ACRA doubts that companies and financial institutions that are strategically important to the Region’s economy or significantly depend on its budget will need targeted financial support.
The Region does not use credit lines as an instrument of its own liquidity. The contract with the Federal Treasury Department was not concluded as of the date of the analysis due to lack of necessity.
The Region's economy is developed and moderately focused on the extraction of commodities. ACRA’s calculations show that the oil and gas industry generated the maximum share (around 23%) of tax revenues in 2018–2021 (averaged over this period). The wholesale and retail trade sector generated around 12% of tax revenues, and the manufacturing sector formed another 22%.
The averaged per capita GRP of the Region was 110% of the national average. The averaged monthly wage to subsistence minimum ratio in the Region exceeded 350% in 2017–2020. The unemployment rate averaged for 2017–2020 and calculated according to the ILO’s methodology was as low as 3.5%. According to the Region's estimates, in 2021, the unemployment rate was 2.6%.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
KEY ASSUMPTIONS
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The 2022 budget to be executed in line with the Region's budget law.
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In 2022, IBLs to be granted as committed.
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Applying accumulated funds to cover possible budget deficits.
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No need for additional debt financing to cover current expenditures.
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No need to fulfil state guarantees this year.
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 negative rating action may be prompted by:
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A need to provide extraordinary support to state sector companies and financial organizations;
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Substantial changes in inter-budget relations in Russia;
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A need to fulfil the state guarantees issued to the Ministry of Finance of Russia;
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The 2022 budget deficit exceeding the volume of available liquidity.
issue ratings
There are no outstanding issues.
REGULATORY DISCLOSURE
The credit rating has been assigned to the Republic of Tatarstan 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 Republic of Tatarstan was published by ACRA for the first time on November 17, 2017. The credit rating of the Republic of Tatarstan and its outlook are expected to be revised within 182 days following the publication date of this press release as per the Calendar of sovereign credit rating revisions and publications.
The credit rating was assigned based on data provided by the Government of the Republic of Tatarstan, 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 Republic of Tatarstan participated in its 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 Government of the Republic of Tatarstan. No conflicts of interest were identified in the course of credit rating assignment.
