The credit rating of the Leningrad Region (hereinafter, the Region) is based on the Region’s highly developed economy, stable budget indicators, and low debt load coupled with high budget liquidity.
The Leningrad Region is located in the Northwestern Federal District and borders five other Russian regions, as well as Finland and Estonia. The Region is home to 1.9 mln people (around 1.3% of Russia’s population) and its gross regional product (GRP) in 2020 was RUB 1.25 tln, 1.3% of the total GRP of Russia’s regions.
key assessment factors
Low debt load and high budget liquidity. As of the end of 2021, the ratio of the Region’s debt to current revenues was 2% according to ACRA’s methodology. According to the Agency’s assessments, the Region’s debt may amount to 7% of current revenues as of the end of 2022 if the budget is executed with the deficit specified by the budget law. The ratio of averaged1 debt to GRP of the Region will be less than 1%. These indicators correspond to a low debt load.
As of January 1, 2022, the Region’s debt was solely made up of budget loans. The ratio of averaged interest expenses to total budget expenses (excluding subventions) in 2018–2022 will amount to less than 1%, which indicates that these expenses are not a burden on the Region’s budget. The debt repayment schedule is well-balanced and there are no peak payment periods. Over the next three years the Region has to repay no more than 5% of its debt annually.
The Region has sufficient liquidity to meet its expenditure obligations on time, including interest payments. As of January 1, 2022, account balances were comparable to the Region’s average monthly budget expenditures in 2021. The Region regularly places temporarily free funds in bank deposits and by carrying out repo transactions. The liquidity ratio (according to ACRA’s methodology) may amount to 61% in 2022, however, due to the Region’s regular placement of temporarily free funds, the liquidity ratio assessment has been improved to the highest possible level.
Stable budget profile indicators. The Region’s budget is characterized by a moderately high share of internal revenues — in 2018–2022, the averaged ratio of tax and non-tax revenues (TNTR) to budget revenues (excluding subventions) will amount to around 89%. The averaged share of capital expenditures in the Region’s total expenditures (excluding subventions) in the aforementioned period is expected to be 14%. In 2018–2022, the averaged ratio of the balance of current operations to current revenues (according to ACRA’s methodology) will be 4%, while the ratio of the averaged modified budget deficit to current revenues will be -4%. These indicators show that current revenues are sufficient to cover current expenditures and point to a need for borrowed funds (or use of accumulated liquidity) to finance capital expenditures.
In 2021, the budget deficit was 4% of TNTR and was financed using account balances formed in previous years. The budget law foresees revenues in 2022 at the same level as 2021, expenses growing by 8%, and the budget being executed with a deficit of 14% of TNTR, which is planned to be covered using account balances and borrowings.
Diversified economy with a developed manufacturing industry and transport sector. The manufacturing industry dominates the structure of the Region’s GRP (27% share in 2020). About a quarter of manufacturing output comes from non-procyclical food production. Oil refining, machine building, production of paper products, and the chemical industry are also present in the Region. Transportation and storage activities accounted for 13% of the Region’s GRP in 2020. Main pipelines run through the Region, which is also home to a large port complex. Tax revenues are highly diversified by sector: according to ACRA’s calculations, the averaged assessment of the maximum share of one sector in the Region’s tax revenues in 2018–2021 did not exceed 12%.
Unemployment in the Region has been below the national average over the past five years and amounted to 3.7% at the end of 2021. The average salary in the Region in 2021 exceeded the subsistence minimum (for the working-age population) by more than four times. Growth of the physical volume of the Region’s GRP and industrial production in 2018–2020 was higher than the average for Russia. The Region’s population increased by almost 100,000 between 2016 and 2020.
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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Execution of the budget in line with the budget law’s parameters;
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Maintaining a conservative debt policy;
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Maintaining a high level of budget liquidity.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Execution of the budget in 2022 with a deficit far below the target;
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Maintaining high internal budget liquidity.
A negative rating action may be prompted by:
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Growth of current budget expenditures without additional growth of revenues;
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Significant decline of budget liquidity;
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Debt load exceeding 30% of current revenues.
ISSUE RATINGS
There are no outstanding issues.
REGULATORY DISCLOSURE
The credit rating has been assigned to the Leningrad Region 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.
A credit rating has been assigned to the Leningrad Region for the first time. The credit rating 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 Leningrad Region, information from publicly available sources (the Ministry of Finance, the Federal State Statistics Service, and the Federal Tax Service), and ACRA’s own databases. The credit rating is solicited, and the Administration of the Leningrad Region 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 Administration of the Leningrad Region. No conflicts of interest were discovered in the course of credit rating assignment.
