The credit rating of the Novgorod Region (hereinafter, the Region) is based on the moderate indicators of the Region’s budget profile and the regional economy, as well as a moderately low debt load coupled with an irregular debt repayment schedule.
The Novgorod Region is located in the Northwestern Federal District and borders four other regions of Russia. In 2020, 0.4% of Russia’s population lived in the Region, and its gross regional product (GRP) was 0.3% of Russia’s total GRP. The main railroads and highways connecting Moscow, Saint Petersburg, and the Baltic countries pass through the Region.
key assessment factors
Moderately low debt load. The ratio of the Region’s debt to current revenues (according to ACRA’s methodology) may amount to 41% by the end of 2022 and 47% by the end of 2023. These indicators correspond to a low level of risk. The ratio of averaged 1 debt to the Region’s GRP will amount to around 6%.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
As of August 1, 2022, the Region’s debt was solely made up of budget loans. Debt servicing expenses are not a burden on the regional budget — the ratio of averaged interest expenses to total budget expenses (excluding subventions) will amount to less than 1% in 2019–2023.
In 2022, the Region attracted long-term budget loans to finance infrastructure loans and repay its commercial debt subject to repayment in 2022. These measures allow debt refinancing risks to be lowered. As of August 1, 2022, the Region had to repay or refinance 6% of its debt by the end of 2023.
Higher budget liquidity. The Region has liquidity that allows it to meet its expense commitments on time, including interest payments. As of August 1, 2022, funds held in the regional budget’s accounts exceeded average monthly budget expenditures for 7M 2022 by more than four times. The liquidity ratio (according to ACRA’s methodology) in 2022 may amount to around 46%.
Moderate budget profile indicators. The averaged share of tax and non-tax revenues (TNTR) (excluding subventions) for 2019–2023 in the Region’s total revenues will amount to 70%. The averaged ratio of the current account balance to current revenues will equal 11% for this period, while the ratio of the averaged modified budget deficit to current revenues will be -2%. These indicators show that current revenues are sufficient to cover current expenses and that it is necessary to resort to borrowing to finance capital expenses. Averaged capital expenses in 2019–2023 will account for 19% of total budget expenses and are mainly financed by transfers from the federal budget.
The Region’s budget law provides for execution of the budget with a deficit of 14% of TNTR in 2022, which is planned to be financed by funds accumulated in previous years and debt. According to ACRA’s assessments, actual debt in 2022 may be significantly lower than the aforementioned indicator. The budget was executed with an intermediate surplus of around RUB 10 bln for 7M 2022, and TNTR increased by almost 1.5x compared to the same period last year thanks to a favorable situation in the fertilizers market.
Diversified economy with a developed chemical industry. The largest local enterprise is Acron PJSC, a fertilizer manufacturer that generates about 40% of the total shipped products of the Region’s manufacturing sector. Tax revenues from the chemical industry equaled 4–15% of the Region’s tax revenues for 2016–2020. Chemical industry companies provided more than 30% of the Region’s tax revenues in 2021. Other major sectors of the Region’s economy are transportation and trade, as well as wood processing and the production of paper and paper products. The Region’s GRP per capita was 74% of the national average in 2020. The average salary in the Region exceeded the regional subsistence minimum by more than threefold in 2021. Unemployment in the Region declined from 5.8% in 2020 to 4.1% in 2021, which is lower than the national average.
key assumptions
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Execution of the budget in 2022 and 2023 in line with the budget law;
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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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Better debt repayment schedule (reduced refinancing risk in relation to a substantial share of debt within two years);
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Achieving a stable ratio of debt to current revenues below 40%;
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Further growth of budget liquidity.
A negative rating action may be prompted by:
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Higher current expenses that are not supported by an increase of current budget revenues;
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Debt load growing to over 50% of current revenues.
issue ratings
None.
regulatory disclosure
The credit rating has been assigned to the Novgorod 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.
The credit rating of the Novgorod Region was published by ACRA for the first time on July 27, 2018. 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 Government of the Novgorod 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 Government of the Novgorod Region participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to the Government of the Novgorod Region. No conflicts of interest were discovered in the course of credit rating assignment.
