The credit rating of the Tver Region (hereinafter, the Region) is based on a low controllable debt load, the existence of a certain liquidity reserve that can be used to finance planned deficits, and a high volume of capital expenditures that may be considered as a reserve for cutting expenditures in some circumstances.
The rating is constrained by the Region’s moderate economic development indicators.
The Region is located in the Central Federal District (CFD). The Region is home to almost 1% of the Russian population and generates 0.5% of Russia’s total GRP. In 2021, the Region’s GRP reached RUB 545 bln. The Region annually ranks second after Moscow in electric power produced among the CFD’s regions, generating 13% of the total volume of electricity in the CFD in 2021.
key assessment factors
Low level of public debt and no significant refinancing risks. The debt load on the Region’s budget is low — at the end of 2021, the Region’s debt to current revenue ratio stood at 18.2%. According to the Region’s budget law, this ratio may remain roughly unchanged in 2022.
As of January 1, 2022 and August 1, 2022, the Region’s debt consisted entirely of budget loans due in 2022–2034. Over the expired period of 2022, the Region’s debt grew from RUB 14.8 bln to RUB 15.4 bln due to the provision of a budget loan to repay the Region’s debt liabilities.
Refinancing risks are assessed as low. The Region will have to repay about 5% of its debt annually in 2022–2024.
Interest expenses are not burdensome for the Region: the averaged 1 level of interest expenses in 2019–2023 should be less than 1% of total budget expenditures (excluding subventions).
Annually the ratio of the Region’s debt to GRP has been much lower than the level that could affect its credit rating.
In 2023, debt is expected to grow as a result of, among other things, obtaining budget loans from the federal budget to finance the implementation of infrastructure projects. This loan is expected to amount to RUB 3.8 bln.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Accumulated liquidity will allow the Region to finance its budget deficit. The Region’s account balances exceeded average monthly budget expenses by more than 2x as of the end of 2021 (excluding the funds of autonomous and budgetary institutions, which the Region also uses to manage liquidity). Balances continued to grow in 2022, and they considerably exceeded the Region’s debt as of August 1, 2022.
This liquidity reserve will allow the Region to finance a deficit this year if one materializes during the execution of the budget, and partially next year.
In 2021, the Region’s revenues from managing single treasury account funds credited to the budgets of Russian regions exceeded RUB 1 bln.
The liquidity ratio for 2021 amounted to 408%. ACRA assumes that this ratio will fall considerably in 2022 due to the expenditure of accumulated liquidity.
Balanced budget policy and a high share of capital expenditures in the structure of the budget. The share of tax and non-tax revenues (TNTR) in the Region’s budget revenues is high. ACRA assumes that the averaged share of TNTR in total revenues (excluding subventions) will be 72% in 2019−2023. The averaged ratio of current account to current revenues over this period will be 8%, and the ratio of the averaged modified budget deficit to current revenues will be -4% in 2022. This indicates that current revenues are sufficient to cover current expenses, but when financing capital expenses the Region may need to borrow or use accumulated liquidity.
The structure of TNTR is stable: historically, the maximum share of TNTR comes from personal income tax and profit tax, which each form up to 30% of TNTR. Taxes on goods and services and taxes on property account for 15–20% of TNTR annually.
In 2022, the Region expects a budget deficit of 9.6% of TNTR and plans to cover the deficit with account balances. The deficit will be due to significant growth of expenses (+16%) coupled with insignificant growth of expenditures (+5%). The Region expects expenses to grow in all the key areas — public housing and utilities, roads, social policy, healthcare, and national issues. At the same time, as of 7M 2022, the rate of growth of the Region’s revenues exceeds the growth of expenses, and the Region posted an intermediate budget surplus.
The trend of increasing capital expenditures observed in 2021 is expected to continue in 2022. The Region’s capital expenditures are approximately half covered by transfers. The averaged share of capital expenditures in the Region’s total expenditures (excluding subventions) in 2019–2023 will amount to 23%. ACRA considers capital expenditures as a possible reserve for cutting budget expenditures in the event of a decrease in revenues.
Diversified but moderately developed economy. The key sectors of the Region’s economy include food production, vehicle manufacturing, transport and communications, and power generation. Per capita GRP is just over 60% of the national average, and wages on average do not exceed three regional subsistence minimums.
The Region’s Tax revenues are quite diversified. According to ACRA’s estimates, manufacturing accounted for most of the revenues in 2021 (23%). About a half of these revenues came from the manufacture of various vehicles and equipment, as well as the metal industry and the manufacture of metal products. Trade, transportation and storage, IT and communication, and power generation, transmission and distribution are also among important industries in terms of their share in tax revenues. Unemployment in the Region is lower than the national average.
key assumptions
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Execution of budget revenues in line with the parameters specified in the Region’s budget law;
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Use of accumulated liquidity to cover most of the budget deficit.
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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Stable growth of capital expenditures that are mainly financed using internal funds;
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Maintaining the high volume of liquidity after financing this year’s deficit;
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Growth of GRP and wages in the Region outpacing the national averages.
A negative rating action may be prompted by:
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Sharp reduction of TNTR with no opportunities to reduce budget expenses;
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Debt load growing higher than 30% of current revenues.
issue ratings
There are no outstanding issues.
regulatory disclosure
The credit rating of the Tver 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 Tver Region was published by ACRA for the first time on December 12, 2017. The credit rating of the Tver Region 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 Tver 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 Tver 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 Tver Region. No conflicts of interest were discovered in the course of credit rating assignment.
