The credit rating of the Republic of Tatarstan (hereinafter, the Region, or Tatarstan) is based on the Region's moderately low debt load with insignificant refinancing risks, strong budget profile with high operational efficiency and flexibility of budget expenditures and the budget’s moderate need to use additional funds. High economic indicators provide additional support to the rating.
The Region is part of the Volga Federal District and is home to 4 million people. According to the Region’s estimates, its gross regional product (GRP) amounted to RUB 3,689 bln in 2022.
KEY ASSESSMENT FACTORS
Strong budget profile with a moderate need for additional funds. The averaged1 ratio of current account balance to current revenues for 2020–2024 will amount to 30%. The current account balance will remain positive in 2023, which is an indication of current revenues’ sufficiency to cover current expenditures and a significant portion of capital expenditures.
The averaged share of capital expenditures in total expenditures for 2020–2024 will amount to about 43%. 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 equal 83% for the same period.
The ratio of modified budget deficit to current revenues averaged over 2020–2024 will be less than -4%. This indicates that the Region finances its capital expenditures mainly from budget revenues, but it will need to use accumulated cash and budget loans to fund the entire volume of planned capital expenditures.
The 2022 budget deficit amounted to 3% of TNTR, and it was fully covered with infrastructure loans.
According to the current version of the Region's budget law, TNTR may shrink by 17% this year, mainly due to an expected 29% decline in corporate income tax revenues. The volume of transfers may be reduced by 22%, so that budget revenues may decrease by 18%. Budget expenditures are expected to be cut by 10%, including capital expenditures that may be reduced by about a quarter, while current expenditures will grow by about 9%. The expected deficit of 15% of TNTR is expected to be covered with accumulated cash and budget loans.
In H1 2023, the Region’s revenues grew by 8% y-o-y, while the volume of transfers surged by 74% y-o-y and the volume of TNTR remained almost unchanged. At the same time, corporate income tax revenues (key for the Region) declined by 8%, which, however, was offset by a 27% and 12% increase in property tax revenues and personal income tax revenues, respectively. By July 1, 2023, the Region’s budget expenditures grew by 13% y-o-y, and the interim deficit exceeded RUB 30 bln.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Moderately low debt load and non-commercial nature of debt. In 2022, the Region's debt grew by 7% and amounted to RUB 103.5 bln. The debt portfolio included budget loans (95%) and the Region’s guarantees (about 5%) for certain liabilities of KAMAZ (ACRA rating: AA-(RU), outlook Stable) to the federal budget.
By July 1, 2023, the debt portfolio grew by 2% against January 1, 2023 to RUB 105.7 bln. The debt structure almost did not change. The debt growth is explained by the budget loans (RUB 1.5 bln) granted as an advance financial support to Tatarstan’s spending commitments (according to the budget law, the total of RUB 15 bln of such loans is planned to be borrowed this year) and currency revaluation of liabilities guaranteed by the Region. The debt repayment schedule is smooth, and there are no refinancing risks in the short term because the debt is non-commercial. In the next two years, about 3% of the debt is falling due, while in 2023, the amount due under budget loans is as low as RUB 87 mln.
ACRA assumes that budget loans for advance financial support are short-term and they will be repaid in 2024 out of federal budget transfers. Should the entire volume of planned budget loans is borrowed, the Region’s debt load will remain moderately low.
The ratio of debt to current revenues was 26% at the end of 2022. According to the current version of the budget law, this ratio may reach 37% by the end of 2023 due to the expected shrink in current revenues and more budget loans in support of spending commitments.
Interest expenses are not burdensome for the Region: interest expenses averaged for 2020–2024 will not exceed 0.1% of total budget expenditures (excluding subventions). The ratio of averaged debt to averaged GRP of the Region will amount to 3%.
The volume of accumulated cash will be enough to cover the most of planned budget deficit. As of January 1, 2023, the amount of funds held in the Region’s accounts was 14% higher than in 2021. Each of the past 12 months, the amount of accumulated cash was almost twice higher than budget expenditures. Almost all account balances may be utilized to cover this year’s budget deficit (about two thirds of the planned volume).
The Region’s liquidity ratio (excluding funds of autonomous and budget institutions) will be 68% by the end of 2023.
The Agency doubts that, in the medium term, 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 Republic and the Federal Treasury Department concluded an agreement for optional short-term budget loans in 2023.
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 (23%) of tax revenues in 2019–2022 (averaged over this period). The wholesale and retail trade sector generated around 15% of tax revenues, and the manufacturing sector formed another 23%. The averaged share of industries comprising the state sector of the Region is low (11%).
The Region’s per capita GRP averaged over 2018–2021 is 107% of the national average. The monthly wage to subsistence minimum ratio averaged over 2019–2022 far exceeds 3.5x. The unemployment rate averaged for the same period and calculated according to the ILO’s methodology is as low as 2.6%. In 2022, the unemployment rate was 2.3%.
KEY ASSUMPTIONS
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The 2023 budget to be executed in line with the Region's budget law.
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Applying accumulated funds to cover the most of possible budget deficits.
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No need for commercial debt.
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Short-term nature of budget loans for advance financial support to the Regions spending commitments and their repayment out of federal budget transfers in 2024.
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No need to execute the Region’s guarantees this year.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the credit rating will highly 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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Persisting growth of the budget’s need for debt financing.
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 were, 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.
