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 will 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. According to the Region’s estimates, in 2022 its GRP reached RUB 608 bln. The Region annually ranks second after Moscow in electric power produced among the CFD’s regions, generating 17% of the total volume of electricity in the CFD in 2022.
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 2022, the debt to current revenue ratio stood at 18.2%. ACRA expects this ratio to equal 24.5% due to the Region’s plans to increase its debt by 31% in 2023.
As of January 1, 2023, the Region’s debt consisted entirely of budget loans due in 2023–2037. Over the seven month of 2023, the Region’s debt structure and volume did not change, and as of August 1, 2023, the total debt of the Region was RUB 15.5 bln.
Refinancing risks are assessed as low. The Region is to repay about 5% of its debt annually in 2023–2024.
Interest expenses are not burdensome for the Region: the averaged[1] level of interest expenses in 2020–2024 should be less than 1% of total budget expenditures (excluding subventions).
Annually, the ratio of the Region’s debt to GRP was much lower than the level that could affect its credit rating.
In 2023, the debt is expected to grow because federal budget loans will be borrowed to finance the implementation of infrastructure projects.
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. As of the end of 2022, the Region’s account balances exceeded average monthly budget expenses by more than 2x (excluding funds of autonomous and budgetary institutions, which the Region also uses to manage liquidity). Over the past seven months of this year, the Region increased the volume of its account balances by more than 1.5 times, and as of August 1, 2023, this amount was more than 2.5 times higher than the Region’s debt.
This liquidity reserve will allow the Region to cover the entire planned budget deficit of this year and the next two years.
The Region’s interest income in 2022 amounted to 4.5% of its tax and non-tax revenues (TNTR). In 2023, this indicator is expected to remain almost unchanged. The liquidity ratio in 2023 may amount to 125%, which is much lower than in the past year. This is explained by the planned spending of a portion of accumulated funds.
Balanced budget policy and a high share of capital expenditures in the structure of the budget. The share of TNTR in the Region’s budget revenues is quite high. ACRA assumes that the averaged share of TNTR in total revenues (excluding subventions) will be 72% in 2020−2024. The averaged ratio of the current account to current revenues over this period will be around 10%, and the ratio of the averaged modified budget deficit to current revenues will be -5% in 2023. This indicates that current revenues are sufficient to cover current expenses, while to finance capital expenditures the Region will probably use its reserves or raise debt.
The structure of TNTR is stable: historically, the maximum share of TNTR comes from personal income tax and corporate income tax; the share of taxes on goods and services and property taxes is significant. The Region expected its corporate tax revenues and personal income tax revenues to shrink in 2023 by 2% and 4%, respectively. However, in H1 2023, the Region’s TNTR increased by 14%: as compared to H1 2022, corporate tax revenues and personal income tax revenues grew by 31% and 6%, respectively.
In 2021–2022, the Region’s capital expenditures grew significantly. They were covered with transfers by almost a half. The increase in capital expenditures planned by the Region for 2023 is about 56%. The averaged share of capital expenditures in the Region’s total expenditures (excluding subventions) in 2020–2024 will amount to 28%. ACRA considers capital expenditures as a potential reserve for cutting budget expenditures should revenues decline.
Before 2023, the Region’s budget was a surplus. However, this year, the Region has plans to execute its budget with a deficit of 27% of TNTR. The deficit is expected to be covered with reserves and, insignificantly, with borrowed funds.
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 about 60% of the national average, and wages on average is around three regional subsistence minimums.
The Region’s tax revenues are quite diversified. According to ACRA’s estimates, manufacturing industries accounted for most of revenues in 2022 and Q1 2023 (24–25%). Trade, transportation and storage, IT and communications, and electricity 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
-
Budget execution in line with the Region’s current budget law.
-
Most of budget deficits to be covered with accumulated 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:
-
Growth of the share of capital expenditures financed using internal funds;
-
Growing volume of budget liquidity;
-
Growth of GRP and wages in the Region outpacing national averages.
A negative rating action may be prompted by:
-
Sharp reduction of TNTR with no opportunities to reduce budget expenses;
-
Debt load exceeding 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 of the Tver Region has been reviewed and disclosed prior to the dates specified in the Calendar of sovereign credit rating revisions and publications due to prompt performance of rating revision and liaison procedures. Planned revision date: August 22, 2023, actual revision date: August 18, 2023. Planned publication date: August 25, 2023, actual publication date: August 23, 2023.
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.
