The credit rating of the Urban District of the City of Ufa of the Republic of Bashkortostan (hereinafter, the City) is based on its low debt load coupled with moderate risks for refinancing liabilities, a considerable volume of capital expenditures, and the stable development indicators of the City’s economy. The rating is constrained by the City’s considerable dependence on transfers from the budget of the Republic of Bashkortostan and the moderate operational efficiency indicators of the budget coupled with its need to use accumulated liquidity at the end of this year.
Ufa is the administrative center of the Republic of Bashkortostan and is located in the Volga Federal District (VFD). The City is among the 10 largest in terms of population in Russia, with more than 1.1 mln residents as of the end of 2023. Ufa is a major transport hub of the VFD and one of the country’s largest industrial centers. Its economy is focused on the oil refining industry. According to ACRA’s estimates, the City’s share in the gross regional product (GRP) of the Republic of Bashkortostan may exceed 50% annually.
KEY ASSESSMENT FACTORS
Moderate operational efficiency indicators of the budget and need to use additional funds. The averaged1 ratio of the current account balance to current revenues for 2021–2025 is estimated at 1%. At the end of this year, the indicator is expected to be positive at around 1%, which evidences that current revenues are sufficient to finance current expenditures. Nevertheless, the volume of the current account balance generated by the City annually does not allow a significant share of capital expenditures to be financed using these funds.
ACRA assesses the share of capital expenditures in the City’s total expenditures (excluding subventions) as high. The value of this indicator averaged for 2021–2025 exceeds 24%. However, the Agency notes that annually, capital expenditures are practically fully financed by the senior budget, which points to insufficient flexibility of the City’s budget expenditures.
The share of tax and non-tax revenues (TNTR) in the budget revenues (excluding subventions) is assessed as moderate — its averaged value for 2021–2025 slightly exceeds 60%, which is largely explained by the low volume of transfers approved for 2025. ACRA has applied a negative adjustment to the specified indicator for the threshold value, as annually since 2019 the share of TNTR in total revenues (excluding subventions) has not exceeded 60%, which also indicates the City’s high dependence on the senior budget.
The ratio of the averaged modified budget deficit (MBD) to current revenues for 2021–2025 is just below 0%, although the MBD may amount to around 2% of current revenues in 2024, which indicates the budget’s moderate need to use additional financing for capital purposes. The Agency notes that this need is fully covered by the City’s account balances. In addition, given the City’s low debt load, ACRA has applied a positive adjustment to the assessment of the ratio of the averaged MBD to current revenues.
The City’s budget profile is moderately strong. Budget forecasting is complicated because a significant part of revenues is transfers from the senior budget. There are no cases of violation of budget legislation. In the Agency’s opinion, the amount of lost tax revenues associated with the use of tax benefits is not significant for the budget.
In 2023, the revenue side of the City’s budget increased by 2% compared to the year before, while TNTR grew by 10%. This growth was mainly driven by higher personal income tax proceeds (+12%) and taxes on total income (+17%). Transfers declined slightly (-2%) in 2023 compared to the year before, mainly amid capital transfers falling by 22%, while current transfers grew by 12%. Expenditures of the City’s budget over the past year were practically unchanged; growth amounted to around 1%. At the same time, capital expenditures fell by 18% year-on-year, while current expenditures grew by 9%. The City finished last year with a surplus of 3% of TNTR, which enabled it to increase funds held in accounts and partly repay its debt liabilities.
According to budget assignments approved as of July 1, 2024, this year, the City’s budget revenues will increase by 3% compared to the 2023 figure. TNTR will grow by 6%, mainly thanks to expected growth in personal income tax proceeds and proceeds from taxes on total income (+12% each), as well as property taxes (+31%). It is expected that the volume of transfers will remain at around the level of 2023, although the volume of capital transfers will continue to decline year-on-year. Growth of the expenditure side of the budget will exceed 8% in 2024, mainly due to capital transfers increasing by 12%. The budget deficit expected by the end of this year will stand at 9% of TNTR.
Judging by data on the semi-annual execution of the City’s budget and changes to the proportion of distribution of some tax revenues, ACRA assumes that growth in personal income tax proceeds and proceeds from taxes on total income may be a lot higher than expected based on the current approved budget allocations. In this case, if other budget parameters remain unchanged, the deficit at the end of this year may be smaller than anticipated, which will allow the City to use a smaller amount of accumulated liquidity.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Low debt load and moderate debt refinancing risks. The debt load on the City’s budget has gradually declined over the analyzed period (since 2020). As of January 1, 2024, the City’s debt was RUB 9.5 bln. The debt portfolio was 79% made up of budget loans from the budget of the Republic of Bashkortostan, while the remaining part was bank lending. A year earlier, the debt was RUB 9.7 bln and declined thanks to the repayment of part of the bank debt. As of the start of this year, the debt repayment schedule involved repayment of all of the commercial debt in 2024, which amounted to 21% of the City’s total debt. In 2025–2026, 4% and 12% of debt was subject to repayment, respectively.
As of July 1, 2024, the City’s debt had changed slightly compared to the start of the year. The City repaid RUB 100.0 mln of bank loans, and a further RUB 340.0 mln were refinanced using bank loans repayable in 2025. According to the updated repayment schedule, the City has to repay 16% of its debt this year and 8% next year.
The ratio of debt to the City’s current revenues was 27% in 2023. ACRA assumes that this indicator may amount to 24% in 2024, which corresponds to a low debt load. Interest expenditures are not burdensome for the budget: the ratio of interest expenditures averaged over 2021–2025 to total expenditures (excluding subventions) is estimated at less than 1%. The ratio of the City’s debt to gross metropolitan product is not calculated due the absence of the latter. According to ACRA’s estimates, this ratio could be a lot lower than 20%.
The City’s debt profile is strong. The weighted average repayment period exceeds four years. The share of bank loans to be repaid this year in the City’s debt portfolio as of the start of 2024 exceeded 20% of the total volume of debt. The budget’s operational efficiency is consistently positive, which indicates that it is not necessary to finance current expenditures using debt or accumulated liquidity. There are no cases of overdue payments for debt obligations. According to the City, the debt of public sector enterprises at the beginning of this year amounted to RUB 3.3 bln, the volume of their overdue accounts payable was insignificant. The City has a leasing contract that provides for annual payments from the City’s budget of no more than RUB 32.3 mln over the next three years. Three concession agreements have also been in force since 2022.
Accumulated liquidity allows future deficits to be financed. In 2023, the volume of balances in the City’s accounts increased by 17% compared to 2022. Since the start of last year, account balances have on average covered around 85% of monthly expenditures of the City’s budget. ACRA expects around a quarter of accumulated funds to be used this year to finance the expected budget deficit. The remaining funds will be sufficient to cover expected future deficits.
The liquidity ratio of the City’s budget will be 95% as of the end of 2024.
The liquidity profile of the City’s budget is strong. The City did not obtain short-term loans from the Federal Treasury Department in the past two years. There were no failed purchases of credit resources due to reasons beyond the City’s control during the specified period. As of the start of this year, the City did not have any undrawn revolving credit lines due in over a year. The risks of refinancing the City’s debt liabilities are assessed as moderate due to the significant volumes of short-term bank debt at the start of the year. According to the City, the budget did not have any overdue payables as of January 1, 2024.
Comparatively high economic development indicators. Ufa is one of the largest industrial centers of the VFD and the City’s economy is focused mainly on the manufacturing industry. In individual years, the share of the manufacturing industry formed more than 57% of the City’s shipped products, and in 2023 this figure exceeded 48%. Among the manufacturing industries, the largest share in the total volume of shipments is formed by production of coke and petroleum products and production of other vehicles and equipment. A significant share of shipped products comes from the mining industry; in 2023 it amounted to 21%, which is partly due to the registration in the City of the vertically integrated oil company PJSOC Bashneft. The City’s largest industrial companies also include Bashneft’s oil processing facilities (Bashneft-Novoil, Bashneft-Ufaneftekhim, Bashneft-UNPZ), as well as enterprises such as PJSC UEC-Ufa Engine Industrial Association (production of turbojet and turboprop engines), LLC Bashkir Generation Company (production of electricity using thermal power plants), and PJSC Ufaorgsintez (production of plastics and synthetic resins).
The estimated share of the GRP of the Republic of Bashkortostan formed in the City could exceed 50% from 2019 to 2023. The ratio of nominal accrued wages averaged for 2020–2023 for the entire City and the subsistence minimum calculated for the Republic of Bashkortostan significantly exceeded 3.5. Official unemployment in the City was 0.5% in 2023. The averaged estimated unemployment rate (as per the ILO’s methodology) may be around 3% for the aforementioned period.
key assumptions
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Estimated share of the GRP of the Republic of Bashkortostan formed in the City exceeding 50%;
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More significant growth of personal income tax proceeds and proceeds from total income this year than expected according to the current budget parameters;
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Using accumulated liquidity to finance the projected budget deficit;
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Continued significant dependence of the City’s budget on transfers from the higher budget.
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 the share of TNTR in the City’s revenues (excluding subventions);
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Lower need of the budget to use accumulated funds to finance capital expenditures;
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Higher volume of balances in the budget’s accounts at the end of this year.
A negative rating action may be prompted by:
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Consistent decline of the budget’s operational efficiency;
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The budget’s debt load exceeding 30% of current expenditures coupled with the share of short-term debt remaining above 20% of total debt.
issue ratings
There are no outstanding issues.
regulatory disclosure
The credit rating has been assigned to the Urban District of the City of Ufa of the Republic of Bashkortostan 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 Urban District of the City of Ufa of the Republic of Bashkortostan 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 Urban District of the City of Ufa of the Republic of Bashkortostan, 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 Urban District of the City of Ufa of the Republic of Bashkortostan 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 Administration of the Urban District of the City of Ufa of the Republic of Bashkortostan. No conflicts of interest were discovered in the course of credit rating assignment.
