The credit rating of the Tver Region (hereinafter, the Region) is based on the low controlled debt load, significant liquidity buffer, and the high level of capital expenditures, which may, in some cases, be viewed as a reserve for budget cuts.
The Region is located in the Central Federal District (CFD). The Region is home to almost 1% of Russia’s population and generates 0.4% of the country’s total GRP. According to the Region’s estimates, in 2023 its GRP reached RUB 724 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 2023.
KEY ASSESSMENT FACTORS
Balanced budget policy and moderately high operational efficiency. The share of tax and non-tax revenues (TNTR) in the Region’s budget revenues is quite high. ACRA assumes that the averaged1 share of TNTR in total revenues (excluding subventions) will be 77% in 2021−2025. The averaged ratio of the current account to current revenues has stabilized at a moderately high level — over the abovementioned period it may be 14%. The current account will remain positive. The ratio of the averaged modified budget deficit to current revenues will be 2% in 2024. This indicates that the budget’s current revenues are sufficient to cover current expenditures, while the Region may need to use some of its accumulated liquidity or raise debt to finance capital expenditures.
The structure of TNTR is stable: historically, the maximum share of TNTR comes from personal income tax and corporate income tax. This year, the Region expects personal income tax revenues to remain at the level of the previous year and a slight decrease in corporate income tax revenues — by approximately 2%. According to the current version of the budget law, the total revenue of the regional budget will increase by 1% compared to 2023. At the same time, the Region plans to increase expenditures by 11%, capital expenditures will increase significantly (+18%), and current expenditures will increase less significantly (+8%). This year’s budget deficit is planned by the Region at 8% of TNTR, which is expected to be financed entirely by the Region’s own funds.
According to the regional budget execution reports for H1 2024, budget revenues grew by 8% y-o-y, mainly due to a 30% growth of personal income tax revenues, while budget expenditures increased by 9% y-o-y, so that the budget was executed with an interim surplus.
The averaged share of capital expenditures in the Region’s total expenditures (excluding subventions) is estimated by the Agency at 27% in 2021–2025. ACRA considers capital expenditures as a potential reserve for cutting budget expenditures should revenues decline. Less than 40% of the Region’s capital expenditures is expected to be covered by transfers.
The quality assessment of the Region’s budget profile is determined as moderate. There is no information about instances of violation of budget legislation; the volume of lost tax revenues due to the use of tax benefits generally does not exceed 2% of TNTR and is insignificant for the budget of the Region. The Region’s budget law provides for additional allocations out of personal income tax revenues in favor of budgets of some municipalities. The quality assessment is constrained by the conservative approach to budget planning, and namely, recurring underestimate of corporate income tax revenues.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Low level of public debt and no significant refinancing risks. The debt load on the Region’s budget is low — the ratio of its debt to current revenues was 20% at the end of 2023. ACRA expects this indicator to decline to 16%.
As of January 1, 2024, the Region’s debt consisted entirely of budget loans subject to repayment in 2024–2037. Refinancing risks are assessed as insignificant. As of the beginning of the year, the Region was to repay around 27% of its debt in 2024, however, a fifth of these debt obligations were budget loans issued for the purpose of advanced financial support for expenditure obligations, which were already repaid in the first half of this year. Thus, as of July 1, 2024, the Region was to repay less than 6% of its debt by the end of the year.
Interest expenditures are not burdensome for the Region — the averaged level of interest expenses in 2021–2025 should be less than 1% of total budget expenditures (excluding subventions).
Annually, the ratio of the Region’s debt to GRP is much lower than the level that could affect its credit rating.
The Agency views the Region’s debt profile as moderately strong in view of the insignificant debt load of municipalities and the Region’s balanced debt policy, which is based on used long-term debt instruments. Public sector enterprises do not have a significant amount of debt obligations; the current account is mostly positive; the weighted average maturity of the Region’s debt did not exceed three and a half years as of the beginning of the year.
Significant amount of accumulated liquidity. The volume of funds in the Region’s budget accounts increased by 25% in 2023 and, as of January 1, 2024, it was more than three times higher than the average monthly budget expenditures in 2023 and almost twice higher than the Region’s debt as of the beginning of the year. As of July 1, 2024, the volume of account balances was 2.6 times higher than the debt volume.
The liquidity ratio will be well above 140% in 2024.
The quality assessment of the liquidity of the Region’s budget corresponds to a moderately high level. According to the Region, the accounts payables by the budget is declining, the overdue accounts payable were insignificant as of January 1, 2024 and amounted to less than 1% of TNTR. There is no need to raise short-term loans in order to finance cash gaps. Over the past 24 months no loan tenders were held by the Region, and there were no open limits under loans from commercial banks as of July 1, 2024. Debt refinancing risks are insignificant.
Diversified but moderately developed economy. The key sectors of the Region’s economy include real estate transactions, wholesale and retail trade, power generation, vehicle manufacturing, production of metal goods, and food production. Per capita GRP is about 60% of the national average, and wages on average amount to over 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 2023 (24%), including for metallurgical production and production of finished metal products (6%), as well as for the production of other vehicles and equipment (3%). Trade (13%), electricity generation, transmission and distribution (12%), and transportation and storage (8%) 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.
-
Budget deficits to be covered using 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;
-
Further improvement of the budget’s operational efficiency;
-
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 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.
