The credit rating of the Moscow Region (hereinafter, the Region) is based on the high level of development of the Region’s economy, high share of own (tax and non-tax) revenues (TNTR), the high ratio of current account to current revenues, as well as the moderately low debt load coupled with sufficient budget liquidity.
The Moscow Region is a major industrially developed region whose contribution to Russian economy is significant (more than 5% of the gross regional product (GRP) of Russia’s regions). According to the Region’s estimates, its GRP was RUB 8.5 tln in 2023. The Region ranks second in the country by population (5.9% of the total in 2023).
KEY ASSESSMENT FACTORS
High operational efficiency of the budget and flexible structure of expenditures. Thanks to the accelerated growth of TNTR — primarily growth of income tax —which occurred in a number of industries in 2023, current budget revenues increased to a greater extent than current expenses (even taking into account the reduction in current transfers). This impacted a number of budget profile indicators. The ratio of the Region’s averaged1 balance of current operations to current revenues will be consistently higher than 20% in 2021–2025, while the ratio of the averaged modified budget deficit to current revenues will amount to -3%. In ACRA’s opinion, the aforementioned ratios will remain on the condition of moderate growth of expenditures.
The Region’s budget has a high share of internal revenues. In 2021–2025, the averaged ratio of TNTR to budget revenues (excluding subventions) will exceed 90% for the first time, due to the growth of this ratio in 2024 and 2025.
The averaged share of capital expenditures in the Region’s total expenditures (excluding subventions) will be very high (29%) in 2021–2025. ACRA expects this ratio to decline slowly starting from 2025. The Region’s capital expenditures are largely financed using internal funds.
The Region’s budget law stipulates this year’s budget deficit at 9% of TNTR, which will be financed using borrowed funds and accumulated liquidity. Proceeding from the interim data, ACRA believes that the budget can be executed with a deficit lower than the Region expects.
The Government of the Moscow Region actively participates in developing the regional economy using tax incentives and economic support.
The budget process is characterized by moderate accuracy of planning and the predominance of conservative expectations. Significant deviations of actual revenues from the forecast indicators provided for in the first version of the budget are observed for income tax and transfers. These deviations are caused by reasons beyond the Region’s control.
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 sufficient budget liquidity. The ratio of the Region’s debt to its current revenues amounted to 30% of its current revenues as of the end of 2023. Given the current budget indicators, this ratio will grow slightly in 2024 and reach 32%, which will not affect the Region’s credit rating. Since 2021, budget loans have been overtaking the share of commercial loans in the structure of the Region’s debt due to debt restructuring programs and the provision of various types of budget loans for investment purposes. By the start of 2024, the share of budget loans was 74%, while the share of bonds was 26%. By July 1, 2024, the debt declined by 9%, mainly due to the planned depreciation of bonds and, to a lesser degree, due to repayment of budget loans; as a result, the debt structure changed slightly in favor of budget loans.
The ratio of the Region’s debt to GRP does not exceed 5%. The ratio of averaged interest expenses to total budget expenditures (excluding subventions) will be less than 2% in 2021−2025, which indicates that interest expenses are not burdensome for the regional budget. As of January 1, 2024, 17% of the Region’s debt obligations were to be repaid or refinanced this year, a quarter of which are loans for advanced financing of expenditure obligations issued in 2023 and repaid using transfers. Over the six months of 2024, more than half of the debt due and payable this year was repaid. The Region was to repay or refinance 21% of its debt liabilities in 2025 but taking into account the volume of repayments in H1 2024, the share of debt due in 2025 has grown to 23%. The federal government wrote off part of the Region’s budget loans in 2023. ACRA assumes this practice will continue in the current and subsequent years. In this regard, and due to a technical increase in the share of debt falling due in 2025, the Agency applied an adjustment to this indicator and lowered it to 20%.
The average debt repayment period exceeds 3.5 years. The Region is a major borrower in the fixed income market, which assumes high diversification of the investor base. There is no information about the need to support public sector companies using the Region’s budget or about the presence of significant overdue accounts payable of these companies. The debt load of municipalities is small and under the control of the Region.
Liquidity available to the Region is sufficient to cover its expenditures, including interest payments. As of January 1, 2024, account balances amounted to 82% of the regional budget’s average monthly expenditures for 2023, while their averaged value amounted to 163% of the Region’s average monthly budget expenditures for 2023. By July 1, 2024, account balances grew by more than half.
The Region regularly receives considerable revenues from placing temporarily free budget funds. Previously, the Region placed funds in deposits, however, since April 2022 it has received income from operations of the Federal Treasury, which has access to a wider range of instruments. The liquidity ratio was 71% in 2023; but it may decline this year in view of the need to use liquidity to cover deficits.
Given the Region’s regular receipt of significant interest income, the Agency has adjusted the liquidity ratio score to 2. There are no credit limits with a withdrawal period of more than one year. The Region has no restrictions on the cost of raising debt.
High economic diversification and a favorable geographic location. The largest cities in the Region are Balashikha, Podolsk, and Khimki. The Region is home to eight science cities, five special economic zones, and three innovative territorial clusters. The dominant industry is the food industry (about 22% of industrial production), which is not related to pro-cyclical industries. The regional budget’s tax revenues do not depend on one large taxpayer or group of large taxpayers. Historically, the maximum share of a single taxpayer/industry in tax revenues is less than 4%/16%, respectively. Proximity to Moscow guarantees a stable market for products manufactured in the Region and demand for labor resources. This ensures a low unemployment and rather high average wages compared to the subsistence minimum in the Region: since 2021, the averaged wage has been higher than the subsistence minimum by four times. For the entire period of observations (since 2013), the Region’s real GRP dynamics have been higher than national averages (except for three cases), and the manufacturing sector production rates significantly exceeded national averages each year (except 2015). The Region’s population consistently grows by approximately 1% a year (with the exception of the period when New Moscow was created and therefore the population declined due to administrative reasons). Compared to most Russian regions, where the population is declining, the Moscow Region has an advantage in this area that will determine the trajectory of its economic growth. The Region’s population growth is mainly based on the migration inflow. The share of the able-bodied population in the Region annually exceeds the national average, which also has a positive effect on its economy.
KEY ASSUMPTIONS
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Maintaining a conservative debt policy.
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Probability of writing off part of budget loans.
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Maintaining sufficient budget 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 negative rating action may be prompted by:
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Growth in current budget expenditures without a corresponding increase in revenues;
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Debt load exceeding 55% of current revenues;
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Lower volume of available liquidity;
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Worsening of the debt repayment schedule and debt diversification.
ISSUE RATINGS
Moscow Region, 34012 (ISIN RU000A100XP4), maturity date: October 8, 2024, issue volume: RUB 25 bln — AAA(RU).
Moscow Region, 34013 (ISIN RU000A101988), maturity date: December 20, 2024, issue volume: RUB 14 bln — ААA(RU).
Moscow Region, 34014 (ISIN RU000A101WL3), maturity date: July 8, 2025, issue volume: RUB 28 bln — ААA(RU).
Moscow Region, 35015 (ISIN RU000A102CR0), maturity date: November 10, 2026, issue volume: RUB 30 bln — ААA(RU).
Moscow Region, 35016 (ISIN RU000A102G35), maturity date: November 30, 2027, issue volume: RUB 30 bln — ААA(RU).
Rationale. In the Agency’s opinion, the bonds of the Moscow Region are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of the Moscow Region.
REGULATORY DISCLOSURE
The credit ratings have been assigned to the Moscow Region and the bond issues (RU000A100XP4, RU000A101988, RU000A101WL3, RU000A102CR0, RU000A102G35) of the Moscow Region 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 Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale for the Russian Federation was also applied to assign the credit ratings to the above issues.
The credit ratings of the Moscow Region and the bond issues (RU000A100XP4, RU000A101988, RU000A101WL3, RU000A102CR0, RU000A102G35) of the Moscow Region were published by ACRA for the first time on December 12, 2016, October 9, 2019, December 23, 2019, July 8, 2020, November 12, 2020, and December 2, 2020, respectively. The credit rating of the Moscow Region and its outlook and the credit ratings of the bond issues (RU000A100XP4, RU000A101988, RU000A101WL3, RU000A102CR0, RU000A102G35) of the Moscow Region 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 ratings were assigned based on data provided by the Moscow 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 ratings are solicited and the Government of the Moscow Region participated in their assignment.
In assigning the credit ratings, 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 Moscow Region. No conflicts of interest were discovered in the course of credit rating assignment.
