The credit rating of the Tambov Region (hereinafter, the Region) reflects its moderately low debt load, positive current account balance, and the budget’s moderate need to borrow from the federal budget in the form of infrastructure budget loans to cover capital expenditures. The rating is constrained by the Region’s heavy dependence on federal budget transfers and its economic development indicators that lag behind national averages.
The Region is located in the Central Federal District and is home to just under 1% of Russia’s population. It accounts for about 0.3% of the country’s total gross regional product (GRP). According to the Region, its GRP may have amounted to RUB 499.8 bln in 2023, the index of the physical volume of GRP is 104%.
KEY ASSESSMENT FACTORS
Low share of internal revenues and a moderate need to attract borrowed funds for capital purposes. The averaged1 ratio of the Region’s current account balance to current revenues will be 7% for 2021–2025. At the same time, the current account balance will decline over the next three years, but remains positive, which indicates that the current revenues of the Region’s budget are sufficient to finance current expenditures in full.
The averaged ratio of capital expenditures to total budget expenditures (excluding subventions) for 2021–2025 may be 16%. This high indicator is due to capital expenditures being maintained at the high level achieved in 2022. At the same time, just over half of capital expenditures is financed annually using capital transfers, and therefore capital expenditures cannot be fully viewed as a source for reducing the spending part of the budget.
The averaged share of tax and non-tax revenues (TNTR) in the Region’s revenues (excluding subventions) for the above period will not exceed 60% in ACRA’s opinion, which corresponds to a moderate level of internal revenues.
The ratio of the modified budget deficit (MBD) to current revenues averaged over 2021–2025 is projected at -1%. The projected value of the MBD for 2024 indicates the budget’s moderate need for borrowed funds in the form of infrastructure budget loans to finance expected capital expenditures this year.
According to the latest version of the budget law, this year the Region expects a deficit of around 6% of TNTR, which may be fully covered by internal funds. However, in that case the volume of debt to be repaid this year would have to be partly refinancing using commercial loans.
In addition, according to the current version of the budget law, by the end of this year TNTR may decline by 1% year-on-year after substantial (+14%) growth in 2023, including corporate income tax revenues that are expected to be 16% lower than last year (after growing by 32% in 2023), while personal income tax proceeds are expected to be 10% higher. However, according to the Region’s budget execution for H1 2024, corporate income tax revenues were only 6% lower than the indicator for the same period last year, while personal income tax revenues were 24% higher.
At the same time, this year it is planned to increase budget expenditures by 3%. According to budget execution for the first six months of this year, expenditures increased by 5% year-on-year.
The quality assessment of the Region’s budget profile is defined as moderate. There is no information on cases of violation of budget legislation over the past five years. The amount of budget funds lost from the provision of tax breaks is insignificant at about 3% of TNTR. The Region often revises its budget law and regularly underestimates its income tax revenues and, as a consequence, it underestimates the budget’s revenues and expenditures. The Region’s budget law does not provide for additional transfers of personal income tax to lower budgets.
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. The Region’s debt declined slightly in 2023. Last year, the Region repaid part of its debt obligations on government bonds and attracted an infrastructure budget loan, a special treasury loan, as well as a budget loan in order to provide advanced financial support for expenditure obligations. As of the beginning of this year, about three quarters of the debt portfolio were budget loans; the remaining part included the Region’s government bonds. By the end of the year, the Region had to repay 15% of its existing debt, 35% of which was represented by a loan for advanced financial support. However, this loan was already repaid in the first half of this year. In 2024, the Region has already repaid one of its bonds and obtained funds under a budget loan to finance infrastructure projects. Therefore, the Region’s debt declined by 9%, and the Region will have to repay 6% of its current volume by the end of the year. The peak of repayments is scheduled for 2025, when the Region will have to repay 28% of its current debt; the subsequent payment schedule is balanced. At the same time, if debt due this year is refinanced through short-term bank loans, then the share of debt due in 2025 may increase.
The Agency determines the quality assessment of the Region’s debt as medium due to the moderate debt load of its municipalities and the Region’s debt policy, which is based on using long-term debt instruments. The weighted average debt repayment period exceeded 3.5 years at the beginning of this year, however, this indicator will decline if the debt to be repaid is refinanced using short-term funds.
The Region’s debt load is moderately low. The ratio of debt to current revenues was 32% as of the end of 2023. According to the current version of the budget law and ACRA’s calculations, this indicator will decrease to 31% by the end of 2024.
The Region’s public debt service expenditures are not burdensome for its budget — the ratio of averaged interest expenditures to averaged total budget expenditures, excluding subventions, will amount to about 1% for 2021–2025. The ratio of the Region’s debt to GRP does not exceed 5% annually.
Account balances will allow the Region to fully cover the expected budget deficit. During 2023, the volume of available liquidity increased by 22% and as of January 1, 2024 covered around 20% of public debt. As of July 1, 2024, liquidity had increased by more than 2.5x and covered around 60% of public date as of that date. The current version of the budget law envisages significant expenditure of accumulated liquidity to finance the planned budget deficit and repay part of the Region’s debt liabilities.
The liquidity ratio may amount to around 67% as of the end of 2024.
The quality assessment of the Region’s budget liquidity is moderate. According to the Region, purchases under a number of credit lines over the past 24 months have not taken place. Open but undrawn credit lines with a drawdown period of more than 12 months were absent as of January 1, 2024 and August 1, 2024. There is no information about overdue payables of the regional budget; ACRA notes the risks of refinancing.
Moderate regional economic development indicators are a result of the dominance of the agricultural industry. The agricultural industry forms over a quarter of the Region’s GRP, while in 2022 the share of this sector was more than 30%. In addition, a significant part of the Region’s GRP is formed by manufacturing industries, of which more than half of the volume of shipped goods of own production in 2023 was accounted for by the food industry. Other notable industries are wholesale and retail trade and repair, public sector enterprises, real estate services, transportation and storage services, and the construction industry. The Region’s tax revenues are diversified. The largest share is made up of revenues from the manufacturing industry — 26% of the total volume of tax revenues in 2023.
The ratio of averaged wage to averaged regional subsistence minimum exceeded 3 in 2020–2023. According to the Region’s estimates and ACRA’s calculations, the indicator will remain above 3 as of the end of 2024. The Region’s economy is characterized by relatively low GRP per capita: the ratio of averaged regional GRP per capita to averaged national GRP per capita for 2020–2022 amounted to 53% and is not expected to grow in the forecast period.
KEY ASSUMPTIONS
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Budget execution in line with the current version of the budget law;
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Continued strong dependence on federal transfers for budget revenues;
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Maintaining a high share of federal transfers in capital expenditures.
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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Increase in the current account balance due to growth of budget revenues;
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Sustainable growth of the share of internal revenues;
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Growth of the share of capital expenditures in total budget expenditures (excluding subventions);
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The Region’s debt load declining below 30%;
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Growth of accumulated budget liquidity.
A negative rating action may be prompted by:
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Increased need for borrowing to finance capital expenditures;
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Substantial increase in the debt load (to over 55% of current revenues), along with an increase in the share of short-term debt;
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Significant decline in the volume of accumulated liquidity.
issue ratings
Tambov Region, 35004 (ISIN RU000A0ZYJ18), maturity date: December 5, 2025, issue volume: RUB 3.0 bln — BBB+(RU).
Rationale. In ACRA’s opinion, the Tambov Region’s bond issue is a senior unsecured debt instrument, the credit rating of which corresponds to the credit rating of the Tambov Region.
regulatory disclosure
The credit ratings of the Tambov Region and the bond issue of the Tambov Region (ISIN RU000A0ZYJ18) have 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 Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale for the Russian Federation was also applied to assign the credit rating to the above issue.
The credit ratings of the Tambov Region and the bond issue of the Tambov Region (ISIN RU000A0ZYJ18) were published by ACRA for the first time on July 3, 2017 and December 13, 2017, respectively. The credit rating of the Tambov Region and its outlook and the credit rating of the bond issue of the Tambov Region (ISIN RU000A0ZYJ18) 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 Tambov 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 Tambov 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 Tambov Region. No conflicts of interest were discovered in the course of credit rating assignment.
