The credit rating of the Tambov Region (hereinafter, the Region) reflects its moderately low debt load, positive current account balance, and the moderately high flexibility of budget expenditures. The rating is constrained by the Region’s heavy dependence on transfers from the federal budget and its economic development indicators that lag behind national averages.
The credit rating outlook has been changed to Positive to reflect ACRA’s expectations regarding the stable decline of the Region’s debt load in the forecast period.
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 496.1 bln in 2023, the index of the physical volume of GRP is 104.9%.
KEY ASSESSMENT FACTORS
Moderate share of internal revenues and a moderately low need to attract borrowed funds for capital purposes. The averaged1 ratio of the Region’s current account balance to current revenues will be 8% for 2021–2025. At the same time, the current account balance 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 15%. 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. In ACRA’s opinion, the engineering, transport and social infrastructure located in the Region may require increased capital investment, as it is comparatively less developed than in other regions of the Central Federal District.
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 the Agency’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%. According to ACRA’s calculations, the MBD for 2025 will be negative, but insignificant in magnitude, which indicates the budget’s moderately low need for borrowed funds or to spend accumulated liquidity to finance expected capital expenditures this year.
Last year, the Region’s budget was executed with a small surplus of 4% of TNTR. This year, according to the current version of the budget law, the Region expects a deficit of around 2% of TNTR.
Also according to the current version of the budget law, by the end of this year TNTR may decline by 3% year-on-year after 10% growth in 2024, including corporate income tax revenues that are expected to continue declining and may be 7% lower than last year, while personal income tax revenues may remain at the same level as last year.
At the same time, this year it is planned to slightly decrease budget expenditures (by 1%), mainly at the expense of a further curtailment of capital expenditures, which began to decline in 2024 following significant growth in 2022. In 2024, capital expenditures fell by 10%, while this year they are expected to decline by a further 5%.
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 laws of the Region provide for uniform and differentiated standards for tax deductions in favor of lower budgets (personal income tax, simplified tax system, excise taxes on fuel). The conservative nature of budget planning, which is the cause of noticeable deviations of actual tax revenues from planned indicators, had a restraining effect on the assessment.
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 by 12% in 2024. As a result of the repayment of part of the debt, its structure has changed slightly in favor of budget loans, which as of the beginning of the current year began to make up about 90% of the debt portfolio. The remaining part is the Region’s government bonds. According to the current version of the budget law, by the end of the current year the volume of debt may increase by 4%, the maximum share (70%) in the structure will be budget loans, the remaining part will be formed by commercial loans.
As of January 1, 2025, the Region had to repay 32% of the existing debt by the end of this year, and later — no more than 16% of the current debt annually.
The quality assessment of the Region’s debt load is determined by the Agency as moderately high due to the consistently positive current account balance, the Region’s debt policy, which is based on using long-term debt instruments, the moderate debt load of municipalities, and a weighted average debt maturity remaining in the range of two to four years.
The Region’s debt load is moderately low. The Region’s debt load has been decreasing since 2019: the debt-to-current income ratio for the specified period decreased from 47% to 27%. According to ACRA’s expectations, the indicator will remain at around 30% by the end of 2025. Its maintenance at a consistently below 30% may have a positive impact on the Region’s credit rating.
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 2024, the volume of available liquidity declined by 18% and as of January 1, 2025 covered around 20% of public debt. The current version of the budget law does not envisage expenditure of accumulated liquidity, almost all of the planned budget deficit will be financed using borrowings.
The liquidity ratio may amount to around 51% as of the end of 2025.
The quality assessment of the Region’s budget liquidity is moderate. The Region has experience in placing bonds in the debt market; there is no information on overdue accounts payable of the regional budget; there is no need to use short-term sources of liquidity. According to the Region, purchases under a number of credit lines over the past 24 months have not taken place. ACRA notes the presence of some risks of refinancing due to the high share of debt liabilities subject to repayment this year.
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 Positive outlook assumes that the rating will highly likely be upgraded 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 stably 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.
