The credit rating of the Krasnodar Krai (hereinafter, the Region) is determined by the moderately high operational efficiency of the Region’s budget, high share of capital expenditures, and considerable diversification of tax revenues. The rating is constrained by the medium values of some socioeconomic development indicators and declining budget liquidity.
The Region’s credit rating outlook has been changed to Stable because debt load is expected to exceed 30% of current revenues amid a partial decline in budget liquidity.
The Region is part of the Southern Federal District and has a population of around 5.8 mln (4% of Russia’s population). According to the Region’s estimates, its gross regional product (GRP) may have been RUB 4.9 tln in 2023, which is 14% higher in nominal terms and 5.8% higher in real terms than in the previous year. The Region is a consistent leader in terms of agricultural production in Russia. It is also a major resort destination for Russians and an important transportation hub.
KEY ASSESSMENT FACTORS
Moderately high budget profile indicators. The averaged1 ratio of the current account balance to current revenues for 2021–2025 may amount to 16%. According to the current version of the budget law and ACRA’s calculations, the current account balance will continue to be positive in 2025, which indicates that current revenues are sufficient to cover current expenditures. The share of capital current expenditures in total expenditures averaged for 2021–2025 may amount to around 24%. Flexibility of budget expenditures is assessed as high because over the past four years, capital expenditures, on average, were about 70% financed by the Region. The share of tax and non-tax revenues (TNTR) averaged for the abovementioned period in the Region’s revenues (excluding subventions) may amount to 82%.
The ratio of the modified budget deficit (MBD) to current revenues averaged for 2021–2025 may amount to -5% according to ACRA’s calculations. In 2025, as two years earlier, the MBD is expected to be negative and significant for the module due to the expected growth of capital expenditures. In order to cover capital expenditures, the Region will have to raise financing, which according to the latest version of the budget law, will mainly consist of budget loans.
According to the current version of the budget law, the Region plans to increase its budget revenues by 5% this year due to expected growth of proceeds from corporate income tax and personal income tax (+7% and +13%, respectively). At the same time, the Region expects transfers to continue declining (-20%). The Region’s budget expenditures are planned to increase by 12% year-on-year, while current expenditures, according to the latest version of the budget law, may remain at around the same level as last year and capital expenditures may grow by 50%. In this case, the deficit may reach 14% of TNTR.
The quality assessment of the Region’s budget profile corresponds to the first category. There is no information on any breach of budget laws over the past five years; the Region’s budget law establishes additional standards for personal income tax and corporate income tax deductions to lower-level budgets. The budget process demonstrates moderate accuracy of planning and a predominance of conservative expectations. Deviations of actual revenues from the forecast figures stipulated in the initial version of the budget are mostly observed in transfers and corporate income tax revenues due to the volatility of the external environment.
Debt load is expected to grow. In 2024, the Region’s debt decreased by 4% and as of January 1, 2025 was 92% made up of budget loans, while bonds accounted for the rest. This year, the Region plans to place bonds and obtain a significant volume of budget loans to develop infrastructure, as a result of which debt may grow by 61% by the end of the year.
As of the start of this year, the Region had to repay 17% of its debt by the end of the year, 15% of its debt liabilities in 2026, and then no more than 12% of current debt annually.
According to the current version of the budget law, the Region’s debt load will exceed 30% of current revenues by the end of this year, but will start to decline in 2026. Based on the specifics of the Region’s debt structure and the planned further attraction of long-term budget loans for infrastructure development, ACRA has applied an expert adjustment to the estimated indicator for 2025.
The ratio of debt to GRP as of the end of this year will be around 3%, while the ratio of interest expenditures to total budget expenditures averaged for 2021–2025 (excluding subventions) will be 1%.
The quality assessment of the Region’s debt load is determined by the Agency at the highest level. This is facilitated by the Region’s debt policy, which uses long-term debt instruments, a debt structure diversified by instruments, and the minimal debt load of municipalities. ACRA notes that the weighted average debt repayment period exceeded four years at the beginning of this year. The Region’s credit history is positive, the current account balance is positive annually.
Sufficient budget liquidity. The Region meets its expenditure obligations on time and receives income from temporarily free funds — interest income amounted to around 3% of TNTR in 2024. Last year, the volume of budget funds held in bank accounts declined by about 40% and as of January 1, 2025, it was 12% higher than average monthly expenses in 2024 and covered 44% of the Region’s public debt as of the same date.
The Region’s budget liquidity ratio (excluding funds of autonomous and budgetary organizations) may be around 59% for 2025. However, the Agency has adjusted its assessment of the liquidity ratio by one notch upward taking into account the fact that the Region regularly places substantial funds in deposits.
The quality assessment of the Region’s budget liquidity is at the highest level. The Region does not need any additional liquidity due to the sufficient size of funds in accounts. Balances in accounts over the last 12 months were more than twice the monthly expenditures of the Region’s budget. Bank loans were not obtained over the past 24 months as they were unnecessary. Refinancing risks are assessed as low due to the structure of debt and the smooth debt repayment schedule. There were no delinquencies on the Region’s debt obligations, including loans, government bonds, and guarantees.
Diversified economy with development indicators close to the national averages. The main industries that generate the major share of the Region’s GRP include transport and storage (large pipelines run across the Region), trade and repairs, and agriculture (the Region is the leader in Russia in terms of agricultural production). However, the largest contribution to the Region’s 2022 GDP was made by the real estate transactions sector whose share grew from 13% in 2021 to 24% in 2022. Additionally, manufacturing (including the food industry, whose growth prospects are determined by agricultural processing, and oil refining) and services also contribute greatly to the Region’s GRP.
The largest share of tax revenues in the regional budget is generated by the wholesale and transport sectors. According to ACRA’s estimates, the averaged share of the wholesale sector, except the motor vehicle and motorcycle wholesale segment, for 2020–2023 amounted to about 13.0% of regional tax revenues, and that of the transportation sector, except pipeline, amounted to 12.6%.
GRP per capita remains below the national average mainly due to the Region’s large population. The ratio of the Region’s per capita GRP to the national average per capita GRP was 74% averaged for 2019–2022. The ratio of the averaged monthly salary to the regional subsistence minimum for 2020–2023 exceeded 3.5. The averaged unemployment rate for 2020–2023, according to ACRA’s estimates, was 3.05%.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
KEY ASSUMPTIONS
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Budget execution as stipulated by the current version of the budget law;
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Attracting a considerable volume of infrastructure budget loans in the current year to finance capital expenditures in the forecast period;
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Maintaining a conservative debt policy.
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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Debt to current revenues ratio consistently below 30%;
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Sustainably high capital expenditures.
A negative rating action may be prompted by:
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Growth of the Region’s debt load coupled with significant growth in the share of short-term debt;
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Increased need to use accumulated liquidity to finance capital expenditures;
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Significant decrease in budget liquidity.
ISSUE RATINGS
Krasnodar Krai, 35002 (ISIN RU000A0ZZ8X4), maturity date: June 3, 2025, issue volume: RUB 10.0 bln — АA-(RU).
Krasnodar Krai, 35003 (ISIN RU000A1011B5), maturity date: November 12, 2026, issue volume: RUB 10.0 bln — АA-(RU).
Rationale. In ACRA’s opinion, the bond issues of the Krasnodar Krai are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of the Krasnodar Krai.
REGULATORY DISCLOSURE
The credit ratings have been assigned to the Krasnodar Krai and the bond issues of the Krasnodar Krai (RU000A0ZZ8X4, RU000A1011B5) 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 credit ratings to the above issues.
The credit ratings of the Krasnodar Krai and the government securities of the Krasnodar Krai (RU000A0ZZ8X4, RU000A1011B5) were published by ACRA for the first time on October 18, 2017, October 17, 2018, and November 12, 2019, respectively. The credit rating of the Krasnodar Krai and its outlook as well as the credit ratings of the government securities of the Krasnodar Krai (RU000A0ZZ8X4, RU000A1011B5) 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 Krasnodar Krai, 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 Administration of the Krasnodar Krai 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 Administration of the Krasnodar Krai. No conflicts of interest were discovered in the course of credit rating assignment.
