The credit rating of the Novgorod Region (hereinafter, the Region) is based on the moderate indicators of the budget profile and the regional economy, as well as a moderately low debt load.
The Negative outlook reflects ACRA’s expectations regarding both the Region spending almost all of its accumulated liquidity to finance the projected deficit for 2025 and the emergence of refinancing risks amid the Region’s plans to obtain short-term debt in the form of bank loans.
The Novgorod Region is located in the Northwestern Federal District and borders four other regions of Russia. On average, 569,200 people lived in the Region in 2024 (0.4% of the country’s population). Its gross regional product (GRP) for 2023 amounted to RUB 409 bln, which exceeded the indicator for the previous year by 8% in nominal terms and 4.6% in real terms. The main railroads and highways connecting Moscow and Saint Petersburg pass through the Region.
key assessment factors
Moderate budget profile indicators. According to the latest version of the budget law, the revenue part of the budget will decline by around 4% in 2025 amid transfers falling by 21%. According to the Region’s plans, corporate income tax revenues will grow by 19% after a significant (-41%) decline in 2024. Personal income tax proceeds will continue to grow and increase by 8% year-on-year. The Region plans to cut its budget expenditures by 4%, with current expenditures growing by 9% and capital expenditures declining by 38%. A deficit equivalent to 17% of tax and non-tax revenues (TNTR) is projected for 2025 (before deducting possible excesses). The Region plans to finance the deficit by spending almost all of the funds in its budget accounts, as well as by borrowing (mainly bank loans).
Taking into account these conditions, the averaged1 share of TNTR for 2021–2025 in the Region’s total revenues (excluding subventions) may amount to 72%. The averaged ratio of the current account balance to current revenues will equal 7% for this period, while the ratio of the averaged modified budget deficit to current revenues will be -5%. The current account balance will be negative, which indicates that the Region’s current revenues are insufficient to cover current expenditures, the financing of which will require borrowing or spending of liquidity.
Averaged capital expenditures in 2021–2025 will equal 22% of the total budget expenditures; on average over the past three years they have been almost 50% financed using transfers from the federal budget. The quality assessment of the flexibility of budget expenditures corresponds to the third category. The current account balance after taking into account interest revenues and expenditures is consistently positive, allowing interest expenditures to be covered by current revenues. The modified free cash flow has often been negative in previous years, which explains the Region’s need to partly finance capital expenditures using additional funds.
The quality assessment of the budget profile corresponds to the highest category. ACRA notes significant deviations of some actual budget revenues from targets. The Region additionally transfers to lower budgets revenues from personal income tax and taxes levied in connection with the application of the simplified taxation system. The volume of lost tax revenues associated with the application of tax benefits is insignificant — approximately 3% of TNTR in 2023 and 2024 (RUB 1.2 bln and 1.3 bln, respectively). There is no information about cases of violation of budget legislation over the past five years.
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 ratio of the Region’s debt to current revenues (according to ACRA’s methodology) amounted to 38% at the end of 2024 and may increase to 45% by the end of 2025. These indicators correspond to moderately low leverage.
In 2024, the Region’s debt declined by 6% and included only budget loans. By the end of this year, the volume and structure of debt may undergo significant changes as the Region plans to obtain bank loans. Debt may increase by 22% in 2025 and amount to RUB 23.7 bln.
As of January 1, 2025, the Region planned to repay 20% of its debt by the end of the year. This year, part of the budget loans were restructured as per Decree of the Government of the Russian Federation No. 79, which resulted in the volume of debt to be repaid in 2025 declining to 7%. Debt servicing expenses are not a burden for the regional budget — the ratio of averaged interest expenses to total expenditures (excluding subventions) will amount to less than 1% this year, while the ratio of debt to GDP will not exceed 5%.
The quality assessment of the debt profile corresponds to the third category. According to the repayment schedule valid as of January 1, 2025, the Region’s average weighted debt repayment period exceeded two years. Debt is limited to budget loans. The debt load of municipalities is moderate, with most of the debt held by Veliky Novgorod. One public sector company has a financial debt of RUB 1.3 bln ((borrowed funds under a concession agreement), which is equivalent to 3% of the Region’s TNTR. Over the past three years, the Region’s debt policy has facilitated minimization of refinancing risks, however, the Region’s plans to grow its short-term commercial debt create potential refinancing risks in the medium term.
Substantially declining budget liquidity. As of January 1, 2025, the funds in the Region’s accounts had declined by more than twofold compared to the metric as of January 1, 2024, and covered 24% of debt. The liquidity ratio calculated according to ACRA’s methodology was 121% in 2024, while this year it is expected to be 56%.
The quality assessment of budget liquidity corresponds to the second category. As of May 27, 2025, the Region had not entered into an agreement with the FTD to provide it with budget loans to replenish the balance of funds in the unified budget account in 2025. Auctions to obtain commercial credit lines have not been held over the past 24 months. Debt liability refinancing risks are currently assessed as low, but may grow in the medium term, given the Region’s plans to increase the share of short-term bank loans in the debt structure and the decline of budget liquidity.
Concentration of the economy on the chemicals industry. The largest local enterprise is Acron PJSC, a fertilizer manufacturer that generates a significant share of the total shipped products of the Region’s manufacturing sector. As of the end of 2024, the share of tax revenues from the chemical industry had declined considerably and amounted to around 16%, while a year earlier this share was 33%. Other major sectors of the Region’s economy are transportation and trade, as well as machine building, the food industry, wood processing, and the pulp and paper segment. The Region’s GRP per capita averaged for 2020–2023 amounted to almost 70% of the national average. The average wage in the Region exceeded the regional subsistence minimum by 3.6 times in 2024. The local unemployment rate was 1.4%.
KEY ASSUMPTIONS
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Execution of the Region’s budget in 2025 as per the parameters specified in the current version of the budget law;
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Spending all accumulated liquidity.
potential outlook or rating change factors
The Negative outlook assumes that the rating will highly likely be downgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Achieving a stable ratio of debt to current revenues below 30%;
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Better socioeconomic indicators of the Region.
A negative rating action may be prompted by:
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Higher current expenditures that are not supported by an increase in current revenues;
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Debt load growing to over 55% of current revenues;
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Significant growth of short-term debt;
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Lower liquidity on the back of financing the expected budget deficit.
issue ratings
There are no outstanding issues.
REGULATORY DISCLOSURE
The credit rating has been assigned to the Novgorod 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 credit rating of the Novgorod Region was published by ACRA for the first time on July 27, 2018. 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 Government of the Novgorod 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 Novgorod 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 Novgorod Region. No conflicts of interest were discovered in the course of credit rating assignment.
