The credit rating of the Municipality of the Urban District of the Resort City of Sochi in the Krasnodar Krai (hereinafter, the City) is based on its low debt load coupled with low debt refinancing risks, a significant volume of capital expenditures in the budget’s total expenditures (excluding subventions), and stable development indicators of the City’s economy, which is focused on spa and resort activity. The rating is constrained by the budget’s moderate operational efficiency indicators and its need for additional financing, as well as dependence of the City’s revenues on transfers from the budget of the Krasnodar Krai (ACRA rating AA-(RU), outlook Stable; hereinafter, the Region).
Sochi is a municipality with the status of an urban district of the Krasnodar Krai (Southern Federal District). The City’s population was 561,000 on average in 2024. According to ACRA’s estimates, the share of the City in the Region’s gross regional product (GRP) annually may amount to around 6–8%.
KEY ASSESSMENT FACTORS
Low debt load and low risks of debt refinancing. In 2024, Sochi’s debt was RUB 0.6 bln, which was practically two times lower than in 2023. As of the beginning of 2025, Sochi’s debt portfolio was 79% bank loans and 21% budget loans. The debt repayment schedule assumed the repayment of all budget loans in 2025, with the remaining debt due in 2027.
As of October 1, 2025, the City’s debt was entirely made up of bank loans due in 2027.
The ratio of the City’s debt to current revenues will be around 2% as of the end of 2025. Interest expenditures are not burdensome for the budget: the ratio of averaged1 interest expenditures to total expenditures (excluding subventions) is estimated at far below 1% for 2022–2026. According to ACRA’s estimates, the ratio of the City’s debt to the gross metropolitan product could be significantly lower than 20%
The qualitative assessment of Sochi’s debt portfolio corresponds to the first category. The City has a consistently low debt load, however, the weighted average debt maturity is less than four years. The budget’s operational efficiency is consistently positive, which indicates the lack of need to finance current expenditures using additional funds. The City does currently not have any active concession or PPP agreements. According to the City, the budget did not have any overdue payables as of October 1, 2025
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Moderate operational efficiency of the budget and moderate need to use additional financing. The averaged ratio of the current account balance to current revenues in 2022–2026 will be just above 10%. ACRA has adjusted this indicator because it expects it to decline in the forecast period. Nevertheless, positive operating efficiency will be maintained, indicating the City’s ability to finance current expenditures in full using its own current revenues.
The share of capital expenditures in total expenditures (excluding subventions)2 is assessed as high. This indicator averaged for 2022–2026 will be 37%. The qualitative assessment of the flexibility of budget expenditures corresponds to the third category. Capital expenditures are annually financed mainly from the higher budget. The current account balance after taking into account interest income and expenditures is consistently positive, due to which interest expenditures are covered by the City’s current revenues. The modified free cash flow indicator of the City’s budget is quite volatile, which indicates a periodic need to finance capital expenditures using additional funds.
The share of tax and non-tax revenues (TNTR) in budget revenues (excluding subventions) is moderately high. Its averaged value for 2022–2026 will amount to around 65%. However, the City’s budget remains highly dependent on the higher budget. Based on the actual execution of the budget for 2021–2024, its revenue part (taking into account the capital subsidies provided to the City by the Region and received by the Region itself in the form of infrastructure budget loans) is annually almost half formed by gratuitous transfers from the budget of the Region.
The ratio of the modified budget deficit (MBD) to current revenues averaged for 2022–2026 will be -2%. This indicates a moderate need to use additional financing. The Agency notes that this year and in the following years, this need is fully covered by the balances in the City’s accounts. In addition, given the City’s low debt burden, the assessment of the ratio of averaged MBD to current revenues is adjusted to a higher category.
The qualitative assessment of the budget profile corresponds to the third category. Budget forecasting is partly complicated because most of the revenues are often formed by transfers from the Region’s budget. There are also cases of significant deviations of tax revenues from targets. The volume of lost tax revenues associated with the use of tax incentives, in the Agency’s opinion, is significant. There are no cases of the City violating the budget law.
The 2024, the City’s budget was executed with a surplus of 5% of TNTR, which enabled the city to increase the size of funds held in accounts.
According to the current changes to the budget resolution of the City, by the end of this year, the revenue side of the City’s budget will remain at a level comparable to that of 2024. The volume of TNTR and transfers will also remain virtually unchanged. At the same time, growth in the expenditure side of the budget may amount to about 13%, while current expenditures will increase by 16% and capital expenditures by 4%. This will result in a deficit of 19% of TNTR at the end of the year (taking into account the balances on the City’s accounts). Almost the entire volume of the deficit is planned to be financed with previously accumulated liquidity.
According to updated information from the City, the expected volume of TNTR this year may exceed the planned targets by 18%. This, in turn, may lead to a significant reduction in the budget deficit to 4% of TNTR over the specified period. In this case, the City will have to use a significantly smaller amount of accumulated funds to finance the deficit.
2 In the calculation of budget indicators, capital expenditures and capital transfers do not take into account part of the capital subsidies provided to the City by the Region and received by the Region in the form of infrastructure budget loans.
Accumulated liquidity allows future deficits to be covered. In 2024, the volume of funds in the City’s accounts increased by 55% vs. 2023. Over the past 12 months, funds in accounts on average have exceeded the budget’s average monthly expenditures by more than 2.5 times. According to the updated information from the City, this year, less than one fifth of the accumulated funds is expected to be used to finance the expected budget deficit, which will allow it to retain most of the funds to finance future budget deficits.
The liquidity ratio of the City’s budget will be much higher than 140% in 2025.
The qualitative assessment of the liquidity profile of the City’s budget corresponds to the second category. According to ACRA, the volume of accumulated funds allows all budget needs to be covered this year. The risks of refinancing debt obligations are assessed as low, but the entire debt of the City is due in 2027. Short-term loans from the Federal Treasury Department have not been attracted over the past two years, and there are no plans to obtain such loans in 2025. At the beginning of the year, the City did not have any undrawn credit lines with a repayment period of more than a year.
The economy is moderately developed and focused on spa and resort activity. The City’s economy depends directly on the tourism and recreational sector, which is determined by its geographic location. The City’s key sector is spa and resort activity, which impacts the development of related industries, such as retail trade, transportation, industry and construction. The largest volume of shipped products of own production is generated by retail trade. Its averaged share for 2021–2024 in the total volume of shipped products was about 35%. Approximately 15% each falls on paid services rendered to the population, wholesale trade and the resort and tourism industry. In separate years, more than a quarter of the volume of shipped products has been formed by the branches of the public sector of the economy due to the significant number of federal hospitals and health resorts in the City.
The estimated share of the Region’s GRP generated in the City could be around 6% to 8% in the period from 2021 to 2024. The ratio of averaged nominal accrued wages for the City as a whole in 2021–2024 to the subsistence minimum for the Region exceeded 4.0. The level of officially registered unemployment in the City (historically, almost two times lower than the unemployment rate in the Region) was 0.1% at the end of 2024. Average estimated unemployment (according to the ILO’s methodology) for the above period may be approximately 1%.
key assumptions
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Maintaining the share of GRP of the Region formed in the City at 6–8%;
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Execution of the City’s budget in line with the updated budget allocations;
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Financing the budget deficit this year using mainly funds in accounts;
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Continued considerable dependence of the City’s budget on transfers from the Region’s budget.
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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Growth of the share of the GRP of the Region generated in the City;
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Stable growth of the budget’s operational efficiency.
A negative rating action may be prompted by:
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Significant increase of the budget’s need for additional financing;
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Much lower share of the TNTR in the total revenues of the City (excluding subventions);
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Significant decline in accumulated liquidity by the end of this year.
ISSUE RATINGS
There are no outstanding issues.
REGULATORY DISCLOSURE
The credit rating has been assigned to Sochi based on the following methodologies: the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation to calculate the SCA and determine the credit rating and the credit rating outlook of Sochi under the national scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities to ensure consistent and uniform application of ACRA’s methodologies, models, and key rating assumptions.
The credit rating of Sochi assigned under the national scale for the Russian Federation was published by ACRA for the first time on July 13, 2023.
The credit rating and its outlook are expected to be revised within 182 days as per the Calendar of sovereign credit rating revisions and publications.
The credit rating was assigned based on data provided by Sochi, 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 rating analysis was performed using the RAS accounting (financial) statements of Sochi as of October 1, 2025.
The credit rating is solicited and Sochi 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 Sochi during the year preceding the rating action.
No conflicts of interest were discovered in the course of credit rating assignment.
Rating components: the standalone creditworthiness assessment is equal to the credit rating and corresponds to a+.
