Regions & Municipalities


Analytical commentary

The growth of tax revenues over the past two years has contributed to an increase in temporarily free budget funds for of a number of Russian regions – so much so, that it is now appropriate for these regions to place funds in bank deposits. For 10M 2019, 23 Russian regions received interest income from deposits. This figure is the highest it has been in recent years (see Fig. 1).

Figure 1. The number of regions placing deposits has increased considerably in 2019

*10M 2019
Sources: Federal Treasury, ACRA

Almost half of Russia’s regions have temporarily free funds, but not all place them in deposits. As of January 1, 2019, 41 regions had balances of more than RUB 3 bln, but only 11 placed deposits. Firstly, this is because regions that place deposits during the year can close them at the end of the year. Secondly, some regions cannot place deposits if the share of inter-budget transfers over two of the last three years exceeds 20% of internal revenues of consolidated budgets1. Lastly, regions that take out short-term federal treasury loans do not have the right to place deposits2 until these loans are repaid.

1 According to article 236 of the Budget Code of the Russian Federation.
2 According to article 93.6 of the Budget Code of the Russian Federation.

However, additional revenues can be earned another way. In 2019, Saint Petersburg became the first of Russia’s regions and municipalities to implement repo agreements.

An important difference between repo agreements and deposit placements is that federal loan bonds are pledged in repo agreements. This means that regions can expand the number of credit institutions applying for repo agreements, which increases competition and improves the conditions for placing funds. The risk of a possible decrease in the market price of collateral is regulated by the acceptable level of revaluation3  set during the selection of applications. Given the short-term nature of repo agreements and the high quality of collateral, this risk is limited. 

3 If the specified level is exceeded, the credit institution will be required to compensate for the difference between the collateral and obligation prices.

The term of the MosPrime rates used is based on the short-term nature of repo transactions (6-13 days) and deposits (just over a month on average) for the analyzed period.

It is still very difficult to compare directly the profitability of these two liquidity management tools due to the short history of repo agreements. However, based on the difference between MosPrime rates and repo rates, as well as the difference between MosPrime rates and deposit rates on each specific transaction date, it can be assumed that the yield of both tools are more or less comparable (see Fig. 2).

Figure 2. Spreads between MosPrime rates and the abovementioned liquidity management tools are comparable

Sources: MosPrime, Finance Committee of Saint Petersburg, ACRA

Given the profitability of repo agreements, ACRA assumes that other Russian regions with temporarily free funds can use them to manage liquidity more flexibly and increase non-tax revenues.

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Elena Anisimova
Senior Director — Head of Sovereign and Regional Ratings Group
+7 (495) 139 04 86
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