Sector

Regions & Municipalities

Type

Analytical commentary

Analysis of the annual liquidity of the budgets of Russian regions1

The balances of temporarily free funds in budget accounts is one of the most important liquidity instruments available to regional governments for financing budget deficits. As of the end of 2022, the total accumulated funds of Russian regions amounted to around RUB 2.3 tln, out of which around a third was held by Moscow (RUB 770 bln), and around half was held by Moscow and four other regions (Saint Petersburg (RUB 236 bln), the Yamalo-Nenets Autonomous Okrug and the Kemerovo Region — Kuzbass (RUB 99 bln and 85 bln, respectively), and the Krasnodar Krai (RUB 82 bln). The regions with the lowest accumulated funds as of the end of last year were the Chukotka Autonomous Okrug, the Republic of Karelia, the Pskov Region (around RUB 0.3 bln each), and the Republics of Tyva and Kalmykia (RUB 0.1 bln and 0.05 bln, respectively).

Almost every year, the largest volume of the regions’ funds is formed at the end of summer, as this is when a significant amount of revenues have already been transferred to budgets and the main expenses have not yet been made. In addition, regions have the opportunity to raise temporarily free funds of autonomous and state-funded institutions, which allows them to temporarily increase their liquidity. This year was not an exception — according to the Single Portal for the Budget System of the Russian Federation (SPBS) Electronic Budget, the total volume of funds in regions’ accounts as of October 1, 2023 had increased by 19% year-on-year and amounted to more than RUB 4.1 tln, which is one of the best results since records began. Nevertheless, the volume of temporarily free funds declined in 29 regions compared to the same period last year, despite the growth in the aggregate indicator. At the same time, a number of regions, on the contrary, showed a significant increase in the indicator, including 17 regions where the indicator more than doubled, which made the dynamics of the total indicator positive2.


1The calculation does not include the budgets of Russia’s four new regions due to insufficient information.
2 See Appendix.

Figure 1. Liquidity in accounts as of October 1, 2023 exceeded liquidity in previous years, RUB bln


Sources: SPBS, ACRA

A distinctive feature of recent years has been the growth in the total volume of temporarily free funds in regional accounts while Moscow’s share has decreased. In 2019–2020, the capital’s share in the total liquidity of the regions exceeded 50%, however, starting in 2021 it began to decline. At the same time, the share of regions, with the exception of Moscow, and the five largest regions in terms of available funds (the regions that form this five are different every year) began to increase significantly. ACRA assumes that in general this may be due to the growth of accumulated liquidity in other regions with a relatively stable volume of account balances in Moscow.

Figure 2. Moscow’s share in the total volume of balances is declining


Sources: SPBS, ACRA

According to data as of October 17, 2023, the total target deficit of all of Russia’s regions this year may exceed RUB 2.8 tln (target values are usually quite conservative). At the same time, ACRA believes that some regions will be able to fully finance their deficits using temporarily free funds. Thus, in 47 regions, balances at the beginning of the year covered more than half of the target budget deficits for the current year, while in 23 regions, the planned deficit was fully covered by balances. However, in eight regions, including the Republics of Kalmykia Buryatia, and Karelia, Chukotka Autonomous Okrug, and the Pskov Region, balances at the beginning of the year covered less than 5% of the budget deficit planned for the year.

Figure 3. More than half of the regions can finance the target deficits using account balances


* The calculated value for the Tomsk Region exceeds the limits of Fig. 3.
Sources: SPBS, ACRA

Funds held in accounts not only allow cash gaps to be closed during the year and finance budget deficits at the end of the year, but also serve as a source of additional non-tax revenues for regional budgets. Interest income from placing temporarily free funds in deposits at banks or from placement in the single treasury account (STA)3 as of September 1, 2023 amounted to RUB 128 bln, which is 43% less than the indicator a year earlier, but more than double the value as of September 1, 2021.


3 This mechanism, which was introduced in 2021, is for regions that are not allowed to place deposits or for those that do not take advantage of this opportunity.

Figure 4. Interest income of regions reached a maximum at the end of 2022, RUB bln


Sources: SPBS, ACRA

According to budget financial reports, as of January 1, 2023, 12 regions4 had placed funds in deposits to a total of RUB 1.3 tln (RUB 0.6 tln excluding Moscow). The Bank of Russia’s data shows that by August 1, 2023, RUB 1.9 tln in budget funds had been deposited. Almost every year, as of August the maximum share of funds is placed at VTB Bank (data is not available for 2022). In ACRA’s opinion, the placement of funds in deposits may be a more flexible instrument for regions compared to depositing funds in the STA because it allows them to independently manage their money and the duration it is deposited. At the same time, placing funds in the STA enables regions to reduce liquidity management costs through external management of such operations.


4 Possibilities of placement are limited by Article 236 of the Budget Code of the Russian Federation.

Figure 5. Largest holders of deposits of Russian regions


Sources: Bank of Russia, ACRA

Funds of regions are consolidated in the STA, including free funds not deposited or invested in other liquidity management instruments. Excluding Moscow’s funds, the share of funds held in the STA amounted to 62% of the total cash balances (if Moscow’s funds, mostly held in deposits, were included, the share of funds held in the STA did not exceed 43%). Thanks to the STA, all regions receive interest income, and the amount of this income is maximized.

The concentration of liquid balances is observed mainly in regions with high credit ratings. This is mostly due to these regions’ ability to finance some year-end expenditures out of accumulated liquidity without the need to increase the debt burden, which, in turn, helps to offset the risks of volatility of budget revenues and finance cash gaps, if any, in the middle of the year.

Figure 6. Regions with higher credit ratings have larger account balances (as of January 1, 2023)


Excluding Moscow
Sources: UPBS, ACRA

The ability to finance expenditures using accumulated funds within the year can be identified by comparing region’s account balances at the beginning of month to the amount of expenditures at the end of the same month. Calculations indicate that in regions with higher credit ratings this indicator is generally higher than in regions with lower ratings. At the same time, the a balance-to-expenditure of regions in the BB(RU) and BBB(RU) categories is lower than the average for Russia, and in some months, it is below 1. Regions in the AA(RU) and AAA(RU) categories, on the contrary, have account balances several times higher than monthly budget expenditures for most of the year.

Figure 7. Monthly incoming account balances of regions with higher credit ratings exceed expenditures in that month




Category BB(RU) only includes one entity.
** Value for category AAA(RU) for January 2020 exceeds the limits of Fig. 7.
Sources: UPBS, ACRA

Regions’ account balances can play a key role in covering budget deficits at the end of this year. They will allow some regions to avoid a debt increase, while other regions will continue to receive interest income. Interest income for nine months of 2023 has already exceeded this income for all of 2021 and it is likely to grow until December. At the same time, the historical maximum of intra-annual liquidity of regions, on the one hand, indicates that growth of revenues outruns that of expenditures, and on the other hand, suggests a sufficient amount of balances will be maintained by the end of the year, which will allow regions to cover expected deficits in 2024.

APPENDIX

Volume of temporary free funds held on Russian regions’ accounts as of the specified date, RUB mln

01.01.2022

01.10.2022

 01.01.2023

 01.10.2023

Total for analyzed regions*

2,069,664

3,446,825

2,277,360

4,111,942

Altai Krai

29,493

31,028

22,526

26,872

Amur Region

3,797

2,377

1,749

8,947

Arkhangelsk Region

2,300

3,502

3,012

1,566

Astrakhan Region

5,817

22,474

15,946

23,290

Belgorod Region

39,235

27,621

10,534

22,797

Bryansk Region

5,218

15,656

11,322

20,483

Vladimir Region

14,118

15,362

12,084

20,297

Volgograd Region

858

2,190

612

4,931

Vologda Region

49,252

70,411

60,072

76,477

Voronezh Region

29,870

45,859

33,283

50,820

Jewish Autonomous Okrug

2,832

2,162

2,163

1,914

Zabaykalsky Krai

833

3,871

1,338

14,920

Irkutsk Region

5,730

15,246

10,024

21,622

Ivanovo Region

2,729

31,003

13,189

20,884

Kabardino-Balkarian Republic

1,553

6,157

7,006

10,855

Kaliningrad Region

12,332

21,411

20,786

20,350

Kaluga Region

7,689

13,623

5,100

15,688

Kamchatka Krai

2,015

3,500

6,610

8,330

Karachay-Cherkess Republic

1,140

2,188

1,128

6,080

Kemerovo Region – Kuzbass

40,708

134,192

84,592

105,385

Kirov Region

5,371

9,528

5,485

9,615

Kostroma Region

3,619

5,056

2,151

4,245

Krasnodar Krai

61,389

87,490

82,425

121,533

Krasnoyarsk Krai

88,765

126,575

72,107

123,189

Kurgan Region

2,978

7,200

4,651

11,788

Kursk Region

11,887

8,583

9,661

9,779

Leningrad Region

12,868

28,475

12,561

67,311

Lipetsk Region

36,082

45,729

33,182

52,445

Magadan Region

143

37

442

1,994

Moscow Region

82,756

125,679

22,150

175,285

Murmansk Region

20,098

12,745

1,323

15,934

Nenets Autonomous Okrug

1,806

8,743

7,452

6,314

Nizhny Novgorod Region

27,490

36,598

26,738

55,137

Novgorod Region

4,587

16,236

10,059

16,947

Novosibirsk Region

11,169

25,267

19,349

23,907

Omsk Region

347

6,383

2,121

10,980

Orenburg Region

20,702

29,067

20,727

31,834

Oryol Region

3,032

7,670

2,849

5,461

Penza Region

4,467

9,483

5,969

12,029

Perm Krai

16,352

39,439

14,970

43,875

Primorsky Krai

9,695

16,057

4,705

34,793

Pskov Region

1,430

141

256

8,934

Republic of Adygea

3,980

6,780

1,719

3,857

Altai Republic

753

2,929

2,301

2,191

Republic of Bashkortostan

17,873

36,176

14,584

32,310

Republic of Buryatia

322

9,188

415

6,583

Republic of Dagestan

16,977

9,003

3,815

7,507

Republic of Ingushetia

161

1,448

1,073

727

Republic of Kalmykia

55

140

54

421

Republic of Karelia

1,195

2,517

285

7,742

Komi Republic

5,640

23,703

13,759

30,577

Republic of Crimea

5,433

15,817

14,484

22,161

Mari El Republic

3,022

9,124

6,702

11,101

Republic of Mordovia

3,488

6,677

2,737

4,157

Republic of Sakha (Yakutia)

33,812

31,573

20,587

18,959

Republic of North Ossetia – Alania

1,443

5,232

3,155

5,073

Republic of Tatarstan

27,098

79,933

30,912

83,404

Tyva Republic

965

745

114

7,161

Republic of Khakassia

1,357

14,344

4,395

4,064

Rostov Region

2,950

14,060

3,781

32,568

Ryazan Region

6,571

19,999

11,551

23,800

Samara Region

34,197

67,615

31,677

58,629

Saratov Region

5,291

11,509

6,113

14,881

Sakhalin Region

3,617

54,183

58,928

90,601

Sverdlovsk Region

6,001

48,594

24,618

97,061

Smolensk Region

5,326

14,344

8,821

24,322

Stavropol Krai

19,348

43,996

35,330

43,930

Tambov Region

3,753

10,879

3,383

11,262

Tver Region

15,350

26,312

27,682

40,327

Tomsk Region

2,611

14,325

4,227

7,886

Tula Region

4,391

11,873

4,754

13,907

Tyumen Region

86,086

92,764

37,624

91,970

Udmurt Republic

282

1,860

522

4,040

Ulyanovsk Region

246

147

1,004

7,920

Khabarovsk Krai

6,769

17,201

12,391

16,610

Khanty-Mansiysk Autonomous Okrug – Yugra

49,654

83,928

26,971

87,739

Chelyabinsk Region

54,682

71,021

43,383

87,769

Chechen Republic

138

2,094

1,595

503

Chuvash Republic

9,092

17,064

13,876

26,672

Chukotka Autonomous Okrug

4,881

3,947

308

2,819

Yamalo-Nenets Autonomous Okrug

63,061

121,818

99,398

135,988

Yaroslavl Region

3,152

4,437

2,387

11,526

Moscow

796,540

999,579

770,448

1,190,925

Saint Petersburg

74,928

311,804

236,779

391,100

Sevastopol

2,619

4,130

4,310

23,352

* Excluding the new
regions due to a lack of information.

Sources:
SPBS,
ACRA

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Analysts

Ilya Tsypkin
Associate Director, Head of Municipal Ratings, Sovereign and Regional Ratings Group
+7 (495) 139 03 45
Elena Anisimova
Senior Director — Head of Sovereign and Regional Ratings Group
+7 (495) 139 04 86
Svetlana Panicheva
Head of External Communications
+7 (495) 139 04 80, ext. 169
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