ACRA affirms A-(RU) to the Ryazan Region, outlook Stable

The credit rating of the Ryazan Region (hereinafter, the Region) is based on the Region’s moderate debt load, high share of capital expenses, and moderate socioeconomic development.

The Ryazan Region is part of the Central Federal District. About half of the Region’s population lives in its administrative center, the city of Ryazan. The Region’s GRP is close to 0.5% of the total GRP of all Russian regions. Nearly 0.8% of the country’s population lives in the Region.

Key rating assessment factors

Diversified economy and relatively low level of unemployment. The level of diversification of the regional economy is quite high. ACRA assesses that the public sector, which is the largest sector of the economy, accounts for around 18% of the regional budget’s tax revenues. In the structure of products shipped in 2018–2019, the share of petroleum products produced amounted to 15%. The stable industry structure of tax revenues and low concentration on volatile sectors of the economy means that the Region is comparatively resilient to negative economic events. However, in the current situation, there are no prospects for economic growth that could have a positive effect on the Region’s financial profile.

In 2016–2019, the averaged1 salary exceeded the average subsistence minimum by almost 3x, while unemployment was below the national average. Average GRP per capita growth in the Region in 2017–2018 was lower than the growth of the national average.

1 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.

Half of capital expenses are financed by transfers from the federal budget. The regional budget has a sufficient share of internal revenues in total income (excluding subventions). The averaged value should be 74% for 2017–2021, while the averaged share of capital expenses in total expenses (excluding subventions) should equal 23%. On average, the Region finances half of its capital expenses using transfers from the federal budget and the remainder using internal revenues.

The averaged ratio of balance of current operations to current income for the analyzed period should be 10%, which indicates that operating income in sufficient to cover current expenses. In 2016–2019, the modified budget deficit (MBD) indicator was positive, however it has been decreasing since 2018 and will be negative in 2020. The averaged ratio of MBD to current income is also falling. In 2020, this figure will stand at -2%, which indicates the increased possibility of increased debt and lower balances in budget accounts.

For 6M 2020, revenues on income tax decreased by 1%, total income tax 9%, and property tax by 16% (compared to the same period in 2019). ACRA believes that the Region’s tax and non-tax revenues (TNTR) may decrease by 5% in 2020 year-on-year. However, the Region’s total revenues will remain at 2019 levels due to transfers.

Stable debt load and moderate refinancing risk. At the end of 2019, the Region’s debt to operating income ratio stood at 43%. According to ACRA, this ratio will not change significantly in 2020, despite the projected budget deficit. The deficit will be financed using balances formed at the end of the year, as well as debt financing (mostly bond placements).

As of August 1, 2020, the Region’s public debt included budget loans and bank loans, 66% and 34%, respectively. The largest volume of debt repayments and refinancing is scheduled for 2021 (34%). Over the next three years, the Region will have to repay or refinance 68% of its debt.

The Region’s public debt servicing expenses are not a burden on the regional budget (the average level of interest expenses in 2017–2021 will amount to 1% of total budget expenses, excluding subventions).

Accumulated liquidity could be spent on financing the budget deficit. Throughout 2019, the Region’s monthly needs for funding were covered solely by account balances at the start of the each month (except December). In October 2019, the Region began placing budget funds in bank deposits. As of August 1, 2020, the volume of balances on budget and deposit accounts amounted to RUB 5.7 bln. The volume of balances is 1.2x higher than average monthly expenses for 7M 2020 (in addition, balances cover 30% of public debt). According to the Region’s current budget law, part of the accumulated funds will be used to finance budget deficits.

Key assumptions

  • Using accumulated liquidity to finance the budget deficit this year;
  • Reduction in TNTR in 2020  no more than 5% compared to 2019;
  • Reduction in budget expenses relative to planned figures with a reduction in TNTR;
  • Maintaining a balanced budget policy over the projected period;
  • Maintaining a high share of federal transfers in capital expenses.

Potential outlook or rating change factors

The Stable outlook assumes that the credit rating will most likely remain unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Refinancing a significant portion of commercial debt using long-term borrowings;
  • Growth of budget liquidity.

A negative rating action may be prompted by:

  • Increase in debt load over 55% of operating income;
  • Increase in current budget expenses with no increase in revenues.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating of the Ryazan Region has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Rating Assignment to Regional and Municipal Authorities 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 Ryazan Region was published by ACRA for the first time on October 16, 2017. The credit rating of the Ryazan Region and its outlook are expected to be revised within 182 days following the publication date of this press release in compliance with the Calendar of planned sovereign credit rating revisions and publications.

The credit rating was assigned based on the data provided by the Ryazan Region, information from publicly available sources (the Ministry of Finance, the Federal State Statistics Service, and the Federal Tax Service), as well as ACRA’s own databases. The credit rating is solicited and the Government of the Ryazan Region participated in the rating process.

No material discrepancies between the provided data and the data officially disclosed by the Ryazan Region in its financial statements have been discovered.

ACRA provided no additional services to the Government of the Ryazan Region. No conflicts of interest were discovered in the course of credit rating assignment.

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