ACRA affirms BBB+(RU) to the Tver Region, changes outlook to Positive

The outlook on the credit rating assigned to the Tver Region (hereinafter, the Region) has been changed to Positive on the increased liquidity of the regional budget caused by a growth in tax and non-tax revenues (TNTR) and a decrease in the relative debt load in 2018. The rating is limited by a relatively low flexibility of budget expenditures and moderate economic development indicators as compared to the national averages.

The Region is located in the Central Federal District. In 2017, the Region generated 18% of the total electric power of the Central Federal District (second place after Moscow).

Key rating assessment factors

Relative debt load has declined amid low refinancing risk. In 2018, the absolute debt was reduced by 4%, while the ratio of debt to operating balance decreased to 1.6 (by late 2019, the ratio is projected at 1.9 due to a reduction in the operating balance). Despite the growth of this ratio in the current year, its dynamics over the past five years reflects a decrease in the level of credit risk. The Region uses medium-term revolving credit lines to finance budget deficit. On the one hand, this affects the debt repayment schedule, and on the other, it allows the Region to reduce interest expenses by repaying credit lines within a year and maintain liquidity sufficient for this purpose. As a result, in 2020, the Region will need to refinance almost a third of the debt existed as of January 01, 2019.

The Region has been reducing its debt load faster than determined by agreements with the Ministry of Finance of Russia. This year's planned budget deficit will be financed at the expense of the account balances formed in 2018.

Limited flexibility of budget expenditures and high budget self-sufficiency. The Region’s budget demonstrates with high self-sufficiency (80% on average in 2016–2018, excluding subventions). In 2019, due to the planned growth in budget transfers, the share of internal revenues will decrease to approximately 75%. The average share of mandatory expenditures will amount to 79% of the total expenditures for 2016–2019, which indicates a limited flexibility of budget expenditures. In 2018, the operating balance grew by one-third through higher TNTR (income tax contributed a half of the growth). Tax revenues of the regional budget are sufficiently diversified, with the most significant growth observed in the sectors “Information and Communication Activities” and “Production of Other Vehicles and Equipment” (in 2018, about 40% of the tax revenues were generated by these sectors, and their cumulative share in the tax revenues was about 17%). Most of the budget surplus was credited to the Region’s budget accounts. According to ACRA's estimates for 2019, the amount of TNTR will decrease, and the operating balance will return to the level seen in 2016–2017 (21–22% of regular revenues). Capital expenditures of the regional budget will be equal to 11% on average. According to ACRA's estimates for 2019–2020, the budget discipline indicators will be within the range corresponding to the medium assessment under the ACRA methodology.

Budget liquidity level has increased. In 2018, thanks to the growth in TNTR, the Region has formed a significant reserve of liquidity, which will allow financing the budget deficit for two to three years without borrowings. The average monthly account balances amounted to RUB 4.3 bln (for comparison: RUB 1.8 bln and RUB 1.7 bln in 2016 and 2017, respectively). The current level of liquidity allows the Region to repay bank loans within the year without the need to borrow any federal treasury loans. In managing liquidity, the Region uses funds of public sector and autonomous government institutions.

Key assumptions

  • The Region will manage to cap its mandatory expenditures at 80% of the total budget expenses;
  • The capital expenditures program for 2019 will not be implemented in full;
  • The 2019 budget deficit will be covered by funds held on budget accounts.

Potential outlook or rating change factors

The Positive outlook assumes that the rating will most likely stay change within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Further decrease in the debt load of the Region;
  • Structural improvement in the debt repayment profile;
  • A lower share of mandatory expenditures in the Region’s budget.

A negative rating action may be prompted by:

  • A decrease in internal budget revenues by 2% or more against values projected by ACRA;
  • Higher share of current expenses in the total budget expenditures;
  • Higher relative debt load.

Regulatory disclosure

The credit rating of the Tver Region was assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings 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.

For the first time, ACRA published the credit rating of the Tver Region on December 12, 2017. The credit rating of the Tver Region and its outlook is expected to be revised within 182 days following the publication date of this press release as per the Calendar of planned sovereign credit rating revisions and publications.

The credit rating was assigned based on the data provided by the Tver Region, information from publicly available sources (the RF 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 Tver Region participated in its assignment.

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

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

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