ACRA affirms BBB+(RU) to the Penza Region, outlook Stable

The credit rating of the Penza Region (hereinafter, the Region) is based on moderate economic development indicators and a stable budget profile. The rating is constrained by low liquidity and a growing need for debt financing.

The Region is located in the Volga Federal District. It is home to 1.3 mln people (nearly 0.9% of the Russian population). According to the Region’s estimates, its gross regional product (GRP) amounted to around RUB 430 bln in 2019 (nearly 0.5% of the aggregate GRP of all Russian regions).

Key rating assessment factors

Stable budget profile indicators. The 2020 regional budget law1 provides that tax and non-tax revenues (TNTR) should grow by 6% this year, while planned expenses should increase by 14%. Given the planned growth of transfers by 24%, the deficit will amount to just 2% of TNTR and will be financed primarily with sources that do not entail an increase in debt.

According to ACRA, the Region’s tax revenues will decrease in 2020, which should have an impact on budget expenses. The Agency believes that the deficit might amount to 10% of TNTR in 2020 and will be financed, among other things, through an increase in debt.

The averaged ratio2 of modified budget deficit to current revenues will be slightly negative in 2017–2021, which implies a growing need of the Region’s budget for an insignificant amount of additional debt financing. In 2016–2020, the averaged ratio was positive and stood at 0.2%.

According to ACRA, the averaged ratio of current operations to current revenues will decline to 7% in 2017–2021 (10% in 2016–2020), while remaining moderate. Flexibility of budget expenses is assessed as moderately high. The averaged ratio for 2017–2021 will grow to 17% (15% in 2016–2020).

The averaged share of TNTR in income (excluding subventions) is stable. The Agency expects an insignificant decline in the ratio down to 63% in 2017–2021 (65% in 2016–2020) due to the growth of transfers.


1The Penza Region’s law No. 3435-ZPO “On the Penza Region’s budget for 2020 and the planned period of 2021–2022” (with amendments dated July 17, 2020).
2Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.

Lower refinancing risks. In March 2020, the Region refinanced its bank loans, while reducing interest payments. As of August 1, 2020, the Region’s debt stood at RUB 21 bln, considering a RUB 1 bln loan provided by the Federal Treasury Department. Throughout the remaining part of 2020, the Region will have to repay RUB 1.8 bln (9% of debt). In the next three years, the Region will have to pay no more than 24% of its debt in line with the old schedule for restructuring budget loans. ACRA believes that the Region will be exempt from repaying budget loans in 2020, which will reduce the amount of repayment by the end of this year by RUB 817 mln.

The account balances are small, covering nearly 11% of monthly expenses for the last eighteen months. The use of loans provided by the Federal Treasury Department allows avoiding cash gaps.

As of the end of 2019, the Region’s debt to current income ratio was 38% as of the end of 2019. In 2020, ACRA expects this indicator to be 44% due to a possible decrease in TNTR. The Region’s interest expenses are not burdensome, with the averaged level of interest expenses in 2017–2021 at around 1% of aggregate budget expenses (excluding subventions).

Moderate economic development indicators and a diversified tax revenue structure. Wholesale and retail trade is the key sector in terms of tax revenues (eight of the ten largest regional enterprises by revenue operated in this sector in 2019). Despite this, tax revenues are not heavily concentrated in this sector. ACRA’s calculations show that in 2016–2019, it generated around 13% of the Region’s tax revenues. In 2019, 8.8% of tax revenues came from the transportation and storage sector, 5.7% were from agriculture, and production of foodstuffs, beverages and tobacco accounted for 4.9%. The Region’s per capita GRP in 2015–2018 averaged 53% of the national average. The averaged monthly wage to subsistence wage ratio in the Region exceeded 290% in 2016–2019.

Key assumptions

  • Reduction in TNTR by no more than14% compared to 2019;
  • Decrease in budget expenses compared to 2019 given a decline in revenues;
  • Executing the 2020 budget with a deficit of no more than 10% of TNTR;
  • Growth of debt in 2020 by no more than 13%.

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:

  • Sustainable growth of budget liquidity;
  • Reduction of debt load;
  • Maintenance of the positive modified budget deficit.

A negative rating action may be prompted by:

  • Higher share of short-term debt;
  • Lower internal revenues;
  • Sharp increase in demand for debt financing.

Regulatory disclosure

The credit rating has been assigned to the Penza Region 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.

The credit rating of the Penza Region was first published by ACRA on September 20, 2018. The credit rating and its outlook are 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 Penza 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 Penza Region participated in its assignment.

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

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

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