ACRA affirms A+(RU) to the Altai Krai, outlook Stable

The credit rating assigned to the Altai Krai (hereinafter, the Region) is based on the moderately high indicators of the Region’s budget profile, low debt load, and high budget liquidity. The rating is limited by the Region’s relatively low economic development indicators and the high share of transfers from the federal budget in the Region’s income.

The Altai Krai is located in the Siberian Federal District and borders three Russian regions and Kazakhstan. In 2018, the Region was home to 1.6% of the country’s population and its GRP (gross regional product) amounted to 0.7% of the total GRP for all regions of the Russian Federation. The Region ranks first among Russian regions to the east of the Ural Mountains in terms of the volume of shipped agricultural products.

Key rating assessment factors

Low debt load and high budget liquidity. The ratio of the Region’s debt to current revenues (calculated according to ACRA’s methodology) declined from 1.8% to 1.5% in 2020 due to higher revenues in the aforementioned year. The Region’s debt did not change in absolute terms in 2020 and amounted to RUB 1.9 bln. The Agency expects this indicator may stand at around 3% by the end of 2021, which corresponds to the minimum risk level. As of January 1, 2021, budget loans repayable by 2034 accounted for 99.75% of the Region’s debt obligations, while the insignificant remaining share (0.25%) was made up of government guarantees provided to the Region. Debt servicing expenses are minimal due to this debt structure (the ratio of averaged1 interest expenses to aggregate budget expenses, excluding subventions, should equal around 0.02% in 2017–2021). ACRA notes the low likelihood of regional public sector bodies requesting support. The Region’s budget is characterized by its high level of liquidity: account balances for regional budget funds exceeded the Region’s debts by almost 12x as of the end of January 1, 2021, and exceeded average expenses in 2020 by more than 2x.


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

High dependence of the regional budget on transfers from the federal budget. The averaged share of the Region’s internal revenues in its total revenues (excluding subventions) for 2017–2021 will amount to around 53% and is on a downward trajectory. In 2016–2020, internal revenues grew by 20% and transfers from the federal budget increased by more than 2x. In 2017–2021, the averaged ratio of the balance of current operations to operating revenues will amount to 13%, while the ratio of the averaged modified budget deficit to current revenues will be -1.3%. These indicators show that operating revenues are sufficient to cover current expenditures and that the Region needs to borrow or use its accumulated liquidity to fund capital expenditures in the aforementioned period. Averaged capital expenditures in 2017–2021 amount to 19% of aggregate budget expenses; around a quarter of the Region’s capital expenditures are financed using transfers from the federal budget.

In 2020, the Region executed its budget with a RUB 5 bln surplus, which was used to replenish account balances. The law on the region’s budget for 2021 foresees the budget being executed with a RUB 6 bln budget. Amendments made to the law drafted in February 2021 envisage the deficit being increased to RUB 16 bln in order to provide pay rises for employees of the social sphere, modernize the facilities and equipment of institutions in the social sphere, and support local budgets. Account balances accumulated in previous years will serve as the main source for financing the deficit in 2021.

The economy is diversified, but development indicators lag behind the national averages. The agriculture sector is responsible for a significant part of the Region’s GRP, so the average per-capita GRP in comparison to the average national indicator in 2015–2018 was only 42%. Manufacturing enterprises contributed the most to the Region’s GRP — 19% in 2018. Retail and repair companies account for 15% of GRP, while agriculture contributes 13%. The largest share of tax revenues is contributed by manufacturing enterprises (more than 22% in 2020). In 2015–2019, the average monthly wage to subsistence wage ratio in the Region increased from 2.1x to 2.6x. Unemployment fell from 8.6% in 2016 to 5.8% in 2019, however, this was still higher than the national average for Russia. Over 11 months of 2020 the Region recorded minor growth in unemployment, which reached 6.2% in September–November 2020, while the national average was 6.3%.

Key assumptions

  • Adhering to a conservative debt policy;
  • Tax and non-tax revenues in 2021 and 2022 will remain at the 2020 level;
  • Reducing budget expenditures if revenues fall below the level stipulated by the budget law;
  • Maintaining a high level of budget liquidity.

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:

  • Faster growth of the Region’s economic development indicators;
  • Growth of the budget’s self-sufficiency;
  • Executing the 2021 budget with a deficit of no more than 5% of current revenues.

A negative rating action may be prompted by:

  • Debt to operating revenues ratio exceeding 30%;
  • Significant fall in available liquidity.

Issue ratings

None.

Regulatory disclosure

The credit rating has been 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.

The credit rating of the Altai Krai was published by ACRA for the first time on March 19, 2020. 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 Government of the Altai Krai, 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 Altai Krai participated in the rating process.

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

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

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