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Record high rubles prices on raw materials help Russian regions get through the first year of budget loan restructuring

An analysis of the debt loads of Russian regions

2018 was the first full year of implementation of budget loan restructuring agreements that were concluded in 2017 between the Ministry of Finance of Russia and most Russian regions. In 2018, the Ministry of Finance stopped issuing long-term budget loans while regions restructuring budget loans were obligated to reduce their debt load (the ratio of debt to tax and non-tax revenues - TNTR) by about 2% per year.

The majority of Russian regions reduced their debt in 2018 and most likely fulfilled budget loan restructuring requirements. The total debt reduction for all regions amounted to 5% (RUB 109 bln). This significant result was achieved largely due to the high prices for raw materials and, consequently, the growth in tax revenue.

Figure 1. The majority of Russian regions were able to reduce their debt load in 2018

Sources: Ministry of Finance, ACRA's calculations

66 regions reduced their total debt by RUB 169 bln, with the Kemerovo Region (A-(RU), outlook Stable) leading the way, reducing its debt by RUB 22.6 bln (40%). The debt of 16 regions grew, amounting to RUB 60 bln (half of this figure is accounted for by the Moscow Region (AA(RU), outlook Stable)). Three constituent territories saw no change in their total debt. The total debt reduction in 2018 was almost three times higher than in 2017 (RUB -38 bln) and the number of regions that failed to reduce the debt in 2018 halved (16 compared to 31 in 2017).

The share of budget loans in the regions’ debt started to decline as a result of the regions beginning to repay restructured loans (5% in 2018 for participants in the program) and the termination of issuance of new budget loans. In 2018, the debt on budget and bank loans decreased slightly (-7% and -5%, respectively), while the debt on securities grew slightly (+0.5%). A small change in the structure of market debt in favor of bond loans meets the procedural requirements for assessing the quality of regional finance management. As a result of the change, higher assessments are assigned to regions with a balanced debt repayment schedule.

The decrease in debt occurs against the backdrop of an increase in tax revenues, one of the main growth factors of which is income tax (+23% on revenues to the budget system for 9 months of 2018 compared to the same period a year earlier). The biggest growth rates in revenues among industries making the maximum contribution to TNTR were demonstrated by the mining sector and related industries. The reason for this was the high ruble price of raw materials and as a result, the leaders in debt reduction were regions that specialize in the mining of such raw materials.

Significant growth in TNTR through 11 months of 2018 facilitated the fulfillment of restructuring requirements, including for several regions that increased their debt in absolute terms by the end of 2018. This worked for those regions whose TNTR growth rate exceeded the rate of debt growth.

Figure 2. Regions* increasing debt in 2018**

* Not including the Tyumen Region because of its insignificant growth in debt load.
** The diameter of the circle corresponds to the size of the region's debt at the end of 2018.
Sources: Ministry of Finance, Federal Treasury, ACRA's calculations

In five regions, debt growth outpaced revenue growth, but in three of them, the debt load was low. Thus, in the Tyumen Region (AAA(RU), outlook Stable), with a minimum debt load, the debt increased by 123% due to the provision of guarantees. A similar situation can be seen in Primorsky Krai. Debt in the Moscow Region (AA(RU), outlook Stable) is growing from the relatively safe level of 23% (the region is not participating in the restructuring of budget loans).

Khabarovsk Krai significantly increased its market debt and its total debt load, according to ACRA, also increased by 7% in 2018 compared to a year earlier. However, data on the participation of the Khabarovsky Krai in the restructuring program are missing. The Republic of Mordovia (B(RU), status “Rating under revision: negative”), who already violated the restructuring agreement in 2017, was unable to reduce its debt in 2018.

It should be noted that the majority of regions were able to meet restructuring requirements and therefore the early repayment of budget loans will not be needed. Several regions were able to exceed the debt reduction plan.  

The projected decline in raw material prices will not allow mining regions to maintain this rate of debt reduction. The uncertainty in funding sources for national projects under the new May decrees will not allow other regions to manage budget expenditures. As a result, the rate of regions’ debt reduction will slow down in 2019.

Table 1. Changes in regions’ debt loads in 2018 (raking in growth of total debt)

 

Debt/TNTR
2017

Debt increase
2018

Debt variation.
RUB mln
2018

Debt,
RUB mln
end-2018

Kemerovo Region, A-(RU), outlook Stable

50%

-40%

-22.614

33.377

Komi Republic, BBB(RU), outlook Stable

60%

-26%

-10.147

28.403

Rostov Region

32%

-25%

-9.876

29.161

Samara Region, AA-(RU), outlook Positive

51%

-15%

-9.636

54.756

Krasnodar Krai, A(RU), outlook Stable

78%

-6%

-8.980

140.169

Yamalo-Nenets Autonomous Okrug, AAA(RU), outlook Stable

16%

-33%

-8.432

16.841

Belgorod Region, A+(RU), outlook Positive

66%

-17%

-6.742

33.020

Irkutsk Region, AA-(RU), outlook Stable

16%

-34%

-6.304

12.281

Astrakhan Region

97%

-20%

-5.552

22.205

Arkhangelsk Region

79%

-13%

-5.368

35.549

Saint Petersburg, AAA(RU), outlook Stable

7%

-14%

-4.743

30.100

Khanty-Mansiysk Autonomous Okrug - Ugra, AAA(RU), outlook Stable

11%

-25%

-4.695

14.400

Moscow, AAA(RU), outlook Stable

2%

-13%

-4.348

30.000

Republic of Karelia

124%

-17%

-4.264

20.723

Stavropol Krai

61%

-11%

-3.905

32.951

Vologda Region

47%

-13%

-3.160

20.672

Novosibirsk Region, A+(RU), outlook Stable

44%

-6%

-2.916

44.220

Sverdlovsk Region, A(RU), outlook Stable

39%

-4%

-2.810

72.793

Republic of Khakasia

136%

-11%

-2.767

21.846

Orenburg Region (A(RU), outlook Positive

46%

-10%

-2.578

24.437

Omsk Region

77%

-6%

-2.538

42.441

Voronezh Region

49%

-7%

-2.500

30.990

Republic of Dagestan

51%

-20%

-2.397

9.796

Saratov Region

83%

-5%

-2.372

47.958

Volgograd Region, BBB(RU), outlook Stable

89%

-4%

-2.266

51.093

Udmurt Republic

94%

-4%

-1.926

47.014

Republic of Bashkortostan

14%

-11%

-1.918

16.235

Kabardino-Balkar Republic

124%

-15%

-1.868

10.325

Ryazan Region, A-(RU), outlook Positive

66%

-6%

-1.543

22.818

Kostroma Region, BBB-(RU), outlook Stable

135%

-7%

-1.530

20.460

Bryansk Region

47%

-12%

-1.451

10.297

Kaluga Region

71%

-5%

-1.434

28.744

Lipetsk Region, AA-(RU), outlook Positive

38%

-9%

-1.415

14.987

Nenets Autonomous Okrug

20%

-40%

-1.325

2.000

Chuvash Republic

53%

-9%

-1.211

12.910

Republic of Sakha (Yakutia), A(RU), outlook Negative

46%

-2%

-1.181

50.635

Tver Region, BBB+(RU), outlook Stable

62%

-4%

-1.034

24.611

Ivanovo Region

88%

-6%

-957

15.809

Nizhny Novgorod Region

64%

-1%

-940

75.087

Kirov Region

91%

-4%

-923

25.133

Tula Region

35%

-4%

-736

17.940

Zabaykalsky Krai

91%

-3%

-730

27.555

Republic of Crimea

9%

-16%

-670

3.643

Kamchatka Krai

22%

-11%

-524

4.049

Leningrad Region

4%

-12%

-454

3.457

Kaliningrad Region

71%

-2%

-432

22.150

Chukotka Autonomous Okrug

97%

-3%

-292

10.401

Tuva Republic

49%

-13%

-291

1.984

Amur Region

72%

-1%

-262

27.404

Murmansk Region, BBB+(RU), outlook Stable

38%

-1%

-223

18.760

Republic of North Ossetia – Alania

89%

-2%

-222

9.069

Oryol Region

107%

-1%

-206

18.135

Karachay-Cherkess Republic

91%

-4%

-197

5.332

Chechen Republic

44%

-4%

-192

4.679

Smolensk Region

100%

-1%

-191

29.309

Ulyanovsk Region

64%

-1%

-172

24.940

Mari El Republic

81%

-1%

-169

13.284

Republic of Adygea

42%

-4%

-145

3.675

Novgorod Region, BBB(RU), outlook Stable

75%

-1%

-136

15.621

Vladimir Region

11%

-3%

-135

4.027

Republic of Ingushetia

68%

-5%

-113

2.139

Altai Krai

4%

-4%

-77

1.934

Pskov Region

102%

0%

-54

16.318

Penza Region, BBB+(RU), outlook Stable

63%

0%

-17

20.209

Kursk Region, A(RU), outlook Stable

26%

0%

-4

9.260

Kurgan Region

93%

0%

0

16.587

Sevastopol

0%

0%

0

0

Altai Republic

45%

0%

0

1.510

Sakhalin Region

0%

0%

0

0

Jewish Autonomous Region

94%

1%

46

5.257

Republic of Kalmykia

75%

3%

108

3.957

Perm Region

18%

3%

564

18.441

Tomsk Region, BBB(RU), outlook Stable

69%

2%

622

28.994

Tambov Region, BBB+(RU), outlook Positive

77%

4%

675

17.216

Republic of Buryatia

49%

6%

687

11.998

Primorsky Krai

6%

19%

819

5.203

Magadan Region, BBB-(RU), outlook Stable

73%

7%

950

14.250

Yaroslavl Region

72%

3%

1.008

37.174

Chelyabinsk Region, AA-(RU), outlook Positive

13%

6%

1.008

16.615

Republic of Tatarstan, AA+(RU), outlook Stable

44%

2%

1.670

94.987

Tyumen Region, AAA(RU), outlook Stable

1%

123%

1.976

3.576

Krasnoyarsk Krai, A(RU), outlook Positive

57%

4%

4.267

103.901

Republic of Mordovia, B(RU), status: Rating under revision: negative

226%

12%

6.227

56.217

Khabarovsk Krai

59%

19%

7.991

49.099

Moscow Region, AA(RU), outlook Stable

23%

32%

31.499

128.810

Sources: Ministry of Finance, Federal Treasury, ACRA's calculations

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