Translated material
Capitals ahead
Research on the relative creditworthiness of Russian regions
The palette of Russia's economic development in the regional aspect is extremely uneven. This is explained by the abundance of both objective and subjective factors. Among the objective ones are differences in geographical and climatic position, different degrees of provision with raw materials, differences in infrastructural prerequisites for economic development, which were largely formed under the conditions of the Soviet economy with strict planning based on the territorial principle. Among the subjective factors is the policy of regional authorities, which determines the quality of management of economic processes and the financial and budgetary sphere.The most important problem of regional development is the lack of investment. Taking into account the high degree of deterioration of fixed assets of the domestic industry, the problem of attracting investment is not only urgent; the further development of the country’s economy largely depends on its solution. For regions, unlike enterprises, the problem of attracting investment is more acute, since here we are talking not only about the development of production, but also about the state of the social sphere, which largely determines the stability of society.
The growth of investment activity in the regions is one of the key issues of the domestic economy, the solution of which determines the sustainability of the development trends of the country as a whole. An effective way to attract borrowed funds is to issue bonds. And while the corporate paper market is actively developing, things are worse in the regional bond sector.
The potential of bond loans as a tool for attracting financial resources has not been fully utilized. The main volume of emissions occurs in several regions, the leaders among which are Moscow and St. Petersburg - the share of these cities in the total volume of emissions is about 60%. Many regions are not active participants in the process of raising funds on the stock market. As for the traditional form of financing the budgetary needs of the regions - lending, here too many constituent entities of the Russian Federation are experiencing problems (high rates, low lending limits). In addition, uncertainty regarding the reliability of the region as a guarantor for loans and other forms of borrowing significantly reduces interest in it from financial and industrial groups, banks and other structures. One of the reasons for this situation is low information transparency, which makes it difficult to adequately assess risks and thereby reduces the demand for regional securities. In addition, a number of regions do not comply with legislative requirements in the area of organizing the budget process.
To determine the reliability and quality of a borrower, credit ratings are used in world practice. There are two possible approaches here: assessing the risk of non-fulfillment of one’s obligations with assigning the corresponding rating category in the form of an alphanumeric code for each rated region, or assessing relative creditworthiness, which allows for comparison of various subjects of the Russian Federation with each other in terms of creditworthiness.
A study conducted by experts from the AK&M Rating Agency with the support of the Federation Council of the Federal Assembly (the project sponsor is Web-Invest Bank) assessed the relative capabilities of the constituent entities of the Russian Federation to fulfill their debt obligations. As part of the study, an analysis of the indicators of 79 constituent entities of the Russian Federation for 2004 was carried out. The study did not include autonomous okrugs that are part of the regions and territories, due to the uncertainty of the outcome of the decision on the division of powers within the framework of the implementation of the new legislation on the federal structure of the Russian Federation.
The first positions, as in the previous study based on the results of 2003, were taken by Moscow and St. Petersburg, which are distinguished by high values of both budgetary and economic indicators. At the same time, compared to the results of 2003, there have been some significant changes. It can be seen that noticeable changes have occurred in the top twenty, namely in the positions of the Krasnodar Territory, Rostov Region, Krasnoyarsk Territory, etc.
In particular, the following indicators have improved in the Krasnodar Territory: the ratio of public debt to budget revenues excluding financial assistance, the share of own income in total budget revenues, the ratio of budget deficit to revenues and a number of others. The Rostov region also demonstrated positive dynamics in budgetary and economic indicators. The ratio of public debt to budget revenues excluding financial assistance decreased from 11.05% in 2003 to 8.11% in 2004, the share of own income increased from 54.54 to 66.82%, and the share of profitable enterprises increased from 68. 9 to 71.1%. The level of debt burden in the Krasnoyarsk Territory also decreased significantly (the ratio of public debt to budget revenues excluding financial assistance at the end of 2004 was 29.08% against 47.99% in 2003).
The results of the study indicate that donor regions demonstrate higher creditworthiness indicators. Of the 15 constituent entities of the Russian Federation that did not receive subsidies to equalize the level of budgetary security in 2004, 12 were included in the top twenty, and only one region ranked below 30th. The top ten list includes only two subjects of the Russian Federation that in 2004 received subsidies to equalize the level of budgetary security - the Sverdlovsk region (seventh place) and the Chelyabinsk region (ninth place), and the volume of subsidies received by these regions is low.
The high performance of donor regions is determined by low dependence on the federal budget, higher financial stability, and financial flexibility. In such regions, there are prerequisites for more effective and high-quality financial planning, which reduces financial risks. At the same time, there are regions that, despite receiving federal subsidies, demonstrate fairly high creditworthiness indicators. This is largely determined by the high quality of financial management. Among the regions that received federal subsidies in 2004, the top twenty, in addition to the Sverdlovsk and Chelyabinsk regions, included the Krasnodar Territory, the Moscow, Rostov, Belgorod and Omsk regions, and the Stavropol Territory.