Fitch also said it upgraded Tatarstan's national long-term rating to 'AA+(rus)' from 'AA(rus)'.
"The upgrade reflects Tatarstan's continued strong budgetary performance, tight controls over operating expenditure and ability to finance capital expenditure through own sources, keeping direct debt insignificant. However, the ratings also take into account the republic's high dependence on local economic performance, as tax income becomes the main source of budget revenue," Fitch said.
"The republic has demonstrated consistently strong budgetary performance that allowed it to register high operating and current budget surpluses. Operating expenditure remains tightly controlled, with staff expenditure only accounting for 13.2% of operating expenditure in 2006, while capital expenditure averaged 36% of total expenditure in 2002-2006," the agency said.
"The republic has been able to offset the negative effects of the decline in federal transfers by stimulating tax revenue, whose share in overall revenue has been rising to account for 65% of the total in 2006," it said.
"Tatarstan's budget has seen an increasing share of social spending and financial support of municipalities. The recent budgetary reforms have seen the republic's social expenditure grow to 22.5% of total spending in 2006 from 9.7% in 2001. At the same time, financial support of municipalities increased to 32% in 2006 from 17.7% in 2001. The need to index these payments to the consumer price index may reduce the republic's operating expenditure flexibility," Fitch added.
"The republic has a significant exposure to indirect risk since the guarantee for LPN of SINEK, a holding company wholly-owned by the government, accounts for 68.5% of its total debt. However, the risk is mitigated by the fact that dividends from the shareholdings and the return on investments exceed the annual coupon payments," the agency said.
