The impact of institutions on regional credit ratings in Russia

Anna Mikhaylova, Evgeny Timushev


Relevance. Institutions of a fiscal system play a significant role in regional credit ratings. This is reflected in the low creditworthiness of Russian regions from the international perspective.

Research objective. The paper discusses the role of the institutional factors in the credit ratings assigned to Russian regions by Russian and international agencies.

Data and Methods. The study analyzes the rating methodology adopted by Russian and international credit rating agencies and tests the presence of the institutional factors by conducting a formal regression analysis based on the data from the budgetary systems of Russia and the United States.

Results. We demonstrate that international agencies value institutional factors, while Russian agencies use formal quantitative indicators. By applying comparative regression analysis to the economic and fiscal indicators of Russian regions and U.S. states, we found that The Big Three (Fitch Ratings, S&P Global Ratings and Moody's Investors Service) rate Russian regions lower than U.S. states, although the formal indicators between the two fiscal systems at the regional level do not differ as much.

Conclusions. We conclude that the lower creditworthiness of Russian regions in the international perspective reflects the weakness of the institutions in the Russian budgetary system. Practically, the assessment of regional creditworthiness in Russia by the international agencies highlights the areas of intergovernmental fiscal relations that need improvement, most notably the insufficient tax and spending autonomy of local and regional governments.


debt sustainability; credit rating functions; rating methodology; institutions of the budgetary system; discretionary federal aid; soft budget constraints; Russian regions; U.S. states

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