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Business news, 30.09.2004 15:17

St. Petersburg Credit Healthy

credit_rating Interfax

Moscow - Moody's Interfax Rating Agency has confirmed its long-term credit rating for St Petersburg on the national scale at Aa2 (rus) scale - a very high level of creditworthiness - and the short-term rating at RUS-1 - that signifies an exceptionally high level of creditworthiness.

The rating was based on the strong diversification of the city economy and budget revenue, the small debt and its effective management, the stable growth of the local economy and the city's independence from federal subsidies.

The flexibility in managing spending and the conservative budget policy are important factors in the city's creditworthiness.

The risk of changes in budget revenue due to federal tax reform and unsteady development of the machine-building complex, in which several enterprises are large tax payers, and the risk associated with the reform of local self government and reform of social benefits create some uncertainty in the long term.

St Petersburg budget revenue grew 18.4 percent in the first half from the same period last year. Tax revenue grew 21.9 percent, with profit tax growing the fastest (64.9 percent).

The increase in profit tax revenue, a key tax for the city, was due to large payments by LMZ and several other machine building enterprises that have completed large export contracts.

Income tax revenue grew 28.6 percent. Grants from the federal budget dropped by 37% since the Finance Ministry is not providing St Petersburg subsidies to compensate for lost revenue this year.

The increase in city budget revenue was accompanied by a significant drop in debt, which dropped 25.4 percent to 9.8 billion rubles. The city's foreign debt dropped the most, by 45 percent, due to repayment of a loan to Deutsche Bank. This changed the structure of debt so that foreign loans account for just 16.7 percent of total debt, down from 24.1 percent at the close of 2003.

Moody's Interfax Rating Agency said St Petersburg could experience a rapid increase in current spending in 2005 due to the reform of local self government and social benefit programs. The reform of social benefits, in which benefits for certain categories will be transferred to the regional level, could increase budget spending. The redistribution of spending among various levels of budgets in municipal reforms could also result in an increase in current spending to support new municipalities.

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