Credit-Rating, a nationally recognized credit rating agency in Ukraine, reported today that it had assigned a long-term credit rating of uaBBB- to the city of Ternopil. It had also assigned a BBB- rating to the upcoming issue of Ternopil’s four-year municipal bonds worth 20 million hryvnias. The outlook on both ratings is Stable.

In the course of its analysis, Credit-Rating considered the city’s financial performance between 2003 and 2007, as well as the internal information provided by the council.

A borrower or a debt instrument with uaBBB credit rating has sufficient creditworthiness when compared to other Ukrainian borrowers or debt instruments. The “+” and “– ” modifiers indicate intermediate rating categories. A stable outlook indicates no anticipated change to the credit rating within a year.

Factors supporting the credit rating:

- The city budget’s general fund (not including transfers) has grown rapidly over the last 3 years: in 2005 revenue climbed 27.8 percent, in 2006 it grew 24.3 percent, and in 2007 it increased by 40.6 percent.

- The city had no direct debt as of Jan. 1, 2008, and debt growth is expected to be moderate. If the proposed bond issue is placed in full, the debt load will amount to 7.4 percent of the budget revenue (not including transfers) expected for 2008.

- Between 2003 and 2007, Ternopil’s economic performance improved steadily. The retail turnover volume nearly tripled, reaching 1.51 billion hryvnias. Capital investments more than quadrupled, reaching 857.5 million hryvnias. The amount of new housing built annually grew by 110 percent, to 126,700 square meters.

- The city’s social indicators also improved considerably between 2003 and 2007. Average daily employment (small business not included) rose 4.2 percent to 77,100 people, which is 35.3 percent of the city population. Wage arrears were reduced by three times, to some 1.5 million hryvnias.

- Ternopil’s population is relatively young, compared to other Ukrainian cities, and the city was enjoying an annual population growth of 600-900 people during the last five years.

Factors limiting the credit rating:

- Ternopil remains dependent on equalization subsidies from the state budget.

- In 2007, average monthly wages in Ternopil were 18 percent below the national average, and the city budget was heavily dependent on proceeds from personal income tax, which accounted for 60 percent of its revenue (not including transfers).

- Most of Ternopil’s economic indicators, when calculated per capita, are below the national average: industrial sales were 2.2 times below the average, direct foreign investments were 5.5 times below the average, and capital investments were 3 percent under the national average.

- The city’s capital assets – housing, engineering and transportation infrastructure – have depreciated considerably due to wear and tear. Large capital investments are necessary for their reconstruction. Meaningful improvements have been prevented by growing arrears in payments for housing and utility services which grew by 21.8 percent during the last three years to reach 9.5 million hryvnias.