Main factors affecting the rating

The rating reflects the operating results of the City of Gdynia, its ability to finance investments from its own resources, an properly liquidity position of the budget and a low level of debt service in relation to operational funds. The rating also takes into account the level of indebtedness of municipal companies.

The debt policy is implemented in a safe manner and guarantees its timely repayment in subsequent periods. The debt planned by the entity should not significantly affect its ability to settle long-term liabilities.

The current income of the unit in 2014-2019 increased from PLN 1.0 billion PLN in 2014 to PLN 1.5 billion PLN in 2019, which implies a cumulative annual growth rate (CAGR) of 7.66%. Part of this increase, however, is associated with grants related to the government program to support families bringing up children (the „Family 500+” program). The city’s tax revenue ranged from 44.89% to 49.74% of current revenue. On average, 31.29% of tax revenues were local taxes.

The average cost of the city’s debt is 2.25%, while the average debt repayment period – that is, the time period in which the city would repay its liabilities assuming that it would devote its entire operating surplus according to the plan for 2019 to 10.1 years. However, if we expand the analysis and take the average surplus from 2014-2019, then the value of this indicator will rise only to 11 years.

The main factors of the rating change

The city has a stable budget base. The level of operating surplus grew in the years 2014-2018. A relatively low surplus in 2019 may be related to prudent forecasting of income and expenses. An important factor that may lead to a change in the rating will, therefore, be an analysis of the actual execution of the planned revenue and budget expenditure plan in 4Q19. An analysis of the city’s budgets in the last 11 years suggests that approximately 20% of the revenue item generates approximately 85% of the budget (similarly in the expenditure of 20% of the largest positions, it generates 70% of all expenditure). Despite the narrowing down of the source of these revenues, they are based on a significant extent (on average 75% in 2013-2018) on the city’s own revenues.

Despite the completion of investment projects in the last 5 years exceeding PLN 836 million, the level of debt is higher than at the beginning of this period by PLN 17 million only. The debt planned by the entity in subsequent periods should not significantly affect its ability to settle long-term liabilities.

Factors determining the raise of the rating: stabilization of the operating surplus at the level exceeding 20% of current income and maintaining a decreasing share of expenditure on remuneration in current expenditure.

Factors determining the rating downgrade: actual budget implementation as planned on September 30 this year. The city usually performs its budget with a much better result and is planned for the third quarter. Repeating this trend for 2019 could lead the agency to withdraw its negative rating outlook.


Krzysztof Grybionko
Lead Analyst
+48 61/851 38 83

Research Report – Gdynia