Main factors affecting the rating

The rating reflects the operating results of the city of Kraków, its high ability to finance investments from its own resources, the exemplary 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 publication of new macroeconomic data had a positive impact on the entity’s assessment, but it was not strong enough to justify the raising of the rating. The possible change will depend on annual results, which will be published by the entity in the first half of 2019.

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 2013-2018 increased from PLN 3.5 billion in 2013 to PLN 4.9 billion in 2018, which implies a cumulative annual growth rate (CAGR) of 7.14%. Part of this increase, however, is associated with income related to the government program to support families bringing up children (the „Family 500+” program). The city’s tax revenue ranged from 44.43% to 46.95% of current revenue. On average, 31.60% of tax revenues were local taxes.

The average cost of the city’s debt is 4.03%, while the average debt repayment period – that is, the time period in which the city would repay its liabilities assuming that it would allocate its entire operating surplus according to the plan for 2018 almost 10 years. However, if we expand the analysis and take the average surplus from 2013-2018, then the value of this indicator will decrease to approximately 8 years.


The main factors of the rating change

The city has a stable budget base. The level of the operating surplus was maintained at a relatively high level in 2013-2018. A relatively low surplus in 2018 may be related to prudent income and expenditure forecasting. 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. An analysis of the city’s budgets in the last 11 years suggests that approximately 20% of the revenue item generates approx. 75% of the budget (similarly in the expenditure of 20% of the largest items, it generates 70% of all expenditure). Despite the narrowing of the source of these revenues, they are based on a significant scope (on average 67% in 2013-2018) on the city’s own revenues.

Despite the completion of investment projects in the last 5 years exceeding PLN 3 billion, the level of debt is higher than at the beginning of this period by only PLN 332.7 million. 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: maintaining the ratio of direct debt servicing to operational funds below 60%, with the increase in the operating margin (operating surplus / current income ratio) above 10%.

Factors determining the lowering of the rating: an over-plan increase in the level of debt, with the operating margin below 6%, and the trend



Jacek Krawiec
Lead Analyst
+48 61/851 38 83

Long-term credit rating Kraków, City of