Main factors affecting the rating

The voivodship has stable budget bases. The level of operating surplus is growing steadily throughout the analyzed period. The relatively low surplus planned in the last quarter of 2018 was related to prudent forecasting of income and expenses.

An analysis of local government budgets in the last 11 years suggests that approx. 20% of the revenue item generates approx. 85% of the budget (similarly in the expenditure of 20% of the largest items, it generates 70% of all expenditures). Despite such a narrowing down of the source of these revenues, they are based in a significant scope (on average 75% in 2013-2018) on the voivodship’s own revenues.

Despite the implementation of investment projects in the last 5 years exceeding PLN 2,345 million, the level of debt is lower than at the beginning of this period by PLN 24.4 million. Debts planned by the entity in subsequent periods should not significantly affect its ability to settle long-term liabilities.

Factors determining the upgrade of the rating: according to the methodology adopted by INC Rating, Polish local government units cannot receive a rating higher than the rating of Poland, assigned as the country’s average rating issued by the rating agencies Moody’s, S&P and Fitch.

Factors determining the lowering of the rating: an over-plan increase in the level of debt, with a lower operating margin below 15% and an upsetting trend in the relation of operating income and expenses, caused by an increase in expenditure on remuneration. Oversight realization of expenditures in 2017, in case of using all free funds from previous years.

 

The main factors of the rating change

The region has stable budget bases. The level of operating surplus in the years 2013-2017 is in an upward trend. A relatively low surplus in 2018 may be related to prudent forecasting of income and expenses, and one-off events may also have a significant impact here. An important factor that may lead to a change in the rating will be an analysis of the actual implementation of the assumed revenue and budget expenditure plan. Analysis of voivodship budgets in the last 11 years suggests that approx. 20% of the revenue item generates approx. 85% 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 range (on average 42% in 2013-2018) on the voivodship’s own revenues.

Despite the implementation of investment projects in the last 5 years exceeding PLN 2,345 million, the level of debt is lower than at the beginning of this period by PLN 4.1 million (as at the end of 2017). 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: performance of the operating margin level (ratio of operating surplus to current income) above 14% while maintaining long-term trends in other budget categories.

Factors determining the lowering of the rating: an over-plan increase in the level of debt, with the operating margin below 8%, and the trend in the ratio of income and operating expenses, for example caused by an increase in expenditure on wages.

 

Contact:

Krzysztof Waśko
Lead Analyst

krzysztof.wasko@incrating.pl
+48 61/851 38 83

Long-term international credit rating Małopolskie, region of