Main factors affecting the rating

The rating reflects the operating results of the Małopolskie region, the exemplary liquidity situation of its budget and a moderate level of debt service in relation to operational funds. The rating also takes into account the level of indebtedness of local government companies. The publication of new macroeconomic data had a positive impact on the entity’s assessment, but it was not strong enough to justify raising the rating. 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 analyses of the impact of exchange rate changes on the level and debt service were also conducted.

The current income of the unit in the years 2013-2018 increased from PLN 789.67 million in 2013 to PLN 1078.81 million in 2018, which implies a cumulative annual growth rate (CAGR) of 6.44%. The tax revenue of the Małopolskie region ranged from 44.60% to 59.35% of current revenue. The average cost of the voivodship’s debt is 1.88%, while the average debt repayment period – the time interval in which the voivodship would pay off its liabilities assuming that it would devote its entire operating surplus to it, according to the plan for 2018 is 4.47 . However, if we expand the analysis and take the average surplus from 2013-2018, then the value of this indicator will decrease to only 4 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 credit rating Małopolskie, region of