The main factors affecting the rating

The rating reflects the operating results of the city of Wałbrzych, its moderate ability to finance investments from its own resources, the correct liquidity position of the budget and a high 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 indebtedness planned by the entity should not significantly affect its ability to settle long-term liabilities, although the high level of indebtedness undoubtedly hinders planning further development investments in the local government.

The current incomes of the unit in the years 2013-2018 increased from PLN 424.65 million in 2013 to PLN 577.82 million in 2018, which implies a cumulative annual growth rate (CAGR) at 6.35%. Part of this increase, however, is related to grants related to the government program to support families bringing up children (the „Family 500+” program). The city’s tax revenue ranged from 33.53% to 36.75% of current revenue. On average 36.57% of tax revenues were local taxes.

The average cost of city debt is 3.41%, while the average debt repayment period – that is, the time period in which the city would repay its liabilities assuming that it would spend the entire operating surplus for this purpose in accordance with the execution for 2017 is 18.28 years. However, if we expand the analysis and take the average surplus from 2013-2018, then the value of this indicator will increase to 23 years.


The main factors of the rating change

The city has a stable budget base. Despite the operating deficit planned for the third quarter, 2018 ended with a relatively high operating surplus and lower than planned debt level in the City, which is in line with the previously adopted assumptions. An important factor that may lead to a change in the rating will be the analysis of the financial plan for 2019. An analysis of the city’s budgets in the last 11 years suggests that approx. 20% of the revenue item generates approx. 85% of the budget (similarly in expenditure 20% of the largest items 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 704 million, the level of debt is higher than at the beginning of this period by only PLN 253.2 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: reduction of the ratio of direct debt servicing to operational funds below 100%, with the increase in the operating margin (operating surplus / current income ratio) above 5%.

Factors determining the lowering of the rating: an over-plan increase in the level of debt, in the implementation of a negative operating margin and a disturbance of the trend in the relation of income and operating expenses, caused in particular by an increase in expenditure on remuneration.



Krzysztof Waśko
Lead Analyst
+48 61/851 38 83

Long-term international credit rating Wałbrzych, City of