Main factors affecting the rating

The rating reflects the operating results of the city of Wałbrzych, its ability to finance investments from its own resources, the liquidity situation of the budget and the historically high 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 raising 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. It is worth paying attention to the issue of revenue bonds implemented by the City, which are still considered as an innovative way to obtain return revenues by Polish local governments.

The current income of the unit in 2013-2018 increased from PLN 424.65 million in 2013 to PLN 563.84 million in 2018, which implies a cumulative annual growth rate (CAGR) of 5.83%. 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 33.53% to 36.75% of current revenue. On average, 36.55% of tax revenues were local taxes.

The average cost of the city’s debt is 3.49%, while the average debt repayment period – the time interval in which the city would repay its liabilities assuming that it would allocate its entire operating surplus (the average surplus from 2013-2018) to 32 years.


The main factors of the rating change

The city has a stable budgetary base. According to the information obtained, the poor financial situation in 2018 is mainly related to the formal aspects of budget planning, in particular, the application and disbursement of subsidies from foreign sources (Article 5 paragraph 1 item 2 and 3 of the Public Finance Act). An important factor that may lead to a change in the rating will, therefore, be an analysis of the actual implementation of the planned revenue and budget expenditure plan. An analysis of the city’s budgets in the last 11 years suggests that approx. 20% of the revenue entries generate approx. 85% of the budget (similarly in the expenditure of 20% of the largest positions, it generates 70% of all expenditure). Despite such a narrowing down of the source of these revenues, they are based in a significant scope (on average 54% 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 only by PLN 253.2 million. The debt planned by the entity in subsequent periods should not significantly affect its ability to settle long-term liabilities.

Factors determining the improvement of the assessment: reduction of the ratio of direct debt servicing to operating funds below 100%, with the increase in the operating margin (operating surplus / current income ratio) above 5%.

Factors determining the lowering of the assessment: 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 credit rating Wałbrzych, City of