Fitch rates Koszalin

Fitch Ratings said it assigned Poland's city of Koszalin a national long-term rating of BB+(pol) with a stable outlook.

Fitch said the rating reflects Koszalin's poor budgetary performance, in particular a negative operating balance and a low self-financing capacity. This means that the city will need to increase its borrowing just to finance its negative operating balance.

The rating also takes into account the city's relatively loose fiscal policy - local tax rates are about 15% lower than the limits established by the central government. This, together with a weak tax base, reduces local tax revenue. Furthermore, the city's high unemployment, under-funded infrastructure and the poor condition of roads may constrain its socio-economic development.

The stable outlook reflects Fitch's view that Koszalin will over the medium term benefit from the new financial system introduced in 2004, which increases the income tax revenue allocation to municipalities. The city will focus on improving its budgetary performance by controlling operating expenditure and generating a positive operating balance.

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