S&P: Polish cities constrained by limited flexibility

Standard & Poor's said the creditworthiness of the three rated Polish cities - Lodz (BBB-/positive), Krakow (BBB+/stable) and Wroclaw (BBB/positive) - stabilized in 2003/2004 and started to improve in 2005, as Polish local and regional governments benefited from accelerating local economies, increasing inflow of European Union funds and strong management.

Nevertheless, limited financial flexibility and high infrastructure needs constrain the ratings on all Polish cities, the agency said.

Since 1999, Polish cities have experienced ongoing administrative reform, which triggered significant changes in the budget structure. S&P said the reform was not always supportive in compensating for devolved responsibilities with sufficient revenues and, combined with sluggish economy, put pressure on local and regional government budgets in 2001 and 2002.

The cities have recovered since then, however, and the agency described the whole system as having "evolved in the direction of securing new responsibilities with adequate financing."

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