This report does not constitute a rating action.
What's happening
Local and regional government (LRG) elections took place in Poland on Sunday, April 7, at which mayors and municipal councils were elected. We rate two cities in Poland, the cities of Lodz (BBB+/Stable) and Krakow (A-/Stable).
Following the elections, we don't anticipate any changes in Lodz's financial policy or strategy, as incumbent mayor Hanna Zdanowska of the Civic Coalition secured her fourth term, with 59.3% of the votes. The composition of the municipal council did not change much compared with the previous term, as the Civic Coalition kept its majority.
We anticipate a revision of Krakow's financial policy after a runoff mayoral election. Krakow's incumbent major, who has been ruling the city for almost 22 years, did not rerun for office. Moreover, the composition of Krakow's city council has now changed, as the Civic Coalition has strengthened its position considerably, winning an absolute majority of 56% (see chart 1). The new city council composition could possibly lead to easier decision-making.
Krakow's new mayor will eventually be elected in a runoff on April 21 as none of the candidates achieved 50% of the votes in the first round. In the initial round, the candidate from the Civic Coalition party, Aleksander Miszalski, led the race, with 37.2% of the votes, while the candidate from the independent local party Krakow for Residents, Lukasz Gibala, running for the third time, gained about 26.8% of the votes. We will closely monitor which direction the city and its new mayor will take.
Chart 1
What could change
We expect that after the local elections, the central government and LRGs will intensify their discussion of the key elements of the institutional framework under which Polish LRGs operate. The key focus areas are revenue sources and regulations at the LRG level. We think that the institutional framework for Polish LRGs has been on a weakening trend in recent years, as the previous PiS-led central government suspended fiscal and debt rules for LRGs.
We think that the temporary suspension of those rules, which is effective until 2025, could set a precedent that would make rule-bending a structural feature of the Polish LRGs' financing system. This could reduce predictability, including with regard to investment planning. In particular, we see risks that the temporary measures might be prolonged or extended, leading to unsustainable spending and higher debt burdens.
At the same time, the previous central government introduced a tax reform in 2022--the so-called Polish deal--that lowered revenue for LRGs and only partly compensated them with capital transfers from the central government. As a result, together with elevated investment spending, Lodz's and Krakow's budgetary performance weakened considerably in 2023 (see chart 2).
From 2024, we expect the cities' financial performance to improve and their debt burden to fall as investment spending will subside. Previous high investment spending was tied to the end of the co-financed EU multiyear financial framework (2014-2020). Given the more pro EU-stance of both the central government's ruling coalition, as well as the rated cities' city council and mayors, we expect the cities to obtain EU funds and central government grants more easily. Party affiliation has played a role in the past and relations between the central government and EU have eased, thereby improving fund release.
Chart 2
Related Research
- Poland’s City of Lodz 'BBB+' Ratings Affirmed; Outlook Stable, March 15, 2024
- Polish City of Krakow 'A-' Rating Affirmed; Outlook Stable, March 8, 2024
- Research Update: Poland 'A-/A-2' Foreign Currency Ratings Affirmed; Outlook Stable, Dec. 1, 2023
- Poland's Incoming Government Faces Tough Policy Choices, Oct. 18, 2023
- Institutional Framework Assessment: Softer Fiscal Rules Reduce Predictability Of Polish Local Government Budgets, April 24, 2023
| Primary Credit Analysts: | Michelle Keferstein, Frankfurt (49) 69-33-999-104; michelle.keferstein@spglobal.com |
| Felix Ejgel, London + 44 20 7176 6780; felix.ejgel@spglobal.com | |
| Secondary Contact: | Maxim Rybnikov, London + 44 7824 478 225; maxim.rybnikov@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.