S&P lowers Poland’s local-currency rating to A- — RMF24

S&P Global Ratings has lowered Poland’s long-term credit rating in local currency from “A” to “A-”. At the same time, the country’s long-term foreign-currency rating was affirmed at “A-”. The outlooks for both ratings were revised from stable to negative, RMF24 reports.

Risks to public finances

S&P explained the negative outlook by the risk that a significant budget deficit and rising public debt could limit the authorities’ ability to respond to future shocks. According to the agency, this could make Poland more vulnerable to changes in investor sentiment or force the country to undertake strict fiscal adjustment that would weigh on economic growth.

The agency expects Poland’s economy to grow by around 3% over the next two to three years. Growth, according to S&P’s forecast, will be supported by strong domestic demand and exports. At the same time, Poland’s budgetary situation will remain particularly weak in the coming years, the agency believes.

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Deficit and debt forecasts

S&P forecasts that Poland’s general government deficit will average more than 6% of GDP. The general government’s net debt, according to the agency’s calculations, could reach 70% of GDP by the end of the decade. S&P also noted that political polarization is complicating fiscal consolidation.

The agency may lower Poland’s rating if persistent fiscal imbalances and debt accumulation increase risks to economic growth through declining investor confidence, higher borrowing costs, or strict forced fiscal adjustment. Among other risks, S&P cites a possible escalation of the war by the Russian Federation — an aggressor state — against Ukraine, which could increase pressure on Poland’s public finances and economic growth prospects.

A return of the outlook to stable is possible if the Polish government takes measures to sustainably and substantially reduce large budget deficits. According to the agency, this could contribute to a gradual reduction in debt without a significant negative impact on economic growth.