Fitch affirms Polish rating despite mounting risk

By bne IntelliNews July 17, 2016

Fitch Ratings affirmed Poland's long-term foreign and local currency Issuer Default Ratings (IDRs) at 'A-' and 'A,' respectively on July 15. 

The outlook on the country's rating was maintained at “stable,” defying speculation ahead of the scheduled review that the agency might change it to “negative”. Speculation over a drop in the outlook followed a downgrade by Standard & Poor's in January. All three major ratings agencies have warned of risks to the independence of institutions and fiscal consolidation. Work on a scheme to force conversion of forex loans is another notable issue.

Fitch, however, says the rating reflects Poland's strong economic fundamentals, while it notes that government debt is close to the country's rating peers median. GDP growth in recent years has supported an increase in GDP per capita, however, that remains low relative to peers, Fitch points out. Downside risks relate first of all to reduced predictability in economic policy since Law and Justice (PiS) took power in October 2015.

The PiS government has implemented “unorthodox measures,” including a bank tax and “some fiscal relaxation,” – primarily a multi-billion zloty programme of child benefits. Measures that could further affect financial and fiscal stability, such as the scheme to convert foreign currency mortgages, are under consideration, Fitch observes. 

The agency also noted political developments, especially changes at the Constitutional Tribunal that have led to a standoff with the European Commission. “These developments could affect Poland's attractiveness as a place to do business,” the analysts suggest.

Poland’s real GDP growth will likely slow to 3.2% in 2016 and 3.3% in 2017 from 3.6% in 2015, Fitch notes. Lower than expected external demand is a key risk, especially after the Brexit vote, with 6% of Poland's exports going to the UK. Private sector investment could also be affected by post-Brexit referendum uncertainty and adverse policy developments.

Fitch also expects general government debt will peak in 2018 at 53.2% of GDP and remain thereabouts in the medium term, assuming the government applies some fiscal tightening from 2018. That forecast has been increased from a peak of 51% of GDP in 2016.

Despite deficit risks having been commonly cited as one of the effects of the government's loosened fiscal policy, Fitch expects Poland’s deficit to be largely contained and not exceed the EU-required threshold of 3% of GDP. The budget gap is predicted at 2.8% of GDP in 2016 and 3.0% in 2017.

Poland's external position is on an improving trend, Fitch observes. The current account balance was -0.2% of GDP in 2015, compared to 3.6% of GDP on average in 2010-2015, owing to improved competitiveness and, more recently, the fall in commodity prices. The country ceiling is affirmed at 'AA-' and the short-term foreign currency IDR at 'F2'.

Related Articles

CVC Capital Partners agrees to buy Zabka Polska

Private equity fund CVC Capital Partners announced on February 21 that it has agreed to buy Polish convenience store chain Zabka Polska. Mid Europa Partners had been looking to offload Zabka since ... more

Poland's real interest rates turn negative as inflation surges in January

Poland's consumer price index grew 1.8% y/y in January, more than doubling its rate compared to December, statistics office GUS announced on February 13. With Polish interest rates sitting at ... more

Poland and Hungary reversing transition to democracy, warns Freedom House

The rise of populism in Poland and Hungary is startling in suggesting that electorates are ready to back leaders that promise to reverse some of the most remarkable recent transitions from ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss