A slowdown in the growth rate of the Polish economy may increase fiscal risks, as Warsaw is relying heavily on rapid GDP growth to meet its targets, while being under pressure to deliver on electoral promises, Fitch Ratings warned on May 18.

Fitch is the only major rating agency to have refused to make its worries over recent fiscal and political developments in Poland concrete via rating action, but appears in its latest report to warn that could yet happen. In mid-January, S&P delivered a downgrade of the sovereign, while on May 14 Moody’s changed its outlook from stable to negative, although leaving the rating intact.

Fitch’s review of the Polish rating is scheduled for July 15. The agency's warning over the risks of an economic slowdown to fiscal targets comes in the wake of disappointing macro data in the first quarter of the year.

“When we affirmed Poland's 'A-'/Stable rating in January, we identified relaxation of the fiscal stance that worsens the government debt trajectory, or a weakening of policy credibility or economic performance, as triggers for a possible negative rating action,“ the agency writes.

Some of the election pledges that investors see as controversial have been met already, for example the introduction of a bank tax or child benefit. Others are apparently in the making, such as a new tax on retail turnover, lowering of the retirement age, or conversion of CHF mortgages. However, Warsaw does appear set to remain careful that it does not launch the policies without credible sources of revenue to avert a large jolt to fiscal indicators.

“The Polish government's 2016 Convergence Programme submitted to the European Commission at end-April, which covers fiscal policy for the period 2016-2019, forecasts the fiscal deficit will rise to 2.9% of GDP in 2017 from 2.6% in 2016 and 2015,” Fitch notes.

However, the agency’s own forecast puts the deficit at 2.8% in 2016 and 3% in 2017, based on lower GDP and tax growth assumptions. "GDP growth will remain strong, but we have revised down our forecast to 3.2% in 2016 from 3.5% following a weak [first quarter],” Fitch says.