Fitch Ratings warned on January 27 that an increase in the deficit could trigger a cut to its rating of Poland.
The announcement echoes concerns expressed by Moody's in recent days, and comes in the wake of a surprise downgrade by Standard and Poor’s to BBB+ from A- and change of outlook to negative from positive. The move weakened the zloty and saw yields spike.
Fitch analyst Arnaud Louis told reporters that he expects Warsaw to keep the deficit below 3% of GDP in 2016 and 2017, according to Bloomberg. However, evident relaxation of fiscal policy has shifted the “balance of risks to the negative side,” he added. Fitch affirmed Poland at A- with stable outlook the same day of the S&P downgrade.
“If we were to see a policy announcement resulting in the deficit being higher, that would be a potential trigger for a rating downgrade,” Louis said. “At the same time we also forecast growth to continue to be strong, at 3.5% or higher.”
The Law and Justice (PiS) government won power in October with large spending promises. The flagship policy to boost child benefit is set to cost the budget up to PLN17bn in 2016, and over PLN20bn the following year.
To cover this, and other costs such as the lowering of the retirement age in the second half of 2016, the government plans to introduce a bank tax from February and a tax on retailers.
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