Moody’s raises outlook on Poland to stable

By bne IntelliNews May 15, 2017

Moody’s Investor Service affirmed Poland’s sovereign credit rating at 'A2' on May 12, and raised the outlook on the sovereign to stable.

The improvement of the outlook comes on the back of reduced risks of loose fiscal policy and contained uncertainties stemming from government policies, the ratings agency said in a statement. The downside risks to the fiscal stance that led to the negative outlook one year ago are abating, Moody’s said, as it acknowledged solid control over the 2016 deficit.

Last year's budget gap was quashed to 2.4% of GDP. Moody's had estimated a shortfall of 2.8%, and worried the deficit could even threaten to cross the EU's 3% excessive budget deficit threshold.

“Hence one of the factors behind Moody's May 2016 decision to assign a negative outlook did not materialise,” the agency noted.

The deficit is likely to remain under control in 2017, Moody’s says. That is expected thanks to higher than expected tax revenues, with VAT receipts rising particularly quickly.

“Moody's expects the government to continue to adhere to the 3% of GDP limit on the headline fiscal deficit,” the agency stated, although noting that some upward pressure on government spending remains, such as the coming reduction in retirement age.

Growth will support fiscal balance, the agency predicts, with the economy expected to expand 3.2% in 2017 and 3.1% in 2018. The economy will grow on the back of domestic demand, improving export prospects and higher utilisation of EU funding. The outlook is well supported by recent macroeconomic data.

Moody’s projects the public debt ratio will stabilise at around 55% in 2017-2021, as long as growth averages 3.2%. The agency’s baseline scenario also foresees fiscal deficits of around 2.8% between 2017 and 2021.

The risk of more unorthodox policies from the government is contained, with risks to the business climate and investment flows abating, the agency adds.

“The government has taken actions to reverse or dilute some of the measures announced shortly after coming into power. For instance, the recent decision of the ruling party to cancel its plan to convert Swiss-franc-denominated mortgages into local currency has removed a significant risk to banking sector stability as well as to overall investor sentiment,“ Moody’s said.

Evidence does not suggest that the investment climate has materially weakened as foreign direct investment inflows remained robust and portfolio flows relatively stable, the agency adds.

The change is Moody’s first rating action in a year after the agency dodged updates in September last year and in January.


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