Moody’s sounds warning to Poland

By bne IntelliNews January 26, 2016

Rating agency Moody’s warned on January 26 that the prospect of deteriorating fiscal indicators on the back of looser fiscal policy and relaxation of the country’s budget spending rule is "credit negative".

The rating agency’s statement comes just over a week after Standard & Poor’s downgraded Poland’s rating from A- to BBB+ and changed its outlook from positive to negative. The downgrade weakened the zloty and pushed up yields.

"[We] expect deficits-to-GDP of 3.2% and 3.1% in 2015 and 2016, respectively, instead of the fiscal targets of 2.7% and 2.3% originally set in last year's Convergence Programme," Moody's wrote in an "issuer comment".

Should these predictions be confirmed, Poland would risk a return to the European Commission’s Excessive Deficit Procedure, which it only escaped in the latter half of 2015. The government has said a larger deficit in 2015 is possible, but downplayed its importance, insisting fiscal indicators will remain solid.

But Polish politics appear to have started to matter a lot for rating agencies. S&P rating decision underlined political decisions by the government of Law and Justice (PiS) – such as weakening of the constitutional court and independence of the central bank - as the main driver for the downgrade.

Moody’s report points to those issues as well. “We also see further downside risks to budgetary performance in 2017 given the potential for further relaxation of fiscal policy and for weaker growth, should recent measures targeting the country's institutional and legal framework erode business confidence and investment," the rating agency said, adding that the prospect of increased deficit is “credit negative.”

Moody’s last rating update of Poland was supposed to take place on January 15, the same day S&P downgraded the CEE’s largest economy. Fitch affirmed its rating on the sovereign the same day. Moody's next review is scheduled for May 13.






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