Poland's public finances seen deteriorating, fiscal indicators differ from other countries - Fitch
The main factor behind the downgrade of Poland's rating outlook was the deterioration in the state and outlook of Poland's public finances, according to Fitch rating agency's chief analyst for Poland Milan Trajkovic. He added that Poland's fiscal indicators are increasingly diverging from those of comparable countries, including those in the region.
"What were the main factors influencing the change in outlook? If I had to sum it up in one sentence, it would be the further deterioration in public finances since our last assessment, poorer budgetary performance or a worsening fiscal situation, but also the deterioration in the outlook for public finances in the coming years as a result of the difficult political situation in the country and the lack of a credible fiscal consolidation plan that would stabilise the debt trajectory of the general government sector in the medium term," Trajkovic told the webinar.
"So, we have a worse starting point for fiscal consolidation. Our assessment of the government's ability to implement additional fiscal consolidation measures has changed due to the more difficult political environment. Therefore, we now expect higher deficits," he added.
Back in May 2024, Fitch had forecast that Poland's public debt would stabilise in 2028 at around 58 percent of GDP. Six months later, the forecast was revised to 64 percent, but the agency still predicted that debt would stabilise in the medium term.
"However, our latest forecast shows that we can expect public debt to reach 68 percent of GDP by 2027 and 70 percent of GDP by 2028, and we do not foresee it stabilising in the medium term. With the government's current policy, we only see a slowdown in debt growth, but not its stabilisation," said the Fitch analyst.
In his opinion, there are no visible efforts towards fiscal consolidation in Poland.
Trajkovic pointed out that Poland's fiscal indicators are deteriorating significantly compared to other countries in the rating basket and the region.
"(...) Poland's public finance indicators differ significantly from those of other countries. Before the pandemic, Poland's public finance indicators were very close to the median of the basket of countries with an 'A' rating, and even slightly better," he recalled.
"However, this difference will widen significantly in the future. In the near future, Poland will have to face a budget deficit twice as high as the 'A' median, and its public debt will be about 15 percentage points higher than the A median in practically two years, i.e. by the end of 2027," the analyst added.
He emphasised that Poland differs from countries with a similar rating, but also from countries with a similar rating in Central and Eastern Europe.
Rating agency Fitch has affirmed Poland's long-term foreign-currency Issuer Default Rating (IDR) at 'A-', while revising its outlook to negative from stable.
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