UPDATE: Fitch revises Poland's outlook to negative; affirms at 'A-'
Rating agency Fitch has revised the outlook on Poland's long-term foreign-currency Issuer Default Rating (IDR) to negative from stable and affirmed the IDR at 'A-', the agency said in a statement.
"Risks to Poland's public finances have increased since our last review. Substantial fiscal slippage in 2024 and 2025, with deficits likely to average 6.7% of GDP, increased political challenges to implement fiscal measures and the lack of a credible fiscal consolidation strategy will likely complicate Poland's ability to meaningfully reduce fiscal deficits before the next regular parliamentary elections in 2027," the agency said.
Fitch now expects wider fiscal deficits leading to a steeper rise in general government debt towards 68% of GDP by 2027.
The agency forecasts the deficit to increase further to 6.9% in 2025, before easing slightly to 6.8% of GDP in 2026, above the government's budget projection of 6.5%, and further to 6.3% in 2027.
"Our forecast reflects our expectation of a limited ability to increase taxes, and continued increases in public investment and defence spending (projected to increase to 4.5% according to NATO data), despite additional revenue from the freeze of income tax thresholds and slower growth of public sector salaries and social spending," it wrote.
As stated, the forecast also considers the use of additional spending space (by excluding some military spending from the net expenditure path) due to the activation of the national escape clause and the political difficulties in adjusting social spending and public sector salaries ahead of the next electoral cycle.
Fitch projects general government debt to increase to 59.3% of GDP in 2025 from 55.3% in 2024 and 49.5% in 2023. According to Fitch, continued primary deficits and net issuance of guarantees (primarily for the off-budget army fund) will push debt to 68.3% in 2027.
Fitch points to domestic political challenges.
"The start of President Karol Nawrocki's term highlights likely challenges for the coalition government to implement policy. Since early August, the president has vetoed various bills, and publicly stated his opposition to tax increases and proposed tax cuts," the agency said.
"In an environment of high political polarisation, as demonstrated at the May presidential election, the influence of domestic political considerations on policy choices is likely to increase ahead of the next parliamentary elections, due by October 2027. This could reduce the room to implement politically challenging measures before 2028, including those supporting fiscal consolidation," it added.
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