NEW YORK: Fitch Ratings has signalled it may lower Poland’s A- credit score, sounding a warning to the fast-growing economy that its internal political tensions may impede needed fiscal consolidation.
Fitch lowered to negative from stable its outlook on Poland’s investment-grade score, which it’s maintained since 2007.
The sovereign’s only credit-rating downgrade came in 2016, when S&P Global Ratings cut its view to BBB+ before reinstating the A- score two years later.
The outlook cut was predicted by a number of economists after Poland’s government presented its 2026 budget draft and revised up this year’s fiscal deficit to 6.9% of economic output.
The move is nevertheless a signal to Prime Minister Donald Tusk’s government that investors may be losing patience with the highly indebted Eastern European country, which has so far been perceived as stable and rapidly growing – a reputation solidified when Tusk defeated populist opponents in the 2023 election.
The government said it wants to prioritise defence spending and investment to boost growth amid the threat from the ongoing war in neighbouring Ukraine, but the lax budget is rapidly inflating the country’s public debt, which remains below average for European Union members but nevertheless is nearing thresholds that trigger austerity measures under Polish law.
“Risks to Poland’s public finances have increased since our last review,” Fitch analysts said in their assessment late Friday.
“Substantial fiscal slippage in 2024 and 2025, with deficits likely to average 6.7% of gross domestic product, 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 analysts said.
In a drive to partly offset increased defence and social spending, Tusk’s government announced it will hike the excise tax on alcoholic drinks and corporate taxes for banks. At least some of the plans are likely to be vetoed by Poland’s new president, Karol Nawrocki.
Increased tensions between the government and the opposition-backed nationalist president add to the fiscal risks, as the new head of state warned he would block tax increases while proposing his own costly initiatives.
“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,” Fitch added.
“This could reduce the room to implement politically challenging measures before 2028, including those supporting fiscal consolidation,” said Finance Minister Andrzej Domanski, who’ll offer a new fiscal consolidation plan this month – partly blamed the president for Fitch’s move but admitted it was a warning sign for the country.
“This decision is a consequence of, among other things, President Nawrocki blocking key bills, which limits the scope for strengthening the foundations of the economy and necessary fiscal consolidation,” Domanski said on in a post on X following the Fitch decision.
“We are working to combine stable finances with investments and necessary security expenditures. Nevertheless, this is a warning signal that everyone – including the president and his advisers – should take note of.”
According to a 2026 budget draft, unveiled in late August, Poland’s general government deficit is set to stay above 6% of economic output for a third straight year.
Net public debt calculated by Polish methodology is seen at 52.6% next year, nearing the 55% cap that prompts spending constraints.
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 the North Atlantic Treaty Organisation data), despite additional revenue from the freeze of income tax thresholds and slower growth of public sector salaries and social spending, according to Fitch.
Bondholders so far don’t appear rattled by the budget situation, with the yield on Poland’s dollar bond due in 2034 dropping to 4.92% last Friday, the lowest since October. — Bloomberg
