S&P confirms Poland's rating at A- with stable outlook

Justin Lane/PAP/EPA

Poland's long-term rating in foreign currency was affirmed at the A- level with stable outlook by rating agency Standard and Poor's (S&P) on Friday evening.

According to the agency, the rating balances macroeconomic risks stemming from the Russia-Ukraine war on the one hand, and the buffers provided by the country's strong external and government balance sheets on the other hand.

The Polish "competitive and diversified" economy and strong external and public balance sheets are expected to help offset risks and shocks related to the war in Ukraine, the agency said in a statement.

Poland's ratings "could come under pressure if the negative impact of the conflict in Ukraine were more severe than we currently expect, resulting in a much weaker medium-term growth outlook," S&P said. 

"Ratings downside could also materialise in the event of a material and protracted reduction in EU transfers to Poland as a result of continuous political tensions between Poland and EU authorities, for example," it added.

The agency believes that both scenarios, coupled with looser spending control, could result in more extended fiscal pressure, putting government debt on a sustained upward path.

But, S&P added, the rating could be upgraded if "once the effects of the conflict subside, Poland resumed its strong economic performance, and the government's fiscal performance proved stronger than we currently project."

In a report published on September 27, the agency downgraded Poland's economic growth forecast to 4.0 percent from 4.5 percent in 2022 and from 2.1 percent to 1.2 percent in 2023. Inflation forecasts, on the other hand, were raised by respectively 1.3 percentage points (ppt) and 1.5 ppt to 13.3 percent for 2022 and 11.5 percent for 2023. 

According to S&P analysts, inflation in Poland should approach the deviation range from the target set by the central bank, NBP, in 2024.

The agency forecasts that the general government deficit will come close to 5.8 percent of GDP in 2023.

"Despite additional tax revenue on the back of higher inflation, we expect general government fiscal performance will remain under pressure this and especially next year, when we project fiscal deficits will widen to 5.8 percent of GDP - the highest level in over a decade excluding during the pandemic in 2020," S&P said.

"We expect deficits will gradually fall to about 3 percent of GDP starting from 2024," it added. 

On the debt front, the agency expects general government debt to rise to 47 percent of GDP in 2022 and to 48.7 percent in 2023, then stabilising at this level through 2025.

Among the three major rating agencies, Moody's is the author of Poland's highest rating. According to Fitch and S&P, Poland's rating is 'A-.' All three give Poland a 'stable' outlook.