By Gergely Szakacs and Marc Jones
WARSAW/LONDON (Reuters) -Poland’s sovereign credit rating could come under pressure if nationalist Karol Nawrocki’s presidential election win leads to a prolonged political deadlock that hampers efforts to tackle the large fiscal deficit, ratings agencies said.
Poland faces big spending demands, including a rise in defence outlays after Russia’s invasion of Ukraine, and is grappling with the EU’s second-highest fiscal deficit.Prime Minister Donald Tusk, who has led a surge in government borrowing since taking power in late 2023, has called a confidence vote in his government for next Wednesday to shore up the centre-left coalition following Nawrocki’s triumph.
Fitch Ratings said on Wednesday that the election result was likely to “continue posing challenges for economic reforms and sustained fiscal consolidation and may exacerbate institutional clashes.”
It is scheduled to review Poland’s rating on September 5.
“Weakened confidence in the government’s capacity to deliver fiscal consolidation consistent with stabilising debt at a level closer to peers over the medium term is a negative sensitivity for Poland’s ‘A-‘/Stable sovereign rating,” Fitch said.
The credit default swap market has leaned towards a downgrade to Poland’s rating since Sunday’s election, and had already been pricing in a one-notch downgrade on and off over the last year and a half.
S&P Global said that the political gridlock could curb the government’s appetite for fiscal restraint in the run-up to a national election in 2027 and hamper fiscal and judicial reforms, even though the economy had proved resilient to shocks previously.
Both the S&P and Fitch ratings carry a “stable” outlook.
And Moody’s told Polish news agency PAP that after Nawrocki’s victory, the ruling coalition may increasingly rely on fiscal measures to uphold support, potentially delaying fiscal consolidation.
“We believe that all three agencies could express their Poland-specific concerns through the lowering of their stable outlooks to negative,” Raiffeisen economist Stephan Imre said.
“However, we do not believe that this would mark the beginning of a negative downgrade spiral.”
(Reporting by Gergely Szakacs and Marc Jones; Editing by Rachna Uppal)
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