S&P and Morningstar DBRS downgrade Poland’s ratings. Deficit in the background.
Two rating agencies on the same day drew attention to the state of public finances. The economy remains Poland’s strong point, but according to the agencies it alone will not stop the rise in debt.
On Friday, 6 November, S&P Global Ratings affirmed Poland’s long-term foreign-currency rating at “A-”, but lowered its outlook to negative. S&P lowered the local-currency rating from “A” to “A-” and aligned it with the foreign-currency rating. On the same day, Morningstar DBRS, the world’s fourth-largest rating agency, lowered Poland’s foreign-currency rating from “A” to “A-”. The new rating has a stable outlook; the previous one had a negative outlook.
Both agencies point to the budget. According to the DBRS statement, the general government deficit will amount to around 7 percent of GDP in 2026 and 2027, and the debt of this sector will rise to 74 percent of GDP by 2028. S&P forecasts a deficit above 7 percent of GDP also in 2027 and net debt above 70 percent of GDP in 2029. DBRS calculates that higher spending on consumption, social transfers, defense and debt servicing has not been fully offset by revenue growth. Both agencies believe that before the parliamentary elections in 2027, the chances of reducing the deficit are limited. S&P also cites presidential vetoes as an obstacle.
The agencies assess the economy more favorably than public finances. S&P assumes average real GDP growth of around 3 percent annually in 2027-2029, while DBRS forecasts 2.5 percent in 2027. However, S&P warns that a forced fiscal adjustment in 2029-2030 would risk a recession. After Friday’s decisions, S&P and Fitch rate Poland at “A-”, and Moody's at the comparable A3. S&P and Fitch have a negative outlook.
The yield on 10-year government bonds stood at 6.19 percent on Friday, compared with 4.9 percent at the beginning of the year. Jacek Jurczyński, CEO of Akcenta CZ, quoted by Business Insider, believes that investors may expect a higher risk premium in future issuances. In his view, more expensive state financing may raise borrowing costs for companies, and those settling transactions in foreign currencies should take into account the risk of greater fluctuations in the zloty exchange rate when planning their budgets for 2027. At the same time, he notes that the price of credit is also determined by interest rates, the bank’s cost of obtaining money and the company’s own situation.