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Poland Avoids Moody’s Ratings Downgrade but Outlook Cut

By on May 14, 2016

WARSAW, Poland – Poland has avoided a downgrade by the ratings agency Moody’s, but its outlook was cut from stable to negative due to new government spending policies seen as risky to state finances and a more unpredictable investment climate.

The Moody’s report was published early Saturday. Investors had been bracing for an outright downgrade after a similar move earlier this year by Standard & Poor’s, which cited the erosion of the independence of key institutions and increased spending by the populist Law and Justice party.

A view of the Palace of Culture and and skyscrapers on Friday May 13, 2016, in Warsaw Poland. Poland is bracing for a possible credit downgrade by ratings agency Moody's on Friday amid international concerns over the new government's move to erode the independence of key institutions and increase spending. (AP Photo/Czarek Sokolowski)

A view of the Palace of Culture and and skyscrapers on Friday, May 13, 2016, in Warsaw Poland. (AP Photo/Czarek Sokolowski)

Poland has been one of Europe’s most dynamic economies for years, with growth expected at around 3.5 percent this year and continued strong growth predicted for the coming years. But investor confidence has been shaken by the policies of the ruling party, which took power last November.

Moody’s says its affirmation of Poland’s A2 rating is based on the country’s “economic resilience as reflected in a large, diversified economy that has shown robust real GDP growth irrespective of external headwinds.”

Poland was the only European Union nation that enjoyed continued growth even through the global financial crisis that hit in 2008. The post-communist country’s growth is stronger than most other European countries as it still works to catch up with Western economies.

In changing the country’s outlook, Moody’s cited the fiscal risks that stem from government promises to increase welfare spending and a plan to lower the retirement age. Moody’s also noted “unpredictable” policies, such as a government plan still being worked out that would convert Swiss franc loans into the Polish currency, the zloty, to the benefit of the mortgage holders. Such a law is expected to pass the costs to banks.

Poland has seen significant political upheaval in recent months, mainly due to a conflict concerning the Constitutional Tribunal as the government has taken steps aimed at neutralizing the court’s ability to act as a check on its power.

Moody’s said one reason it changed its outlook on the country is due to “the prolonged stalemate between the government and the country’s constitutional court.”

The Associated Press

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