Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Republic of Poland (long-term local- and foreign-currency issuer and senior unsecured debt ratings: A+/Negative; short-term local- and foreign-currency issuer ratings: S-1+/Negative) on 28 June 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

For the updated Rating Report accompanying this review, click here.

Poland’s A+ credit ratings reflect a number of credit strengths, including sound macroeconomic fundamentals and comparatively strong rates of nominal economic growth anticipated over coming years, also aided by elevated inflation. Scope expects 4.9% real growth this year before 3.1% in 2023. Poland’s economy has been comparatively resilient over dual Covid-19 and Russia-Ukraine crises, even after halting of Russian gas to the economy. Furthermore, the European Commission conditionally approved Poland’s Recovery and Resilience Plan, supporting Poland’s investment outlook and easing fiscal costs of meeting investment requirements. However, the European Parliament and an association of judges of Poland have expressed concerns around the Commission’s decision and urged disbursement of funding only after EU court rulings are fully enforced. Credit strengths also reflect strong market access, a sizeable cash cushion and deep domestic capital markets. Poland’s ratings are furthermore supported by a liquid and well-capitalised domestic banking system.

Poland’s ratings are challenged by: i) a long-standing trajectory of weakening of governance institutions – there remain multiple unresolved areas of rule-of-law contention even after the European Commission’s conditional decision around recovery funding; ii) the weakening of public finances since the Covid-19 crisis, compounded by a recent sharp rise of interest rates, although Poland’s debt trajectory is being substantively supported by elevated inflation and robust real economic growth; iii) ESG risk factors such as declining working-age population and weaker social infrastructure, alongside environmental challenges in the economic transition from dependence upon fossil fuels; and v) recent weakening of the external sector, reflecting a widening current-account deficit and lowered forex reserves.

Regional security risks have increased since escalation of the Russia-Ukraine war, although it is Scope’s view that Poland’s and other central and eastern European EU countries’ NATO memberships limit risk of the conflict expanding to their territories.

The Negative Outlook represents Scope’s opinion that risks to the sovereign ratings remain skewed to the downside.

The ratings could be downgraded in the event of, individually or collectively: i) governance risks and/or associated tensions with the European Union continuing or escalating absent significant resolution, with associated growing adverse implications as regards Poland’s institutional and economic outlooks; ii) a weakening of an outlook as regards debt sustainability compared to current baseline expectations, such as any impairment of market access; and/or iii) substantive output attrition and/or Poland’s external-sector risk profile further weakening.

Conversely, the Outlooks could be revised to Stable if, individually or collectively: i) governance risks and associated tensions with the European Union were more substantively reduced, materially curtailing associated adverse implications as regards Poland’s institutional and economic outlooks; ii) budgetary performance were to improve, bringing anticipation of a decline of government debt/GDP beyond current baseline expectations; and/or iii) the country’s external balance sheet were to strengthen materially.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings Methodology, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Dennis Shen, Director

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