Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases 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/Stable Outlook; short-term local- and foreign-currency issuer ratings: S-1/Stable) on 21 November 2023.

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

The Republic of Poland’s A credit ratings reflect multiple credit strengths, such as sound macroeconomic fundamentals and comparatively robust rates of economic growth over recent years as well as comparatively strong longer-run economic growth potential. Credit strengths reflect furthermore moderate levels of public debt and financing requirements, a sizeable cash cushion and deep domestic capital markets. Poland’s ratings are anchored by a profitable, liquid and well-capitalised domestic banking system. Recent election of a centrist coalition under former premier Donald Tusk supports the ratings, and a Tusk government is seen slowly reversing institutional risks, partly alleviating heightened rule-of-law contentions with the European Union, and ensuring resumption of EU fund inflows over time. A EUR 5.1bn sleeve of pre-financing from REPowerEU is anticipated to be approved absent conditionality, although the rest of EU recovery funding is conditional on reforms – including on the judicial system.

Poland’s ratings are challenged by: i) still-heightened long-run governance uncertainties after a protracted phase of weakening governance and prospect of continued institutional divisions and heightened political polarisation over the forthcoming years; ii) a comparatively weaker structure of government debt, sustained elevated fiscal deficits and an expected upward trajectory of the government debt ratio; iii) economic and geopolitical risks after escalation of Russia’s war in Ukraine; and v) social and environmental risks.

Economic growth decelerated markedly this year, under a context of heightened price pressures, tight funding conditions and weakening external demand. Scope estimates the Polish economy to grow 0.4% this year, after 5.3% growth last year. Economic momentum should gradually pick up, with growth forecast at 2.8% in 2024 and 3% by 2025, underpinned by improvements in household consumption and business investment, amid improving real incomes, resilient employment dynamics and recovering external demand. The longer-run growth outlook is robust and benefits from an expectation of resumption in EU financing – subject to the fulfilment of milestones associated with rule of law.

After declining to 49.3% in 2022, Scope foresees the general government debt ratio remaining roughly unchanged this year before resuming an upward trajectory from next year onward, rising to 57.1% of GDP by end-2028. The general government deficit is foreseen widening to 5.3% of GDP this year, from 3.7% last year, before declining moderately to 4.5% of GDP in 2024. The worsening of the fiscal balance this year follows significant spending pressures from support measures against high energy prices, growing inflation-indexed public-wage, social-benefit and pensions costs, as well as sharply increasing defence expenditure, within a context of subdued revenue growth.

The Stable Outlook reflects the agency’s view that risks to the ratings remain balanced.

The ratings and/or Outlooks could be downgraded in an event of, individually or collectively: i) weaker budget discipline resulting in the deterioration of the outlook for debt sustainability; ii) re-escalation of governance challenges; and/or iii) a global or regional shock adversely impacting growth and/or significantly weakening Poland’s external-sector risk profile.

Conversely, the ratings and/or Outlooks could be upgraded if, individually or collectively: i) fiscal performance improves, supporting a structurally declining trajectory for the government debt ratio; ii) governance challenges and political polarisation are durably reduced; iii) the economy’s external balance sheet were to further strengthen; and/or iv) social and environmental risks are significantly redressed, enhancing long-run sustainable economic growth.

For the updated rating report accompanying this review, click here.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 2023) 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, Senior Director

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