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 29 January 2024.

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.

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 the ex-premier Donald Tusk has seen the government seeking to reverse institutional weakening of past years, alleviate heightened rule-of-law contentions with the European Union, and ensure the resumption of further EU fund inflows. A EUR 5.1bn tranche of pre-financing from REPowerEU was approved, although the remainder of EU recovery funding remains on hold subject to reforms on judicial-system independence. The European Commission has started a separate three-month review on the unfreezing of EUR 76bn in cohesion funds – conditional on fulfilment of "horizontal enabling conditions" on judicial independence.

Poland’s ratings are challenged by: i) still-heightened long-run governance uncertainties after a protracted phase of weakening governance and continued significant institutional divisions and heightened political polarisation; ii) challenges around the independence of the central bank and the effects for monetary governance and the price-stability outlook; iii) a comparatively weaker structure of government debt, sustained elevated fiscal deficits and an expected upside trajectory of the government-debt ratio; iv) economic and geopolitical risks following escalation of Russia’s war in Ukraine; and v) social and environmental risks.

Economic growth decelerated markedly last year, under a context of heightened price pressures, tighter funding conditions and weakening external demand. After moderating to an estimated 0.2% growth last year, economic growth should gradually recover towards its medium-run potential, with growth forecast at 2.9% this year and 3.0% by 2025. The Polish economy ought to benefit from improvements in household consumption and business investment, amid improving real incomes, resilient employment dynamics and recovering external demand. The longer-run economic growth outlook is robust and benefits from an expectation of EU financing – although a segment of disbursements will remain withheld due to rule-of-law challenges and ultimate absorption rates are likely to be affected by the delays.

After remaining comparatively stable last year, at an estimated 49.6%, general government debt-to-GDP is expected to resume an upside trajectory from this year onward, rising to 58.6% of GDP by end-2028. The general government deficit widened to an estimated 5.9% of GDP last year, due to significant spending pressures from budgetary-support measures against high energy prices, growing inflation-indexed public-wage, social-benefit and pensions costs, as well as sharply increasing defence expenditure, in a context of subdued revenue growth. This fiscal deficit is seen moderating to 5.3% of GDP this year and 4.4% by 2025, reflecting the phase-out of energy-support measures and recovering government revenue growth. The scale of fiscal consolidation should remain restricted by forthcoming 2024 local elections and the 2025 presidential-election year.

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 amid heightened political polarisation; and/or iii) a global or regional shock adversely affecting 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 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 growth.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) 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.

© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin.