Poland’s Rating to Rise?
April 30, 2014
Poland’s shrinking budget deficit and upbeat economic forecasts for the coming years, combined with the excellent condition of the country’s banks, are boosting the country’s credibility in the eyes of international investors. Recently the Fitch Ratings agency upheld Poland’s rating at “A-.”
“The political crisis in Ukraine and in relations between the West and Russia has not done any harm to Polish bonds so far, and a possible negative impact from this will be short-lived,” Piotr Kowalski, CEO of Fitch Polska, told the Newseria Biznes service. He added that Poland’s ratings or outlook may increase if the improvement in public finances proves to be permanent.
“Fiscal consolidation is one of the factors that may contribute to a positive change in the outlook for Poland or in its rating over the next two to three years,” Kowalski said. “However, [before we make such a move] we must be certain the consolidation is not a one-off event that will improve the country’s performance indicators for just one year, but a permanent process that will allow Poland to achieve markedly lower deficit and public debt indicators in the long term.”
According to the European Union’s statistics office, Eurostat, Poland’s general government debt declined to 58 percent of the country’s gross domestic product in the third quarter of last year, which is significantly less than the average for eurozone countries (92.7 percent), and also less than the average for all EU countries (86.8 percent.) However, among the EU countries that have a similar level of development as Poland, only Hungary has a higher debt-to-GDP ratio, at 80.2 percent. Slovakia has 57.2 percent, the Czech Republic has 46 percent, and Romania, Lithuania and Latvia each have less than 40 percent. Bulgaria and Estonia stand out with debt-to-GDP ratios at 17.3 percent and 10 percent respectively. Rating agencies take into account not only the current debt and deficit levels, but also forecasts for these.
Some economists argue that Poland’s high external debt (50 percent of the value of all bonds issued in 2013) poses an additional risk to public finances. According to the Polish Finance Ministry, this indicator is three percentage points lower than a year earlier and marks the first decrease in external debt in four years. From 2008 to 2012 the share of external debt in the total public sector debt increased from 33.6 percent to 53 percent.