Expert warns: Poland is at risk of economic decline if the government does not reduce its debt

Poland's rating may be downgraded next year if the government and the president do nothing to reduce the deficit and debt, Piotr Kuczyński, a financial markets analyst at Xelion Investment House, told PAP.

On Friday night, Moody's changed Poland's rating outlook from stable to negative, leaving Poland's long-term rating at A2.

– By changing the outlook to negative, Moody's made it clear that the lack of agreement between the government and the president makes it difficult to consolidate public finances and reduce debt,” the economist said.

He recalled that back in March of this year, the agency expected gradual fiscal consolidation from 2026 and debt stabilization at around 60% of GDP by 2030. "Meanwhile, the latest forecasts from banking analysts indicate that the public finance sector deficit in both 2025 and beyond will be higher than Moody's March expectations," he pointed out. In his opinion, Poland's public debt will exceed 66% of GDP in 2026, which could mean a rating downgrade if the government and president do nothing to reduce the deficit and debt.

“Moody’s analysts fear that the president may veto various government proposals aimed at reducing the budget gap,” Kuczyński explained.

The economist also noted that despite its growing debt, Poland has not been subject to the excessive deficit procedure, which the European Commission initiates against overly indebted countries. "This is due to the fact that part of Poland's military spending is not included in the European Union's total debt-to-GDP ratio," he said.

Commenting on the Moody's rating, the Ministry of Finance noted that the agency justified its decision by citing the country's high economic strength. It added that "Poland's credit profile benefits from a still moderate public debt burden combined with solid creditworthiness indicators."

According to the ministry, the decision to change the outlook to negative reflects a weaker outlook for fiscal indicators and public debt compared to previous expectations. The ministry added that Moody's forecasts significantly higher general government budget deficits, while delaying the gradual fiscal consolidation that will begin in 2026. According to the ministry, "the risks stem primarily from the impasse between the government and the president and the likelihood of an increase in government spending before the 2027 parliamentary elections and beyond."

A rating is an assessment of creditworthiness, which measures the risk associated with investing in an issuer's debt securities. A rating is assigned by a rating agency based on an assessment of economic, political, and social risks. The main rating agencies are Fitch, Moody's, and S&P. Poland's current rating according to S&P is A-/A-2 for long- and short-term liabilities in foreign currencies, respectively, and A/A-1 for long- and short-term liabilities in local currencies.

In the first week of September, Fitch also affirmed Poland's current rating but changed its outlook to negative. The rating is now A-/F1 for long- and short-term liabilities in foreign currency and A-/F1 for long- and short-term liabilities in local currency, respectively. The deterioration in the outlook was attributed, among other factors, to the increased state budget deficit in 2024-2025.

Of the three largest rating agencies, Moody's rates Poland's creditworthiness highest. Fitch and S&P's credit ratings for Poland are one notch lower than Moody's.

Ewa Wesołowska (PAP)

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