Poland’s markets await Moody’s rating decision

Polish markets await Moody's rating decision Friday evening. Photo: PAP/Rafał Guz

Moody’s rating agency “A2-stable” rating may be reviewed after markets close on Friday evening.

Moody’s: Poland’s debt will plunge to 49% of GDP in 2019

Moody’s forecast Poland’s general government debt will fall to 49% of GDP in 2019 from 50.6% in 2017 and 54.2% in 2016.

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The “A2” rating from Moody’s was first given in 2002. Since then, only the outlook has changed. In the spring of 2016, Moody’s lowered its outlook to “negative”, a decision it reversed in the autumn of next year.

The agency has no requirement to make a pronouncement. For example in March this year, the analysts opted not to rate the country.

The sovereign rating is important from the point of view of the cost of public borrowing. With an “A2” rating Poland pays higher interest rates than better-rated peers such as the Czech Republic or Hungary on its debt, which is financed through the issue of bonds.

Three main global agencies assess the outlook for the reliability of the country to pay back its debt. Moody’s rating is the highest, Fitch gives Poland an “A-” rating, which is one level lower, which and S&P gives a “B+”, which is lower still.

Many analysts believe that Poland is overdue to have a review of its rating. When a rating goes against a country, governments are quick to question the agencies methodology.

Conditions for changing Poland’s rating

In its analysis on Poland in March, the agency raised its forecast for growth from 3.5 percent to 4.3 percent. At the same time, they mentioned which aspects of the political and economic environment would have to change in order for there to be an upgrade now.

Moody’s listed institutional difficulties as a key barrier, referring to the political entanglements of the country with the EC over issues of the rule of law after the introduction of changes to the judicial system. Whatever the merits of the Polish government’s arguments against the EC’s opposition to its reforms,the dispute is still ongoing and the agency will not overlook it.

However, another of the signs Moody’s mentioned they would like to see was an improvement in the outlook of the social security system in Poland, with regard to pensions.

On Thursday a note from Moody’s praised the draft legislation on Employee Capital Plans (PPK) for retirement saving, which will consist of voluntary employee contributions, matched by employers and topped up by the government, to be phased in from 2019-2020.

In Moody’s opinion the injection of savings into the market will provide capital for investment and reduce the need for the government to raise capital abroad.