Moody’s changes Poland’s outlook to negative, affirms A2 ratings

Investing.com -- Moody’s Ratings has changed Poland’s outlook to negative from stable while affirming its A2 long-term senior unsecured and issuer ratings, the agency announced Friday.

The outlook change reflects a significantly weaker fiscal and debt outlook compared to earlier expectations. Moody’s now forecasts wider government budget deficits of 6.8% of GDP in 2025 and 6.6% in 2026, driven primarily by higher expenditures.

These increased costs include elevated social spending due to rapid population aging, rising public sector wages, higher interest payments, and sustained defense spending at around 5% of GDP - up from the 4% previously expected in March.

As a result, Moody’s expects Poland’s public debt to rise steadily, reaching approximately 65% of GDP in 2026 and surpassing 70% by the late 2020s.

The rating agency identified key downside risks stemming from the political standoff between the government and President, along with the likelihood of increased government spending ahead of the 2027 parliamentary election and beyond.

The President, who is not politically aligned with the government, has veto power that could halt fiscal consolidation measures requiring legislation. This gridlock might also prevent Poland from fully absorbing EU funds, though Moody’s still assumes a high absorption rate of Recovery and Resiliency Fund allocations.

Despite these challenges, Moody’s affirmed Poland’s A2 ratings, citing the country’s high economic strength with trend real GDP growth of almost 3% and ongoing income convergence toward the EU average. The Polish economy maintains a moderate public debt burden with robust debt affordability metrics.

Moody’s forecasts real GDP growth of 3.3% in 2025 and 3.2% in 2026, driven by domestic demand, primarily private consumption and investment.

The agency noted that Poland’s credit profile faces elevated geopolitical risks related to Russia’s war against Ukraine and potentially lower U.S. engagement in European security, though these risks are mitigated by Poland’s NATO membership and increased self-defense capabilities.

Poland’s local and foreign-currency country ceilings remain unchanged at Aa1.

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