Fitch Warns Poland Faces Rating Downgrade Without Debt Stabilization

Poland's Financial Outlook and Rating Concerns

WARSAW, Feb 10 (Reuters) - Poland's public finances will be under close scrutiny through the run-up to its next election due in late-2027, with a Fitch Ratings analyst saying debt levels were not seen stabilising for the first time since ratings for the country began.

Current Debt Situation

Poland's credit ratings have risen steadily - with only one brief downtick in 2016 - since 1995, when agencies began appraising the creditworthiness of the ex-communist country, now the European Union's largest economy outside the euro zone.

Fitch's Rating Criteria

But in September Fitch lowered its "A-" credit rating outlook to "negative" from "stable" over a sharp rise in borrowing driven by a surge in defence spending on top of rising social outlays and debt servicing costs.

Political Impact on Fiscal Policy

It noted that Poland's polarised political landscape could complicate deficit cuts.

The rating agency typically keeps a country on a non-stable outlook for a one- to two-year period, rarely changing its rating after just six months or longer than two years, Milan Trajkovic, Fitch Ratings lead analyst for Poland, told Reuters on Friday.

Fitch is scheduled to announce its next rating decision on February 27.

PUBLIC FINANCES IN FOCUS

Fitch assumes Poland's deficit, seen at around 7% of output in 2025, will remain largely unchanged this year and possibly register as the EU's highest, and may fall below 6% only in 2028, Trajkovic said during an interview.

"For the first time we don't see Polish debt stabilising in the medium term," he said, adding that according to analysts this would require the deficit shrinking to around 3% or less.

When asked about what could cause Fitch to lower Poland's rating, which is nonetheless supported by its strong economic growth and the inflow of billions of euros of EU funding, Trajkovic said public finances were the focus.

"When it comes to the potential downgrade, it is actually very, very simple," he said. "A downgrade could occur if the rating committee concludes that Poland is failing to stabilise general government debt in the medium term."

He said the agency's baseline scenario assumes the Polish government will implement its medium-term fiscal structural plan to the letter.

The EU council-approved plan requires Poland to cut annual growth of its net expenditures from 6.3% in 2025 to 3.5% in 2028.

"The second assumption is that there will be no fiscal slippages," Trajkovic said. "So no more deconsolidation measures, no more fiscal loosening measures. And then third, that (economic) growth will more or less perform as projected," Trajkovic said.

(Reporting by Karol Badohal; Editing by Gergely Szakacs and Aidan Lewis)