Frankfurt am Main, April 19, 2019 -- Moody's Investors Service ("Moody's") has today affirmed Poland's A2 long-term
senior unsecured and issuer ratings. Concurrently, the government's
senior unsecured shelf and senior unsecured medium-term note (MTN)
programme ratings have been affirmed at (P)A2 and its short-term
issuer ratings have been affirmed at Prime-1 (P-1).
The outlook remains stable.
The affirmation of Poland's A2 ratings balances the following key rating
drivers:
(1) Poland's key credit strength is the country's economic resiliency,
illustrated by recent years' robust and stable growth, as
well as the scale and wealth of Poland's economy.
(2) The stability of Poland's general government debt profile, that
is unlikely to weaken even in light of the government's envisaged
expansionary fiscal measures.
(3) The recent erosion of Poland's institutional strength, reflected
in weakening assessments of its rule of law and in recent developments
in Poland's judicial system.
The stable outlook on Poland's A2 rating reflects Moody's view that risks
to its credit profile are balanced, with robust growth prospects
despite challenges to institutional strength as well as that fiscal metrics
will comply with national and the EU's fiscal rules.
Poland's long-term and short-term foreign-currency
bond and deposit ceilings remain unchanged at Aa3/P-1 and A2/P-1,
respectively. Moreover, the long-term local-currency
bond and deposit country ceilings remain unchanged at Aa3.
RATINGS RATIONALE
RATIONALE FOR THE AFFIRMATION OF THE A2 RATING
FIRST DRIVER: POLAND'S ECONOMIC RESILIENCY
Moody's assesses Poland's economic strength as very high.
Poland's large economy has experienced uninterrupted, and
relatively stable, economic growth for almost three decades.
Its less open economy compared to regional peers makes it less vulnerable
to changes in external demand. Growth has been resilient to the
economic slowdown seen globally and in the euro area over the course of
2018 and Moody's expects growth of 4.4% in 2019 and
3.7% in 2020.
Based on Moody's forecasts, trend growth of 3.7%
from 2013 to 2022 is one of the highest among regional peers and roughly
in line with the median of A2-rated sovereigns. The income
gap with the European Union (EU, Aaa stable) continues to narrow,
with Poland's GDP per capita expected to rise to 87% of EU
median by 2022 from 80% in 2018. That said, despite
the strong catch-up process, GDP per capita in purchasing
power parity terms remains slightly below the median of A2-rated
sovereigns.
Poland's economic model faces medium-to-long term
challenges including demographic trends increasing skill shortages.
The increase of foreign workers, in particular from Ukraine (Caa1
stable), has supported growth in recent years. Nevertheless,
Moody's expects adverse demographic trends to accelerate over 2025-40
because of a moderation of net immigration and the ageing of the population.
This will result in a decrease of the labour supply which acts as a drag
on potential growth. According to estimation by the European Commission,
Poland's potential growth will slow by 1.5 percentage points
by 2040.
A further challenge is the prospect of lower inflows of EU funds in the
context of the EU's upcoming Multiannual Financial Framework (MFF)
2021-27. Moody's expects EU funds in the next MFF
2021-27 to be lower than in the 2014-20 period mainly because
of the convergence of per capita incomes which is likely to result in
a lower allocation of cohesion funds. Further criteria proposed
by the EU together with the Brexit-related reduction in overall
funding could also lead to reductions of EU funds.
SECOND DRIVER: STABLE GENERAL GOVERNMENT DEBT LEVELS UNLIKELY TO
WEAKEN EVEN IN LIGHT OF EXPANSIONARY FISCAL MEASURES
Moody's assesses Poland's fiscal strength as high.
Near-term fiscal metrics are improving, with general government
deficits since 2015 consistently below 3% of GDP, and debt-to-GDP
declining in the recent past. In 2018, the fiscal deficit
declined to a historical low of 0.4% of GDP, and general
government debt-to-GDP ratio fell for the first time since
2009 below 50%. The main drivers of the historically low
fiscal deficit were strong nominal GDP growth and improved tax collection.
That said, for 2019 and 2020, Moody's expects the fiscal
deficit to widen to 1.8% and 2.6%, respectively,
in light of the pre-election package of the ruling Law and Justice
(PiS) party announced on 23 February 2019. The pre-election
package consist mainly of social spending which is set to widen Poland's
structural deficit. That said, Moody's expects the
implementation of some additional fiscal measures on the revenue and expenditure
side to keep the impact of the pre-election package on fiscal metrics
in line with the national fiscal rules as the Polish authorities continue
to be committed to domestic and EU fiscal rules.
Moody's forecasts the debt-to-GDP ratio to level off
at the 2018 level of around 49% (the same level as a decade previously).
At that level, Poland's debt-to-GDP ratio is
in line with the A2-rated and CEE-rated median (both amounting
to 48.9%) and the level seen in Slovakia (A2 positive,
48.9%), but higher compared to the level seen in Czech
Republic (A1 positive; 32.7%). Poland's
debt affordability as measured by interest payments-to-GDP
and interest payments-to-revenue is also in line with the
A2-median. Its share of foreign-currency denominated
debt declined to 28.6% in 2018, from 33.7%
in 2014.
THIRD DRIVER: GRADUAL EROSION OF POLAND'S INSTITUTIONAL STRENGTH
Moody's assesses Poland's institutional strength as high,
balancing the country's sound institutional framework supported by EU
membership, against rising policy unpredictability.
Moody's overall assessment of institutional strength takes into
account Poland's sound macroeconomic framework underpinned by inflation
targeting, national fiscal rules and a flexible exchange rate regime.
The EU accession process has enhanced the country's institutions through
implementation of the acquis communautaire, technical assistance
and funding for public-sector reform.
Set against those longer-term enhancements, recent judicial
reforms risk weakening the independence of the judicial system,
undermining constitutional checks and balances and the rule of law --
an input to Moody's assessment of institutional strength --
resulting in a gradual erosion of Poland's institutional strength.
This is reflected in a weakening of Poland's score in the category
of rule of law of the Worldwide Governance Indicator in absolute and relative
terms in 2016 and in 2017.
The changes in the judicial system have also led to a conflict between
Poland and the EU. The European Commission's (EC) main concern
is that the cumulative effect of the changes affecting the judiciary are
limiting its independence, infringing upon the separation of powers.
According to the EC, the changes in the judicial system allow the
executive and legislative authorities to interfere throughout the entire
structure of the justice system.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on Poland's A2 rating reflects Moody's view that risks
to its credit profile are balanced. It reflects Moody's expectation
that solid, stable growth and stable debt metrics will continue
to counterbalance any further challenges to institutional strength.
WHAT COULD CHANGE THE RATING UP/DOWN
Poland's A2 government bond rating would come under upward pressure
if fiscal consolidation were to bring about a sustainable reduction in
the structural budget deficit, or if measures were taken that would
reverse the weakening of the institutional framework. Structural
reforms that would support potential growth over the medium term would
also be credit positive.
Conversely, a material deterioration in the government's fiscal
position and/or the prospect of lower, more volatile growth perhaps
as a consequence of a shock to the investment climate would generate downward
pressure on the A2-rating. Lack of progress with structural
reforms that deter FDI and hence hamper growth in the context of adverse
demographics and a decrease in EU funds would also be credit negative.
GDP per capita (PPP basis, US$): 29,722 (2017
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 4.8% (2017 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2.1%
(2017 Actual)
Gen. Gov. Financial Balance/GDP: -1.4%
(2017 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 0.2% (2017 Actual) (also
known as External Balance)
External debt/GDP: [not available]
Level of economic development: High level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 16 April 2019, a rating committee was called to discuss the rating
of the Poland, Government of. The main points raised during
the discussion were: The issuer's economic fundamentals, including
its economic strength, have not materially changed. The issuer's
institutional strength/ framework, have not materially changed.
The issuer's governance and/or management, have not materially changed.
The issuer's fiscal or financial strength, including its debt profile,
has not materially changed. The issuer's susceptibility to event
risks has not materially changed.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in November 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Heiko Peters
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Yves Lemay
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
