NOTE: On May 4, 2021, the press release was corrected as follows: In the REGULATORY DISCLOSURES section, the hyperlink in the environmental, social and governance (ESG) risks paragraph was changed to https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068
. Revised release follows.
Frankfurt am Main, April 30, 2021 -- Moody's Investors Service ("Moody's") has today affirmed the Government
of 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 the country's short-term issuer ratings have
been affirmed at Prime-1 (P-1). The outlook remains
Today's rating action balances the following key drivers:
(1) Poland's economic resiliency which is one of Poland's
key credit strengths; Poland showed a moderate contraction during
the COVID-19 pandemic shock compared to peers;
(2) Poland's strong debt affordability metrics and favourable debt
structure which balance the impact of the pandemic-driven increase
in the government's debt burden on Poland's fiscal strength;
(3) Challenges to Poland's overall still sound institutional framework
particularly in the context of adverse developments in Poland's
The stable outlook reflects that in Moody's view, risks to
Poland's credit profile are balanced. The ratings are supported
by a favourable growth and fiscal outlook, as well as Moody's
expectation that the actions taken by the EU will eventually contain the
challenges to Poland's institutional strength.
Poland's local- and foreign-currency country ceilings remain
unchanged at Aa1.
RATIONALE FOR THE AFFIRMATION OF THE A2 RATINGS
FIRST DRIVER: ECONOMIC RESILIENCY AS ONE OF POLAND'S KEY CREDIT
Moody's expects Poland's economic strength to be resilient
to the COVID-19 shock, and the scarring effects of the crisis
to be small. With a contraction of 2.7% in 2020,
the Polish economy was more resilient to the pandemic shock compared to
the EU-wide GDP decrease of 6.1%. This was
mainly because of the favourable structure of the competitive Polish economy
with a relatively low dependence on exports and tourism.
In addition, the pandemic shock was mitigated by a sizeable fiscal
support package amounting to 13% of 2020 GDP and an appropriately
eased monetary policy by the Narodowy Bank Polski (NBP). The NBP's
package included a very significant asset purchase program. Moreover,
higher than previously anticipated EU funding will support GDP growth
over the period 2021 to 2027. Moody's forecasts GDP to rebound
by 3.3% and 4.8% in 2021 and 2022, respectively,
and the GDP level of Poland to reach the 2019 pre-pandemic level
already again in 2021.
More generally, Poland's economic model is very resilient
and shows a growth volatility that is significantly lower than that of
peers. This is highlighted by 28 years of uninterrupted economic
growth of an average 4.2% between 1992 and 2019, followed
by an only moderate economic contraction in 2020. Trend growth
is with 3.5% over the period of 2015 to 2024 one of the
highest among regional and A-rated peers. Poland's
strong growth performance has resulted in a continuous narrowing of the
income gap with EU levels since the 1990s. The gap between incomes
(measured by per-capita GDP) in Poland and the EU-27 median
has narrowed to 15% in 2020 from 48% in 1995.
The catch-up of income levels has been supported by a number of
factors including a growth model based on the availability of skilled
labor; the EU accession process, including significant inflows
of EU funds; and integration into European value chains coupled with
sizeable inflows of long-term foreign direct investment (FDI).
This environment has helped create relatively high-paid jobs for
skilled workers, led to significant knowledge transfers and improved
physical infrastructure, which in turn led to improvements in labor
SECOND DRIVER: STRONG DEBT AFFORDABILITY METRICS AND FAVORABLE DEBT
Poland's strong debt affordability softens the negative impact of
the significant increase of government debt on the country's fiscal
strength. The yield of Polish government bonds is at historically
low levels caused mainly by investor appetite and the supportive monetary
policy stance of the NBP. Moody's forecasts Poland's
funding costs to remain favorable and to benefit debt affordability metrics
with interest-to-budgetary revenue of on average 2.8%
over 2021-24 compared to an average of 4.9% over
the past decade.
As most of the increase in debt was issued in local currency in 2020,
the structure of Polish debt improved as the share of general government
debt denominated in foreign currency decreased to 23.4%
from 28.4% in 2019. The Polish authorities target
to keep the share of foreign currency denominated debt in State Treasury
debt below 25%.
These two factors -- strong debt affordability and improved debt
structure -- mitigate the impact of the rise in debt on Poland's
fiscal strength. The debt of the general government increased to
a peak of 57.5% in 2020 which is 11.9 percentage
points above the 2019 level. This was caused by a combination of
a revenue shortfall and higher expenditure related to the pandemic shock,
fiscal costs of the government's support package and debt increasing stock-flow
adjustments related to pre-financing operations and a weaker Zloty
against Euro, Yen and Swiss franc.
The pre-pandemic improvements in Poland's fiscal metrics
allowed the country to implement a strong countercyclical response to
the pandemic shock. That said, the increase in debt-to-GDP
in 2020 more than reversed the decline of debt-to-GDP by
10.9 percentage points between 2013 and 2019. With the expected
economic rebound and a narrowing fiscal deficit, Moody's expects
that the debt-to-GDP ratio will resume to decrease starting
in 2021 and to fall to 50.5% by the end of 2024.
THIRD DRIVER: CHALLENGES TO POLAND'S OVERALL STILL SOUND INSTITUTIONAL
Overall, the institutional strength of Poland is high, supported
by its integration into the EU's institutional framework.
In Moody's assessment of the strength of the country's institutions
feature also Poland's sound macroeconomic framework based on a credible
and independent inflation targeting regime of the NBP and a robust and
rule-base fiscal framework. The fiscal rules have helped
the government adhere to its public debt-to-GDP target of
60% (national debt definition), which is enshrined in the
constitution, an achievement supported by solid growth.
However, Moody's observes with respect to Poland's institutions
an elevated policy unpredictability. This assessment is particularly
based on concerns with respect to the country's rule of law.
More specifically, the government continues to pursue plans with
respect to changes in the judicial system that started in 2015 and which
risk to undermine the independence of the judiciary by weakening constitutional
checks and balances.
The dispute between Poland and the EU regarding the rule of law is ongoing.
The instruments that can be used by the EU to combat rule-of-law
breaches in general terms include the so-called Article 7 procedure
and the infringement procedure. The EU initiated an Article 7 procedure
on 20 December 2017 against Poland without any concrete results to date.
The Article 7 procedure is the toughest punishment procedure available
to the EU and could pave the way for sanctions and potentially the suspension
of Poland's EU voting rights. However, sanctions are unlikely
because they would require unanimity among member states, which
may be hard to achieve given the Government of Hungary (Baa3 positive)
has tended to support Poland.
The infringement procedures have proven to be more effective. The
European Commission launched several infringement procedures against Poland
which reversed some elements of the changes in the judicial system including
the removal of provisions requiring early retirement of judges.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's view that risks to its credit
profile are balanced, with a favorable growth and fiscal outlook
over the next two to three years, and Moody's assessment that
the actions taken by the EU will eventually contain the challenges to
Poland's institutional strength. Moody's expects economic
activity to quickly return to the pre-pandemic levels and to show
an average, strong growth of 4.0% over 2021-24
being supported by sizeable EU funding, which will result in a further,
solid catch up with EU-wide income levels. After the peak
of the debt burden in 2020, Moody's expects Poland to begin
rebuilding its pre-pandemic fiscal capacity over the medium-term.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Poland's ESG Credit Impact Score is neutral-to-low
(CIS-2), reflecting moderately negative exposure to environmental
and social risks, and a strong governance profile that supports
the rating and in general the country's capacity to respond to shocks.
Poland's overall E issuer profile score is moderately negative (E-3),
reflecting low exposure to environmental risks across all categories except
for carbon transition risks being moderately negative related to the reduction
of the country's large share of coal in total energy supply over
the medium-to-long term.
Moody's assesses Poland's S issuer profile score as moderately
negative (S-3). Moody's views unfavorable demographic
trends as highly negative. Comparatively fast changing population
ageing poses a long-term risk on economic and fiscal metrics that
will be partly softened by further increases in the participation rate.
Moreover, Moody's views labour and income as being moderately
negative related to disparities in unemployment and income levels among
regions and between urban and rural areas contributing to societal divisions
and political tensions. Moody's sees low exposure to social
risks in the categories education, housing, health and safety
as well as access to basic services.
Poland's strong institutions and governance profile supports its
rating, and this is captured by a positive G issuer profile score
(G-1). Poland has an overall strong institutional framework
that balances improved institutional quality following Poland's accession
to the EU and elevated policy unpredictability. In addition,
Moody's observes that the Polish government has implemented reforms
that weaken the independence of the judiciary. That said,
the country benefits from a high fiscal policy effectiveness being supported
by Poland's robust and rule-based fiscal framework as well
a credible and independent monetary policy of the NBP.
GDP per capita (PPP basis, US$): 34,624 (2019
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 4.7% (2019 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 3% (2019
Gen. Gov. Financial Balance/GDP: -0.7%
(2019 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 0.5% (2019 Actual) (also
known as External Balance)
External debt/GDP: 59.4% (2019 Actual)
Economic resiliency: a1
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 27 April 2021, a rating committee was called to discuss the ratings
of 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
institutions and governance strength 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.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
WHAT COULD CHANGE THE RATINGS UP
Poland's A2 government bond ratings would come under upward pressure
if policymakers successfully addressed the significant policy challenges
related to the timing and focus of the withdrawal of support measures.
Such a policy path would on the one hand guarantee a sustainable recovery
and on the other hand reduce the risk of support measures being in place
too long that would delay sectoral reallocation. Rebuilding the
pre-pandemic sound public sector balance sheet faster than currently
expected would also be credit positive. In addition, the
country's A2 ratings would come under upward pressure in case the
country's authorities would take measures to reverse the adverse
changes made to the institutional framework related to the rule of law.
WHAT COULD CHANGE THE RATINGS DOWN
Downward pressure on the A2 ratings would emerge if the government's
fiscal position would deteriorate materially or if economic growth would
significantly slow down relative to the pre-pandemic situation.
A substantial further deterioration with respect to the rule of law which
would have a negative impact on the business location Poland and result
in a broader conflict with the EU institutions would also be credit negative.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, 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.
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
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Vice President - Senior Analyst
Sovereign Risk Group
Moody's Deutschland GmbH
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An der Welle 5
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JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454