Moody's has downgraded Poland's credit rating outlook. This is the second warning.

Moody's decided to follow Fitch's lead and also lowered Poland's credit rating outlook. This could result in a downgrade creditworthiness assessment of the Polish government and the increase in service costs quickly growing public debt.

- Moody's Ratings changed the outlook for the Polish government today from stable to negative. At the same time, we maintained Poland's rating at A2 – Moody's announced on Friday.

Two weeks ago, Fitch Ratings took the same step , which also lowered the outlook for the Polish rating from stable to negative, for now leaving the rating unchanged. On November 7, the regular review of Poland's rating is to be announced S&P agency.

"Our decision to change the outlook to negative reflects a significantly weaker outlook for fiscal and debt indicators compared to our previous expectations. If the government is unable to address spending pressures and headwinds to revenue growth, this will indicate weaker fiscal strength and policy effectiveness compared to our current assessment," the agency said in a statement.

According to Moody's analysts, the main risks to the updated fiscal and debt outlook stem from the impasse between the government and the president and the likelihood of an increase in government spending before the parliamentary elections in 2027 and beyond.

Moody's pointed to the risk of the government being unable to cope cope with the pressure to increase spending and the conflict between the government and president. According to the agency's analysts, Donald Tusk's government will probably increase spending before the elections scheduled for 2027.

But the real source of Poland's fiscal problems is growing public spending. resulting in permanently and excessively increased budget deficits, which in consequently, it will lead to a rapid increase in the public debt ratio relative to GDP.

Moody's forecasts significantly higher general government budget deficits and a delay in gradual fiscal consolidation starting in 2026. " This is contrary to our previous expectations, which assumed an accelerated reduction in the budget deficit and stabilization of public debt below 60% of GDP by 2027," it wrote (editor's emphasis).

"Our updated general government budget deficit forecasts of 6.8% of GDP in 2025 and 6.6% of GDP in 2026 mainly reflect higher-than-previously expected spending. These include increased pressure on social spending due to a rapidly aging population, rising public sector wages, increased interest payments, and defense spending remaining at around 5% of GDP – compared to around 4% of GDP previously forecast in March 2024," the agency said in a statement.

As a result, we expect Poland's public debt burden to steadily increase, reaching around 65% of GDP in 2026 and exceeding 70% by the late 2020s . If the government is unable to cope with spending pressures and obstacles to increasing revenue, this will mean weaker fiscal strength and fiscal policy effectiveness than we have previously assessed.

Of the three largest rating agencies, Moody's rates Poland's creditworthiness the highest, at "A2." Poland's rating according to Fitch and S&P is "A-," one level below Moody's.

KK/PAP

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