Polish stocks rise after Moody's confirms Poland's rating but cuts outlook to negative

Record ID: 103330

  • Title: Polish stocks rise after Moody's confirms Poland's rating but cuts outlook to negative
  • Date: 16th May 2016
  • Summary: WARSAW, POLAND (‪FILE‬) (REUTERS) VARIOUS OF ECONOMY MINISTER MATEUSZ MORAWIECKI PRESENTING ECONOMIC PLAN OF LAW AND JUSTICE GOVERNMENT PRIME MINISTER BEATA SZYDLO LISTENING TO MORAWIECKI
  • Embargoed: 31st May 2016 15:26
  • Keywords: Moodys rating Poland reaction stocks
  • Location: WARSAW, POLAND‬
  • City: WARSAW, POLAND‬
  • Country: Poland
  • Topics: Economic Events
  • Reuters ID: LVA0044I230OP
  • Aspect Ratio: 16:9
  • Story Text: Moody's Investor's Services confirmed Poland's rating but cut its outlook to negative on Saturday (May 14), citing rising fiscal risks and the conservative government's shift to more unpredictable policies and legislation.
    Just over half the analysts polled by Reuters expected the move after fellow rating agency Standard and Poor's rattled investors with a downgrade in January, saying the new government's policies eroded the independence of institutions such as the top court.
    In contrast, Moody's said Poland's economic resilience and a track record of robust growth underpin the A2 rating, the highest of the three major agencies.
    "The market was pricing in somewhat greater action by Moody's," the head analyst of Credit Agricole Bank Poland, Jakub Borowski, told Reuters. He added that the result was less stringent than expected, but warned of a "Damocles' sword" hanging over the country, saying that government policies on retirement age and Swiss Franc loans could lead to a downgrade in September.
    Moody's noted "fiscal risks arising from a substantial increase in current expenditures ... as well as the government's intention to lower the retirement age."
    Since coming to power in October, the eurosceptic Law and Justice (PiS) party has raised budget spending by over 7 percent, passing a new child benefit programme worth about one percent of gross domestic product in 2016 alone.
    Finance Minister Pawel Szalamacha told reporters on Saturday (May 14) that while he agreed with Moody's decision on the rating, the outlook cut was over-cautious. Poland would further raise spending in line with a planned increase in tax revenue, and "therefore the risk that income and expense spheres diverge indicated by Moody's in our case is exaggerated, non-existent," he said.
    The new child benefit is financed mostly by a one-off source of budget revenue this year. Many economists remain sceptical the government will be able to improve tax collection, given unsuccessful efforts by previous governments.
    Poland, a member of the European Union since 2004, says it aims to observe the EU fiscal deficit ceiling of three percent of GDP next year and to reduce that gap to 1.3 percent by 2019.
    Moody's said the government's shift towards more unpredictable policies and legislation could hurt investment.
    "The government is working on a lot of new bills that could impact the economy, so I think that at this point there's a feeling of... there's a 'wait and see' approach on foreign capital markets and people who are looking at Poland are wondering where all this is heading," economic analyst Andrzej Bobinski told Reuters.
    Moody's cited "ambiguity" regarding foreign-currency denominated mortgages and the prolonged stalemate between the government and the constitutional court.
    The PiS party has promised to help thousands of Poles who took out loans in Swiss francs when the franc was relatively cheap. Aides to President Andrzej Duda, an ally of PiS, are working on proposals to solve the problem.
    PiS has also tried to reform the constitutional court in ways that critics say make it hard for judges to review, let alone challenge, the ruling party's legislation.
    Moody's said it could cut Poland's rating if the state's fiscal position or the investment climate worsen.
    Despite the threat, the managing director of one big foreign investor told Reuters he remained upbeat.
    "The Polish economy is after China the only economy which has shown 25 years of constant growth. And I believe that the power of the Polish people is so strong that we will go for another growth period, and political turbulences is political turbulances. And I hope not that political turbulences become economic turbulences," said Jeroen Van Der Toolen, managing director of real estate developer Ghelamco Cee. The company has just opened a huge office centre in downtown Warsaw and is looking to invest in Poland in the future.
    Moody's has held Poland's A2 rating stable since 2002, when the country was much poorer and more corrupt than it is today.
    S&P currently rates it two notches lower at BBB+, outlook negative. Fitch is one notch lower at A-, outlook stable.
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