S&P issues credit rating warning on Poland

A WBJ news round-up

Standard & Poor's (S&P) could lower the country's credit rating from the current BBB+ over fears of an increased budget deficit next year and the government's possible conflict with the central bank.

The rating agency has lowered the prospects for the country from "stable" to "negative," citing a deteriorating fiscal situation and political obstacles to the reform of public finances as reasons. The change, the agency said, "reflects the deterioration of the medium-term fiscal prospects for Poland."

Although it does not bring about any immediate negative consequences, lowered expectations mean that the rating of the government's securities could come up for review in the near future.

S&P fears that, lacking a public finance reform program, the deficit is likely to increase to 7 percent of GDP in the years 2004-2005, while public debt could break the 60-percent barrier. Such a scenario would rule out Poland joining the euro zone in the foreseeable future, although S&P said that the entry date would be "no earlier than 2010."

The BBB+ rating for liabilities on foreign exchanges and the A rating for złoty-denominated securities were maintained. A BBB+ rating indicates that the country is in stable condition at the moment and that there are no concerns over its ability to live up to its debt obligations. Countries falling in this category may, however, experience difficulties at an unspecified time in the future. According to S&P analysts, BBB+ may prove too high a rating for Poland, given the country's current political and fiscal instability.

In a separate development, Fitch, another rating agency, upheld its BBB+ rating on Polish securities, but Fitch representatives warned that the country's ranking was precarious.

"In want of a credible public finance reform program, Poland's risk may prove higher than in the case of other countries with the same rating," said James McCormack, ratings department director at Fitch.

Last week was the first time that the country sold bonds on the Tokyo market. The so-called "samurai bonds," denominated in yen, have a seven-year maturity. The government has issued bonds to the tune of around $200 million (zł. 780 million).