Bloomberg News

Poland Rating Outlook Raised to Positive at Fitch on Budget

February 21, 2013

Poland’s debt-rating outlook was raised to positive from stable by Fitch Ratings, which cited the country’s narrowing budget deficit, stabilizing government debt and economic-growth outlook.

Fitch kept Poland’s foreign-currency debt grade at A-, the fourth-lowest investment level, it said in a statement today. The positive outlook indicates an upgrade is more likely than a downgrade or the rating being left unchanged.

“Poland has a solid track record of resilience to the eurozone debt crisis, despite strong economic and financial links with Western Europe,” Fitch said in its statement. “Medium-term growth prospects are healthy, despite an expected slowdown in 2013 to 1.6 percent on the back of subdued domestic demand. Polish exporters are well placed to take advantage of the eurozone recovery, and to make inroads into new, more dynamic markets.”

The budget deficit narrowed by about 4.5 percentage points of gross domestic product since 2010 to an estimated 3.4 percent last year, based on European Union standards, Fitch said. It expects the gap to shrink to 3.2 percent this year and 2.7 percent in 2014.

Upgrade Equivalent

“Fitch’s decision today can be treated de facto as a ratings upgrade, in light of the global economic situation,” Deputy Finance Minister Wojciech Kowalczyk was quoted as saying today in Warsaw by PAP newswire. “Its impact on our debt- service costs will become visible in the years to come.”

The zloty strengthened to 4.1574 per euro at 4:45 p.m. in Warsaw, compared with 4.1675 before Fitch’s announcement and reversing losses to gain 0.1 percent from yesterday. The yield on the 10-year government bond dropped 6 basis points to 3.9857 percent.

In almost half the instances, yields on government bonds fall when a rating action by S&P and Moody’s suggests they should climb, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s. When S&P downgraded the U.S. government in August, Treasury yields fell to records.

Debt Reassurance

“This comes as a surprise as their tone has been fairly cautious,” Esther Law, a director of emerging-markets strategy at Societe Generale in London, wrote in an e-mailed note today. “This outlook should also offer reassurance for Polish government debt holders, who are worried about positioning becoming heavier these days.”

Law said she expects “more positive outlook change to come, especially by Moody’s around April.”

Moody’s Investors Service is “continuing to maintain a stable outlook on the sovereign’s A2 rating,” Jaime Reusche, a New York-based analyst at the company, said in an e-mail today responding to questions by Bloomberg. Poland’s “external finances,” including the current account deficit, limit “upward momentum on the rating,” he said.

Fitch said a ratings upgrade could result from continued progress with fiscal consolidation that puts the public debt ratio on “a clear downward path,” along with a “material reduction” in external debt ratios, according to today’s statement.

Public debt will fall to 54.5 percent of GDP in 2014 from a peak of 56.4 percent in 2011, according to the ratings company.

Poland’s A- rating puts it on par with euro-area members Italy and Slovenia.

Poland’s outlook could revert to stable in case of a “pronounced fiscal loosening” or “weak” economic performance, resulting “either from external or domestic shocks,” Fitch said in its statement.

To contact the reporters on this story:

Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net;

Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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