The scenario of the head of the Polish National Bank being suspended after appearing in state court is a hypothetical scenario, but if that happens, the potential repercussions on Poland's rating will not be automatic, said Ludwig Heinz, senior analyst at S&P Global Ratings in charge. To classify Poland.
– Regarding current events, the independence of the central bank is an important factor, but what is more important to us is the history of inflation. The outcome of current events is still highly uncertain, so we don't want to prejudge anything. The scenario under which the National Party president could be suspended from his duties after appearing in state court remains entirely hypothetical at this point, Haynes said.
“If that happens, but again without prejudging any scenario, any potential implications for the rating will certainly not be automatic,” he noted.
We will analyze the extent to which this situation affects the independence of the central bank and whether it actually hinders the effectiveness of monetary policy and weakens its credibility. He indicated that there would be no automatic downgrade in the rating.
“We see significant strength in the monetary policy assumptions applied in Poland,” added the senior analyst at Standard & Poor's Ratings.
-We believe that the zloty and its liquidity constitute an important barrier. The central bank has a long history of independence. It also has a very broad range of monetary policy tools and, from a historical perspective, its inflation performance has been very strong. Another important advantage in the Polish context is the possibility of creating a market for debt issued in local currency. “In general, we assess the credibility and effectiveness of monetary policy as very strong,” he noted.
The Constitutional Court will consider the request of PiS representatives
The Constitutional Court plans to hold hearings on the procedure for bringing the head of the Polish National Bank to constitutional liability on January 11 and 18. Submissions on this matter were submitted by groups of Members of Parliament and Senators represented by PiS representatives.
They relate, among other things, to: studying the constitutionality of the provisions currently in force, according to which the House of Representatives adopts a decision to hold the President of the NBP accountable before the State Court by an absolute majority of votes, which leads to the automatic suspension of this person from his duties.
The Vice-President of the Polish National Bank, Marta Keitli, announced at the beginning of December that in the event that the President of the Polish National Bank was suspended in connection with a possible action before the State Court, the Polish Central Bank would appeal this case to the Court of Justice of the European Union regarding Violation of European Union treaties.
Submitting a request to bring the head of the National Bank before the state court was included in the so-called 100 peculiarities of the electoral program of the civil coalition. Prime Minister Donald Tusk said in December that Glabinski could be faced with a state court not for mistakes in monetary policy, but for possible violations of the law. At the same time, he added that his political formation would not do anything that would destabilize or undermine the reputation of the Polish state in Europe or abroad.
Challenges facing Poland's classification
Among the challenges facing Poland's rating, S&P Global Ratings' Heinz mentions fiscal policy, inflation and the external macroeconomic environment, which is characterized by problems with Poland's trading partners.
The S&P analyst believes there is a risk that inflation in Poland will remain high for a longer period of time, as core inflation is still very high. Standard & Poor's forecasts assume that Poland's CPI will return to the central bank's target in 2025.
Heinz also pointed out that the negative aspects, including the very high fiscal deficit, are balanced by other strengths.
– In the medium term, we see prospects for improving Poland's relations with the European Union, perhaps on the institutional side. According to our criteria, financial weakness does not automatically translate into a rating level. This is one of many factors we take into account. Financial flows are important, but many other factors are at least as important or greater. The fiscal deficit in 2024 will be very high, but we expect it to gradually decline after this period. There were also the first signals from the government regarding potential measures that would increase income. He pointed out that the deficit will remain high next year, but the fiscal path after 2024 will be more interesting for us.
“The government has sufficient capacity to obtain financing.”
Heinz estimates that although Poland's borrowing needs are very high, the overall debt strategy appears convincing.
– Depends on the domestic financial system and increased foreign emissions. In my opinion, foreign investor sentiment may be favorable in this regard, and the government has sufficient opportunities to obtain financing. Another issue is the cost of this financing, which we assume will be higher than in the past. Despite the high borrowing needs, also taking into account the expected inflow of other funds, the debt strategy appears feasible, the S&P analyst said.
– We analyze data related to the general government sector, which also includes items outside the budget. I think we have clarity on the evolution of debt and overall deficit trends. We will see if the government will actually reduce the use of extra-budgetary funds. Many of these are likely to continue, and perhaps decline slightly. He added that in the general assessment, the clarity and transparency of public finances is sufficient.
The draft budget for 2024 adopted by the government assumed a deficit of PLN 184 billion, with a deficit in the GG sector of 5.1%. gross domestic product. Net borrowing needs in 2024 are estimated at PLN 252.3 billion, and total borrowing needs at PLN 449 billion.
Standard & Poor's assumes that Poland will be able to release EU funds and takes this element into account in its credit assessment.
– What matters to us at this stage is for the rule of law dispute with the European Commission to be resolved, which means not only a one-time payment under the Recovery and Resilience Facility (RRF), but also a continuous flow of humanitarian aid. Payments from other EU funds. Ultimately, the main issues remain related to achieving so-called milestones. In our analysis, which we published after the last rating revision, we assume that Poland will be able to release EU funds. We have included this element, but it may bring more benefits if we see achievements in addressing some of the issues that have raised concerns in the past, especially regarding the judiciary,” Haynes noted.
The Ministry of Finance and Regional Policy announced last week that in 2024 Poland should receive approximately EUR 18.5 billion (about PLN 82.6 billion) from the KPO, including approximately EUR 8 billion from the grant portion (about PLN 35.6 billion). ), and from the loan part about 10.5 billion euros (about PLN 47 billion).
Among the three largest rating agencies, Poland's creditworthiness is rated at the highest level by Moody's – at the “A2” level. Poland's rating according to Fitch and Standard & Poor's is “A-“, which is one notch lower than Moody's. The outlook for all ratings is stable.
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Main image source: Chapter / Radek Pietruszka
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