Moody's cuts Poland's credit rating to A3 over widening deficits while zloty holds steady

First downgrade in rating history

Credit rating agency Moody's lowered Poland's long-term foreign-currency sovereign debt rating by one notch from A2 to A3 on Friday evening, setting the outlook to stable. The agency also lowered the short-term issuer rating from P-1 to Prime-2 (P-2). Economists at PKO BP noted that this action represents the first rating downgrade for Poland in Moody's history, following an upgrade to A2 in 2002. The revision brings Moody's rating into alignment with assessments from Fitch and S&P, which previously rated Poland one to two notches below Moody's.

Fiscal deficits and rising debt

The downgrade reflects a lasting deterioration in Poland's fiscal condition compared to the September 2025 assessment. Moody's cited successive large fiscal deficits and rising financing costs that have weakened debt affordability metrics. The agency expects the general government deficit to remain around 7% of GDP in both 2026 and 2027 despite solid economic expansion, pointing to procyclical fiscal management. Public expenditure has expanded across healthcare, defense, social programs, and public investment, while debt accumulation outside domestic fiscal rules through state funds has increased. Moody's noted that political friction between the government and the president will limit consolidation before parliamentary elections scheduled for November 2027, with public debt expected to stabilize at 70–75% of GDP by the end of the decade.

Commenting on the fiscal backdrop, Rafał Benecki said the market had already anticipated the adjustment.

As far as financial markets are concerned, the Moody's decision is not a surprise. Investors, both foreign and domestic, were aware of various weaknesses, and markets had been pricing in the deteriorating budget situation for a long time.

Growth projections and rating conditions

Despite fiscal deterioration, Moody's maintained a stable outlook, supported by economic resilience. The agency forecasts Poland's gross domestic product to expand by 3.7% in 2026 and 3.2% in 2027. Growth is backed by investments funded through the National Recovery Plan (KPO), European Union cohesion policy allocations, defense outlays, private consumption, and net exports. Moody's stated that future rating upgrades would require a credible reversal of the public debt trajectory alongside institutional and structural reforms. Conversely, further downgrades could occur if fiscal rules are significantly circumvented, if economic growth faces a permanent shock, or if regional geopolitical risks worsen.

Market reaction and currency levels

The Polish zloty showed minimal movement during Monday morning trading following the Friday announcement. Around 09:00, the euro traded at approximately 4.36 zlotys, slightly down from 4.361 zlotys at Friday's close. The US dollar traded near 3.80 zlotys, up by less than one grosz from Friday's level above 3.79 zlotys, while the Swiss franc remained stable near 4.61 zlotys. Economists at Bank Millennium and PKO BP indicated that the direct market impact should remain limited because investors were already aware of fiscal trends. PKO BP noted that exchange rate movements in the coming days will depend primarily on global factors such as dollar strength and oil prices.