S&P cuts Poland's rating outlook to negative, citing deficits and rising debt

The rating decision

S&P Global Ratings announced its decision on Friday, 6 November. It kept Poland's long-term foreign-currency rating at A-, but moved the outlook on that rating from stable to negative. In local currency, it lowered the long-term rating one notch, from A to A-, and set the outlook to negative as well. The Ministry of Finance published the agency's reasoning in a statement, and the agency's own explanation reads:

“The negative outlook reflects the risk that elevated budget deficits and rising public debt could constrain policy flexibility in the face of future shocks.”

S&P said a downgrade could follow if persistent fiscal imbalances and rising debt, combined with political polarisation, lift borrowing costs or force a sharp fiscal adjustment. It also named a possible escalation of Russia's war with Ukraine as a risk to public finances. A return to a stable outlook would require a durable and substantial reduction in large deficits.

Deficit and debt path

S&P expects the average deficit of the general government sector to exceed 6% of GDP over the coming years. The ministry's statement cited a deficit above 7% of GDP lasting until 2027, because the upcoming elections are likely to limit consolidation efforts. Net general government debt is forecast to rise from 53% of GDP in 2025 to more than 70% by 2029. Real GDP growth is seen averaging about 3% a year in 2027 to 2029, which the ministry presented as a key support for the rating. The agency wrote:

“The budget situation in Poland will remain exceptionally weak in the coming years.”

Earlier rating moves

S&P affirmed Poland's A- rating with a stable outlook in May. In September, Moody's cut its rating one notch to A3 from A2, which put it level with the A- ratings of S&P and Fitch. Moody's cited a lasting deterioration in Poland's fiscal position and the government's limited readiness to rebuild fiscal buffers in favourable economic conditions. Fitch has kept a negative outlook on the rating, citing the lack of a credible consolidation plan and the risk of populist fiscal loosening.

Political context and official responses

The ministry quoted S&P as saying that the government led by Prime Minister Donald Tusk still faces obstacles in pushing through its legislation and consolidation plans, because of the veto held by President Karol Nawrocki. The ministry said policymaking is harder in the period before parliamentary elections. Before the decision, Szymon Fabiański of PKO BP said that, after recent favourable real and fiscal data, the rating should stay unchanged. Mateusz Dadej, chief economist for Poland and Central and Eastern Europe at Coface, had taken a different view before the decision, saying:

“The government has kept fiscal deficits high for so long that even the most patient analysts are beginning to lose patience.”

The ministry said the change in outlook reflects a higher risk that rapidly rising debt could limit the government's room to respond to shocks and weigh on growth. It added that the effectiveness of debt limits in stopping the rise in debt remains an open question.