In just a period already the second leading agency changes the rating position of the Polish state. Donald Tusk's government urgently needs to repair public finances.
Donald Tusk's government honeymoon with investment environments was definitely over. Just after the centre-left government took over, the situation on the Warsaw Stock Exchange was the main focus. Unlike the erstwhile ruling team, which mainly placed the power of state-owned companies, the fresh camp could number on investor favour from the very beginning.
Votum of investor confidence
This was reflected in the hossie that continued almost continuously until now. The investors appeared more crowded over the Vistula River not only with the hope of privatising any companies, but besides wanting to take advantage of the chance offered by the fresh political opening. The interest in Poland and its marketplace was, in fact, a kind of vote of assurance for the liberal government of Tusk expressed by the investor communities, which previously suggested many times the concern about Poland's drift towards "populism".
Donald Tusk's return to power, however, follows a sign of failure to fulfill his hopes. At the very beginning, the leader of the Civic Coalition in a spectacular way failed to fulfill his 100 promises for the first 100 days of rule. A kind of promise, never expressed explicitly, was besides the belief that the returning Liberal camp would prove to everyone that it could manage the state professionally and responsibly, and in peculiar public finances. All the more so, due to the fact that over the years, the blade of his criticism of "good change" has been directed to a considerable degree towards financial issues.
Meanwhile, the Communication, which was prepared by Moody’s as a consequence of the change in the position of the Polish state from unchangeable to negative, states: “We are forecasting higher and more persistent government deficits, as well as a slower pace of fiscal consolidation.” A akin message was included in the study prepared in early September by Fitch: "the increased political challenges associated with the implementation of fiscal measures and the deficiency of a credible fiscal consolidation strategy are likely to impede Poland's crucial simplification of the fiscal deficit before the next parliamentary elections in 2027".
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Yellow card from ‘own’
Donald Tusk's government has so far been able to dismiss any criticism voices at its address, showing them as an component of political conflict or average organization criticism. However, Moody’s and Fitch’s fresh decisions already have a very different status, as the fear for Polish public finances was expressed by abroad entities, not in any way related to the opposition. Their voice cannot be silenced and considered worthless.
It is worth reminding that in 2015-2023 credit rating agencies took an active part in the political competition in Poland, threatening our government at least respective times with a simplification of the rating or just changing position to negative. Pretexts for this kind of action were provided by improvement of the judiciary, disputes with the European Union or the implementation of the 500 plus programme. Each time, the agencies went far beyond the spectrum of their average activities, giving vent to political commitment.
It is precisely the fact that, on a regular basis, the agencies have expressed concern about the condition of the Polish economy, that is the most worrying aspect of the full issue. Moreover, they correctly identified 1 of the biggest threats to Polish public finances, which are the parliamentary elections of 2027. Theoretically, they are only 2 years away, but the associated electoral run is actually beginning due to the falling support for the Tusk government and the opposition's hopes for accelerated elections. All points to the fact that one more time the speech of the electoral run will give social promises, 1 of the main burdens on the budget.
The Minister of Finance Andrzej Domański, who has not been affected by specified a development, has late praised himself on social media, allegedly a good economical situation, which would consist of accelerating GDP growth, improving moods and falling inflation. For example, the degree to which these indicators can truly give origin for peculiar optimism is simply a powerful debate. However, it is highly worrying that the words of the Minister of Finance and the Prime Minister do not show that the situation is full respected. On the contrary, at the last Cabinet Council, Minister Domański assured that there is no reason to be afraid mainly due to the fact that budget revenues are expanding with double-digit dynamics and the VAT gap is decreasing.
However, in the dispute over the assessment of the condition of Polish finances, it should be fair to credit rating agencies, for which Domański's argument is not adequate to resolve concerns. The Minister of Finance himself, ensuring that the budget is in large shape, mentions in almost 1 breath that it would have been better if it had not been for a crucial part of the income from PIT to local governments. Unfortunately, providing its political environment with an additional pool of financial spoils has serious implications for the central budget.
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Debt from an accounting trick
Unfortunately, the deterioration of the rating position of the Polish state coincides with the very worrying phenomenon of expanding public debt outside all spending rules. The pretext is provided by the extraordinary EU SAFE fund, from which Poland applies for as much as EUR 45 billion in preferential loans. According to the findings of the associate States, the debt holder of a full of EUR 160 billion is expected to be a European state not yet formally existing, although the guarantors of the debt have been made all the countries with SAFE. This means that the government of Donald Tusk importantly increased the burden of debt of the Polish state, utilizing a simple accounting trick. However, this has not sparked any lively discussion, nor has it led most political commentators to express concern.
Despite the fact that it will be 2 years since the "smiling coalition" took power, its leading representatives, headed by Finance Minister Andrzej Domanski, proceed to routinely convince that most of the problems they face are due to the mistakes of their predecessors. This kind of justification must yet give way to taking work for its shoulders, due to the fact that Poland is in danger of a serious public finance crisis. The large red lamp lit up already between 2020 and 2022 as a consequence of a circumstantial pandemic policy, the budget deficit and debt grew to gargantu size. erstwhile this problem has been resolved temporarily, the situation becomes very tense again.
In the budget planned for 2027, the deficit is expected to emergence to PLN 270 billion, which is expected to account for 6.5% of GDP. No substance how much Minister Domanski would like to calm down and guarantee that everything is under control, this kind of data speaks for itself. The government got a yellow card and it's only fair to hope that they take this informing seriously.
