(Repeat for additional subscribers)
March 24 (The following statement was released by the rating agency)
Fitch Ratings says in a new report that recent changes
to the pension and broader public finance frameworks are neutral for Poland's
sovereign ratings (A-/A/Stable). Fitch's assessment of Poland's sovereign
creditworthiness will continue to focus on underlying fiscal consolidation, as
well as reduction of external indebtedness and income convergence.
The most substantial amendment, at least in the short term, is the transfer to
the publicly-run pay-as-you-go pillar (PAYG) of 51.5% of financial assets held
by open pension funds (OFEs), which took place in February 2014. OFEs have been
financed by a portion of gross wage contributions, which they used to accumulate
financial assets. Other changes include making future contributions to OFEs
optional rather than mandatory and the transfer to the PAYG system of all funds
10 years before retirement.
Fitch estimates that the transfer of OFE assets reduces the gross general
government debt (GGGD) ratio (on a ESA 95 basis) by 7.5 percentage points. The
agency judges this development to be rating-neutral given that the reduction in
public debt (as well as debt-servicing costs) is offset by an increase in
long-term state pension liabilities. The changes are being challenged at the
Constitutional Court, but Fitch does not expect this to result in a major
reversal, including for instance the cancellation of the asset transfer.
The changes to the pension system came amid an increasing debt burden and
mounting external pressure to narrow the budget deficit in the context of the
EU's Excessive Deficit Procedure. The diversion of a part of gross wage
contributions from the PAYG pillar to finance OFEs created a gap in the social
security budget that had to be filled via increased public debt issuance, in the
partial absence of other fiscal consolidation measures. This built up a
considerable additional public debt burden, and in recent years public debt
(calculated by the government using a separate methodology) had been hovering
close to 55% of GDP, a key legal threshold.
A new stabilising expenditure rule (SER) in effect starting with the 2014 budget
aims to boost the anti-cyclical role of public spending and introduces debt
thresholds at 43% and 48% of GDP. The SER was adopted to comply with enhanced
EU-level fiscal surveillance and could support increased fiscal discipline.
However, the suspension of a previous rule to enable the revision of the 2013
budget, as well as the likelihood that public debt will remain in breach of the
lower threshold for several years against a backdrop of fiscal austerity, raises
the risk that fiscal rules may be breached in future.
The report, entitled 'Polish Pension Reform ' is available at
www.fitchratings.com or by clicking on the link below.
Link to Fitch Ratings' Report: Poland Pension Reform: Neutral for Ratings, Focus
Remains on Fiscal Performance