January 15, 2016 / 9:09 PM / 3 years ago

Fitch Affirms Poland at 'A-'; Outlook Stable

(The following statement was released by the rating agency) PARIS/LONDON, January 15 (Fitch) Fitch Ratings has affirmed Poland's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'A-' and 'A', respectively. The Outlooks are Stable. The issue ratings on Poland's senior unsecured foreign and local currency bonds have also been affirmed at 'A-' and 'A', respectively. The Country Ceiling has been affirmed at 'AA-' and the Short-term foreign currency IDR at 'F2'. KEY RATING DRIVERS Poland's 'A-' rating balances its strong macro performance, resilient banking system and governance indicators in line with the 'A' rating category against high external debt, higher-than-peers' government debt (52% of GDP vs. 45% for the 'A' peers' median) and relatively low GDP per capita despite income convergence towards the European Union (EU) average recently. Poland's IDRs also reflect the following key rating drivers: The Law and Justice (PIS) party won Poland's general (October) and presidential (May) elections in 2015. During its first three months in power, the new socially conservative government has passed a number of laws, including on the functioning of the media and the judiciary. These led to raised domestic and external concerns as they were seen as altering checks and balances in Poland. Fitch expects the more confrontational policy stance will increase polarization in the Polish society and lead to rising political tensions. Real GDP grew 3.5% yoy in Q315, one of the fastest rates in the EU. Fitch expects growth will be 3.5% in 2015, up slightly from 3.3% in 2014. Domestic demand is supported by favourable financing conditions, the fall in unemployment (7.2% in November 2015 from 8.3% a year ago and a peak of 10.6% in 2013) and low inflation (-0.5% in November). Fitch expects growth will remain at 3.5% in 2016 and 2017, with an increasing contribution from consumption, reflecting a significant boost to child benefit payments (+0.9% of GDP) from 2016. The implementation of new economic policies, such as sectoral taxes, or any other policy that would damage Poland's business climate, could affect private investment and constitute a downside risk to medium-term GDP growth. Fitch expects the budget deficit will be 3.0% of GDP in 2016, up from 2.8% in its previous forecast (and 3.0% in 2015). The revised budget for 2016 includes new policies in line with electoral campaign pledges: spending will increase by 0.9% of GDP, mostly on higher child benefits (Family 500+, PLN16bn). This will be funded by new taxes on banks and insurance companies (PLN5.5bn) and retailers (PLN2bn), and delayed income (from 2015) from the auction of mobile frequencies (PLN9.2bn), posing some execution risk, in Fitch's view. For 2017, the agency expects the deficit will be kept at just 3.0% of GDP as we assume the government will want to avoid breaching the EU's 3.0% deficit rule. There are risks of a higher deficit: the PIS government will be under popular pressure to deliver on its various promises (e.g. on income tax, the retirement age, or healthcare spending), while one-off revenues from the mobile auction will need to be replaced. The PIS government's change in the stabilising expenditure rule facilitates increases in government spending in the short term and weakens the efficacy of the rule as an institutional anchor for fiscal policy. Banks will face a new 0.44% tax on assets (excluding government bonds) from 2016. The central bank expects the cost to be about PLN4bn or about one-third of 2015 net profit. Banks could be further affected by a scheme to convert existing foreign currency housing loans (PLN167bn or 17% of total loans to the private sector) into local currency. The ultimate cost for the banks will depend on the yet to be decided conversion terms. Policies that affect banks' profitability could negatively impact their ability to lend (+6.9% y/y over the past 12 months) and support the economy. The banking system is well capitalised (15.6% capital adequacy ratio in Q32015), liquid and profitable and has proved resilient to global shocks. Poland's current account deficit (CAD) is lower than in the past, primarily thanks to an improvement in its trade balance with EU countries. In 2015, the CAD was 1.5% of GDP and Fitch expects it will remain below 2% in 2017 thanks to moderate oil prices, gradual strengthening in external demand from Europe, and some reduction in interest cost on external debt. Fitch expects net external debt (NXD) will remain high relative to peers, at about 31% of GDP by 2017. The high level of NXD potentially exposes Poland to global external volatility and is a key rating weakness. However, this weakness is partially mitigated by a EUR16.6bn (3.7% of GDP) IMF precautionary liquidity line and the high share of inter-company loans (60% of private sector external debt). RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currently balanced. Nonetheless, the following risk factors could, individually or collectively, trigger negative rating action: - Relaxation of the fiscal stance that worsens the government debt trajectory. - Weakening of policy credibility or economic performance, for example due to deterioration in the business environment. The following risk factors could individually or collectively, trigger positive rating action: - Greater confidence that a track record of low budget deficits and declining government debt ratios is being established. -Continued reduction in external debt ratios. - Favourable GDP growth that supports income convergence towards EU and 'A' category medians. KEY ASSUMPTIONS Fitch assumes Poland's main economic partners in the eurozone will benefit from a gradual economic recovery with eurozone real GDP growing 1.7% by 2017, up from 1.5% in 2014. Contact: Primary Analyst Arnaud Louis Director +33 1 44 29 91 42 Fitch France S.A.S. 60 rue de Monceau 75008 Paris Secondary Analyst Paul Gamble Senior Director +44 20 3530 1623 Committee Chairperson Tony Stringer Managing Director +44 20 3530 1219 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country Ceilings (pub. 20 Aug 2015) here Sovereign Rating Criteria (pub. 12 Aug 2014) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=997975 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below