Poland in shock after S&P’s downgrade

Polish media buzzes with emotion in the aftermath of Standard & Poor’s decision to lower Poland’s credit ranting announced on Friday. This is the first cut with respect to Poland’s ranking in 25 years. The downgrade came as a surprise.

The rating with regards to long-term currency debt was changed from “A-“ to “BBB+”, with outlook changed to negative. It is likely that the rating will be pushed down even further in the upcoming 24 months. The rating concerning short- and long-term domestic currency debt has also been lowered.

The main arguments invoked by the agency to back up the decision are concerns over the independence and effectiveness of some vital public institutions. The agency expressed worry over the country’s public finances in the view of the planned extensive spending.

Ministry of Finance published a statement expressing concern over the validity of the move. The Ministry called the decision “incomprehensive from the economic and financial point of view”. Paweł Szałamacha, Polish Minister of Finance, criticised the agency for concentrating attention on the politics, not on the economic factors.

S&P’s press release was announced on Friday, after Warsaw Stock Exchange was closed for the day, but Polish exchange and currency markets took a major hit on Monday following the decision. The prices of euro, dollar and Swiss franc are on the levels unseen for years. WIG20, the main exchange index, fell below 1700 points.

Many experts call the decision ungrounded in economic reality and purely politically-driven. There are others, however, that admit that S&P indeed has a point and that politics has vital impact on the economy.

The agency highlighted unstable political conditions and expressed concern over whether the country will be able to stay within its budget limits. Polish government announced many changes that may take negative effect on the budget, such as child benefits and lowering of the retirement age.

The Manhattan-located agency’s decision remains isolated, as Fitch agency decided to keep their rating with respect to Poland unchanged, A-/A with neutral outlook, fuelling the arguments of the critics of the S&P’s decision.

As the World Bank projections indicate, the GDP growth of Poland is to be the highest in the region. Mateusz Morawiecki, Minister of Development, expressed opinion that there is nothing to worry about and that prospects for Polish economy in the upcoming year are bright.

Standard & Poor’s, an American financial research company, is one of the Big Tree credit-rating agencies, together with Fitch and Moody’s. In their ratings, the agencies asses the prospects of paying back debt.