Fitch Ratings: Poland's rising debt is concerning

Fitch Ratings sees Poland's economy performing well, with GDP growth exceeding 3% and a strong domestic demand, high-quality workforce, and diversified industrial base. However, the agency has revised its outlook on Poland's credit rating to negative, citing concerns over fiscal policy and the increasing national debt.

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The dynamics of Poland's debt are tight, as for a country with the current A- rating.

Fitch emphasizes that while fiscal stimulus has been beneficial in supporting the economy, it has also led to higher government spending, a widening budget deficit, and a growing public debt. This trajectory is considered unsustainable for a country with an "A-" rating.

The agency notes that while increased defense spending is understandable given the geopolitical situation in Europe, significant social spending and public sector wage increases are also contributing factors to the deficit. The core issue, according to Fitch, is the long-term sustainability of Poland's fiscal policy.

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The main negative factor at the moment, assuming no shock from the war in Iran, is fiscal policy, specifically whether it will be balanced.

Despite these fiscal concerns, Fitch acknowledges Poland's strategic importance as a gateway to Eastern Europe, the Balkans, and Baltic states. The agency's local office has doubled its staff in two years, reflecting the growing business needs in the region. Fitch aims to support companies seeking to expand and access capital in these developing markets.

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Of course, there is strong pressure to increase defense spending, which everyone understands. This is the case throughout Europe as commitments to NATO are discussed. However, subsequent Polish budgets also contain a lot of non-defense spending – social spending and public sector wages are also key factors behind the deficit.