9th European Financial Congress

Sopot, 3-5 June 2019


Will Poland's rating rise thanks to Brexit? - summary of the PCS opening session

The 7th European Financial Congress on June 5th, 2017 began with a question about Poland's investment attractiveness which was asked during the Poland Capital Summit – an event accompanying the EFC. Attempting to answer this question were the participants at the debate chaired by Jan Krzysztof Bielecki, representatives of the three largest rating agencies: Moritz Kraemer of Standard & Poor's, Yves Lemay of Moody's Investors Service and Ed Parker of Fitch Ratings.

The debate was opened by Moritz Kraemer, whose contribution emphasized Poland's successes so far in maintaining the quality and tempo of economic growth. In doing so he indicated that a country's rating perspective was decided by three key areas.

The first is an assessment of the quality and adaptation of institutions regulating the economy and principles governing social order, regardless of the internal conviction of the state of the country and its administration. Such matters as possible treatment of investors, the pension system, legal environment and its predictability affect the "here and now" assessment. Examples of this include the uncertainty surrounding the effects of the Brexit decision, and the circumstances of the fall in the USA's rating in 2011. Poland had for a decade been one of the most stable countries in terms of its rating. The shaking of this stability arose from surprise at the speed and depth of changes introduced after the 2015 elections.

The second major field is the flexibility and structure of the labor market. All the participants agreed that the aging society could be the most serious factor determining Poland's rating over the long term. The rapidly worsening proportion of employees to pensioners is a risk which is difficult to overestimate. It is also unsure whether such factors as Brexit can alleviate the deficit in manpower when and if workers return to Poland.
The third factor which could significantly reduce Poland's investment activity with regard to infrastructure after 2020 is the reduction in EU investment funds. Even now, as few as 1/3 of companies expect an increase in investment, and the positions of countries such as Sweden, Italy and Holland could additionally hamper the supply of development funds to the Polish economy.

Yves Lemay of Moody's said that Poland's rating was basically stable, but that uncertainty arising from the factors mentioned above, for example, was reflected in the negative perspective of a year ago. The fiscal factor is a major one, but the prevailing picture is a generally positive one with debt limits not threatened. Banking system risk is also assessed positively, equipped with a solid buffer of capital and the economy's high resistance to external disturbances. Certain worries arise due to the aging of society and worsening age structure of the labor market, limited capability to reduce public debt, and ineffective leveraging of the debt level with economic growth.

Ed Parker of Fitch talked of the importance of economic growth and political stability for a stable rating.. Poland's current rating is A-. The elements responsible for the "minus" are the still relatively large, though shrinking, share of external debt, low rate of income convergence despite a good GDP growth index, moderate fiscal loosening in spite of the advantageous low-interest environment. Other negative factors are pressures in the area of health protection and retirement care. Political risk, on the other hand, is not assessed so critically. Controversies concerning how democratic certain solutions are do not necessarily affect the quality of the economy and thus the country's rating. Any possible improvement in the rating depends on a rise in incomes with a simultaneous decrease in fears connected with the political risk.