Fitch keeps Poland rating at 'A-', cites fiscal risks in negative outlook

Fitch maintained Poland's sovereign credit rating at A- on Friday, highlighting the country's robust economy and solid external finances compared to peers with similar ratings. However, the agency issued a negative outlook due to insufficient fiscal consolidation. The rating action follows Poland's budget deficit expanding to 141.1 billion zlotys (US$38.19 billion) by the end of July, up from 123.7 billion zlotys (US$33.48 billion) at the end of June.

Fitch anticipates the fiscal deficit to decrease marginally to 6.7% of GDP in 2027, surpassing the 6.2% forecasted in February, while warning of potential additional spending ahead of elections. Revenue is expected to be limited by slower economic growth and a reduced corporate tax rate for banks, with the ability to offset these impacts constrained by the risk of presidential vetoes.

Political gridlock between the government led by Prime Minister Donald Tusk and President Karol Nawrocki has further complicated fiscal consolidation efforts. Poland's GDP growth accelerated to 3.8% in the second quarter from 3.5% in the first quarter, aligning with expectations. Fitch projects GDP growth of 3.3% in 2026, supported by EU Recovery and Resilience Facility projects and high defense spending, partially offsetting slower private consumption as real wage growth cools.

The government recently proposed income tax cuts for middle-income earners and corporate tax increases for larger firms, with Finance Minister Andrzej Domanski expecting a relatively positive response from rating agencies. Domanski emphasized that the Polish economy remains strong, resilient, and diversified. However, rating agencies caution that the high number of presidential vetoes restricts the implementation of effective economic policies.