“The shortest speech – since our last assessment the fiscal situation has deteriorated further. The budget results are weaker, and the prospects for the coming years do not fill with optimism. This is due to the difficult political environment and the lack of a reliable plan of fiscal consolidation, which would allow stabilizing the trajectory of debt,” said Trajkovic during the webinar.
According to him, the government is starting with a more difficult position today when it comes to fiscal consolidation, and the authorities' ability to introduce additional savings actions weakened due to political tensions. “Therefore, we expect higher deficits in subsequent years,” he noted.
Read also: Rating Fitch. The agency changes Poland's perspective to “negative”. Here are the reasons
70 percent GDP for three years
In May 2024, Fitch assumed that Poland's public debt stabilized in 2028 at 58 percent. GDP. Half a year later, the forecast was revised to 64 percent, still assuming stabilization within the average date. Now, however, the agency estimates that the debt may reach 68 percent. GDP in 2027 and 70 percent GDP a year later, without clear signs of stability. “In current conditions, we can only talk about slowing down the debt growth, but not about his detention,” the analyst pointed out.
Trajkovic noted that Fitch does not see real consolidation activities in Poland. “In recent years, we have been observing a deterioration in the fiscal situation, and current medium -term plans do not contain sufficient solutions to stop the increase in debt. What's more, the implementation of additional savings will be difficult in the current, polarized political climate” – he said.
He added that Poland is increasingly standing from the “A” rating countries. “Before Pandemia, our fiscal indicators were close to this group's media, and sometimes even better. Now, however, we forecast that the Polish deficit will soon be twice as high as the median, and public debt by about 15 percentage points. larger until the end of 2027. This difference will be deepened in relation to countries with similar rating and the countries of Central and Eastern Europe, “the expert emphasized.
On September 5, Fitch confirmed the long-term Polish rating in a foreign currency at the “A-” level, but reduced its perspective to negative.
Interest rate forecasts
The agency assumes that the NBP reference rate will drop to 4.25 percent. In 2026, which is a higher level than currently forecasted the market. This is due to – as Trajkovic indicates – from the expected higher fiscal deficits.
Fitch expects two rates in the second half of 2025 (25 PB, from the current level of 5 %) and one in 2026, which would give a foot of 4.25 percent. “The difference between our assumptions and market expectations is primarily due to the other assessment of the fiscal situation. We assume that the public finance sector deficit will be about 7 percent. GDP in the years 2025–2026, and only later will begin to gradually decrease – to 5.5 percent. in 2028” – said the analyst.
In his opinion, in the coming years Poland will have to face a high deficit, which makes it difficult to simultaneously conduct an expansive fiscal and monetary policy. “With a deficit of 6-7 percent, GDP for foot reductions is limited. The market must also take into account what level of real interest rate will still be acceptable,” said Trajkovic.
