Moody's Cuts Poland Outlook to Negative over 'Fiscal Risks'

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Global ratings agency Moody's on Saturday cut Poland's outlook from stable to negative over "fiscal risks" posed by its rightwing government, but left its investment grade unchanged.

Moody's change in outlook is its first in over a decade and comes after a deeper ratings cut in January by Standard and Poor's, which blamed the Law and Justice (PiS) government for "weakening institutions."

It however said Poland's foreign debt grade will remain at A2, the fifth lowest investment rating.

"The affirmation of Poland's A2 rating reflects the country's economic resilience," a statement said.

"Poland has a large, diversified economy that has shown robust real GDP growth in recent years, despite being exposed to significant external headwinds at the time of the global financial and euro area debt crises."

Poland's finance ministry welcomed the unchanged rating following market speculation about another downgrade.

The "rating is one notch higher than Fitch's rating and two notches higher than S&P's rating from January this year," a ministry statement said.

Poland's Deputy Prime Minister Mateusz Morawiecki had downplayed the expected Moody's assessment as "not the end of the world" earlier this week.

The New York-based ratings house said its outlook cut was triggered by "the fiscal risks arising from a substantial increase in current expenditures" and the "risk of impairments to the investment climate from a shift towards more unpredictable policies and legislation."

Elected in October on a populist spending platform, the PiS has introduced a generous child-benefit subsidy, promises tax breaks for low income earners and is intent on reverting to a lower pension age.

Aside from its plan to convert foreign currency mortgages, mostly in Swiss francs, into the local zloty currency, the PiS government has also pushed through several other pieces of controversial legislation.

They including institutional changes to the country's constitutional court and public media that critics both at home have slammed as undermining democratic checks and balances.

Moody's said Poland's risky legislative shift was exemplified by a proposed "law converting foreign-currency denominated mortgages and the prolonged stalemate between the government and the country's constitutional court, with the potential to undermine banks' credit flow and deter inward investment, respectively."

In April, Moody's said that net portfolio inflows had progressively declined in recent months and in January Poland registered a net portfolio outflow of $3.1 billion.

The whopping sum was the second largest in the last 10 years, ranking second only to the outflow registered in October 2008 after the collapse of Lehman Brothers bank, which triggered a global financial crisis.

A nation of 38 million people, Poland remains one of the EU's most vibrant economies, with various sources expecting it to expand by more than four percent this year and by up to five percent in 2017.

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