Fitch raises Poland’s deficit forecast. What does that mean for the złoty?

Fitch warns of Poland’s high deficit

Rating agency Fitch raised its forecast for Poland’s general government deficit to 7,1 proc. in August, and sees it at 6,5 proc. of GDP in 2028. In a report dated 12 October, the agency assumes the budget deficit will remain high in 2026, at 7,3 proc. of GDP, and will edge down only slightly to 7,1 proc. in 2027.

According to Fitch, the government has announced a broadly neutral tax reform, but there is a risk of additional fiscal loosening ahead of elections. That refers to policies that increase spending or reduce budget revenues. The agency also says room for additional offsetting measures is limited by the risk of a presidential veto.

In Fitch’s view, the lack of a budget consolidation strategy — meaning efforts to reduce the deficit and debt — as well as a possibly difficult post-election environment, mean the deficit in 2028 will stay at 6,5 proc. of GDP. Fitch notes that ahead of the 2027 election, political pressure could make it harder to raise taxes or cut social spending.

At the same time, the agency revised its forecast for Poland’s general government debt to 73,4 proc. of GDP. That reflects persistent primary deficits and debt issuance to cover spending outside the central budget. Fitch also forecasts that the ratio of debt-servicing costs to government revenues will rise to 6,8 proc. in 2028 from 5,8 proc. in 2025.

The report also includes an assessment of the economy. Fitch forecasts real GDP growth of 3,5 proc., followed by a slowdown to 3 proc. in 2027-2028. Poland’s current account deficit is expected to gradually widen to 1,4 proc. of GDP by 2028 from 0,9 proc. in 2025, as strong domestic demand and military investment keep imports at a high level.

In September, Moody’s cut Poland’s rating to “A3” from “A2”, with a stable outlook. That leaves Moody’s rating aligned with Poland’s “A-” credit assessments from two other major agencies, S&P and Fitch, with the former keeping a stable outlook and the latter a negative one.

Sources

1. Statistics Poland