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      Scope completed a monitoring review for Poland
      FRIDAY, 01/07/2022 - Scope Ratings GmbH
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      Scope completed a monitoring review for Poland

      Monitoring review announcement

      Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

      Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

      Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

      Scope completed the monitoring review for the Republic of Poland (long-term local- and foreign-currency issuer and senior unsecured debt ratings: A+/Negative; short-term local- and foreign-currency issuer ratings: S-1+/Negative) on 28 June 2022.

      This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

      Key rating factors

      For the updated Rating Report accompanying this review, click here.

      Poland’s A+ credit ratings reflect a number of credit strengths, including sound macroeconomic fundamentals and comparatively strong rates of nominal economic growth anticipated over coming years, also aided by elevated inflation. Scope expects 4.9% real growth this year before 3.1% in 2023. Poland’s economy has been comparatively resilient over dual Covid-19 and Russia-Ukraine crises, even after halting of Russian gas to the economy. Furthermore, the European Commission conditionally approved Poland’s Recovery and Resilience Plan, supporting Poland’s investment outlook and easing fiscal costs of meeting investment requirements. However, the European Parliament and an association of judges of Poland have expressed concerns around the Commission’s decision and urged disbursement of funding only after EU court rulings are fully enforced. Credit strengths also reflect strong market access, a sizeable cash cushion and deep domestic capital markets. Poland’s ratings are furthermore supported by a liquid and well-capitalised domestic banking system.

      Poland’s ratings are challenged by: i) a long-standing trajectory of weakening of governance institutions – there remain multiple unresolved areas of rule-of-law contention even after the European Commission’s conditional decision around recovery funding; ii) the weakening of public finances since the Covid-19 crisis, compounded by a recent sharp rise of interest rates, although Poland’s debt trajectory is being substantively supported by elevated inflation and robust real economic growth; iii) ESG risk factors such as declining working-age population and weaker social infrastructure, alongside environmental challenges in the economic transition from dependence upon fossil fuels; and v) recent weakening of the external sector, reflecting a widening current-account deficit and lowered forex reserves.

      Regional security risks have increased since escalation of the Russia-Ukraine war, although it is Scope’s view that Poland’s and other central and eastern European EU countries’ NATO memberships limit risk of the conflict expanding to their territories.

      The Negative Outlook represents Scope’s opinion that risks to the sovereign ratings remain skewed to the downside.

      The ratings could be downgraded in the event of, individually or collectively: i) governance risks and/or associated tensions with the European Union continuing or escalating absent significant resolution, with associated growing adverse implications as regards Poland’s institutional and economic outlooks; ii) a weakening of an outlook as regards debt sustainability compared to current baseline expectations, such as any impairment of market access; and/or iii) substantive output attrition and/or Poland’s external-sector risk profile further weakening.

      Conversely, the Outlooks could be revised to Stable if, individually or collectively: i) governance risks and associated tensions with the European Union were more substantively reduced, materially curtailing associated adverse implications as regards Poland’s institutional and economic outlooks; ii) budgetary performance were to improve, bringing anticipation of a decline of government debt/GDP beyond current baseline expectations; and/or iii) the country’s external balance sheet were to strengthen materially.

      The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings Methodology, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
      This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
      Lead analyst: Dennis Shen, Director

      © 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin.

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