Moody's downgrades Poland to A3 as deficits and political standoff erode fiscal buffers

Moody's lowered Poland's sovereign credit rating one notch to A3 from A2 on Friday, citing what it called a sustained deterioration in the country's fiscal strength, Notes from Poland reported. The rating is the lowest the agency has assigned Poland since 2002, and it marks the first time any of the three major agencies has cut the country's rating since 2016.

"The downgrade of Poland's ratings to A3 reflects our expectations of a sustained deterioration in Poland's fiscal strength," Moody's said in its statement. "Large fiscal deficits persist, leading to a material increase in public debt and, together with rising interest costs, weaken debt affordability metrics."

The agency said the effectiveness of fiscal policy had weakened, pointing to a "limited willingness or ability on the part of the Polish authorities to rebuild fiscal buffers during favourable economic conditions." It added that political constraints, including "the continued standoff between the government and the president and the proximity of the November 2027 parliamentary elections," leave little room for meaningful consolidation.

Deficit near 7% for two more years

Poland's general government deficit reached 7.3% of GDP in 2025, the second-highest in the European Union, according to Notes from Poland. The draft budget for 2027 projects a deficit of 7.1%, nearly twice the 3.7% target the government had earlier committed to for that year. Public debt exceeded 60% of GDP for the first time in the first quarter of 2026.

Moody's expects the gap to stay "elevated at around 7% of GDP in both 2026 and 2027 despite continued strong economic growth," Reuters reported. The agency forecasts robust growth and sees government debt stabilizing at 70% to 75% of GDP by the late 2020s. Poland's Fiscal Council said Monday that the 2027 draft budget contained no consolidation measures and that the risk of debt passing 55% of GDP was very high, according to Reuters.

Despite the cut, Moody's raised its outlook on Poland to stable from negative. The agency said it expects the authorities to comply with fiscal rules, opening the way to faster consolidation after the November 2027 election and helping stabilize the debt burden later in the decade, Reuters reported.

Warsaw: 'seriously, but calmly'

Finance Minister Andrzej Domanski noted that Moody's had until now held the highest rating for Poland among the three major agencies, and that the new grade brings it in line with Standard & Poor's and Fitch. "We take this decision seriously, but calmly," he said. "The Polish economy is growing rapidly, and its fundamentals remain strong. We will consistently strengthen public finances, but this requires cooperation from all state institutions, including the president."

The presidential camp turned the downgrade into an attack on the government. Pawel Szefernaker, head of President Karol Nawrocki's cabinet, wrote on social media: "They steal, they lie and they burden our homeland with debt. Unfortunately, we Poles will have to pay for it all." The standoff between the pro-Brussels government and the conservative-nationalist president has stalled legislation; in July, Nawrocki sent a bill imposing a windfall tax on oil and gas company profits to the constitutional court, Reuters reported. In March, Fitch had already warned that "political gridlock" was hampering efforts to address "large fiscal deficits and rapidly rising debt," while S&P has kept Poland at A- since 2018.

What it means: The downgrade lands on the EU's largest eastern economy at a time when it is funding heavy defense, infrastructure and social spending with some of the bloc's widest deficits. Moody's language makes the constraint political rather than economic: growth is strong, but the government and president cannot agree on consolidation, and neither is likely to tighten before the 2027 vote. For investors in Central Europe, the stable outlook limits the immediate damage, yet the agency's own forecast of debt drifting toward 70% to 75% of GDP suggests that borrowing costs, not growth, will define Poland's fiscal debate through the next election cycle.