4/02/2007

S&P upgrades Poland on strong growth prospects

Standard & Poor's hiked Poland's long-term foreign-currency credit rating to A- from BBB+ with a stable outlook, citing the country's strong and balanced growth prospects, but cautioning that political instability continues to constrain ratings.
"The outlook could be revised to positive if the government presents a clear, credible, and sustainable agenda for driving down fiscal deficits and the debt ratio," said Kai Stukenbrock, a credit analyst at Standard & Poor's, in a statement.
"Conversely, the ratings could come under downward pressure if populist agendas and government instability results in deteriorating fiscal balances, renewed debt buildup, or a weaker business environment."
In Warsaw, polish equities were slightly higher early Friday. The Polish currency, the zloty, was up 0.2% against the euro and the dollar.
S&P also raised Poland's long- and short-term local currency ratings to A/A-1 from A-/A-2, and affirmed the A-' foreign currency short-term rating.
A member of the European Union since 2004, Poland has a population of 40 million, which gives it enormous economic and business potential. The Warsaw stock market is the biggest and most liquid in Central Europe. It has outperformed other regional markets, boosted by a strong domestic investor base and solid economic growth. See Investing in Central Europe.
GDP grew at 5.8% last year. The Economist Intelligence Unit has forecast growth of 5.6% in 2007 and 4.8% in 2008. Read more about Poland.
The three-party governing coalition of Prime Minister Jaroslaw Kaczynski, whose twin brother, Lech, is Poland's president, has been racked by in-fighting. The three coalition partners -- the dominant Law and Justice Party, the populist Self-Defense Party and the Catholic nationalist League of Polish Families -- have failed to implement key economic reforms.
"The coalition around the Law and Justice party remains volatile, ridden by scandals and continuous threats of government breakup and early elections," S&P said. "The government's composition and instability weaken prospects for market-oriented structural reforms and accelerated budgetary consolidation."
Lars Christensen, senior analyst at Denmark's Danske Bank, said the upgrade was justified since Poland, together with the Czech Republic, has the strongest balances among the Central and Eastern European countries.
"Even though the upgrade is positive, it should also be noted that S&P says the political situation will be key to further rating changes, and the negative political situation continues to be a drag on Poland's rating," Christensen said.
S&P's rating of Poland had been one notch lower than Fitch's (A-) and two notches lower than Moody's (A2), he said. Therefore, "to some extent, the upgrade reflects an "alignment" of the S&P rating with that of Moody's and Fitch."
Istvan Zsoldos, analyst at Goldman Sachs European Economic Research, said: "We think that the rating upgrade is a well-deserved recognition of Poland's fundamental strength, and we expect a strengthening Polish zloty trend, especially as the National Bank of Poland is moving closer to hike rates."
Source:By Polya Lesova, marketwatch.com



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