Poland, Hungary, Czech Republic, Slovakia suffer from reform fatigue; rating upside limited - S&P's

Poland, Hungary, the Czech Republic and Slovakia are suffering from reform fatigue that could limit further improvements in credit quality, Standard & Poor's wrote in a report out Thursday.

"Political unwillingness or inability to tackle structural reforms and further consolidate public finances could limit improvements in credit quality of the four largest Central and Eastern European countries (the CEE-4)," S&P's analysts wrote in a report titled "Reform Fatigue Clouds A Brighter Outlook For Central European Sovereign Ratings."

The four nations all enjoy solid economic growth rates, while their external balances are either improved or generally strong, the agency wrote. These factors justify solid ratings for the Czech Republic (foreign currency A-/Positive/A-2; local currency A/Positive/A-1), Republic of Hungary (BBB+/Stable/A-2), Republic of Poland (foreign currency A-/Stable/A-2; local currency A/Stable/A-1), and the Slovak Republic (A/Stable/A-1).

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But upside for these ratings is limited due to political risks, S&P's analysts wrote, singling out Hungary as the best of the class.

"Political determination or ability to pursue structural reforms and further consolidate public finances is generally limited, however, and governments are not using the currently favorable economic conditions to reduce structural deficits," said credit analyst Kai Stukenbrock is quoted as saying in a press release accompanying the report. "The notable exception in this regard is Hungary, where the unsustainable state of public finances has pressed the government to embark on a comprehensive course of fiscal consolidation."

Reform momentum has waned since the general elections, held in Poland in late 2005, and in mid-2006 in the remaining three countries.

"With the policy anchor of EU accession gone and reform fatigue setting in, governments are changing the focus of their economic and fiscal policies," S&P's wrote.

Poland and Slovakia, the two fastest-growing countries, come in for particular blame, as their populist-dominated governments display a marked tendency to use any extra revenues to pursue policy agendas rather than for deficit reduction.

"Consequently, deficits in all four CEE-4 states will remain above or narrowly below 3% of GDP in 2009, with a limited perspective for further significant reductions," S&P's wrote in the report. "With reform fatigue prevailing, and the desire to implement social policy agendas consuming potential space for accelerated fiscal consolidation, the room for further rating improvements in the CEE-4 remains limited. Only a more decisive stance on these issues would bring improvements in credit quality."
Source:gielda.wp.pl