The analyst said that the government's financing plan is credible and feasible. He links possible individual problems at auctions to specific market conditions.
"It is clear to us that investor sentiment is one of the most important anchors for fiscal policy. I wouldn't link it to a single auction, but if fiscal policy were to be loosened further, we believe that investor sentiment would be one of the key anchors that could encourage the government to at least somewhat reduce the budget deficit," Heinz told PAP Biznes.
Heinz recalled that the finance ministry had publicly stated that the budget would not be amended.
"However, we still believe that despite risks to the realisation of some revenues, Poland has a track record of outperforming the budget law," he continued.
"There may be offsetting items in the event of a potential weakening of VAT revenues. Overall, we continue to maintain the underlying deficit assumption of 5.1 percent of GDP this year. We believe that the budget execution may again be slightly better than the assumptions," S&P chief analyst added.
The state budget deficit in 2024, according to the Budget Act, will be a maximum of PLN 184 billion (EUR 43.3 bln).
At the beginning of May, deputy finance minister Jurand Drop assessed that VAT execution for the first months was satisfactory and at this point the finance ministry sees no need to amend the budget.
The Ministry of Finance, in its communication to the post-April budget execution, indicated that possible weak VAT revenue readings in the following months would create risks for the realisation of the revenue forecast included in the 2024 Budget Law.
According to S&P, the doubling of the tax-free amount, one of the Civic Coalition's flagship election promises, could be introduced later or more gradually, as the agency understands this is the largest fiscal item the government has promised.
"I think the government will take the fiscal situation into account and, as the public communication shows, the doubling could be introduced, only if it does not make the situation worse," Heinz pointed out.
The S&P analyst explained that the current stable outlook on Poland's rating reflects the agency's assessment of the solid growth prospects for Poland, as well as the continued inflow of EU funds, which in the short term offsets the weakness of Poland's key trading partners, loose fiscal policy and slightly elevated inflation.
"In the longer term, the growth prospects for the Polish economy remain quite solid. If we see a sustained institutional improvement, a continuation of the inflow of EU funds into the country, supporting foreign direct investment and the overall economy - this may indicate some potential for a rating upgrade," he added.
For S&P, the most important news concerning Poland recently was the unblocking of EU funds available under the Reconstruction and Resilience Facility (RRF).
Heinz explained that the discontinuation of the Article 7 procedure initiated by the European Commission is an aspect that the agency takes into account, but at the same time makes its own assessment of institutional effectiveness and governance.
"In a broader perspective, it is clear that relations with the EU have improved significantly with the change of government, and the closure of the said procedure is a reflection of this. Our latest report on Poland already takes this into account," he said.
"On the institutional side, we still see some challenges as, due to the election timetable, the implementation of the government's programme is likely to be quite demanding, at least until the presidential elections next year," he added.
The EC intends to terminate the procedure against Poland under Article 7 of the Treaty on European Union on threats to the rule of law.
According to the S&P analyst, it is quite likely that defence spending may be given a bit more relief during the talks with the EC on the excessive deficit issue, but it remains to be seen what the final fiscal adjustment path will be.
"Currently, in the transition period between the old and new fiscal rules, we expect a moderate reduction in the deficit in the coming years. We expect the general government deficit to fall to 4.3 percent of GDP in 2025, to 3.6 percent in 2026 and to remain at this level in 2027," he assessed.
In Heinz's view, greater transparency of extra-budgetary funds could benefit the overall transparency and accountability of the entire fiscal picture. The S&P chief analyst pointed out that the agency has good insight into all the data and information it needs to assess the country's creditworthiness.
"We have noted the government's commitment to work on the consolidation of extra-budgetary funds into the central budget, but we do not have any information on a possible timeline," he said.
Of the three major rating agencies, Poland's creditworthiness is rated highest by Moody's, at ‘A2’. Poland's rating by Fitch and S&P is ‘A-’, one level lower than Moody's. The outlook for all ratings is stable.
The interview was conducted before the treasury securities sale auction in May.
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