Standard and Poor's cuts Poland sovereign rating over government actions

Global ratings agency Standard and Poor's cut its long-term foreign currency sovereign credit rating for Poland by one notch Friday to 'BBB+', citing government moves "weakening institutions".

"The downgrade reflects our view that Poland's system of institutional checks and balances has been eroded significantly," the ratings agency said in a statement, pointing to recent legislative changes by the EU and NATO member's new right-wing government. 

Since winning an absolute majority in last October's general election, the populist-oriented Law and Justice (PiS) party led by eurosceptic Jaroslaw Kaczynski has pushed though institutional changes that critics insist have tightened its grip on power. 

Standard and Poor's warned in its Friday statement that "the constitutional court's ability to work efficiently and independently will likely be undermined, in our view, by changes to the court's composition and decision-making process." 

It also pointed to a new media law that gives the government extensive control over the management of public broadcasters and measures allowing it to change the structure of the civil service.

"In our view, these measures erode the strength of Poland's institutions and go beyond what we had anticipated regarding policy changes from the general election."

Fitch Ratings meanwhile held Poland's rating at 'A-', with a stable outlook.

Poland's finance ministry blasted Standard & Poor's downgrade as "incomprehensible".  

"This decision is contradictory to assessments presented by other rating agencies, the biggest international financial institutions and financial market participants," it said in a statement issues late Friday. 

Having clocked growth each year since it shed communism a quarter century ago, Poland has long been regarded as Central Europe's powerhouse.  

That reputation was bolstered by sound fiscal management that saw debt remain low.

Standard and Poor warned that the PiS's interventionism and plans for generous welfare spending would likely bring "some reversals in Poland's sound macroeconomic management".

"There is potential for further erosion of the independence, credibility, and effectiveness of key institutions, especially the National Bank of Poland (NBP)."

There are two more ratings levels before Poland would lose investment grade, which usually leads to increased borrowing costs for governments as many investment funds are only allowed to buy debt with investment-grade ratings.

Poland's zloty currency tumbled to 4.10 against the dollar after the Standard and Poor's downgrade, its lowest level since 2003.

It also slid to 4.49 against the euro, a rate last seen in 2012. 

The rating downgrade comes a day after the European Union launched an unprecedented probe into the PiS government's controversial legal changes to see if they violate EU democracy rules and merit punitive measures.