Poland Warned Policies Will Damage Economy

Polish leaders are warned that populist spending pledges and institutional instability will affect growth.

The skyline of Warsaw, Poland, May 28, 2015
The skyline of Warsaw, Poland, May 28, 2015 (Kamil PorembiƄski)

Poland’s illiberal turn under the nationalist Law and Justice party is starting to damage the country’s economic prospects.

This weekend, the Moody’s ratings agency, which assesses the creditworthiness of states, switched Poland’s outlook to negative, blaming higher deficit spending and unpredictable public policy.

The International Monetary Fund agreed, warning that “downside risks” to the economy — Central Europe’s largest — have “intensified” in recent months.

Moody’s still considers Poland a reasonably safe investment. Its economy is diversified and has kept growing despite the upheavals in the neighboring eurozone. For a decade, it was the best-performing economy in the EU.

But the trend has been going the other way since Law and Justice returned to power last year.


Moody’s is critical of the party’s spending plans.

Rooted in the Catholic and conservative east of Poland, Law and Justice is making good on its election promises to introduce a new child benefit and lower the retirement age. But new taxes on banks and retailers — themselves unkind to growth — are unlikely to fully offset the costs.

The IMF calls the proposed reduction in the pension age a “step in the wrong direction.” It could “increase the risk of old-age poverty and associated higher reliance on social benefits,” the fund warns, “with adverse implications for the budget.”

Poland could even break the European Union’s 3-percent deficit ceiling, something the last government carefully avoided.

Court battle

Moody’s second reason for putting Poland on notice includes the government’s standoff with the constitutional court.

The tribunal was a thorn in the eye of the last right-wing government, from 2005 and 2007, and has been no more accommodating to the incumbent one.

Earlier this year, it threw out a series of reforms Law and Justice rushed through parliament in a late-night sitting in December, mere weeks after winning the election.

The party retaliated by passing legislation that stripped the court of its autonomy and sacking several judges who were appointed by its liberal predecessors.

The IMF is circumspect in its criticism. It cautions, “A weakening of some institutions and policies or fiscal slippages could worsen investor sentiment and hinder economic expansion.”

Alarm bells

Law and Justice’s populist spending pledges and disregard for the rule of law are not even the whole story.

Since it won the election, the party has purged political opponents from government agencies and state-run companies. Lawmakers have threatened to muzzle critical media outlets.

All of this has set off alarm bells in Brussels. The European Commission there launched an unprecedented probe into Poland’s judicial reforms in January.

Standard and Poor’s, one of Moody’s competitors, cut its credit rating for Poland that month.

Many ordinary Poles worry as well. 63 percent recently told a survey that appeared in the Rzeczpospolita newspaper that they feel Polish democracy is in danger.

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