Global ratings agency Moody’s warned Thursday (25 August) that an escalating constitutional crisis in Poland is threatening to hurt investment in the EU’s largest eastern economy and could affect its credit rating.
Moody’s pointed to a probe launched by prosecutors last week against the Constitutional Court’s chief justice and the refusal of the right-wing Law and Justice (PiS) government to recognise the top court’s rulings.
“This is credit negative for Poland because it escalates a constitutional crisis that began late last year and will likely increase tensions with the European Union, with a higher risk of further impairing Poland’s investment climate,” Moody’s said in a statement.
The constitutional “crisis already appears to have left its mark” Moody’s said, noting that “real investment contracted by 2.2 percent” in the first quarter of 2016 compared to 2015.
“Although we expect private consumption to support real growth of 3.0 to 3.5 percent this year, the impaired investment climate threatens to reduce growth,” it added.
In May, Moody’s cut Poland’s outlook from stable to negative over “fiscal risks” posed by the PiS government, but left its A2 investment grade unchanged.
The change was Moody’s first such move in over a decade and came after a deeper ratings cut in January by Standard and Poor’s, which blamed the PiS government for “weakening institutions”.
The European Commission has given Warsaw until the end of October to reverse its reforms to the Constitutional Court or face sanctions.
The Commission’s ultimatum, issued in July, could eventually see Warsaw’s voting rights suspended in the Council of Ministers, the EU’s highest decision making body.
The Commission is demanding that the Constitutional Court’s rulings are published and implemented normally.
PiS party leader Jaroslaw Kaczynski has lashed out at the EU disciplinary process, accusing the European Commission of acting illegally.