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Poland faces greater reform uncertainty under minority PiS government even as the economy rebounds

Poland will be among countries leading the economic recovery in central and eastern Europe this year, but the government’s loss of a parliamentary majority diminishes prospects for reform and fiscal consolidation.

We expect Poland’s economy to by grow 5.6% in 2021 – revised up from Scope’s 4.9% forecast in June (see Figure 1) – with output having reached pre-crisis levels by the second quarter. The pace of economic expansion will slow next year, however, to a nonetheless still robust 4.6%.

Consensus reflects the Focus Economics consensus reports. Source: Focus Economics, IMFWEO, European Commission, Scope Ratings GmbH.

But the governing Law and Justice (PiS) party’s loss of one of its junior coalition partners represents an increase in policy uncertainty, not least by raising the likelihood of early elections before an autumn 2023 deadline.


Institutional erosion has increased political instability and tested Poland’s institutional relationships

PiS’s loss of its former slim majority in the lower house (Sejm) shows the consequences of institutional erosion in Poland over recent years. The recent bill introduced in Parliament seeking to bar companies outside the European Economic Area from holding majority stakes in Polish media firms has resulted in present political instability while potentially further testing Poland’s institutional relationship with the EU and the United States.

The bill under question is widely seen as a manner to compel US media group Discovery into selling a controlling stake in TVN, Poland’s main independent broadcaster, which has been critical of the government. At this stage, it remains unclear whether this bill will ultimately be signed into law.


A silver lining to Law and Justice losing its governing majority

There is ultimately a silver lining to PiS’s loss of a governing majority. True, it makes the passage of important reforms such as those required for the country’s reception of crucial EU funding more difficult. But it might also lead to a more balanced nearer-term legislative agenda, reducing somewhat risk for further weakening of judicial independence and the free media.

We would expect the government to water down if not give up on some its policy objectives in return for the securing of support of smaller parliamentary groupings and independent MPs to pass legislation. After all, PiS will be eager to put off elections for as long as possible, even if a minority government might in the end be difficult to sustain over a longer period.

In recent weeks, before the loss of its majority in parliament, the government had passed a bill reducing the room for property restitution claims and was forced by the European Court of Justice into an about-face over a disciplinary chamber for Supreme Court judges.


Interested in this article?

The full text is available in the September ’21 issue of Credit Manager Magazine.


Authors of the article:

Levon Kameryan

Analyst for sovereign and public sector ratings at Scope Ratings, specialising in Central and Eastern Europe. Levon graduated with a M.Sc. in International Economics and Public Policy from the University of Mainz in 2016. Levon worked previously as an economist at the Central Bank of Armenia and Deutsche Bank.

Dennis Shen

Macroeconomist and a Director in sovereign ratings with Scope Ratings in Berlin, Germany. Before he joined Scope in 2017, Dennis was a European Economist with Alliance Bernstein in London. Dennis graduated from the MPA in International Development from the London School of Economics in 2013 and completed undergraduate studies at Cornell University.


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