Poland’s crisis ‘may impair’ investment

Battle over constitutional court heightens political risk: Moody’s

A battle over Poland’s constitutional court has heightened political risk in the central European economic heavyweight and “may impair” foreign investment, global ratings agency Moody’s warned Monday.

It also said that net inflows of foreign investment have declined in recent months, while outflows have sharply increased.

“Constitutional crisis heightens political risk and may impair investment climate, a credit negative,” a Moody’s statement said.

The ratings agency said net portfolio inflows have progressively declined in recent months and in January Poland registered a net portfolio outflow of $3.1 billion, which was the second largest reading in the last 10 years, ranking second only to the outflow registered in October 2008 after the collapse of Lehman Brothers bank, which triggered a global financial crisis.

The drop in portfolio investments could pose a problem if it continues.

“Poland relies to a significant extent on foreign investment, particularly on inward portfolio flows,” said Moody’s, adding that last year “external debt was at 68.9 percent of GDP.”

Since taking office in November 2015, Poland’s right-wing populist Law and Justice (PiS) government has pushed through several pieces of controversial legislation, including institutional changes to the country’s constitutional court and public media.

Critics insist the moves that have tightened the PiS’s grip on power violate the constitution.

The European Commission has responded by launching an unprecedented probe into whether the changes violate EU democracy rules and merit punitive measures.

Moody’s also warned in February that a controversial PiS bid to convert foreign currency mortgages, mostly denominated in Swiss francs, into the local zloty currency, would be “credit negative” and hurt the domestic banking sector’s “ability to lend and absorb future shocks”.

The PiS moves prompted the first-ever downgrade by global ratings agency Standard and Poor’s in January.

Having enjoyed steady economic expansion since it shed communism in 1989, the EU member of 38 million people expects to see its economy grow by up to 3.8 percent this year following a 3.5 percent advance in 2015.