The Polish government’s acute conflict with President Andrzej Duda has created risks to the government’s effectiveness that can hit Poland’s fiscal consolidation efforts, delay receipt of EU funds, and adversely affect market sentiment, Fitch Ratings said on February 5.

The new government, led by Prime Minister Donald Tusk, took office in mid-December going head-on against Duda, an ally of the ex-ruling Law and Justice (PiS) party, almost from day one.

“Flashpoints have included reform of Poland’s state-owned media, the jailing of two PIS members of parliament subsequently pardoned by the president, and the dismissal of the head of the National Prosecutors Office,” Fitch noted.

All those moves by the government met with opposition from the president, who called them illegal.

“The level and frequency of confrontation has exceeded our expectations and is starting to affect policy implementation,” Fitch said.

The biggest question mark currently hangs over the budget bill for 2024, which the president signed off in late January but which he also referred to the Constitutional Tribunal for review.

“The tribunal may lean towards the president’s view that legislation passed in the absence of the jailed PIS MPs is invalid,” Fitch said.

The Constitutional Tribunal was the first institution overhauled by PiS soon after taking over in power in 2015.

If it rules that legislation is thus invalid, that would put Poland in uncharted waters since no budget bill in history of the Polish democracy post-1989 was disputed on constitutional grounds.

The Tusk government considers the Constitutional Tribunal illegal and is expected to push carry an overhaul of it in the coming weeks and months as part of restoring rule of law, a major campaign pledge.

Duda also said he will seek to derail future legislation unless the two ex-MPs – who are incumbent lawmakers, according to the president – are reinstated to work in the parliament as normal. The government says that their conviction automatically stripped them of their MP status.

In an extreme scenario, the undermining of the budget bill or otherwise the government’s inability to push legislation past Duda could lead to new elections.

"We think this scenario is unlikely and would not anticipate a materially different result, but another election campaign would further complicate prospects for fiscal consolidation and delay progress on meeting the milestones necessary for EU Recovery and Resilience Fund (RRF) disbursements,” Fitch said.

Regardless of a potential general election, Poland is facing as many as three election campaigns by mid-2025, with local elections in April, the EU election in June, and the presidential vote in May next year. Prolonged political tensions that will accompany those campaigns may “weigh on market sentiment, which has been resilient to political developments since December”, according to Fitch.

The government may also be hard-pressed to delay the strengthening of its fiscal stance until the political situation quietens.

Poland’s fiscal stance has “weakened in recent years and while the new government has pledged to reduce the deficit, it is committed to additional defence and social spending and has not set out medium-term fiscal priorities,” according to Fitch.

There also is uncertainty about the pace of monetary easing by the National Bank of Poland (NBP) and the interaction of fiscal and monetary policy to support inflation-targeting efforts. 

“Tusk was highly critical of the NBP governor during the election campaign, and the new government’s attempts to make him appear before a special tribunal have further fuelled public debate around the NBP’s independence,” Fitch said.