Credit Manager Magazine 3/2023

33 www.creditmanagermagazine.pl MARZEC / MARCH 2023 ANALYSIS To tackle high energy prices, governments have allocated funding to households and firms ranging from more than 9% of GDP for Slovakia to 2%-4% of GDP in the Czech Republic (AA/Negative), Romania, Poland and Hungary. Some governments are likely to keep energy price ceilings and associated budgetary support with some amendments, at least until after forthcoming parliamentary elections in cases of Poland and Slovakia. There is an urgency for CEE governments to invest in alternative energy infrastructure, such as storage facilities, new renewable en- ergy, nuclear generating capacity, and natural gas distribution networks, and to improve cross-border connections. Defence spending is also a priority in the context of the war in Ukraine (CC/Negative). As an example, Po- land plans to raise defence spending to 4% of GDP in 2023 from an estimated 2.4% of GDP in 2022. The sovereign ratings of most CEE-11 coun- tries benefit from moderate outstanding gov- ernment debt stocks (Figure 2), providing the fiscal space for needed investment. However, generalgovernmentdebtratiosinmostcasesare expected to stay flat or continue rising in 2023. Levon Kameryan Associate Director, Scope Ratings Jakob Suwalski Director, Scope Ratings Source: European Parliamentary Research Service, Scope Ratings. Data as of 27 February 2023. Source: IMF World Economic Outlook, Scope Ratings forecasts. Resuming fiscal consolidation in the medi- um term will be crucial to containing fur- ther rises in debt ratios and funding costs. This is especially relevant for countries with other stress factors or sources of uncertainty such as forthcoming elections over 2023-24 (Slovakia, Poland, Bulgaria (BBB+/Stable), Romania) or ensuring a steady inflow of EU funds. The likelihood of success in consoli- dating public finances will prove a key factor determining trajectories of the sovereign rat- ings of such CEE nations. The efficient use of EU funding via national Recovery and Resilience plans (Figure 3) is crucial as it represents off-market financing on favourable terms, which could help fi- nance widened deficits with lesser recourse to foreign-currency borrowing. Furthermore, EU rule-of-law conditionality holds important implications for govern- ment finance outlooks, as it has put the EU in a stronger position to influence its Mem- ber States by cutting or withholding financial support to countries where it sees elevated risks of either EU funds being misused or national policies undermining EU laws and regulations. Significant delays or substantive cuts of EU funds would result in lowered funding for planned investment projects, which would have to be cancelled or funded via own sources. Unresolved disputes around the rule of law cloud the economic and fiscal outlooks of Hungary and Poland and served as a harbin- ger for other CEE countries with compara- tively higher institutional risk, such as Ro- mania and Bulgaria, warning of the possible implications of governance and rule of law backsliding.