OREANDA-NEWS. The Law and Justice (PIS) party's outright majority in Poland's general election will give it leeway to implement new policies, including some relaxation in fiscal policy and unorthodox economic measures, Fitch Ratings says. Poland's strong fundamentals, including its macroeconomic performance and relatively resilient banking system, mean it probably has the rating headroom to absorb the expected change in economic policy.

However an increase in government debt coupled with deterioration in the outlook for GDP growth could put pressure on its A-/Stable rating.

Spending pledges by the PIS, including on increased social spending, higher income-tax allowances and stronger defence spending, will be only partially funded by stronger tax compliance (VAT and excise) and new taxes on specific sectors. The deterioration in the government deficit should however be limited by Poland's institutional framework, including the domestic debt and stable expenditure rules and compliance with European Union debt and deficit criteria. Poland exited the Excessive Deficit Procedure in June 2015 and we expect the deficit to remain below 3% of GDP in the medium term.

Based on pre-elections announcements by PIS officials, we expect the implementation of unorthodox economic policy. The focus of monetary policy could change towards more emphasis on economic growth, including the launch of a PLN350bn subsidised lending programme by the central bank. The upcoming replacement of eight monetary policy council members in early 2016 and the appointment of a new governor in June should ensure PIS' ideas prevail at the central bank. New taxes could also be levied on specific sectors including supermarkets, banks and foreign companies.

Banks could be most exposed. A potential new 0.39% tax on banks' assets could cost the equivalent of almost 40% of 2015 annualised banking sector profit, limiting Polish banks' ability to build up capital and potentially reducing credit supply.

A potential scheme to convert existing Swiss franc loans into local currency poses a significant risk to the sector's profitability as they represent 15% of total system loans. Pre-election rhetoric suggests that PIS might adopt a hard line over both the scope of the programme and the share of losses taken up by the banks.

Given Poland's rating strength, including a strong macro-economic performance, a government debt close to the median of rating peers and a relatively resilient banking sector, the change in the policy stance should not have an impact on the sovereign ratings. This is reflected in the Stable Outlook. However, a significant relaxation in the fiscal stance, leading to an increase in government debt, coupled with deterioration in the economic growth performance, could lead to rating pressure.

PIS won an outright majority with 235 out of 460 seats at the general election held on October 25, having been in opposition for the last eight years. This is the first time a party will have a majority in Parliament since the 1989 democratic transition. PIS also won a majority in the Senate with 61 out of 100 seats, meaning it will control both the lower and upper house. The party had already won the presidential election in May 2015.