Markets respond favorably to results, but a number of potential hurdles remain
The Law and Justice (PiS) party has no clear route to form a governing majority in parliament, and multinationals should expect policy changes under a new government in the year ahead. Most of these are likely to be positive for business, with potential wage increases and lower-end tax cuts likely to increase consumer confidence and disposable income, but executives should ensure public affairs teams are following negotiations closely to understand the exact policy program adopted by any coalition. There is likely to be some turnover of top-level personnel in government-appointed roles under a KO-led government, and multinationals in the B2G space should ensure that they have built strong connections with less-exposed senior managers and are positioned to develop strong working relationships with new top-level appointees. Executives should also note that there are several potential hurdles to government formation in the short term and policymaking in the medium term while the government cohabits with the current president, and we note that these may bring about periodically increased volatility in the markets, which have nonetheless reacted positively to the news overall.
- Results confirm that the PiS has emerged as the winning party, with 35.4% of the vote. Civic Coalition (KO) took 30.7%, Third Way (TD) 14.4%, the New Left (NL) 8.6% and the Confederation 7.2%. This translates into seats as follows: PiS 194, KO 157, TD 65, NL 26, and Confederation 18.
- Having won a plurality of the votes, the PiS is likely to be given the first attempt to form a governing coalition, which its leaders have said it will try to do, but the party lacks an obvious path to a majority. If it fails, the KO will have its own opportunity, but the PiS could drag government formation out for several weeks if it chooses.
- Constitutionally, the president must call a new parliament to session within 30 days of the election. A candidate for prime minister must then be named within two weeks from the start of the session, and that candidate has two weeks to win a confidence vote. Parliament will choose a preferred candidate for PM if the president’s choice cannot secure enough votes to win the confidence of the Sejm.
- The PiS government’s referendum questions held alongside the legislative elections failed to reach minimum turnout levels despite record numbers voting in the parliamentary polls. Results of the referendum will not, therefore, be binding.
We expect the next government of Poland to be formed by the KO, NL, and TD, most likely with Donald Tusk as PM, in the coming weeks. PiS-aligned President Andrzej Duda could stall the formation of a government for up to two months, however, giving the PiS an opportunity to cajole a coalition. If this were attempted, the KO-led opposition would likely try to strike a coalition agreement and apply pressure as a government-in-waiting. We expect the new KO-led coalition government to improve relations with the EU and prioritize unlocking funding, which has remained on hold over rule-of-law issues, but we also note that cohabitation with President Duda and a politicized judicial system will present ongoing obstacles to the government’s ability to implement policy in the first part of its term, with presidential elections not currently scheduled until 2025. The coalition will not have the votes to overturn a presidential veto and will require compromise and political skill to negotiate key priorities, including on the issue of EU funding negotiations, which could still be subject to interference from the president or the courts. We do, however, expect the European Commission to be inclined to take a more accommodating line with a Tusk government.
Polish stocks and the zloty both strengthened on the back of exit polls, with upside for the markets as most analysts had generally slightly favored the PiS’s chances coming into the election. While we believe that the result is likely to prove positive for PLN and the markets in the medium-to-long run, we note that there remains the potential for some short-run instability in the coming months for coalition negotiations and subsequently as the new government begins to implement its program. Members of the likely government have pledged to clear out a number of PiS appointees from high-ranking roles, which is likely to include Central Bank Governor Adam Glapinski and high-ranking executives at state-owned enterprises, including the oil company Orlen. The new government will also have to decide to what extent it will pursue prosecutions against PiS leadership and associates whom the party has accused of abuses of office, something which could inflame the political polarization that is already running high in the country.
The PiS remains a powerful force in Poland and is likely to prove a vocal and troublesome opposition, which should be expected to try to exploit ideological differences between the parties of the likely next government. While we expect any KO-led coalition to be strongly motivated by the desire to keep the PiS out of office, divides over issues such as abortion rights could prove controversial, and periods of political instability over core policy differences may arise before the end of the upcoming parliamentary term.
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