Our base case is that a Donald Tusk-led opposition coalition will assume power for at least the coming year. This may improve the prospect for EU funds somewhat. Nevertheless, the risk remains high that only some initial tranches of recovery or other EU funds may be released symbolically. After that, the EC may demand that further policy changes be actually implemented, which may prove time consuming. The coalition government may struggle to achieve internal consensus, survive or implement major changes. If it fails to continue, then PiS could return to power. This heightened uncertainty will likely be reflected via a wider risk premium on the Zloty through 2024-25.

Monetary policy will be a source of uncertainty. A majority of the MPC was nominated by PiS-controlled circles in the last round. The incoming government could launch lengthy probes into these MPC members, which could de-stabilise routine functioning of the central bank. These members will still dominate monetary policy in the medium-term until their terms finish. Still, PiS-nominated MPC members will not have any incentive to support a rival government with rate cuts. Their stance could be unpredictable. Because of such risks, we see the Zloty depreciating gradually over 2024-25.