Poland's local currency rating was downgraded on Wednesday by Standard & Poor's because of concerns about the country's high budget deficits and a rapid increase in government debt

Bond traders said they were not surprised, given Poland's economic difficulties. But the downgrade emphasises the challenge facing the largest of the 10 European Union accession countries, and several of its east European neighbours, in aligning their economies with that of the eurozone. S&P cut its rating of Poland's long-term local currency sovereign credit and senior unsecured debt by from A to A minus. The short-term local currency sovereign credit and commercial paper ratings were also cut, from A1 to A2. But it maintained its long-term foreign currency sovereign credit rating, a more important indicator for foreign investors, at BBB plus, though with a "negative" outlook. The government expects its budget deficit to amount to 6.3 per cent of gross domestic product in 2004, falling to 3.7 per cent by 2006. But S&P expects the deficit to reach 8.3 per cent of GDP next year and about 7 per cent in 2005/06.