Poland’s budget deficit and its debt-to-GDP ratio represent the greatest threats

 

  • The economic uptick in older EU member states, especially Germany, may bode well for the Polish economy, but there is little hope that the budget deficit will fall below the Maastricht criteria’s 3% limit anytime soon. Poland’s convergence plan forecasts that the deficit will fall to 6.9% of GDP this year and to 2.9% in 2012. Polish central bank Governor Sławomir Skrzypek sounded doubts about this plan’s feasibility, saying it could take a year or two longer to get the budget shortfall below 3% of GDP. The IMF shares Mr. Skrzypek’s skepticism: In its most recent forecast, the Fund projected a budget deficit of 7.25-7.5% of GDP for 2010 and a 5.75% shortfall in 2012. Andrzej Kazmierczak, a member of the National Bank of Poland’s Monetary Policy Council, has thrown in his lot with the doubters. In an article in the daily Dziennik Gazeta Prawna, Mr. Kazmierczak urged the government to stop wasting time and get to work on the country’s finances. He said tax hikes were unavoidable and should be enacted starting in 2012. He was also much more pessimistic than the Finance Ministry on the budget deficit, backing the IMF’s prediction that the shortfall will rise as high as 7.5% of GDP this year.
  • The economic crisis has had a pronounced negative impact on government debt. 2009 debt is near 55% of GDP – the limit imposed by Poland’s Constitution. Poland’s convergence plan forecasts that the debt will hover around this level in 2010-2012, but will not reach Maastricht’s upper limit of 60% of GDP. The IMF expects the state debt to grow to 62% of GDP by 2014.

(*Forecast in the convergence plan, **Forecast of IMF)

  • The issue of the euro seems to have taken a back seat in the political arena. The opposition Law and Justice (PiS) party, run by the Kaczinsky twins, is pursuing a straightforward Euroskeptic policy, saying it would be against Poland’s interests to give up control over monetary policy. Prime Minister Donald Tusk’s Civic Platform (PO) doesn’t have a clear-cut agenda: Mr. Tusk has affirmed his support for the euro numerous times, but he also says the euro cannot be rushed. In addition, Poles do not feel the need for the common currency: Some 44% would be unhappy to see the euro replace the zloty, according to recent surveys. It is therefore not in Tusk’s interest to bring euro-adoption to the forefront, especially before presidential elections later this year.
  • The government gained an unlikely ally in its effort to stave off the euro. On a recent visit to Warsaw, IMF chief Dominique Strauss-Kahn told newspapers that Poland could afford to postpone adopting the euro since a national currency gives Poland greater flexibility in staving off the effects of the crisis.
  • Earliest entry: Officials still maintain that 2015 is feasible, but 2016 or 2017 is much more realistic.