The government presented its plan to tackle the budget deficit and soaring government debt at the beginning of February. The convergence plan would raise the retirement age for both women and men to 67, cap increases in discretionary spending at 1% and speed up privatization.

 

The plan contains two scenarios: The optimistic one sees Polish GDP rising 3% this year, beating the estimated 1.2% growth foreseen in the budget. GDP will then increase 4.5% in 2011 and 4.2% in 2012. Should this materialize, the cabinet would be able to bring down the budget deficit – estimated at 7.2% of GDP for 2009 – to 6.9% of in 2010, 5.9% in 2011 and 2.9% in 2012. Poland would thus get its budget deficit below the 3% limit mandated by the Maastricht treaty for joining the Eurozone. State indebtedness would remain below the constitutionally mandated threshold of 55% of GDP.

 

The pessimistic scenario sees GDP growth at 2.7% this year, 3.7% in 2011 and 3.5% in 2012. Should events follow this scenario, the budget deficit would only fall below 3% in 2013. There was a brief delay in adopting the convergence plan because the junior coalition partner, the Polish People's Party (PSL) objected to a proposal to include the wealthiest farmers in the national pension system. The disagreements were ironed out, although no details on the nature of the compromise leaked out.

 

 

 

 

Analysis and Forecast: Decreasing Risk

 

The markets have been waiting for an updated convergence plan for a while now. Although some observers consider it to be too optimistic, at least the government has finally made commitments to which it can be held accountable. A cheerful mood permeated the announcement, with officials virtually competing with each other on who could sound most upbeat. For example, National Bank of Poland (NBP) Vice President Zbigniew Hockuba said GDP grew at least 2% in the fourth quarter of 2009, but added that future revisions could show that the increase was 2.5%, or even 3%.

 

Every indicator suggests that Poland’s economy will have a modestly successful year, but the state of government finances continue propose a major problem. 2009 has already demonstrated that it is extremely hard to count on proceeds from privatization since deals can fall through in the last minute, as happened with the sale of the Warsaw Stock Exchange. Unemployment also poses a major challenge: Joblessness jumped to a whopping 12.8% in January. However, employment is expected to improve in the second part of the year. The jobs situation may be helped by the fact that Poland’s state auditor issued a highly critical report on the country’s preparations for hosting the Euro 2012 football championships, prompting organizers to redouble their efforts.

 

The government acknowledges that there is a large degree of uncertainty in all this. The convergence plan sets no target date for Poland’s entry into the Eurozone.