Polish external debt increasing



Poland’s external financing needs are much smaller than previously thought, according to a new study by the country’s central bank. Polish total external debt due in 2009 amounts to almost EUR 64 billion, of which more than half is liabilities to foreign parent companies of Polish firms, according to the National Bank of Poland. A high portion of the debt is due from parent-companies and international financial organizations, likely for roll-over, the central bank says to launch its defence of the Polish debt position. That sum - subject to roll-over by parent firms and international financial institutions - stands at EUR 36.1 billion, 56.5% of the total external debt to be repaid in 2009. Poland’s budget recorded a deficit of PLN 15.34 billion at end-April versus a budgeted annual deficit of PLN 18.2 billion, the Finance Ministry announced.



Analysis and forecast (↑ increasing risk)


Despite the last data, Poland has no current plans for raising the budget deficit above the planned level of PLN 18.2 billion. The Polish government is trying to avoid this step and still hopes that the crisis will be over by the end of current year, and the new economic growth will stabilise its economy. Despite very strong fundamentals, Poland’s economy is now facing the risk of spillovers from the global crisis through both the real and financial sector channels. Exports have contracted and economic activity has slowed in early 2009, reflecting a deep recession in its main trading partners. A sharp slowdown in credit growth is underway as banks have begun to tighten credit criteria.

Even if the slowdown is deeper than previously expected, the authorities – at least in rhetoric – remain committed to the 2009 state budget, primarily by cutting expenditure at the state level. They reaffirmed their full commitment to strengthen the medium-term fiscal framework to maintain a sustainable path for public debt. Although, by the next elections a deeper cut in the state expenses and beginning of reforms are not expected (the new IMF loan can help the government to fill its term without austerity measures) as the government will not risk a huge popularity loss – but the price can be a higher deficit than is projected by the authorities.



Source: National Bank of Poland



US Patriot missile unit strengthen Poland’s political position in the EU



A US Patriot missile unit supported by 100 soldiers will be deployed in Poland by the year-end under a bilateral security pact in spite of strong objections from Russia. Warsaw says the move will go ahead whether or not Barack Obama, US president, proceeds with plans to base elements of a proposed anti-missile shield in Eastern Europe, including long-range interceptor missiles in Poland and a radar station in the Czech Republic. This will be the first time US soldiers are stationed in Poland, other than those who come under NATO control, on exercises for example. Warsaw first asked for the Patriot unit after Moscow condemned the missile shield plans as a threat to Russia, even though Washington insisted that the target would be strategic missiles from rogue states, notably Iran. Initially, the unit would have visited Poland only once a quarter, before being permanently based near Warsaw from 2012. But later a completion of original agreement was made, which was been followed by a deployment of 100-110 US soldiers and 196 missiles by the year-end.



Analysis and forecast (↑ increasing risk)


The missile deployment may not only affect relations between Poland and Russia but will also affect the political and economic relations between Brussels and Moscow. In principle the deployment was agreed last year during the Georgia crisis, which aggravated fears about the threat of a possible new Russian aggression in Eastern Europe.

Russia still has a controversial relationship with Warsaw mainly due to the “Kaczynsky twins” times. The only guarantee of political normalisation is Barack Obama’s new approach to Moscow which satisfies both Polish and Russian deployment and security interests. The other consequence is that this new agreement could make Russia’s energy positions in Europe even stronger. Poland is now in an advantageous position. Warsaw is covered by USA, will have a normalized relation with Moscow, and will be in a stronger political position in the EU.