Poland Aims to Reduce Central Deficit by Almost 20% Next Year

Poland’s government approved a draft budget that would cut the budget deficit by a fifth next year, helping to keep public debt below 55 percent of gross domestic product and avoiding mandatory spending cuts.

The cabinet gave its preliminary backing to the budget today in Warsaw, the government press office said in an e-mailed statement. The draft bill caps the central government deficit at 40.2 billion zloty ($13.2 billion), Labor Minister Jolanta Fedak was quoted as saying by PAP newswire. That’s almost 5 billion zloty less than in a four-year fiscal plan approved Aug. 6 and 8 billion zloty less than the latest forecast for 2010.

The budget seeks to squeeze more savings from cash management than previously forecast and anticipates record dividends from state companies as the government avoids spending cuts. It adopts the four-year plan’s forecast for 3.5 percent economic growth this year and an inflation rate of 2.3 percent.

“While the scale of fiscal adjustment seems disappointing, the government should be able to achieve its most important goal, which is keeping public debt below 55 percent of GDP in 2010 and 2011,” said Piotr Kalisz, chief economist at Citigroup Inc. in Warsaw.

No Market ‘Impatience’

This year’s deficit was budgeted at 52.2 billion zloty, and officials suggested in recent months that the final figure would be about 10 billion zloty less than that. The 48 billion zloty shortfall in the draft budget shows “the government isn’t determined to balance declining revenue by significant cuts in spending,” Kalisz said.

“One should not be surprised by that since financial markets haven’t expressed even the slightest signal of impatience with the budget situation in Poland,” he said.

The zloty traded at 3.933 per euro at 8:40 p.m. in Warsaw, 1.7 percent stronger than a month ago. The yield on the government’s two-year bond fell to 4.77 percent from 4.81 percent in the same period.

The government plans to raise 15 billion zloty from asset sales next year, 10 billion zloty less than this year, according to the draft. Dividends from state companies are forecast at 9.2 billion zloty, 5 billion zloty more than this year.

The spending plan counts on 20 billion zloty of savings from cash management next year, almost 4 billion zloty more than forecast a month ago. The government has said it wants to make more efficient use of the 80 billion zloty public agencies keep on account, reducing borrowing needs.

Deficit Target

“To assess all the assumptions, the most important is the deficit of the whole public finance sector,” including municipalities, which the government hasn’t published, said Maciej Reluga, chief economist at Bank Zachodni WBK.

Poland is required to bring the deficit in line with the European Union limit of 3 percent of GDP by 2012 after it widened to 7.1 percent last year as economic growth slowed to 1.8 percent, the lowest in almost a decade. The shortfall may be around 6 percent of GDP in 2011, according to comments from six economists surveyed by Bloomberg News.

After preliminary approval, the draft budget will go to unions and employer organizations for review. After final approval by the cabinet, it will be sent to parliament by the end of this month. The law doesn’t allow parliament to change the proposed deficit.

To contact the reporter on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net

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