Polish Budget Deficit Below Plan, Rostowski Says

(Corrects year of budget deficit in first paragraph.)

Poland’s 2010 budget deficit beat government forecasts, which should ensure debt won’t increase as a percentage of economic output this year and will start declining in 2012, Finance Minister Jacek Rostowski said.

The shortfall was “slightly” less than 45 billion zloty ($14.8 billion), compared with 48.3 billion zloty in the amended budget, Rostowski said today in Warsaw, citing preliminary estimates. Last year’s performance also bolsters the outlook for the public finance deficit, now more than double the European Union limit of 3 percent of gross domestic product, he said.

“We are still forecasting the 2010 deficit at 7.9 percent of GDP, and these data would seem to confirm that forecast,” Rostowski said at a news conference. “Our goal is still to bring the general government deficit below 3 percent by 2012.”

Poland’s general government deficit has more than quadrupled as a percentage of GDP since 2007, even as the country was the only European Union economy to avoid recession during the credit crisis. Last year’s shortfall was the seventh- largest in the 27-country bloc, according to European Commission forecasts published Nov. 29.

Faster economic growth and savings measures enacted to date, including reduced transfers to privately managed pension funds, will narrow the deficit by “almost one-third” this year and by “almost half” in 2012 from last year’s level, Rostowski said. This fiscal consolidation may be accelerated by further steps, he said.

Zloty Weakens

The zloty weakened after Rostowski’s comments, trading at 3.9076 per euro at 2:08 p.m. in Warsaw, down 0.6 percent on the day. The yield on the 10-year Treasury bond rose to 6.24 percent from 6.19 percent on Jan. 7.

Poland anticipates “only a positive reaction” from investors to the government’s decision to reduce private pension transfers by more than two-thirds to curb the budget deficit, Rostowski said.

Hungary’s credit rating was cut to the lowest investment grade by Fitch Ratings and the forint weakened after Prime Minister Viktor Orban’s government brought private pension funds under state control.

“Unlike Hungary, we aren’t touching assets that are already in pension funds,” Rostowski said. “We’re changing the allocation of new pension contributions, which is a completely different situation.”

Debt Breakthrough

The plan to reduce payments to private pension funds is a “breakthrough” that will let the government keep public debt below the level forecast for this year, Deputy Finance Minister Ludwik Kotecki said in an interview on Jan. 7.

The government’s four-year financial plan, published in August, estimated public debt would be 54.4 percent of GDP at the end of 2011, less than the 55 percent threshold that triggers mandatory spending cuts. Debt was 53.5 percent last year, the Finance Ministry said Dec. 31.

“Finally, we are getting to work on a very strong debt reduction program and limiting the risk of exceeding the 55 percent threshold,” Kotecki said. ‘The decision on pension transfer cuts is a breakthrough for Poland’s debt.’’

--Piotr Skolimowski and Katya Andrusz in Warsaw also contributed to this report. Editors: Willy Morris

To contact the reporter on this story: David McQuaid in Warsaw at dmcquaid1@bloomberg.net

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

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