Poland to Keep Public Debt Below 2011 Target on Pension Cuts, Kotecki Says

Poland will keep 2011 public debt below the level forecast in the government’s four-year financial plan as it reduces contributions to private pension funds, said Deputy Finance Minister Ludwik Kotecki.

The government in August said public debt would be 54.4 percent of gross domestic product this year, less than the 55 percent threshold that would trigger mandatory spending cuts. Debt was about 53.5 percent of GDP last year, the Finance Ministry said Dec. 31.

The government plans to update its financial plan in March, including new targets for the budget deficit and debt, based on 2010 economic data and changes in the pension system, Kotecki said Jan. 7 during an interview in Warsaw. Poland on April 1 will reduce cash transfers to private pension funds to 2.3 percent of each worker’s pay from 7.3 percent, keeping the remainder in accounts managed by the social insurance fund.

“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.”

Following the pension changes, Poland’s general government deficit will narrow to about 6 percent of GDP this year, from 7.9 percent in 2010, Kotecki said. Borrowing needs will be reduced by 10 billion to 12 billion zloty ($4 billion), he said.

“The changes will allow us to improve the long-term financial stability of Poland,” Kotecki said.

Since 1999, the state has transferred 211 billion zloty of employee contributions to private funds, the equivalent of a third of public debt.

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.

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

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

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