Poland Plans Budget Deficit Drop in 2014 After Pension Revamp

Poland’s government approved the 2014 draft budget, which envisages the deficit narrowing after a revamp of the country’s privately managed pension funds.

The gap will drop to 47.7 billion zloty ($14.7 billion) from 51.6 billion zloty estimated for this year, the government said today after a two-day meeting. Revenue will reach 276.5 billion zloty, while spending will be 324.2 billion zloty, it said.

Poland will take over and cancel state debt held by pension funds and make future contributions “voluntary,” Prime Minister Donald Tusk said this week. The government, which trails in polls before 2015 elections, wants to spur recovery in the European Union’s largest eastern economy with this year’s growth forecast at the weakest pace since at least 1997.

“It’s a cautious budget,” Tusk told reporters in Warsaw today. “Hence we will avoid any negative surprises and maintain our reputation with financial markets.”

The economic slowdown forced the government last month to widen the this year’s budget shortfall by 45 percent to 51.6 billion zloty and suspend limits on increases in public debt, a move Fitch Ratings said “reduced fiscal credibility.” Next year’s draft budget assumes economic growth will recover to 2.5 percent from 1.5 percent projected for 2013.

To trim public debt and allow higher spending, the government said this week that it will assume control of 51.5 percent of pension-fund assets, including bonds, stopping short of fully nationalizing the system.

Borrowing Costs

The revamp will allow government to lower borrowing costs and reduce subsidies for state’s social security system next year, Finance Minister Jacek Rostowski said today. The estimated total savings will amount to about 9 billion zloty, including 4.8 billion zloty in lower debt costs and a reduction in social-security subsidies of about 4.5 billion zloty, according to Finance Ministry Chief Economist Ludwik Kotecki.

The changes, which are due to take effect in mid-2014, will reduce the ratio of public debt to economic output by 0.5 percentage point, Kotecki said yesterday at an earlier briefing.

The social-security system will also gradually absorb pension-fund assets for people due to retire in the 10 years prior to reaching the official pension age. That will amount to 4.4 billion zloty in 2014 and 2.3 billion zloty in 2015, Deputy Finance Minister Wojciech Kowalczyk said today.

To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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