Poland Keeps Eyes Fixed on 1% Budget-Gap Goal, Rozkrut Says

Poland is focused on trimming its budget deficit to 1 percent of gross domestic product in 2015, Marek Rozkrut, director of the Finance Ministry’s Analysis and Statistical Department in Warsaw, said in a March 2 interview.

Following are excerpts of his comments.

On deficit reduction:

“The new Convergence Program will outline a path for reducing the budget deficit set to the medium-term target of 1 percent of GDP in 2015. All actions will be subordinated to this goal. It will be important to demonstrate that deficit reduction is sustainable, which is one of the conditions for lifting the excessive-deficit procedure. It will also eliminate the risk of Poland losing access to EU cohesion funds, which has been an important element in financing our economic growth. Keep in mind that the risk of EU punishment and the levying of a financial penalty against a country breaching fiscal-discipline rules is much higher than in the past.”

On sovereign-debt ratings:

“A positive evaluation of the Convergence Program, backed up by data showing we’re making progress on fiscal consolidation, will reinforce our chances for improving perceptions of Poland’s creditworthiness. One can’t rule out that at least our ratings outlook may be upgraded this year.”

On budget deficit, debt:

“We’re sticking to our estimate that the general government deficit was 5.6 percent in 2011. Lower estimates by some analysts probably include the 6.2 billion zloty net income from the Polish central bank that was paid into the budget. EU methodology excludes these funds from revenue and they can’t be used to reduce the deficit, because that would force the central bank to report an operational loss. The general government deficit would be lower by 0.4 percentage point if we included the transfer of central bank profit, but EU accounting standards rule out this possibility.

“Poland will be one of the few EU countries in 2012 to report a decline in public debt, and this tendency will continue in coming years.”

On economic growth:

“Our 2.5 percent growth forecast for this year definitely isn’t optimistic. You can see this from the latest economic data, which have been better than expected, and by the upward revisions in GDP forecasts by commercial banks and international institutions. Tax receipts for January and February show that corporate earnings are strong.

“GDP growth of 4.3 percent in the fourth quarter shows that the Polish economy is more resilient than many institutions and analysts had expected. One could say Poland is coping really well with slower growth among our trading partners, provided this slowdown is temporary.

“The downward revision of the European Commission’s economic growth forecasts for the EU was a negative signal, because we can’t sustain a fast expansion regardless of the external situation. On the other hand, Poland was one of only three countries whose growth forecasts weren’t cut. That means the Commission shares the view that our economy is resistant to external shocks. What’s very important is that the indicators don’t point to a strengthening of negative trends but to the start of a recovery in the euro area, even if we have to wait for it until the second half of the year. In this scenario, Poland would weather the EU slowdown relatively easily.”

On GDP revisions:

“In GDP forecasting, the structure of growth is just as important as the rate. We should be ready for a possible revision in the 2011 data the Central Statistical Office prepares the spring fiscal notification for the EU.

“We’ll unveil a new GDP forecast in the revised Convergence Program, which will be ready in April. Our macroeconomic assumptions for the 2013 budget will probably be based on this forecast.”

On exports:

“The acceleration of exports in the fourth quarter exceeded our expectations and shows that our foreign trade is very resistant to the slowdown in the European Union. This strong performance is due to the price competitiveness of our exporters, based on rising productivity, falling labor costs and the earlier depreciation of the zloty.”

On investment growth:

“Recent data show a strong recovery in private investment, which we estimate grew by 9 percent in real terms last year. Public investments also grew in 2011, reaching a record high for Poland as a percentage of GDP and also the highest level in the EU. The European Commission forecasts that Poland will lead the EU in public investments again in 2012 and 2013.”

On consumption:

“We do see slower growth of private consumption. Consumer spending is being curbed by slow wage increases and a relatively high inflation rate. The situation on the labor market doesn’t suggest there’ll be a big rebound in wages. The biggest risk factor for economic growth in Poland is a further slowdown in consumption. The chances of this happening increase with every deterioration in the condition of our major trading partners, which affects Polish exports, output, employment and wages and could ultimately curb household consumption.

“The GDP data also show that public consumption fell in 2011 for the first time ever. We’d been predicting a small increase of less than 1 percent. This year, according to our estimate, public consumption growth should be close to zero. This two-year period represents an unprecedented fiscal consolidation in our country.”

On inflation:

“Domestic demand isn’t exerting any significant inflation pressure. Commodity price increases and zloty depreciation, which has a delayed impact on prices, are the main contributors to above-target inflation. They are also the main source for uncertainty about inflation in coming months. We’re expecting inflation to slow significantly in March and there’s a chance it will drop below the top end of the central bank’s tolerance range in the first half of the year. We’ll need to wait until the second half of the year for a sustained reduction of the inflation rate to the 1.5 percent-3.5 percent tolerance range.”

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