• Foreign-capital dependence boosted imbalances, deputy PM says
  • Government mulls incentives so companies invest their savings

Poland’s economic development is too dependent on foreign financing and the country needs to harness domestic savings to bolster investment, according to Deputy Prime Minister and Development Minister Mateusz Morawiecki.

“Our economic growth model put us in a trap,” said Morawiecki, a former chief executive officer of Bank Zachodni WBK SA, the nation’s third-largest bank owned by Spain’s Banco Santander SA. “We have deepened our dependence on foreign financing over the past 25 years.”

The new cabinet, which won October’s elections on pledges to boost the government’s role in the $550 billion economy and champion national interests, doesn’t want to “scare” foreign investors, but invite those who offer new technologies, Morawiecki said. It will also prepare incentives to encourage local, mostly small- and medium-sized companies to spend their 250 billion zloty ($63 billion) in savings on investments, he said.

The ruling Law & Justice party plans to tax the mostly foreign-owned bank and supermarket industries to raise money for its welfare programs. Its promises of more government spending mixed with an appeal to national pride lured voters left behind by Poland’s economic growth. Gross domestic product is set to expand 3.5 percent this year and is the fastest growing in the European Union since the 2008 global credit crisis.

Lacking ‘Pride’

Investors have responded to the ruling party’s economic agenda by selling Polish assets. The nation’s currency fell to an 11-month low against the euro this week, while the yield on its benchmark 10-year bond rose to a five-month high of 3.11 percent on Friday. Warsaw’s WIG20 stock index fell to a six-year low this week.

Poland’s post-1989 growth model, based in part on modernizing its economy by selling state-industries to private investors, has ran its course and the government is right to push for more innovation, according to Piotr Bartkiewicz, an economist at MBank SA in Warsaw.

“Nevertheless, regarding the presence of long-term foreign capital as an addiction is a bit over the top,” Bartkiewicz said on Friday. “Poland may again start to be regarded as a classic emerging market, where investors must take into account more unorthodox policy approaches.”

Successive Polish governments over the past quarter century have lacked “attachment to and the pride in Polish capital,” according to Morawiecki. As a result, the country’s net international investment position, or the difference between its total external liabilities and assets, has ballooned.

Dividend Flows

Such a shortfall will take another 25 years to unwind with some 90 billion zloty in capital per year seeping out of the country, including dividends for foreign investors, he said.

Morawiecki’s former employer, Bank Zachodni WBK, paid out 3.39 billion zloty from its profits as dividend during his 2007-2014 tenure at its helm. Its foreign owner Santander, as well as earlier majority shareholder Allied Irish Banks Plc, received more than 2.2 billion zloty of that sum, according to Bloomberg calculations. Monika Nowakowska, the bank’s spokeswoman, declined to comment on the company’s dividends.

Poland’s negative net international investment position has grown to 68 percent of economic output at the end of 2014 from 41 percent a decade earlier, according to Eurostat data. The country’s external imbalance is an obstacle to improving the sovereign’s credit rating, Moody’s Investors Service said last year. The company has held Poland at A2, or five levels above non-investment grade, since 2002.

“We need more Polish economy in Poland’s economy,” Morawiecki said.

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