Poland Seeks Growth With EU Cash, New Finance Chief Says
Poland’s incoming Finance Minister Mateusz Szczurek said he’ll seek to use European Union funds to bolster a nascent recovery, signaling to investors that growth will remain a priority while the cabinet cuts the deficit.
“The time to spend is when growth is disappointing and not when growth and employment recover,” Szczurek, who will take office on Nov. 27, wrote yesterday in an e-mailed response to questions from Bloomberg News. “This was the principle of the policy run by the current finance minister, and I strongly believe it was the right policy.”
Prime Minister Donald Tusk picked the 38-year-old ING Groep NV (INGA) economist as seven ministers were replaced, including Jacek Rostowski, who’d overseen the country’s finances since 2007 and recommended Szczurek for the job. While the new minister will continue to work toward cutting the deficit to within the EU limit, he’ll also focus on making sure EU-funded projects go ahead to boost growth.
Tusk will outline a strategy for his revamped government at tomorrow’s Civic Platform convention in Warsaw in a bid to boost the ruling party’s sagging popularity.
The centerpiece will be 107 billion euros ($144 billion) that Poland is due to receive from the EU’s 2014-2020 budget. The prime minister is counting on these funds to give a “fresh start” to an economy poised to expand at the slowest pace in more than a decade, with a general election due by 2015.
The zloty weakened 0.1 percent to 4.1999 per euro at 3:56 p.m. in Warsaw, declining for a fourth day. The yield on the benchmark 10-year government bond has risen 10 basis points, or 0.11 percentage points, in the past week to 4.43 percent, according to data compiled by Bloomberg.
EU Budget Commissioner Janusz Lewandowski, speaking today on Radio Zet, said Szczurek’s main job is to narrow Poland’s budget deficit to the EU limit in 2015.
“He’s a kind of a fiscal handyman, Tusk is the one in charge,” Lewandowski told the broadcaster.
Szczurek’s appointment came one day after the cabinet approved a draft law allowing the state to take over 51.5 percent of assets, mostly government bonds, held by privately managed pension funds. The transfer will reduce public debt by the equivalent of 9.2 percent of gross domestic product next year, while allowing Poland to register a budget surplus of 4.6 percent of economic output.
The general government budget will then fall back to a deficit of 3.3 percent of GDP in 2015, according to a European Commission forecast. That would breach the commission’s latest recommendation for Poland to cut the shortfall below 3 percent.
“I treat the pension fund changes, allowing for lower debt service costs, as a way to match the cyclical room for higher spending, the new EU financial perspective, with the EU fiscal rules,” Szczurek said.
Szczurek doesn’t expect any “substantial” changes to the pension-fund revamp or next year’s budget bill in parliament. The budget projects economic growth of 2.5 percent next year, a “quite conservative” estimate that leaves “substantial slack” in the economy, according to Szczurek.
“For this reason, I doubt inflation is going to get anywhere near the central bank’s 2.5 percent target,” he said.
The first budget Szczurek will draft comes in 2015, when new spending rules may force the Finance Ministry to curb spending just as EU funding for public investment starts to peak in an election year.
“Perhaps the biggest challenge will come in 2015, when the new EU budget-financed projects will need to be weighed against the state of the economy,” Szczurek said. “If the latter proves good, public outlays should be counterbalanced by lower non-investment spending.”
As the recovery takes hold, the government should continue with budget cuts “at a moderate pace” to put the public debt on “a downward path,” the International Monetary Fund said in a statement concluding its staff visit today. The IMF raised its 2014 growth forecast to 2.7 percent from 2.4 percent, according to the statement.
Szczurek, a cycling enthusiast and father of five, replaces a finance minister whose tenure has been twice as long as any predecessor since 1989. In an e-mailed statement on Nov. 20, Rostowski said Szczurek was his “recommendation” and puts the ministry “in good hands.”
Poland’s local-currency bonds have returned 49 percent since Rostowski took office in 2007, the fourth-best performance among 26 sovereign-debt indexes compiled by Bloomberg and the European Federation of Financial Analyst Societies. The yield on the country’s 10-year zloty notes rose one basis point to 4.44 percent yesterday, narrowing the gap over similar German debt to 270 basis points.
Goldman Sachs Group Inc. economist Magdalena Polan wrote in a Nov. 20 note to clients that Szczurek’s background as a “technocrat” may signal that Premier Tusk will have “more say” in economic policy than with Rostowski, limiting the chance for “lasting improvement” in the budget deficit.
The ruling Civic Platform party lost its opinion-poll lead in May for the first time since 2007 and trailed the opposition Law & Justice party by 9 percentage points this month.
“I do not belong to any political party, so there will surely be more financial policy and less politics during my term,” Szczurek said.
The government should take “more decisive action” to tackle tax evasion while easing the burden on ordinary businesses, according to the incoming minister.
“It becomes apparent that any tightening of the tax system directed against tax evaders must be accompanied by a more lenient approach toward honest tax payers,” Szczurek said.
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