Excessive Zloty Gains Would Hurt Polish Economy, Szczurek Says

While the Polish zloty is not too strong yet, further “excessive” gains against the euro wouldn’t be good for the economy, Poland’s Finance Minister Mateusz Szczurek said.

“Significant deflation that we have in Poland shows that zloty strengthening, an excessive one, wouldn’t be desired,” Szczurek said in an interview in Washington Saturday.

Annual deflation eased to minus 1.5 percent in March from minus 1.6 percent in February. The Polish currency touched an almost four-year high against the euro earlier this week.

Poland, the only EU economy to avoid recession since the 2008-2009 financial crisis, cut its deficit to 3.2 percent of gross domestic product in 2014 and expects it to drop to 2.7 percent of GDP this year. As a consequence, it expects to leave EU’s excessive deficit procedure in 2015, or a year earlier than planned.

The procedure was imposed on the country in 2009 after its general government deficit hit 3.9 percent of GDP, breaking the EU rule that the shortfall must be kept at 3 percent or less. It forced Poland to freeze public wages and increase some taxes.

Lifting the restrictions, in theory, would allow Poland to boost wages in the public sector, introduce a tax break for research and development more popular than the existing one, and increase spending in 2016, according to Szczurek.

While no decisions have been made, absent the excess deficit procedure, next year’s spending could be 3.5 billion zloty ($939 million) higher than if Poland has public debt of more than 48 percent of gross domestic product or a deficit of 3 percent of GDP, Szczurek said.

The European Commission will decide on Poland’s exit from excessive deficit procedure in coming months.

Szczurek also said a Polish delegation will travel to Beijing later this month to discuss terms of joining China’s Asian Infrastructure Investment Bank.

“As a potential founding member, our power, in terms of the number of votes, would be larger than if we joined later,” Szczurek said. “By joining this project, we have a chance to strengthen Polish-Asian cooperation.”

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