January 28, 2023


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Polish finance in 2022 the government sent a letter to Brussels in which it revealed the hard truth

Polish finance in 2022 the government sent a letter to Brussels in which it revealed the hard truth

Each year, the government has to submit its financial forecast to Brussels. It does so mainly in the update of the Convergence Plan, which the Ministry of Finance is likely to publish next week. However, in the financial notification published by Eurostat, the government has already revealed a bit about what Poland’s finances will look like this year. Unfortunately, it is not a pleasant read.

General government deficit according to the Ministry of Finance It would jump from the 2.9 percent assumed in the budget. up to 4.4 percent On the other hand, the good news is the fact that Poland’s debt to GDP is expected to fall to around 52%. However, this is not about debt.

The biggest tensions can be seen in the costs of servicing our country’s debt From 29 to 49 billion PLN, that is, by PLN 20 billion. It’s about 70 percent. More than the government expected in the budget.

Polish finance in 2022 the government revealed the truth in a letter to Brussels

Profitability growth in Poland is very fast. Together with Hungary, we are the growth pioneers. In the Czech Republic, where increases in central bank interest rates are also high and inflation has accelerated recently, the rise in yields is not as strong. This means that in the case of Poland, the fiscal and budgetary risks are significantly increased – Explains in an interview with money.pl Sławomir Dudek, chief economist at FOR, and former employee of the Ministry of Finance with more than 20 years of experience.

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In his opinion The world of low interest rates disappeared in the blink of an eye. Along with the higher cost of money, the profitability of Polish debt also increases (investors have to pay more to lend money to the government). According to some analytical centers, fueling the wage and price spiral in Poland What we wrote about money.pl on Thursday, Interest rates can Glide up to 8 percent This should lead to a move on government bonds and an increase in interest on debt.

Public debt is not a problem with us at the moment. These are the exorbitant costs of debt servicing, which are close to 7%. There are examples of countries that have faced significant budget problems as a result of sharp interest increases, and even announced defaults with a low debt ratio (such as Romania with a debt of about 30% of GDP). Romania’s bond interest rose to 11-12% after the global financial crisis in 2008. This level was one of the critical factors in reducing market funding and turning Romania for assistance from the International Monetary Fund, says Dudek.

Due to rising inflation and a change in the global model of ultra-low interest rates, debt securities in many countries, including Poland, are rapidly becoming cheaper (that is, their yields are rising). Just on Friday, our country’s 10-year bond fell 2.3%. Investors are asking themselves to pay 6.3 percent. Percentage, although a year ago it was 1.5 per cent. Within twelve months, this results in a 300% increase. This illustrates the extent of the United Right’s problems with the debt market.

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“One billion zlotys from Morawiecki”

but that is not all. According to the economist at FOR, what we should pay attention to is the fact that it will soon be necessary to carry over a huge debt, which is called Dudek, along with new promises “Trillion Moravecian”. It’s about the government’s borrowing needs over the next three years. Kamil Sobolevsky, chief economist for Poland’s employers, also spoke of the trillion zlotys the government would have to find in the bond market. (We encourage you to watch the material below).

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In the financial market, banks are crowded with bonds. The government will find it difficult to sell these bonds at moderate returns, if at all possible – Dodik notes.

Inflation is rising and interest is rising

– Of course, when inflation rises, interest rates rise, and interest rates on debt also rise – says Grzegorz Maliszewski, chief economist at Bank Millennium. In his opinion, it should be remembered that so far the government is benefiting from the “inflation tax” and the income side of the budget will look good.

– I’m worried about the broader vision. The element of risk is a very expansionary fiscal policy. Social spending, defense spending and the upcoming parliamentary elections in 2023 could destabilize the macroeconomic situation in our country. – says Maliszewski. The expert states that the more money the government spends on the market, the higher interest rates should go, which will slow down demand and slow down economic growth.

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Swimmer Dodik agrees. Unfortunately, the world of low rates soon came true. A revision of the forecast shows that it will be a huge problem. Unfortunately, the period of low interest rates was unsustainable, as the Financial Investment Bureau and many economists warned about. With these temporary low interest rates, the government made permanent electoral pledges, used up those savings, and now has to review its welfare programs. Time and time again, government representatives cited savings in debt servicing costs as a source of funding for pensions of over 500, 13, 14, and in just a few months reality proved brutally naive assumptions – It sums up.

Damian Szymański, Deputy Editor-in-Chief of money.pl