During Wednesday’s press conference, Prime Minister Mateusz Morawiecki was asked about the government’s measures aimed at slowing price growth and lowering inflation. His answer surprised. We can say that For the first time, he made it clear that the belt should finally be tightened.
Until now, he’s usually been talking about anti-inflationary shields and other types of support that focus more on limiting the negative effects of a price hike, rather than fighting its causes. this time Announcing reduced borrowing needs and spending cuts next year.
– Today in the Presidency of the Council of Ministers we had a very detailed overview of all expenditures. And today I can say it We have identified more savings, at least 10-15 billion PLN, which will translate into lower expenditures. Prime Minister Morawiecki said it will also contribute to lower inflation, because it is fiscal tightening.
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Debt is expensive, so you have to spend less
This is the most emphatic and most dramatic statement by the government, which proves it In fiscal policy, we have moved to the stage of clear austerity – Raffaie Hirsch writes for Business Inside. notes that Government borrowing needs for the year 2023, that is, all the amounts that the state has to borrow to finance the budget deficit and the bonds issued at the latest maturity date of next year, Officially it reaches 260 billion PLN. However, according to some economists, it may be much higher than 350 billion PLN.
We expect the deficit in the entire fiscal sector in 2023 to be around 6-7 percent. GDP, not the 4.5 per cent government assumes. Gross domestic product. And therefore Borrowing needs will be much higher than originally planned. They will exceed them by at least 50 billion PLN — Rafał Benecki, chief economist at ING Bank Śląski, points out in an interview with Business Insider Polska.
It also indicates that we may not see these additional borrowing needs in the central budget because it will be allocated to other units. It can be satiated without increasing the deficit. It is practiced, for example, to transfer bonds to beneficiaries. The deficit does not grow after that, but the debt does. This fits with the government-run systematic creative accounting.
Every additional billion Borrowers in the market tied to an increasingly high interest. Currently, the 10-year government bond yield is around 8.5%. A year ago, they were about 3 percent.
There is concern in the financial market that the government may have trouble finding such sums. The Prime Minister is also aware of this, and from here work on determining expenditures and announcing that “The borrowing needs for next year’s budget will be higher than this year, but those already planned will be limited“.
Where do you look for savings?
The Prime Minister did not say what exactly he intends to provide the aforementioned 10-15 billion PLN. Economists save by pointing to potential places where government could start to break.
Millennium Bank’s chief economist, Grzegorz Maliszewski, points out in an interview with Business Insider, that The easiest way to reduce investment and property expenses. We are talking about the purchase of fixed assets or the identification or postponement of development projects financed by central institutions. with unfortunately From an economic point of view, such cuts are not good, because they limit GDP growth.
Savings can be found in administrative expenses. Although here you need the political will and the approval of ministers who have a lot of money at their disposal.
Savings can be found as quickly as possible in the budgets of central enterprises. Plus they come to this Budget bonuses and salaries. Historically, it was a good savings method, often used by the authorities, admits Piotr Bartkiewicz, economist at Pekao Bank.
In an interview with Business Insider, he confirmed that some shifts in budgets are possible in individual ministries. And the The largest component of savings may be different types of reserves.
– The likely place to look for savings is Anti-inflation shield. Restricting it in 2023 would be a budget relief – suggests Rafa Beneke. The ING economist draws attention to the recent statements of the head of the Polish Development Fund (PFR), Bowe Boris, who spoke on TVN24 about very large borrowing needs, which, in his opinion, require greater financial discipline. In this context, he stated that The government may have to not extend the inflation shield next year.
It means that Return to the previous high VAT rates or the excise tax on energy. This year, the state cost amounted to more than 40 billion PLN. It is noteworthy, however, that So far, the budget has not provided for an extension of the shield for 2023.
Beneficiaries of 500 plus and other social benefits can sleep peacefully. Grzegorz Maliszewski asserts that social spending is constant. This is a large part of the budget that is difficult to interfere with.
The declared savings is a drop in the ocean
Economists are unanimous in saying that the shift in policy proposed by the prime minister and more restraint in spending is a step in the right direction. However, this should be treated as a signal to the market rather than as a decisive measure to realistically improve the state of the budget.
The savings rate is 10-15 billion PLN, about 0.5%. Gross domestic product. It is a lot and a little. These sums are circulated completely freely in the public space. Today, 10 billion PLN is 5 billion PLN compared to the past few years – notes Piotr Bartkiewicz.
The economist estimates that As for the inflation suppression, cuts at the level of several billion are close to zero. It indicates that the value of the anti-inflation shield is three times higher.
– This is a step in the direction the market wants but it is still not enough and the beginning of a longer and bumpy road – Bartkowitz comments. It indicates that fiscal tightening is not only more discipline on the spending side, but is also a long-term necessity Withdrawing from government shields and increasing taxes. The expert expects the possibility of this issue emerging after the 2024 elections.
Rafa Beneke also points out the very important role of next year’s parliamentary elections. He has concerns about whether the advertised search for savings and fiscal tightening will actually translate into lower spending.
– The electoral calendar is inevitable, and as the election date approaches, the state’s spending usually increases. This has been the case so far in Poland and other countries. Markets fear this. They are afraid of a repeat of what happened in Hungary, where there was a lot of different spending before the elections, and the effects of inflation are visible to the naked eye. – Refers to the economist ING.
He views the Prime Minister’s statements as a symbol and expression of concern about what is happening, among other things, in the debt market. The Prime Minister recognizes that expansionary fiscal policy in the context of borrowing needs can be very costly. Hence the proposal for a policy shift to calm the market – assesses Beneke.
author: Damian Somsky, Journalist at Business Insider Polska
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