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The Warsaw Voice » Business » September 16, 2009
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Huge Deficit Increase in 2010
September 16, 2009 By A.R.    
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283 billion euros is how much the global financial crisis may cost banks in the euro zone by the end of 2010, according to the European Central Bank.

Poland's 2010 budget deficit is expected to rise to zl.52.2 billion, almost double the 2009 target deficit of zl.27.2 billion, in a deferred effect of the global economic crisis, Finance Minister Jacek Rostowski told Rzeczpospolita daily newspaper Sept. 5.

If the projection turns out to be correct, Poland's 2010 budget deficit will be the highest in absolute terms since 1990, when the country embraced a free market economy.

But the 2010 deficit of zl.52.2 billion would represent only 3.8 percent of the GDP, Rostowski said, less than during the previous crisis of 2001-2002, when the deficit accounted for 4.2 percent and 4.9 percent of the GDP respectively-and also less than in 2003 and 2004, when the figures were 4.4 percent and 4.5 percent respectively.

Next year's budget deficit is expected to soar due to a sharp decrease in government revenue in a delayed impact of the crisis, Rostowski said.

The good news is Poland is the only economy in Europe that continues to grow despite the crisis, though its GDP growth rate has decelerated from 4.9 to 1.1 percent.

The government has several options to finance expenditure at a time of crisis, Rostowski said: it can reduce expenditure and increase revenue by raising taxes and privatizing state-owned companies, or it can widen the deficit. The first and second options are difficult to put into practice, Rostowski said, because they require extensive legislative changes and are unpopular with the public. The easiest way is to increase the deficit. According to Rostowski, receipts from privatization, estimated at zl.28.5 billion this year and next, will help Poland keep its budget deficit in check.

Rostowski's disclosure about the deficit target for next year has caused little alarm on financial markets. Many analysts expected a wave of drops on the Warsaw Stock Exchange and a significant weakening of the zloty following Rostowski's statement. Meanwhile, the WSE's WIG20 blue-chip index gained more 2 percent during the first session after the interview was printed, while the exchange rate of the zloty remained unchanged.
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