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The Warsaw Voice » Business » August 1, 2013
Business & Economy
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Budget to be Revised as Crisis Bites
August 1, 2013   
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The government has announced plans to revise Poland’s 2013 budget, to increase the deficit by zl.16 billion and to suspend a ceiling on public debt, arguing that it needs to relax fiscal discipline because the economy has slowed.

Announcing the revision in mid-July, Prime Minister Donald Tusk said, “Due to the crisis, the government’s revenue from taxes this year will be about zl.24 billion lower than previously assumed. Therefore, we must look for the missing funds.” The government is expected to officially submit the revision in August.

To cover the shortfall, the government plans to increase the budget deficit by zl.16 billion to zl.51 billion and cut spending in various areas by zl.8.5-8.6 billion. In addition, while revising the budget, the government will also change public finance regulations by suspending, for two years, a debt ceiling that freezes the budget if public debt exceeds 50 percent of gross domestic product (GDP). The move is needed because public debt has already overshot the 50-percent threshold, making it impossible for the government to widen the budget deficit. Two other debt ceilings, which are activated when borrowing reaches 55 percent and 60 percent of GDP, will remain in force, the government said.

Deputy Prime Minister and Finance Minister Jacek Rostowski said the budget revision is intended to stimulate the economy.

Despite the prolonged stagnation in the eurozone, the Polish economy will be growing much faster than the European average, Rostowski said, adding that Poland’s economic situation will likely begin to improve later this year.

Poland does not run the risk of exceeding the 55 percent threshold for public debt in relation to GDP despite the planned widening of the budget deficit, Rostowski said. He added that Poland remains committed to its goal of reducing the general government deficit to about 3 percent of GDP over two years in order to exit the so-called excessive deficit procedure imposed by Brussels against EU member states failing to keep their deficit below the EU’s ceiling of 3 percent of GDP. This and other measures are designed to prepare Poland to eventually adopt the euro, according to Rostowski. He said that 10 years is a realistic time frame when it comes to Poland adopting the euro, although the switch to the single European currency may take place sooner than that, he added.

Markets reacted calmly after the budget revision was announced. Analysts said markets had been prepared for such a move. Almost ever since the government announced its 2013 budget targets, experts predicted that these would have to be revised sooner or later because they were too optimistic. The government’s original target for economic growth in 2013 was 2.2 percent, while now the projection is only about 1 percent. “The revision therefore brings the budget in line with the real situation,” said analyst Ryszard Petru, head of the Association of Polish Economists (TEP).
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