Jan Cienski in Warsaw -

Poland's economy is roaring ahead and tax revenues are pouring in so fast that the government's deficit this year will be about a fifth lower than predicted. But there is trouble looming, warns Zyta Gilowska, Poland's finance minister, with the cloud on the horizon being the 2012 European football championships, which will be hosted jointly by Poland and Ukraine.

"The preparations for Euro2012 could cause a difficult-to-quantify economic risk," warns the finance minister, sipping on a tea as aides rush in and out of her office.

The football championships have become a target date for modernizing both ex-communist countries, but the ambitiousness of the enterprise carries risks.

Poland hopes to build more than 1,000km of highways, hundreds more kilometres of express roads, city bypasses, bridges, football stadiums, and upgrade its railway system. Private investors will dramatically ramp up hotel construction, hoping to cash in on the thousands of visitors who will swarm into Poland in only five years time.

The problem is that Poland is already experiencing a labour shortage, the result of thousands of qualified builders heading west to the UK and Ireland to work for much higher wages. Construction firms hoping to gain from the country's real estate boom are also having trouble finding building materials like cement and bricks.

This year, the government will complete only 6km of new highways, a pace that will have to be substantially picked up over the next four years if Poland isn't to face the embarrassing prospect of having football's governing body UEFA pull the championship and award the right to host it to another country at the last minute.

In order to complete all the infrastructure on time, government spending will have to increase steeply, and the government may be tempted to go into debt to do so.

"We cannot exclude a different inflationary dynamic, especially just before the games," says Gilowska. However, she adds that she hopes Warsaw has learned a lesson from Hungary's recent experience, where unrestrained spending almost led to economic collapse. "The example of the Hungarians is very well known here," she says.

Distant inflation horizons

For now, though, Gilowska maintains that higher inflation and economic overheating are fairly distant prospects.

"I don't see symptoms of overheating right now," she says. "They may appear in a year or two, I don't know."

Her calm demeanour comes despite an economy that is expected to grow at about 6.5% this year, recent data indicating that wages were rising at annual rates above 9% and the central bank's decision last month to raise interest rates for the first time in nearly three years.

Poland's strong rate of growth has surprised many analysts, who have been forced to recalibrate their growth predictions. The Finance Ministry was also too conservative, estimating in this year's budget a growth rate of only 4.6%. The result is that tax revenues are unexpectedly high. Each additional point of growth results in about €1bn of tax revenues.

The government's signature economic policy has been to hold the annual deficit at PLN30bn (€8bn), a task that has become significantly easier. Gilowska now estimates that this year's budget shortfall will be only about PLN24bn.

However, there are growing fears that the economic fat times are spurring political appetites for greater spending. Despite strong growth, Poland has not been able to reduce the overall size of its debt, which grew last year by PLN38bn zlotys to reach PLN505bn.

Gilowska, a reformist economist who was given the job of finance minister to add some economic credibility to the populist Law and Justice government, is supposed to be presiding over economic reforms that would keep Poland growing strongly for the foreseeable future.

However, her fiscal reform package, not yet accepted by parliament, is criticized as being little more than a bookkeeping exercise. Other reforms are promised but little is happening.

"We will have to see if there is a will to pass reforms in parliament," says Gilowska, adding she recognizes that politicians are reluctant to pass measures that restrict their ability to hand out pork.

Send comments to The Editor