Poland raises hope of EDP escape as it reports 2014 deficit at 3.2%

By bne IntelliNews April 17, 2015

Poland's budget deficit for 2014 came in at 3.2% of GDP, statistics office GUS reported on April 17. The result is better than some earlier suggestions from officials, and raises hope that Warsaw will finally manage to escape the EU's excessive deficit procedure (EDP) this year.

GUS made the announcement as it supplied Brussels with data showing the budget gap at PLN55bn (€13.6bn). It confirms hopes expressed by Finance Minister Mateusz Szczurek in late March that efforts to plug the fiscal hole might have worked better than he had thought. Earlier the same month, the minister had warned the deficit could swell to 3.6%. The ministry's target for the year was 3.3%. 

Part of the progress made on the deficit came thanks to Poland's controversial pension reform early in the year, which saw it redeem treasury bonds held by private pension funds. That helped shrink state debt to 50.1% of GDP, GUS also reported on April 17. Previously, Warsaw had been struggling to keep its debt under the constitutional limit of 55% of GDP. 

"Consequently, central government subsector expenditures on debt service decreased [and] affected the level of deficit," the statistics office noted.

Despite various declarations of fiscal consolidation schemes, Poland has been struggling to reduce its deficit and escape the EU's excessive debt procedure for some years. An ambitious plan to drop the budget gap announced by the governing Civic Platform as it retained office following the last election in 2011 was dropped as the crisis caught up with the economy, and the government abandoned austerity in a bid to boost growth.

The deficit ended that year at 4.9%, before dropping to 3.7% in 2012. In 2013, it moved back out to 4% as growth crumpled. Yet fears of a poor 2014 failed to materialize, with the economy expanding over 3%. Revised GDP data for the fourth quarter, released by GUS on April 16, that showed growth accelerating to 3.3% only extends optimism the economy is ready to push onwards this year. The European Commission expects the gap to come in at 2.9% of GDP in 2015. 

At the same time, although the 3.2% budget gap in 2014 offers fresh hope that Warsaw could duck underneath the EU threshold of 3% this year, that could prove challenging given the government is facing what is likely to be a close run election in October. That has already seen it buckle under union pressure over plans to restructure the state-controlled coal industry, leading to higher costs to support the inefficient industry, which employs over 100,000. The climbdown sparked similar demands from several other sectors of the economy.

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