Bloomberg: Poland Keeps 2017 Budget Below EU Cap Amid Slower Growth
19:10, 22 August 2016

Bloomberg: Poland Keeps 2017 Budget Below EU Cap Amid Slower Growth

Bloomberg analyses Polish nine-month-old government and considers it needs to light a fire under the country’s economy

19:10, 22 August 2016

Open source

Poland’s Finance Ministry laid out a plan to keep its 2017 budget deficit below the European Union’s ceiling, even as it cut its economic growth forecast after measures aimed at spurring domestic demand failed to make a difference.

The shortfall will come in at 2.9 percent of gross domestic product, the ministry said on Monday. That compares with a 2.6 percent deficit expected this year, according to Puls Biznesu daily, which published the government’s 2017 assumptions. The government is set to discuss the draft Thursday.

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Poland’s nine-month-old government needs to light a fire under the country’s economy to help pay for higher spending on family benefits and plans to reduce the retirement age next year. That’s proving a challenge: after the ruling Law & Justice party imposed new taxes on banks and retailers, growth turned disappointing in first half.

“Given the present data and the external factors, including possible scenarios for Britain’s exit from the European Union, we have modified the budget forecasts,” the Finance Ministry said in an e-mailed statement.

Risky Assumptions

The ministry’s forecasts include economic growth of 3.6 percent next year and 3.4 percent in 2016, downward revisions from earlier plans of at least 3.8 percent.

Breaching the EU’s budget deficit limit would threaten the flow of 82.5 billion euros ($93 billion) in funds earmarked for Poland through 2020. Poland’s spending plan is set to grow by over 10 billion zloty ($2.6 billion) next year to 324.1 billion zloty, chiefly thanks to rising value-added and corporate-income taxes as part of Finance Minister Pawel Szalamacha’s campaign to improve revenue collection.

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A gradual pickup in inflation, set to average 1.3 percent next year, will also create grounds for an even better uptake next year, the ministry forecasts. The revised GDP figures still assume the economy will pick up in the second half and in 2017, after growth of around 3 percent in the first six months of this year. That may be too optimistic.

“There’s a growing risk in the context of economic results, as growth may turn out lower than expected,” Grzegorz Maliszewski, chief economist at Bank Millennium SA in Warsaw, said by phone. “Meanwhile, additional revenue is supposed to come from better tax collection, which is another risky assumption.”

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