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Polish budget shenanigans

Thu, Jul 16 2009, 14:40 GMT
by Lars Christensen

Danske Bank A/S  |  View company's profile

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Recently an unpleasant trend has been emerging in Polish policy making: budget shenanigans, as the Polish government is trying to use all kinds of different accounting tricks to “improve” public finances.

First, the Polish government tried to get its hands on the profits from state-owned bank PKO BP by pressuring the management to increase dividends. PKO BP’s CEO Jerzy Pruski was sacked after the conflict broke out.

Over the last couple of weeks the government has put pressure on the Polish central bank (NBP) to transfer its profits to public coffers. Even worse, the government has indirectly threatened to change the central bank law to get its hands on NBP’s profits.

The latest budget trick is the transfer of infrastructure funding from the central government budget to the so-called National Road Fund, which artificially improves the central government budget (but not the general government budget).

All these tricks have one thing in common: budget finances are not being improved, but the transparency of public finances is markedly reduced. Another negative side-effect is that it raises doubt about the general state of public finances in Poland. If the government needs to play around with the numbers, is the reason then that the public finances are in a much worse state than the Polish government has admitted until now?

The numbers for the central government budget that were published this week show that the budget deficit reached PLN 16.7bn in June – or 91.6% of the planned deficit for the entire year. Even more importantly, had the infrastructure spending not been transferred to the National Road Fund the deficit would have been PLN 26.4bn or 145% (!) of the planned deficit for the year.

The budget shenanigans in our view further erode the credibility of economic policy in Poland and are likely to raise eyebrows in the European Commission. In fact, the European Commission has already called for the implementation of EU standards in public finances. After five years of EU membership the Polish government has still not been able to implement budgeting on an accrual basis, which is the EU standard, despite its stated ambition to join the euro in 2012.

The consequence of the erosion of credibility of economic policy is that the Polish government will face higher funding cost, which in itself worsens the state of public finances and reduces growth in the Polish economy.

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Published on  Thu, Jul 16 2009, 14:45 GMT

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