How much does Poland owe and does it really matter?
The Polish government says the country’s public debt stands at roughly 53 percent of GDP, considerably less than all the European economies larger than Poland. Also, Poland has managed to keep its debt ratio below the EU-mandated 60 percent of GDP threshold, something even the stereotypically frugal Germans have not managed to do.
However, Leszek Balcerowicz, the former head of Poland’s central bank and who was also finance minister from 1989 to 1991, engineering Poland’s transformation from communism to a market economy, has questioned the official figures.
Balcerowicz and his think-tank, the Civic Development Forum (FOR), have conducted their own analysis, revealing that if Poland’s hidden debt was taken into account, the actual debt-to-GDP ratio would be more like 250 percent, high by any standards.
“According to our estimates, the hidden debt, and so the state’s obligations on further expenses, has reached PLN 3.1 trillion, which comes out to PLN 83,000 per citizen,” said Balcerowicz at a press conference late last year. The greatest part of the hidden debt are obligations of the Social Insurance Institution towards pensioners.”
Poland like Greece?
“Hidden debts are legal obligations not covered by treasury papers. Just like the revealed debt, at one point in time, hidden debt will start to pose a threat to development,” Balcerowicz said. “There will come a time when the hidden debt will no longer be hidden, just like in Greece.”
So does Poland’s hidden debt problem pose a fundamental threat to the stability of the country’s economy?
WBJ Observer asked Stanisław Gomułka, a former deputy finance minister and adviser to Balcerowicz who often appears with the former NBP head during debt discussions, what he thinks about the issue and its potential consequences for the Polish economy.
Gomułka explained that there is a “big difference” between official and unofficial debt.
“Official debt is traded and enters financial markets, unofficial debt is not traded on financial markets. Unofficial debt is the obligation a state makes to repay its citizens, whom it borrows from, at some later stage,” Gomułka said.
This debt is not owed to foreign investors and banks, but to Polish households and so financial markets and ratings agencies are “not concerned by this debt”.
If at some point in the future, the government has difficulty meeting its obligations, there will be no crisis involving
investors but rather an internal crisis, Gomułka said.
“Households will simply be told that past governments were foolish, the current government cannot meet the obligations they were dumped with, and thus they have to reduce them by passing the necessary laws,” Gomułka added. That being said, it is difficult to imagine that Poland’s hidden debt would have no impact on the markets were
Poland to experience an economic or financial crisis. And having a huge amount of hidden debt could prove costlier to the perceptions of Poland among foreign investors than that of, say, Germany or the United States, which have been considered (for better or worse) safe havens for decades.
It is good Poland is trying to emulate western economies. But it certainly doesn’t need to repeat all their mistakes. u
Remi Adekoya was the politics editor of WBJ Observer. He also writes for The Guardian