Budget deficit soars as inflation falls, as some predict recession or worse

According to figures released Wednesday by the Main Statistical Office (GUS), inflation in Poland fell in February to 6.6%, reaching a 12-month low and leaving economists predicting the possibility of an additional zl.1.7 billion budget hole resulting from a drop in income. The figure was below the 6.8% to 6.9% year-on-year inflation predicted by Finance minister Jaroslaw Bauc on Wednesday.Together with the soft economy, the total budget deficit could even reach zl.4 billion. It is possible that under these circumstances an amendment to the budget may become necessary, while some are beginning to speak about a mini-recession. Lower inflation means lower income from value added and income taxes, and it is possible that an economic slowdown of more than 1% could cause a disaster. According to Miroslaw Gronicki from BIG Bank Gdanski, every 1% decline will cause a zl.2 billion fall in budget income. The situation may become aggravated if this year's revenues from privatization, so far the main source of financing the budget, are lower than expected. (Rzeczpospolita, p. B1) J.K.