Deficit down

Mirosław Gronicki said that the deficit would come to zł.30.8 billion, well below the earlier target of zł.35 billion.

However, next year it will rise slightly to zł.32.6 billion, he claimed. Although the government is to prepare a draft budget for next year, it will almost certainly be changed by a new incoming administration after a general election on September 25. 

Although the deficit looks set to come in below expectations, Gronicki warned that the budget deficit is at its "maximum amount." This year it has consistently beaten targets as corporate tax revenues exceed expectations and spending remains under tight control. The January-August budget gap amounted to about 53 percent of the zł.35 billion annual plan.

Although next year's deficit is larger than the zł.30 billion limit proposed in Poland's official eurozone-entry strategy, financial markets remained optimistic and placed their faith in the new administration. Mateusz Szczurek, chief economist at ING Bank Śląski in Warsaw, said financial markets would be more concerned with the budget if economic growth weakened and put into question longer-term fiscal tightening plans. "It may well become a bigger issue again if growth does not pick up and reforms are put off, but for now markets will see what the new government comes up with in terms of reform."

In his 2006 budget plans, Gronicki forecasts economic growth of 4.3 percent, up from 3.3 percent projected for 2005.

"We expect some pick-up in exports and domestic demand ... Exports should rise by 10 percent next year compared with five percent seen this year and investment should rise by 8.6 percent against less than five percent in 2005," Gronicki said.

He said net-borrowing needs next year should be slightly below the zł.40 billion expected this year. Average inflation is envisaged at 1.5 percent next year compared with 2.1 percent this year, while unemployment is seen falling to 16.9 percent from 17.7 percent expected in 2005.

(Reuters)