Government will go into heavy debt to fund local investment

The widely advertised Governmental Polish Deal Fund: Strategic Investment Program (SIP) is supposed to improve the quality of life for city and municipal residents. This year alone, 20 billion PLN is to be allocated to local government projects, both the bigger ones (e.g. roads or sewage systems) and the smaller ones (e.g. schools, sports fields, greening cities), and the target is 140 billion PLN.

The problem is that everything is to be implemented on credit.

According to Bank Gospodarstwa Krajowego, which manages the program, the source of financing for PIS is to be bonds issued by BGK under the Covid-19 Fund, i.e. the emergency fund set up during the pandemic. This new debt will not increase the debt of public finances according to the Polish methodology, it will “only” be included in the debt calculated according to the EU methodology.

The question is whether the government supporting local governments on credit is a good solution in the current situation? During the pandemic at the end of 2020, our debt has increased by almost PLN 300 billion, or 30 percent, compared to the end of 2019. Soon, local governments will also have a rain of money from the EU Reconstruction Fund (i.e. the National Recovery Plan) and the regular seven-year EU budget.

“Private investments are the biggest problem in Poland, while the public ones are even at a higher level in relation to GDP than the EU average. Thus, further pumping up of local government projects financed by debt raises doubts. The government should rather take actions to stimulate business investments,” Dawid Pachucki, economist at ING Bank Śląski points out.

“What is also worrying, he adds, is the fact that PIS will be yet another fund of quite a large sum that will not be counted under the constitutional debt limit, will not be included in the state budget and, as a result, will be outside parliamentary control. This means that Polish finances will become even more opaque,” remarks Sławomir Dudek, FOR Foundation chief economist.

(rp.pl)