Gov't budget forecasts 5.7% GDP growth in 2001
The 2001 budget, put forward by new Solidarity Election Action (AWS) Finance Minister Jaroslaw Bauc, is scheduled for government discussion on Tuesday.
According to data presented a week ago to the Cabinet Economic Committee (KERM), the Finance Ministry forecast 5.7% economic growth in 2001. The ministry's budget deficit projections, however, were not yet available.
Former Finance Minister Leszek Balcerowicz, whose Freedom Union (UW) party withdrew from the government coalition last month, had been insisting on a radical reduction of the 2001 budget deficit to 1.5% of gross domestic product (GDP) from the 2.4% forecast for this year. According to Wieslaw Walendziak, AWS deputy and head of Marian Krzaklewski's presidential campaign, the UW even pushed for a 1.2% deficit figure during the coalition's stormy negotiations in May (see the WBJ June 12-18). Walendziak, who was involved in the talks, said that eventually the 1.9% figure might have been accepted by both sides if not for the UW's decision to back out of the negotiations.
After the coalition split, the former deputy finance minister, Bauc, replaced Balcerowicz. According to analysts, the new finance minister adheres to the same tight fiscal policies as his old boss. "But his position is not as strong as Balcerowicz's and his impact on the government will be weaker. And the parliamentary committees (which will debate the budget project) are very pro-social," said Tomasz Mazurczak, head analyst of Dom Inwestycyjny BRE Banku. "So, we're already getting used to a prospect of a higher (as compared to the Balcerowicz proposal) budget deficit of 2%."
But next year's budget deficit could go as high as 2.1% or more, analysts said. "If it were 2.1%, it would be a bad sign for the market," Mazurczak said. "I am afraid that even a 2% deficit level could be difficult to achieve due to various additional spending especially on pensions, which may come up during the budgetary debate." At the same time, Mazurczak said next year's radical squeezing of the budget deficit is a must. "Next year's budget deficit will not be financed to a large extent, as it was before, by revenue from privatization and direct investment," he said. "In addition, over the last few years the current account deficit wasn't that high either."
While the deficit remains at the very heart of discussions over next year's budget, Krzysztof Dzierzawski, an economist and adviser to the board of the Adam Smith Research Center, said that its final shape won't differ from past years. "Pure rhetoric won't change reality," he said. "No matter how strongly Balcerowicz or Bauc feels about cutting spending, old limitations remain." Dzierzawski said the reality is that the public spending structure is in bad shape and too much money is flowing out of the central budget to various public funds, over which the state has lost nearly all control. "Due to the commercialization of public funds such as fundusze celowe (earmarked funds), there are public officers who behave like guardians of their share (of the budget)," he said. "And the bureaucracy is growing, 46,000 public posts were created as the result of the four reforms (health care, administrative, pension, education, which were implemented in 1999). It all costs money."
According to Dzierzawski, real deficit reductions will be possible only if politicians agree to overhaul their spending structures. "But I am afraid no government will risk that," he said. "As for the 2001 budget, I believe that its final shape won't matter much because it will all depend on politics. Even the best budget might be rejected for the sake of earlier parliamentary elections." If the budget is not accepted by January, the president can dissolve Parliament and call earlier parliamentary elections in spring.
