IMF official warns of macro dangers
ŇLooking forward it is quite clear that Poland will need to set itself targets to bring the fiscal deficit as a percentage of gross domestic product (GDP) ... to some lower level, perhaps zero, over a reasonably short period of time,O Rozwadowski told an economic seminar.
He added that Poland, whose budget deficit oscillated around 3-3.5% of GDP over the last years, would have to limit deficit spending because markets could punish looser policy.
ŇWhen you reach the sort of (current account deficit) range in which Poland is now in, the country comes under intense scrutiny by the financial markets and therefore the risk of a currency crisis becomes more severe,O Rozwadowski told the seminar.
Analysts expect the current account deficit to widen to 5-6% of GDP in 1999 from about 4.3% last year. However, the Russian crisis last year caused a fall off in exports, which led to a worsening of the current account and heightened fears that it could grow to an unmanageable level.
The IMF warning comes amid discussions of whether Poland will have to revise its 1999 budget after revenue fell short of plan in the first quarter in line with slower economic growth. At the same time costly pension and health care reforms have caused a short-term balooning of costs. This has led the central bank to warn that if the budget revision increases the budget deficit, then it will raise interest rates.
ŇMarkets will scrutinize the financial soundness of the private sector and banks, and the soundness of the government, in other words fiscal policy,O Rozwadowski said.
ŇIn this context it is absolutely critical that Poland establish and maintain credibility on fiscal policy,O he added.
He added that Poland, whose budget deficit oscillated around 3-3.5% of GDP over the last years, would have to limit deficit spending because markets could punish looser policy.
ŇWhen you reach the sort of (current account deficit) range in which Poland is now in, the country comes under intense scrutiny by the financial markets and therefore the risk of a currency crisis becomes more severe,O Rozwadowski told the seminar.
Analysts expect the current account deficit to widen to 5-6% of GDP in 1999 from about 4.3% last year. However, the Russian crisis last year caused a fall off in exports, which led to a worsening of the current account and heightened fears that it could grow to an unmanageable level.
The IMF warning comes amid discussions of whether Poland will have to revise its 1999 budget after revenue fell short of plan in the first quarter in line with slower economic growth. At the same time costly pension and health care reforms have caused a short-term balooning of costs. This has led the central bank to warn that if the budget revision increases the budget deficit, then it will raise interest rates.
ŇMarkets will scrutinize the financial soundness of the private sector and banks, and the soundness of the government, in other words fiscal policy,O Rozwadowski said.
ŇIn this context it is absolutely critical that Poland establish and maintain credibility on fiscal policy,O he added.
