RPP to look over budget plan

“Right now the biggest issue (for the RPP) is fiscal policy.”
By : Jeffrey Sparshott

   The Monetary Policy Council (RPP) will meet this week to look over the outgoing government’s budget plan, keeping an eye on fiscal policy that hindered an interest rate cut last week.

   Citing “special circumstances,” the RPP held rates in check, leaving them well above any of Poland’s free-market neighbors in real terms.

   “First of all, the increased uncertainty is a result of possible consequences of terrorist attacks in the United States on the global economy,” the RPP said. “Secondly, it results from … the general elections and the unclear situation on next year’s economic policy, particularly the budget plan for 2002.”

   The make-up of the new government – and its plan to counter a hole in the budget – remained uncertain last week as the Democratic Left Alliance (SLD) failed win an absolute majority following the Sept. 23 parliamentary election. The outgoing government submitted a spending plan but it is not expected to stand once the SLD takes the reins of government.

   “Right now the biggest issue (for the RPP) is fiscal policy,” said Iwona Pugacewicz-Kowalska, an economist with Bank Pekao. “The basis for future decisions is what the government is planning with the budget.”

   The RPP noted that zł. 40 billion ($9.52 billion) is the upper limit for the deficit.

   The 10-member board’s decision not to cut rates was in line with market expectations. But economists are hoping for at least one more reduction this year.

   “We may think about another cut, maybe in October, if the new cabinet releases a plan to heal public finances and if we see good, low inflation,” Pugacewicz-Kowalska said. “Those two arguments would support a 100-150 basis point cut.”

   The International Monetary Fund’s (IMF) latest World Economic Outlook, released last week, said of Poland: “With interest rates remaining very high in real terms, there appears scope for further easing.” The IMF also said that next year’s budget needs to avoid new spending commitments and tax exemptions on the way to fiscal consolidation.

   The IMF projected 2001 gross domestic product (GDP) growth at 2.5%. During the RPP’s meeting, National Bank of Poland President Leszek Balcerowicz said GDP growth should accelerate in the third quarter compared with the second quarter’s 0.9%.

   The RPP lowered the central bank’s main interest rate to 14.5% from 15.5% in August – the fourth cut of the year. The consumer price index was at 5.1% in August and figures released last week showed core inflation down for the second month in a row.