Sejm to vote on greater budget deficit spending
By : Jeffrey Sparshott
The Sejm this week is expected to vote on a budget amendment that will cover a projected zl. 17.5 billion ($4.1 billion) shortfall in revenues by allowing greater-than-expected deficit spending and pushing back some costs until next year, deputies and analysts said last week.
The government hopes that approval will help calm markets while also balancing the need for growth with the central bank's demand for fiscal restraint. Despite the government's pledge to reel in the budget and figures released last week that showed June inflation resuming a downward trend and industrial production slowing sharply this year the Monetary Policy Council (RPP) Friday announced that it would leave interest rates untouched. The RPP cited fiscal uncertainty as one reason to leave rates on hold.
The government has repeatedly called for lower interest rates to help boost the economy and slow economic growth is one of the main causes for the government's budget problems, with tax revenue falling well below projections. To make up the difference, the Finance Ministry plans to increase the budget deficit by zl. 8.6 billion ($2 billion). Depending on economic growth, this could mean the deficit will approach 4% of gross domestic product instead of the 2.6% originally planned by the government. It would also mean a wide array of spending cuts that Finance Minister Jaroslaw Bauc has not yet specified.
Marek Wagner, a Democratic Left Alliance (SLD) member of the Sejm's Public Finance Committee, said a vote on the budget amendment is likely during a four-day session this week.
"That is enough time to thoroughly analyze the plan," he said.
Following Bauc's formal introduction of his budget amendment proposal to the Sejm last week, Wagner said that more specific information on spending cuts would be necessary before final approval. He estimated that discretionary spending accounts for zl. 40 billion ($9.5 billion) in the budget and warned that significant cuts could have a severe affect on programs. Some areas should not be touched while spending in others, such as some defense procurement, could be delayed by a year without hurting the country, he said.
"You have to sacrifice something," he added.
Bauc last week urged deputies to accept the government's proposed amendments, noting that such measures would help calm markets.
Investor nervousness about the budget, false rumors about the finance minister's resignation, concerns about an oversupply of government securities and international economic factors sent the zloty reeling the past two weeks, losing 11% of its value against the dollar in one three-day span, though it has since evened out.
Analysts expect the Sejm to approve Bauc's plan, though details regarding spending cuts will probably be necessary.
"I think the next step will be Parliament's approval of the draft budget review," said Maciej Reluga, an economist with ING Bank. The finance minister will probably have to detail expenditure cuts which are more likely to delay payment on some programs until next year rather than eliminate them entirely, he said.
"It will be approved," Reluga said of the budget amendment. "The question is more about the shape of next year's fiscal policy. Managing fiscal policy will be difficult next year."
The RPP has blamed loose fiscal policy for fueling inflationary pressures, and countered by maintaining high interest rates. While the 10-member body has made three cuts this year totaling 3.5 percentage points and brought the 28-day intervention rate to 15.5% from 17%, real rates are still stiflingly high considering 6.2% inflation so far on the year, analysts said.
The RPP mentioned budget uncertainty in its final decision on interest rates and called for a deep and thorough reform of public finances. It characterized the amendment passing through the Sejm as a temporary action that does not solve problems with public finance.
The RPP is scheduled to meet again August 21-22.
