Tough policies needed
By : Jeffrey Sparshott
Poland's government today and the one formed following September's elections must reign in spending as part of a strategy to increase the pace of economic growth, the International Monetary Fund (IMF) said last week.
"In 2001 the priority has to be expenditure restraint," said Susan Schadler, head of an IMF delegation to Warsaw that conducted a semi-annual economic review.
Poland's economy will grow by 3% in 2001, the IMF projected, well below a revised government estimate of 3.7-4% issued last week by Economy Minister Janusz Steinhoff and below analysts' projections. The growth rate, if it materializes, would be the lowest yearly increase since 1992, according to IMF numbers.
The Solidarity Election Action (AWS)-led government in power has hinted a budget revision might be in line this year, though the general line from officials includes a call for further analysis.
Polls project the Democratic Left Alliance (SLD) as the likely winner of upcoming parliamentary elections.
SLD officials contacted by the Business Journal last week would not comment on the IMF report or their budget priorities if they are elected. However, Schadler said that the IMF delegation spoke with opposition leaders and that they understood the basic fiscal constraints Poland is facing.
Schadler described the country's situation as difficult, yet promising. On the positive side, Poland shows progress toward European Union (EU) accession, slowing inflation, more comfortable current account deficit figures, resilience to turmoil in other emerging markets and increases in worker productivity.
"But the situation now is very difficult," she said, noting growing unemployment, weak demand and slowing output amid pressures from a strong zloty and slowing exports. Revised medium-term fiscal goals are central to efforts toward fiscal growth, the IMF said, noting that policies to promote savings and limit spending are the main tenets of a revised plan.
Schadler said that she based her economic assumptions, in part, on an additional 2-2.5 percentage points coming off interest rates, in addition to the two that the Monetary Policy Council (RPP) knocked off earlier this year.
The RPP is under pressure from government officials to lower rates now. The Finance Ministry, citing revised economic deficit figures for 2000, has been especially vocal in calling for lower rates when the RPP meets May 29-30. The economic deficit in 2000 registered at 2% of gross domestic product (GDP), down from an earlier estimate of 2.7%, the ministry said last week.
In a sign of cooperation between the government and the independent interest-rate setting body, Steinhoff and Finance Minister Jaroslaw Bauc met with members of the RPP last week to discuss public finance, privatizations, unemployment and monetary policy. More meetings are planned, the National Bank of Poland NBP said in a statement.
"It is the first sign there is light at end of the tunnel," said Marcin Mroz, senior economist at Societe Generale bank. Coordination in fiscal and monetary policy will be important to avoid a situation where the RPP points to the budget deficit as a reason for maintaining high interest rates while the government points to high interest rates as a reason for a slowing economy and, thus, budget troubles, he said.
"The poor situation of public finances is because of the income side," he said, noting that the government originally projected 4.5% economic growth as part of its revenue forecast.
Mroz said the RPP is unlikely to lower interest rates this week, instead waiting until June or July.
Working against interest rate cuts are the recently released food price figures for the first half of May, showing a 1% jump. The numbers, released by the Central Statistical Office (GUS), suggest that inflation could rise for the second month in a row. Core inflation figures for April, released last week by the NBP were also up. And the country's budget deficit, which reached nearly 90% of the year's plan last month, is a major concern.
The RPP's main goal is to keep inflation between 6-8% in 2001, with an eye toward 4% inflation in 2004.
The 28-day money market rate is now set at 17%.
