Risks in the public debt of Poland in the 21st century. Directions of recovery actions

Abstract

The work shows the current status of the Polish public finances, as regards the debt and deficit of the public finance sector, stressing risks that caused a reduction in long-term ratings by Standard & Poor’s and Moodys, at the beginning of this year, to levels: BBB+, A– and A–, A–. An important fact is the increase in the deficit in the pension scheme over the next five years. The status is compared with the situation of the countries of the region and the EU in this area. It is also showed the importance of low rating as a source of the debt increase – it influences (increases): profitability, debt costs and exchange rates; therefore, it is necessity to raise the level at least two degrees. It is also stressed the loss of possibility of reduction in profitability and the cost of debt in a period of negative interest rates of ECB (–0.4 for March 2016). The actions leading to a reduction of the quotients: deficit/GDP, debt/ GDP, GDP/debt service costs are discussed, stressing the difficulties of a reduction of the deficit, in the current situation, and achieving the potential growth of GDP. The factor that gets worsen prospects for improving the dynamic of GDP growth is the raise of the taxation level, especially in banking system; it may also incorporate other taxes. A negative impact has also the perspective of the end of EU transfers, in terms of lack of possibility of the entry into the EURO area, as well as weak growth: investments, the productivity growth and technological progress and innovation. It is stressed the need to improve the methodology of the debt strategy and debt management, especially by applying the methods of optimization, statistics, econometrics and computational intelligence, as well as methods of financial engineering used in EU countries. Noted that in Poland there is absent the supervision of the quality of strategy and management, analogous as in other EU countries; it is suggested considering the establishment of such surveillance. To sum up the issue of restoring the health of the public finance sector, in terms of deficit and debt, was again among the central topics of the financial authorities of the country.