Top Polish Economist Draws Public Attention to State Debt Growing

Conservative think tank Civil Development Forum (FOR) founded by Polish economist Leszek Balcerowicz launched a public campaign against rising public debts by placing a giant screen in the heart of Warsaw bearing a calculation of current state debt levels, rising at 150 million zlotys every 24 hours.

Balcerowicz, economics professor, former head of the National Bank of Poland and the “Father” of Poland’s economic reforms in the 1990’s wants to raise this way public awareness of the constantly growing public debt.

Yesterday at 11pm, when this “electronic debt clock” was set in motion the Poland’s total public debt amounted to 724,259,822,418 zlotys.

Poland reportedly spent some 38 billion zloty in 2009 servicing its public debt, which Balcerowicz said equals the income tax revenue.

Meanwhile, the Polish government's debt management strategy shows that Poland's public sector debt will peak in 2012 at 54.3% of GDP and return to 52.7% by 2014, but could easily cross the 55% threshold on a 10% currency weakening or GDP growth at 1 percentage point below plan.

Public debt to GDP will cross the first threshold in 2010, the document says to reiterate the universal expectation, citing a 53.2% level at end-2010. The ratio will rise to 54.2% in 2011 and 54.3% in 2011 before tailing off from 2013.

In nominal terms, public sector debt - the measure which Poland uses for its constitutional and legal thresholds - rises 44% from end-2009 to end-2014.

General government sector debt to GDP - the Maastricht measure - also rises consistently to end-2012, but does not come down from that peak. Expect 55.4% at end-2010, 57.1% in 2011 and the peak at 57.8% in 2012. Major moves in FX or below expectation GDP could throw the full plan off course, the document shows.

GDP growth at one percentage point below plan could add 0.52 pps to the public debt to GDP ratio in 2011, 1.03 pps in 2012, 1.54 pps in 2013 and 2.02 pps in 2014. That alone would be enough to put Poland over its 55% threshold in 2012 an d 2013, according to the document.

A 10% zloty weakening to global currencies, adding to the zloty denominated value of foreign denominated debt, could add 1.39 pps to 1.42 pps to the debt to GDP ratio across the forecast horizon.

Polish law mandates select austerity measures once public debt to GDP has crossed the 50% and later 55% of GDP levels. The Polish constitution mandates considerably more severe measures once the 60% level is breached. As a part of its euro adoption quest, Polish must retain the general government debt at a level below 60% of GDP.