A ranking of EU member states according to their budget and debt service ability of particular countries has Poland coming out near the top, according to the Debt Sustainability Monitor for 2020 that was released last week.
Poland found itself among the top four countries best evaluated in terms of fiscal risk in short-, medium- and long-term perspectives. Only Latvia, Estonia and Denmark were placed ahead of Poland. All of those countries have much smaller economic and social potential than Poland, which means that Poland has the highest budget stability among large EU member states.
It is important to note that this evaluation concerns the budgets which have been hit hard by the pandemic, which caused significant drops in tax income as well as the need to activate serious additional budget spending.
As a reminder, in the amendment to the Polish budget law for 2020, Minister of Finance Tadeusz Kościński lowered the sum of budget income by €8.2 billion (to a total of around €89.4 billion). At the same time, he increased budget spending by €16.2 billion mainly to support the economy affected by the pandemic.
The simultaneous drop in income of €8.2 billion and the increase in spending made it so that Poland has moved from a balanced budget to a budget with a deficit of €24.4 billion. This will lead to an increase of public debt in relation to GDP up to the level of 50.4 percent according to Polish methodology and 61.9 percent according to EU methodology.
Meanwhile, the state budget for 2021 foresees a deficit of €18.4 billion. This in turn carries over to an increase of public debt in relation to GDP to the level of 52.7 percent (Polish methodology) and 64.7 percent (EU methodology).
Minister Kościński, however, also stated in an interview at the end of 2020 that both the amended budget for 2020 and the accepted one for 2021 will be able to finance the social and economic effects of potential coronavirus waves.
The minister also emphasized that the United Right’s actions in the last five years have led to significant reduction of public debt in relation to GDP which has created a fiscal cushion for the government’s current actions to save companies and workplaces. Public debt in relation to GDP has been decreased from 54 percent to 46 percent during this period, using the Polish methodology.
Kościński added that a return to ordinary tracks in public finance will not occur through raising taxes. The deficit in the sector of public finances will drop below 3 percent of GDP as early as 2022 and public debt in relation to GDP will also begin to drop in that year; both according to EU and Polish methodology.
The financial cushion prepared over the last five years is now used by the government, which permits massive public spending that has saved hundreds of thousands of workplaces and caused Poland to have one of the lowest GDP decreases in the EU. According to Statistics Poland, it will amount to only 2.8 percent and will be the best result in the EU if one counts only large economies.
Despite the growth of public debt in relation to GDP, its level of over 60 percent by the end of 2021 will be below the EU average, which already has exceeded 100 percent.
Moreover, there is still fiscal room to carry out further spending as part of the so-called industry shield to which the government wants to add more funds to support those industries which have suffered due to COVID-19 restrictions in December 2020 and January 2021. The total value of government financial shields will exceed €44.7 billion, almost 10 percent of Poland’s GDP.