Donald Tusk addressed the Polish parliament on Friday morning, promising not blood, sweat and belt-tightening but massive new spending programmes aimed at boosting growth.
Following IMF head Christine Lagarde’s comments in Tokyo on Thursday, Poland is joining a widening global consensus on the damaging impact of focussing too strongly on fiscal austerity.
In recent years Poland has made something of a fetish of steadily reducing its debt and deficit – which jumped to uncomfortably high levels in 2009 and 2010 as a consequence of the first wave of the economic crisis – but very low borrowing costs, forgiving markets and a slowing economy are prompting a change of policy.
“The world and Poland face another difficult year,” Tusk told parliament. “The primary goal before the government is to protect people from the consequences of the crisis.”
While stressing that he did not want to derail progress on reducing the deficit and public debt, Tusk promised that spending on new highways, rail modernisation, power plants, a natural gas terminal and new pipelines would be ramped up starting in 2013. The total spending for the next few years comes to about 220bn zlotys ($70bn), although much of what Tusk detailed has already been committed under previous spending plans.
“For a responsible government, which wants growth, and to keep people working, the key is to find ways of financing development and growth,” Tusk said.
The biggest innovation is a plan to use the state-owned BGK bank to set up a 40bn zlotys investment fund – to be backed by the largest state controlled companies – as a way of encouraging private sector lending for big infrastructure projects. The goal is to leverage that up to 90bn zlotys over the next six years.
“What is new in the programme is the focus on infrastructure investments which can have longer term economic consequences,” says Piotr Kalisz, chief economist for Citi Handlowy bank.
Stressing growth over fiscal tightening seems to be having very little negative impact on markets. Poland remains one of the fastest growing EU countries, and one of the few where public debt ratios are falling. Earlier this week, yields on Polish five-year bonds hit a record low and the cost of insuring Polish debt fell below that of France, says Jacek Rostowski, the finance minister.
Tusk’s speech did not have an immediate impact on the markets. The zloty lost a little ground against the euro, drifting down by 0.14 per cent to 4.09, but gained a bit against the dollar. The Warsaw Stock Exchange was down slightly, in line with other European markets.
“These announcements shouldn’t have a large effect on markets,” says Kalisz. “But they may give people a dose of optimism.”
That’s the way the message was received by Ben Habib, chief executive of First Property Group, a UK real estate investor specialising in Poland. “Even though we’re a niche property investor, we are affected by the macro environment and this certainly sets a positive impression,” he told beyondbrics.
Get alerts on Emerging markets when a new story is published