Poland cuts 2007 deficit to almost half of forecast

Poland slashed its state budget deficit last year to almost half the forecast figure, the Finance Ministry said late last week, marking a crucial step towards EU targets and adopting the euro.
The 2007 deficit was around 16.9 bln zloty (4.7 bln euro, $7.0 bln), compared with the 30 bln zloty projected in the 2007 budget, said Deputy Finance Minister Elzbieta Suchocka-Roguska.
Two weeks ago, Suchocka-Roguska had estimated the 2007 deficit would be less than 19 bln zloty.

The 2007 budget had forecast that the overall public deficit, which includes the deficits of the state, as well as local authorities and the health service, would amount to 3.7 percent of gross domestic product, substantially exceeding a 3.0-percent target for eurozone membership.

The deputy minister did not say what the actual public deficit now represents in terms of total economic output.
However, a ministry official told AFP: “Given that the state budget deficit is the principal source of the public deficit, we estimate that the latter could be below 3.0 percent of GDP.”
The EU’s executive body, the European Commission, had estimated that the ratio would fall to 2.7 percent in 2007, rising again to 3.2 percent in 2008 and 3.1 percent in 2009.
The 2007 budget had been approved by Poland’s previous government, led by the conservative and euroceptic Law and Justice party.

The 2008 budget, recently passed by the business-friendly and europhile Civic Platform administration which took office in November, forecasts a deficit of 27.09 bln zloty, or 3.2 percent of GDP.

The new government predicts GDP growth of 5.5 percent in 2008. The economy grew 6.4 percent in the third quarter of last year on a 12-month comparison.
Under the Maastricht Treaty which created economic and monetary union, and laid down obligations and conditions for EU members to adopt the single currency, a public deficit should not exceed 3.0 percent of output. When Poland joined the EU in May 2004, its fellow members gave it until 2007 to bring its deficit into line with the 3.0-percent benchmark.

The Stability and Growth Pact, which reinforces this discipline for countries in the eurozone, requires the public accounts to move into surplus in the medium term. The public deficit covers central government, social, and local authority budgets.
In joining the EU, Poland became bound to work towards achieving criteria for membership of the eurozone which, with the accession on Jan. 1 of Cyprus and Malta, now has 15 members from the 27 countries in the EU. The main targets concern inflation, interest rates, currency stability and containment of the public deficit and debt, together with independence of the central bank in managing monetary policy.

While euro adoption is the priority for the new government, Finance Minister Jacek Rostowski has said a switch from the zloty to the single currency is at least four years away.