Firstly, the removal of Poland’s constitutional debt limit (publicly considered by Vice-Finance Minister, Piotr Patkowski as well as Finance Minister Tadeusz Kościński) connected with the progressive marginalization of the Stabilizing Expenditure Rule will favor the systematic growth of the public debt in relation to GDP. In a longer perspective, this will mean growth in debt service costs and also an elevated risk to the stability of public finances. Unfortunately, the ignoring of fiscal rules (excluding indebtedness from the definition of sovereign public debt, among others) could have a similiar effect, which is currently a conscious practice of the Finance Ministry’s Leadership. It’s worth remembering that exceeding the constitutional debt limit isn’t just an effect of the pandemic, but also in large measure of the earlier loosening of fiscal policy (Kaczyński’s Five, among others).
Secondly, there is little probability that additional outlays will be used on pro-development investments. On the other hand, public investments undertaken at the central level are rightly criticized for a lack of an economic justification (the excavation of the Vistula Split and the Central Transportation Port, for example). We think the risk of “overeating” additional funds the government would have at its disposal is very large.
Fiscal regulations aren’t obstacles to the financing of public investments in Poland (whose level is relatively high): in 2017 their value reached 4.7% of GDP in comparison to the 2.9% average for European Union countries. Supporters of a significant modification or removal of Polish fiscal rules present no evidence that the debt limit constitutes a real limitation to the level of public investment. We feel that threats should be looked out for elsewhere, even in the increasing share of so called stiff budgetary expenditures which, — in a situation of fiscal consolidation — force cuts precisely in investments. Unfortunately, this is already taking place: the value of public investments fell in 2019 (they are again set to be limited this year) in contrast to the substantial, near 10% growth of general government expenditures in 2019.
Also keep in mind the considerable role of EU funds, which help in the financing of national and local government investments in Poland: last year, budget revenues from European proceeds within the Structural Fund and the Cohesion Fund exceeded 11 billion EUR (around 2% of GDP). Furthermore, taking into account proceeds that will flow to Poland within the next multi-annual financial perspective (2021-2027, about 67 billion EUR within the cohesion policy) as well as from the so called Reconstruction Fund - from which will flow 56 billion EUR in grants and bonds — we view the risk of a lack of funds often mentioned in the public debate as greatly exaggerated. What’s more, we express very far reaching doubts whether the public sector in Poland would be able to effectively prepare and manage a significantly larger amount of investment projects than those already planned and connected with investments co-financed by the European Union.
Thirdly, the rapid increase in public expenditures should also be evaluated in the context of supply constraints. Many businesses are already indicating that a lack of workers constitutes a barrier for their development. The stimulation of domestic demand with public debt impedes the activity of Polish export businesses. Supply constraints are also especially pronounced in the construction sector, where the growth of state investment demand would cause a significant growth in costs and prices. Instead of increasing public debt, reforms — thanks to which private investors will want and be able to invest more, especially in innovative projects — are necessary. In this sphere Poland has noted a severe regress over the last five years.
The world in which we will be living tomorrow depends on the decisions we undertake today. The difficult times of the pandemic don’t discharge the government from the responsible management of economic policy. We need a return to reliable financial frameworks. Their eventual modification should arise with the broadest possible political agreement — a situation in which the governing majority itself loosens the rules is really just a lack of rules. Let us not go this way!
Appeal Authors:
Mateusz Urban
Member of the Society of Polish Economists,
Oxford Economics, UK
Jakub Pawelczak
Member of the Society of Polish Economists,
PhD Student, University of Minnesota, USA
Signatories:
Maciej Albinowski
Arkadiusz Balcerowski
Sergiej Druchyn
Grzegorz Dybowski
Aleksandra Falkowska
Mateusz Komorowski
Aleksander Łaszek
Damian Olko
Maciej Orczyk
Kamil Pastor
Adam Piłat
Arkadiusz Sieroń
Peter Szewczyk
Marek Tatała
Filip Waluszko
Marcin Zieliński