There wasn’t a huge shortlist for the award for best finance minister in emerging Europe. It has been a terrible 12 months for the region, and every CEE (central and eastern Europe) economy is in recession – every country, that is, with the exception of Poland.
Poland is forecast to keep growing by around 0.7% this year, and by 1.4% next year. “Poland is doing much better than its peers in the CEE”, says Michael Ganske, head of emerging market research at Commerzbank. “It’s the only country in the region still growing, albeit at a slower rate to past years.”
If finance minister Jacek Rostowski was unfortunate in the timing of his acceptance of the ministerial position – taking the job in November 2007, just as the global economy lurched into crisis – then he has been more fortunate in the way that Poland has weathered that crisis.
Commerzbank’s Ganske says: “A lot of Poland’s success in the last 12 months is down to luck, really. Luckily, the economy is not very leveraged, and less reliant on industries like commodities than some of its peers.” It also has a large domestic consumer base and domestic investor base, which has helped shield it from the worst of the crisis.
But the government has hard decisions to make as well. Like most other governments, public finances have deteriorated sharply, with the deficit in Poland’s case likely to be 6.1% of GDP this year, rising to 7% next year, according to analysts. Crucially, this is down to poor tax revenues and spending on social benefits rather than a Keynesian-style fiscal stimulus.
“We decided very early on not to introduce a stimulus, and instead allowed automatic stabilizers to do the work,” Rostowski tells Emerging Markets in an interview.“This strategy worked well for us, and I am very proud that we are the only country in the region to have had growth this year.”
However, public debt is at 47% of GDP – not too worrying, but if it goes over 55%, it triggers a clause in the constitution that would force the government to make drastic cuts. “We certainly need to ensure this level is not breached, and of course we will take measures to reduce the deficit,” he says.
Rostowski’s plans involve trying to raise huge sums of money from privatization sales within a short period of time. The biggest deal, if the Polish unions don’t succeed in blocking it, will be the sale of the government’s 42% stake in KGHM, the copper company, which could be worth around $3 billion.
The government is also trying to sell its stake in energy company Enea, with RWE at present the sole bidder for what could be a $2.5 billion deal this year. It also plans IPOs for PGE, the energy firm, and PZU, the insurance company. It has already sold small stakes in Bank Pekao, Bank Zachodni and BPH Bank. But analysts say the strategy is over-ambitious at a time when leverage is scarce and cash-rich foreign investors are thin on the ground.
But Rostowski remains defiant “I am confident that this will be achieved, because if you look at the performance of global stock markets and general market sentiment, it is very positive.”
Nevertheless, Poland’s bondholders have the security of knowing public debt cannot, constitutionally, get out of hand in Poland, unlike in many other debt-ravaged EU countries.