(Updates with rating companies from third paragraph.)
Dec. 9 (Bloomberg) -- Poland expects to approve measures to cut the budget deficit and help it win a credit rating upgrade within a year, Deputy Finance Minister Dominik Radziwill said.
The government will draft laws in the coming months that will “boost the credibility” of the deficit-cutting plans outlined by Prime Minister Donald Tusk on Nov. 18, Radziwill said in interview in Warsaw today. Poland has been rated A-, the seventh-highest investment grade, at Standard & Poor’s since 2007. Moody’s Investors Service has kept the country’s rating at A2, the sixth-highest grade, since 2002.
Polish hopes for a swift upgrade have been dashed by rating companies, which said they first want to see legislation to cut the budget shortfall. Tusk pledged to increase levies on metals extraction, reduce tax incentives and raise social security contributions for employers. He wants to lower next year’s budget deficit to 3 percent of economic output, from 5.6 percent projected for 2011, to keep public debt below a threshold that would automatically trigger austerity measures.
“Within a year we can definitely expect that the rating agencies will at least raise the outlook on our rating to positive, or maybe the rating itself,” Radziwill said.
Standard & Poor’s said on Nov. 21 it needed further details to assess the effect of the proposals, while Moody’s Investors Service saw “no immediate effect” on Poland’s rating on the same day. The government wants to cut public debt to 52 percent of gross domestic product next year and to 47 percent in 2015, when it plans a 1 percent budget gap, Tusk said in parliament.
Poland is scrambling to curb borrowing as the sovereign debt crisis in the neighboring euro area threatens to plunge the country’s biggest trading partner into recession. The European Union’s largest eastern economy is facing a record 125.4 billion zloty ($37.2 billion) in bonds and bills coming due next year, according to data compiled by Bloomberg.
Radziwill said he was convinced Poland will find buyers for bonds and plans to enter the year with “over a dozen” percent of debt needs already secured. Next year’s gross borrowing needs will reach 176.1 billion zloty, according to a budget bill the government approved on Dec. 6, compared to 144.9 billion zloty this year.
To help shield the economy from euro-region contagion, Poland also has a $30 billion flexible credit line from the International Monetary Fund, according to Radziwill. The Washington-based lender first granted Poland the facility reserved for countries with strong economies in May 2009 and renewed the agreement in January for two more years.
“If there was gigantic turmoil that would shut markets,” Poland has “access to the IMF’s credit line” and “won’t hesitate to use it,” Radziwill said about the “worst-case scenario” for 2012.
Poland’s government debt market has lured foreign investors, who owned a record 31 percent of domestic bonds, up from 18 percent before Lehman Brothers Holdings Inc.’s collapse in 2008, according to Finance Ministry data. Radziwill said he doesn’t foresee any “significant turbulence” when it comes to international holdings of local debt.
The zloty’s current level is “no reason for concern” and will not boost the value of Poland’s public debt above 55 percent of GDP and set-off austerity, Radziwill said.
The zloty lost 12 percent against the euro since June, making it the world’s second-worst performance after the Hungarian forint, as investors punished Poland because of its links to the euro region. Poland sells 54 percent of its exports to the euro area and 59 percent of its banking assets are controlled by western European lenders.
--Editor: Wojciech Moskwa, Peter Branton
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