Bloomberg News

Poland Plans to Phase Out IMF Credit Line, Szczurek Says

July 29, 2014

Poland plans to phase out its flexible credit line with the International Monetary Fund, Finance Minister Mateusz Szczurek said, signaling confidence that the country will stay resilient to market shocks.

The government will ask the Washington-based lender to reduce the current two-year facility of about $33.8 billion when it comes up for renewal in January, Szczurek said in an interview in Warsaw yesterday. The lifeline would also “lose its appeal” if it were extended to more countries under less stringent conditions, he said.

Poland, the European Union’s largest eastern economy, first got the IMF facility reserved for countries with strong economies in May 2009 and renewed the agreement in January 2011 for two more years. The country has never tapped the credit line as it became the trading bloc’s only member to avoid recession since the debt crisis struck more than five years ago.

“We’ll slowly pull out of the FCL, which we currently treat as a substitute for foreign-exchange reserves,” Szczurek said. “It’s a cheap instrument, but it’s becoming less necessary.”

Poland receives almost 20 billion euros ($27 billion) in EU grants a year and the government can exchange them at the central bank to build up reserves if needed, Szczurek said.

Yields Drop

The yield on Poland’s 10-year zloty bonds fell six basis points, or 0.06 percentage point, to a 14-month low of 3.16 percent. The zloty slipped 0.2 percent to 4.1523 per euro at 3:54 p.m. in Warsaw.

The government will start to raise funding for 2015 after it met all of this year’s needs, according to Szczurek. Poland sold 6 billion zloty ($1.9 billion) of 2019 debt last week, or 20 percent more than planned. The auction drew 20 billion zloty in investor bids, the most in 15 months.

It’s “very unlikely” that Poland will tap foreign bond markets this year because the country doesn’t have much debt due in coming months, Szczurek said. The Finance Ministry also wants to reduce the share of foreign-denominated liabilities to 30 percent of government debt from 35 percent, he said.

“We’re in favor of starting to finance next year’s needs early,” he said. “Just as we were dealing in previous years with uncertainty related to the west, this time our main concern focuses on the situation across our eastern border.”

Ukraine Disruption

The Polish economy has lost momentum since growth accelerated to 3.4 percent in the first quarter, the fastest pace in two years. It probably expanded between 3 percent and 3.3 percent in the second quarter, in part because of a “double-digit” contraction in exports to Russia and Ukraine, the country’s eastern neighbor, according to Szczurek.

Poland may “conservatively” cut its 2015 economic growth forecast from 3.8 percent to prepare the budget for continued foreign-trade disruption from the Ukraine crisis. Such a reduction wouldn’t be “significant,” Szczurek said.

“It’s not a deal-breaker for the Polish economy,” he said. “Exports to the east have been growing quite fast over the last few years, but it’s still far less important than the economic situation in the EU.”

Poland sends 54 percent of its exports to the euro area, according to the statistics office. Its western neighbor Germany was the country’s biggest trading partner with $104 billion last year, followed by Russia with $29 billion, data compiled by Bloomberg show.

Zloty Appreciation

The country’s dependence on exports means a sudden surge in the zloty isn’t welcome now, Szczurek said.

“It wouldn’t be good in this phase of the cycle if the zloty strengthens too much and too fast, before demand in western Europe recovers,” he said, adding the currency is still poised to advance in the next “24 months.”

As part of drafting next year’s budget, the Ministry will also reduce its estimate for inflation to 1.5 percent from 2.3 percent because of lower food prices, Szczurek said.

While narrowing the general government deficit to the EU limit of 3 percent of gross domestic product this year is improbable, that goal remains the “overriding” priority for 2015, according to Szczurek.

The government, which faces general elections next year, has pledged to narrow the fiscal gap in line with EU requirements from 4.3 percent of economic output in 2013.

“If it means seeking bigger savings or withholding wage increases for some groups, then so be it,” Szczurek said. “While it doesn’t look like we will have to scramble in panic to find some extra revenue next year, profligacy won’t happen either, because we’re in a deficit-cutting cycle.”

To contact the reporters on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net; Maciej Onoszko in Warsaw at monoszko@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; Wojciech Moskwa at wmoskwa@bloomberg.net Pawel Kozlowski, David McQuaid


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