Poland has been told to rein in its public finances by the International Monetary Fund, which is urging Warsaw to cut spending and raise tax revenues if it is to avoid falling foul of the EU’s budget rules.
In its latest annual report on the Polish economy, the IMF said Poland’s government deficit would come in at 2.9 per cent this year – just shy of Brussels’ 3 per cent limit and a deterioration from 2.4 per cent last year.
Poland’s ruling right-wing Law and Justice party (PiS) has been supporting the economy with higher spending since it came to power two years ago. Growth is expected to accelerate significantly to 3.6 per cent this year, from 2.6 per cent last year, driven by robust domestic demand and growing investment.
Annual GDP growth is forecast to fall to 3.3 per cent in 2018 and 3 per cent in 2019, according to the IMF’s forecasts.
But the fund is urging Warsaw to speed up its fiscal consolidation to stay within the EU’s spending rules and avoid risking the vast amounts of structural funds it receives from Brussels. The 2.9 per cent deficit was only a “shock away” from hitting Brussels’ limit said the IMF.
“The focus in 2017 should be on avoiding any slippages that could lead to breaching the excessive deficit procedure (EDP) limit and on saving any revenue over-performance”, said the IMF.
Any move by the European Commission to place Poland in EDP could imperil billions of euros of funds the country receives from Brussels every year. Warsaw only exited the EDP after six years in 2015.
Poland’s deficit has swelled on the back of higher spending on child benefits, a lowering of the country’s retirement age, and lower tax revenues.
Still, the IMF praised PiS for a better than expected performance in its public finances so far this year, which could still help the deficit come in below the 2.9 per cent projection.