Taxpayers will pay for growing state debt

opublikowano: 04-11-2008, 16:26

Warsaw (Puls Biznesu) – Weaker demand for treasury bonds may result in higher taxes. Due to financial crisis, the state may need to borrow more money and pay higher interest.

According to the budget bill, the Polish state will have to borrow PLN 39bn (EUR 10.9bn) next year. The cost of the debt will amount to PLN 33bn, or PLN 5bn more than this year. These were the estimates of the ministry of finance made several months ago when no one expected the financial crisis. The situation is totally different today. Foreign investors have recently started to sell Polish treasury bonds, the demand has been very poor. This means that it may be quite expensive for the state to issue and sell treasury bonds.

Some economists believe there is nothing to be worried about.

“I believe that the situation will improve in upcoming months”, Maciej Krzak, CASE economist said.

“You need to be very careful and watch the situation. But it would be too much to say today that we have a problem”, Miroslaw Gronicki, ex-minister of finance added.

Other economists, however, do see the problem.

“The cost of borrowing has grown to record levels recently. Even if it falls down next year, it will be higher than expected in the budget. There should be no problem to raise PLN 38bn but it will be much more expensive than estimated”, Stanislaw Gomulka, BCC chief economist and ex-minister of finance believed.

“There is a risk that the state will need to borrow money and the conditions will be highly unfavorable”, Andrzej Sadowski from Adam Smith Center commented.

Some bond traders also expect that demand will be lower.

“The demand will be weak. The problems with cash flow won’t be over soon”, the head of trading department in one of the banks said.

Pessimists worry that banks may not be interested in treasury bonds because they earn high margins when they give credits. Pension funds may turn to the stock exchange which already today offers attractive prices.

Higher costs of foreign debt mean higher taxes.

“It will be households and companies who will be adversely affected by growing state debt because they will pay higher taxes in 2010. Some rates will grow, others won’t fall down”, Stanislaw Gomulka believed.

“The debt is a burden for the economy and society. Interests paid by the state in 2009 are supposed to be twice as high as the whole budget deficit. With such burdens, the companies won’t see the market deregulations”, Andrzej Sadowski added.

However, the ministry of finance is not going to update its estimates.

“Verification is not excluded but there are no reasons to do it right now”, Magdalena Kobos, the spokeswoman of the minister of finance said.

(PLN 1 = EUR 0.282)

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Podpis: MAG