Poland’s Omitted Error-Prone Preening
Polish securities were upended by Hungarian ones as Central Europe favorites as Prime Minister Tusk’s Civic Platform seeks another term with early reform ambitions unfulfilled and new private pension and national account setbacks stoking investor doubts. The government has barely budged in the World Bank’s “Doing Business” ranking since taking office, and the non-public social security contribution was cut as a portion of salaries by two-thirds to keep the debt below the 55 percent of GDP ceiling that by law automatically triggers austerity measures. The fiscal deficit will still exceed 5 percent this year under a best-case scenario, and statistical integrity more broadly has been undermined by the discovery of a near EUR 15 billion “errors and omissions” item in the balance of payments that may double the officially-reported current account gap. The central bank has acknowledged the large discrepancy, which it argues is due mainly to untracked German car imports, but claims no net drag on output as domestic demand was also understated under existing methodology. The fracas erupted as the capital account has shifted to 75 percent reliance on portfolio inflows, and the privatization program foresees $5 billion in upcoming Warsaw Exchange sales to raise revenue and the regional and international commercial profile. A listed Ukrainian firm was recently added to the blue-chip index under a longstanding strategy to lure neighbors with initial outreach also to companies in culturally-related Belarus before the crackdown there following the President’s re-election. Another stake in Bank PKO will also go on the block as the foreign-dominated sector has maintained good earnings despite NPLs at close to 10 percent of the total. GDP growth is put at 4 percent in 2011 on inflation at the same level, with the benchmark rate already lifted slightly entering an expected tightening cycle. Mortgage lending has been flat and consumer appetite has been hurt by higher VAT as corporate and infrastructure credits have become the most popular segments ahead of the Euro 2012 football competition.
The zloty has backtracked against both the euro and dollar as almost $9 billion in external bond issuance, the biggest among EMBIG components, is slated this year. The CDS spread with Hungary has aligned as the latter successfully placed $4.25 billion covering three-quarters of annual needs after re-affirming the 3 percent of GDP budget deficit goal through its own pension and tax grabs. To diversify the buyer base debt managers in Budapest traveled to China in April as a revised constitution was also expedited through parliament with the Fidesz party majority over opposition and European watchdog objections. It enshrines a 50 percent of GDP public debt objective along with political influence over the monetary authority as ingrained assumptions are recast.
