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64 Opinion
bne November 2023
increase in foreign direct investment (FDI) on top of the already significant inflows (over 4% of GDP in 2022) we have seen recently. These factors point to a strengthening of the zloty.
We expect fiscal policy to remain expansionary, given a series of three more elections – local, EU and presidential
– still to come. The incumbent government planned 2024 net borrowing needs at PLN225bn vs PLN143bn in 2023. We estimate that local savings may cover a third of them in 2024, down from two-thirds in 2023. We expect those spending plans to remain in place after any change of power.
We see potential additional PLN20bn-30bn new spending from the opposition programmes, which may be implemented in the coming year, but they could be offset by lower defence spending. Given that many EM bond investors have remained underweight in POLGBs for many years,
and there's now a more optimistic PLN picture, we expect covering these borrowing needs should be easier.
In the near term, the results of the country's parliamentary elections will be decisive for the zloty's behaviour. If the exit polls are confirmed, the strengthening of the PLN should prove to be permanent. This is because investors are counting on the new coalition to resolve the conflict with the EU, which will allow for the rapid unblocking of funds from
HESS
the Recovery Fund; a larger FDI inflow than already solid is possible. We see a return of the €/PLN closer to 4.40.
There will still be a few risks towards the end of the year, but we assume they will be less significant than the election result, given the expected inflow of portfolio capital into the debt market and increased foreign direct investment.
That said, it's worth noting a few risks for PLN. These include high 2024 borrowing needs and the continuation of expansionary fiscal policy expected by the rating agencies, and any deterioration in the domestic balance of payments, which has recently been improving.
At the end of the year, we see €/PLN between 4.40-4.50.
Rafal Benecki is ING’s chief economist for Poland. This note first appeared on ING’s THINK.ING portal here.
Content Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
Nagorno-Karabakh shows up the myth of a “rules-based international order”
Maximilian Hess in London
The tragic situation in Nagorno-Karabakh – where, at
the time of writing, more than 93,000 of the region’s estimated 120,000 ethnic Armenian residents have fled for Armenia proper – is the latest evidence that there is no such thing as a “rules-based international order.”
Although the United States and European Union – who frequently cite defending that order in explaining their foreign policy priorities and decisions – have attempted to mediate talks since the Second Nagorno-Karabakh War in 2020, they have not applied their commitment to this order in the latest war in the South Caucasus whatsoever.
There were previous clashes between Azerbaijan’s Armed Forces and both the forces of the Nagorno-Karabakh Republic and Armenia in 2021 and 2022, which left Baku also occupying heights in Armenia proper. That leverage has helped ensure that the Armenian military, far smaller and without the major
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international arms partners to whom Azerbaijan has directed so much of its hydrocarbon wealth, would be unable to respond effectively if Azerbaijan did launch a third Nagorno-Karabakh War as it ultimately did on September 19.
The situation is awfully reminiscent of that in Ukraine, whose defence has been rightly backed to the hilt by the US, EU,
and wider West in the face of Russian President Vladimir Putin’s wanton invasion. Western officials made clear that if Russia launched its full-scale invasion in 2022 that crippling sanctions would follow, and they duly did just three days
later – with the targeting of Russia’s central bank and wider economy the most significant sanctions act against a major power since the Second World War. Such threats have been entirely absent from attempts to avoid conflict in Nagorno- Karabakh. Western officials have even refused to make such threats publicly after officials from the breakaway government Nagorno-Karabakh put up the white flag after