Page 19 - Poland Outlook 2024

“The market calmly accepted the draft of next year's budget by the new government; its main parameters were in line with investor expectations,” according to an analysis by ING.
Debt-wise, the draft budget law assumes net borrowing needs will come in at PLN 252.27bn in 2024 – 6.7% of GDP – compared to PLN 152.52bn last year.
This comes in the context of additional budgetary costs amounting to 0.7% of GDP. The new spending in 2024 is mostly linked to the 30% wage hike for teachers and 20% higher wages for public administration. As a result, the proposed 2024 state budget deficit is nearly PLN20bn (0.5% of GDP) higher than initially proposed. With revenue forecasts broadly unchanged, the 2024 general government deficit is expected at 6% of GDP.
Given high borrowing needs, the Polish budget should become more reliant on foreign financing in 2024. In line with that, foreign financing is expected to amount to PLN 103.46bn in 2024, compared to just PLN 6.57bn in 2023.
“The finance ministry will be challenged to place such sizeable debt supply into the market, but both the external and internal environment are favourable to successfully covering the borrowing needs,” according to ING.
But the government could still diversify funding and surprise investors, who have been quite cautious about bidding for Polish government bonds, given the expectation that higher supply could lift yields.
One such way could be via domestic banks, where deposits in the banking sector were higher than loans by PLN 67bn (as at the end of the third quarter). The Ministry of Finance could also use its current cash buffer and/or advances from EU funds, which are coming in faster than expected, to cover 2024 borrowing needs. Finally, the ministry may increase bond issuance in FX.
Also since the 15 October general election, the new coalition has received substantial credit of trust from foreign investors, with the zloty gaining close to 10% in early January.
“The bottom line is that 2024 will be a year of loose fiscal policy and record-high borrowing needs, but investors are eager to accept it, assuming the credible consolidation path that will be put forward in coming years,” ING said.
“We currently assess the possibility of placing debt optimistically ... From the supply side, this results from a certain easing of fiscal tensions due to obtaining part of the funds from the National Reconstruction Plan [the Polish name for the plan to spend the money from the EU’s pandemic recovery fund], which have been included in the 2024 budget, and whose allocation has so far been associated with high risk,” Bank Millennium wrote in an analysis.
The demand for Polish debt is expected to remain strong. “The main buyer of domestic bonds, commercial banks, will be liquidity surplus due, among other things, to the limited credit action and the sustained growth of deposits,” according to Bank Millennium.
Moreover, the post-election enthusiasm for Polish assets, evident so far in the
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