The scenario of public debt increasing above 60 percent is now inevitable. This is an unprecedented situation for Poland, because nothing like this has happened before in the Third Polish Republic. However, this should not pose a threat, provided that we stabilize inflation and interest rates – writes Monday's “Puls Biznesu”.
“In the coming years, the state debt will exceed the barrier of 60 percent of GDP. In Polish conditions, this is an unprecedented phenomenon. Since debt often evokes bad associations, society may fear growing that a crisis of destabilization of public finances and the economy is just around the corner,” we read. newspaper.
“It all depends on the context”
“Such sentiments would be economically justified if there was in fact an excessive level of public debt, i.e. one that carries unfavorable consequences in the economy and leads to systemic turbulence.” “However, in reality there is no such barrier. It all depends on the context,” it was emphasized.
“As far as some theoretical models indicate to the negative relationship between public debt and economic growth, it is really difficult to prove this relationship on empirical grounds“. “According to the suggestions of some economists, the critical barrier will be the level of fiscal debt of 90 percent. GDP, but many other empirical studies have disproved this relationship. This is because in reality, the relationship between debt and economic growth can go both ways, and the impact can be both positive and negative,” we read.
“For example, low economic growth may increase the debt-to-GDP ratio, but it may also make debt servicing easier if, along with low growth, interest rates are also low. The most important factor for debt security is the ability to service debt, and this depends on interest rates and the rate of economic growth “- it was written.
Growing debt
At the beginning of the month, the Ministry of Finance announced the adoption of the medium-term budgetary and structural plan for 2025-2028.
The ministry announced that the debt of the general government sector will exceed 60%. GDP in 2026, while in 2023 it was below 50%. This ratio is expected to return to below 60%. GDP in 2030
“The plan assumes limiting the nominal deficit below 3% of GDP in 2028 i as a result, exiting the excessive deficit procedure and putting the debt on a path of gradual reduction (ultimately below 60 percent of GDP). The most important element of the Plan is the sector's expenditure path until 2028, which should ensure compliance of the sector's deficit and debt with EU regulations in the medium term. The implementation of this scenario requires the government to take appropriate actions (the Plan presents only the framework structure of consolidation),” the Ministry of Finance said in a statement.
– We decided to choose a 4-year path in the plan. It is important for us to improve the parameters related to the debt level as quickly as possible, to get it below 60 percent as quickly as possible. The 4-year path means faster debt reduction and greater credibility towards the markets, said Minister of Finance Andrzej Domański during a meeting with journalists.
– The higher the debt level, the higher the debt servicing costs. The longer we stay above 60 percent, the proportionally higher the effort becomes. Our plan assumes that it will fall below 60 percent in 2030, he added.
Maintaining the debt (below 60 percent of GDP) and the public finance sector deficit (3 percent of GDP) at a specific level are elements of the so-called EU Maastricht criteria.
The most and least in debt
According to Eurostat data, the lowest rates are at the end of 2023 public debt to GDP was recorded In Estonia (20.2 percent), Bulgaria (22.9%), Luxembourg (25.5%), Sweden (31.5%), Denmark (33.6%) and on Lithuania (37.3 percent).
13 Member States had public debt ratios above 60%. GDP. The highest levels were recorded In Greece (163.9 percent), Italy (134.8%), France (109.9%), Spain (105.1%) and Belgium (103.1 percent).
Main photo source: Leszek Szymański/PAP