Public debt hits the one trillion mark

The total amount of debt owed by the Polish government crosses PLN 1 trillion (EUR 234 bn) for the first time, however, the relation between debt and GDP remains similar.

Ministry of Finance published budgetary data for the first three months of 2019. It shows public debt at the end of March amounting to PLN 1 005 bn (EUR 235 bn). This shows a growth of PLN 21 bn (EUR 4.9 bn), compared with the end of 2018, when the debt amounted to PLN 984 (EUR 230 bn). Breaking the PLN trillion barrier gives analysts an opportunity to examine the direction that public debt is going.

However, the Ministry estimates that the economy will grow faster than the debt and so the ratio of debt to GDP will not worsen. The exact forecast shows debt-to-GDP ratio of 47.9 percent at the end of 2019, lower than the previous year. The ratio has been improving since 2016.

“Even though we are observing a minor slowdown of the growth of economy, to about 4.5-4.7 percent, we have a chance of reaching 5 percent GDP growth this year” claims Jerzy Kwieciński, Minister for Investment and Economic Development. The Polish economy grew by 5 percent in 2018.

The cost of public debt servicing is increasing as the total goes up. In the first four months of this year, servicing the debt took PLN 11.3 bn (EUR 2.6 bn), an increase from 8.5 bn (EUR 2 bn) for the same period last year.

It is estimated that the service of the debt costs an average Pole PLN 5.80 (EUR 1.36) everyday, an increase from less than PLN 5 (EUR 1.17) last year. The is however not record high. In 2013, it used to cost an average Pole PLN 7.51 (EUR 1.76) everyday, as the debt servicing costs depend on the interest rates as well as on the exchange rates. In 2013 the exchange rate of EUR to PLN was 1:4.08 compared to 1:4.26 now.

While Poles are concerned about the scale of the national indebtedness, when we look at the situation in other countries, the national debt is quite small.

The German national debt is 64.1 percent, the EU average is 86.8 percent, while the Japanese are burdened with the record 223.8 percent. While interest rates are low, Poland is very much able to service its national debt. The danger comes, however, if interest rates increase. The outlook, however, according to analysts, is that rates will remain fairly low for the next few years.

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