Polish government approves 2011 budget draft

Trade the News

Saturday September 04, 2010 08:19:19 PM GMT

* Polish govt approved final 2011 budget draft

* 2011 deficit seen at 40.2 bln zlotys vs 48.3 bln in 2010

WARSAW, Sept 3 (Reuters) - Poland's government approved on Friday its 2011 budget draft, setting the budget deficit target at 40.2 billion zlotys and expecting economic growth at 3.5 percent, the deputy finance minister said.

The planned deficit is significantly lower than the 48 billion zloty gap the government expects for 2010.

"The government has approved a preliminary budget draft with a deficit of 40.2 billion zlotys. All the macroeconomic assumptions remained unchanged," Deputy Finance Minister Ludwik Kotecki told Reuters.

The government built the budget based on assumptions that Poland's economy will expand by 3.5 percent next year and that average annual inflation will reach 2.3 percent.

The draft, which was discussed late on Friday, will now be sent to a trilateral commission, where it will be discussed with trade unions and business groups, but it should remain largely intact during this step as the deficit cannot be changed anymore.

The final budget bill must be sent to parliament by the end of September.

The central government budget deficit is a narrower measure than the deficit monitored by the European Union, which also includes local governments and state agencies.

The EU-standardized deficit is seen at about 7 percent of gross domestic product (GDP) this year and may fall slightly next year, but would remain much above the EU's 3 percent ceiling.

Poland -- which risks breaching a safety debt level of 55 percent of GDP that would by law trigger automatic and severe spending cuts -- was forced to launch several measures aimed at increasing budget revenues.

It said it would increase the value added tax by 1 percentage point starting next year and push for high privatization revenues. Earlier this week, Treasury Minister Aleksander Grad said he expected privatization revenues to reach 15 billion zlotys in 2011.

Data published this week showed the EU's largest ex-communist economy grew by 3.5 percent in the second quarter, above forecast, and officials and most analysts expect growth for the whole of 2010 to reach between 3.0 and 3.5 percent.

Economists, who would like to see greater fiscal reforms than an increase in VAT, say that the accelerating economy will help the government cap deficit and debt growth but criticize the finance ministry for counting on growth too much. (Reporting by Pawel Sobczak, writing by Patryk Wasilewski, editing by Gerald E. McCormick)

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