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Inflation And Budget Issues Face Poland’s Vote Winner

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Inflation And Budget Issues Face Poland's Vote Winner

(CTN News) – Despite the cost of living crisis, which has Inflation disproportionately affected central Europeans over the past two years, Warsaw pensioner Jadwiga Buczek feels better about the upcoming general election.

“There was a time when I couldn’t even afford salmon, for example, but now I buy myself a piece every week,” Buczek told Reuters.

A supporter of the ruling Law and Justice (PiS) party, Buczek said, “I believe that the government is doing a great deal, and those who think this is a mistake or that they are doing something wrong are absolutely wrong.”

PiS has raised Buczek’s pension as part of hefty welfare spending moves that are easing Poles’ concerns about high inflation, according to opinion surveys.

PiS and its rivals are now promising even more generous spending – meaning that whoever wins the Oct. 15 election must foot the bill for policies that risk fueling inflation and stressing the state budget.

Due to its skilled but still relatively cheap workforce, Poland, the largest of the former communist states that joined the EU, has seen a surge in foreign investment since the COVID-19 pandemic.

Socially conservative PiS has been able to expand child benefits, raise minimum wages, and pay pensioners more – in turn prompting rival politicians to make even more ambitious election promises.

Even though welfare supports are modest compared to those in western Europe, some fear they could hinder efforts to lower inflation, which peaked at 18.4% in February and remains around 10% – double that of the euro zone.

This month, the European Commission forecast 2024 inflation at 6.1%, double the central bank’s 2.5% target, due to new fiscal measures and an increase in the minimum wage.

Polish A-tier credit ratings have a stable outlook for now, as a result of its strong fundamentals and solid growth prospects in the medium term, despite high inflation this year.

Nevertheless, some are concerned about monetary policy as well.

A much-larger-than-expected 75 basis point cut by the National Bank of Poland ahead of the election raised concerns the bank was more concerned about economic growth than inflation.

With oil prices above $90 per barrel, and depreciation of the Polish zloty after the interest rate cut, it is likely that inflation rates will still go down, but not at the pace previously anticipated,” said Steffen Dyck, senior vice president, Moody’s Sovereign Risk Group.

Reuters polled all the economists before the decision and none were surprised by the move, according to NBP Governor Adam Glapinski.

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Credit rating agencies believe that pledges of higher social spending will be hard to reverse regardless of who wins on Oct. 15.

On the basis of IMF data, Polish state spending will reach more than 46% of GDP this year, the second-highest level of this century.

Federico Barriga Salazar, Director of Fitch Ratings, said: “The fundamental expenditure versus revenue trends indicate higher deficits over time.”

Poland’s minimum wage, already the highest in central Europe, will rise by nearly a fifth next year. Warsaw recently extended a scheme for mortgage repayment holidays into next year to accommodate many homeowners with variable loan rates.

One of Europe’s best mortgage deals is available to first-time home buyers at a fixed 2% interest rate for 10 years.

A 57-year-old father of three and IT company manager, Andrzej Kuzniak supports the main opposition Civic Coalition and wonders who will win the election.

Isn’t it true that if we have social spending, there must be revenue as well?” he asked.

The inconclusive election, as polls suggest, will further delay the delivery of 110 billion euros ($116.84 billion) of EU funding held up over rule of law concerns.

According to Moody’s Dyck, this would mean higher deficits and a higher debt burden for the government, which would be negative for the credit profile over the medium term.

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