Poland Widens 2024 Budget Gap Due To Lower Tax Inflows And Flood

10/29/2024 7:01:12 PM

(MENAFN- Live Mint) (Bloomberg) -- Poland's government revised up its 2024 budget deficit as lower than expected value-added tax revenues strain the fiscal plan along with additional spending triggered by a devastating flood.

The budget deficit is set at 240.3 billion zloty this year ($60 billion), up from the previous 184 billion zloty cap, the government said on Tuesday. Just hours before the expected revision, demand at a government bond auction tumbled to the lowest level in two years in another sign that investors are growing concerned over the bulging budget.

Poland's fiscal policy has been labeled as“relatively loose” by Fitch Ratings as the government ramps up military spending due to war in neighboring Ukraine. The ruling coalition is also unwilling to cut spending ahead of presidential elections due in mid 2025, while lower than expected inflation has reduced this year's inflows from VAT.

The changes come after a flood hit central Europe - including parts of southwestern Poland, in September. The government has vowed to step up spending to repair road and rail infrastructure as well as make payments to households affected by the weather.

Poland has pledged to consolidate its budget in the coming years to exit the European Union's excessive deficit procedure. Warsaw fell under the regime as its fiscal gap exceeded the EU's 3% limit in 2023, when the previous government was in power. Finance Minister Andrzej Domanski has said the cabinet will rely mainly on economic growth to reduce its fiscal shortfall.

The yield on Poland's five-year local-currency bond jumped 6 basis points on Tuesday to 5.55%, the highest since August. The zloty gained 0.2% against the euro, while remaining near the weakest level since June.

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