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UPDATE 1-Polish FinMin sees budget gap at 2.9 pct/GDP in 2012

Published 05/05/2011, 09:46 AM
Updated 05/05/2011, 04:28 PM

* Rostowski reaffirms 2012 deficit goal of 2.9 percent/GDP

* Confirms ministry swapping euros for zlotys in market

* Govt approves draft budget for next year

(Recasts with Rostowski, Tusk)

By Gabriela Baczynska

WARSAW, May 5 (Reuters) - Poland's finance minister reaffirmed on Thursday the government's resolve to cut its budget deficit to 2.9 percent of gross domestic product (GDP) next year, in line with pledges made to the European Commission.

Despite accelerating economic growth, seen reaching 4 percent this year, some economists remain sceptical about the budget reduction plan, especially with a parliamentary election due in the autumn that makes spending cuts politically tough.

"I am convinced we will bring the general government deficit to 2.9 percent (of GDP) in 2012," Finance Minister Jacek Rostowski told a news conference after the cabinet approved the 2012 draft budget.

"This (2012) will be a tough year requiring extra discipline," he said.

Rostowski also confirmed that the finance ministry was exchanging euro-denominated European Union funds for zlotys in the foreign exchange market, but gave no more details.

Dealers have previously reported that the state-owned bank BGK was selling euros on the government's behalf under a plan to support the zloty.

The draft budget approved on Thursday envisages a central government deficit next year of no more than 35 billion zlotys ($13.15 billion) in 2012, down from a previous estimate of 37 billion.

The central budget shortfall is a narrower measure than the ESA-95 or general government deficit monitored by the EU and does not include spending by local government or state agencies.

SCIENCE AND TEACHERS

Despite the clampdown on spending, Prime Minister Donald Tusk added Warsaw would boost the science budget in 2012 by nine percent and confirmed further salary increases for teachers saying Poland needed to close the gap with more developed EU economies in building a knowledge-based economy.

Tusk's government, hoping to win an unprecedented second four-year mandate in October's election, has increased value-added tax and capped spending growth to rein in the deficit but has ruled out more radical measures.

Earlier, a source close to the government told Reuters the 2011 central budget gap would be 35.7 billion zlotys, down from a previous forecast of 40.2 billion, due to higher-than-expected central bank profits and better economic growth.

Poland's central bank said in April it would pay 6.2 billion zlotys from its 2010 net profit to the state budget, exceeding the government's forecast of a 1.7 billion zloty injection.

Rostowski said the 2012 draft did not assume any net profit from the central bank.

Poland was the only country in the 27-member European Union to avoid recession during the 2008-09 global financial crisis but a sharp slowdown crimped tax revenues, driving up the deficit to 7.9 percent of GDP last year.

The government wants parliament to approve the 2012 budget well ahead of schedule this year due to the election and also Poland's assumption of the EU's rotating six-month presidency in the second half of 2011. (Writing by Gareth Jones, editing by Ron Askew)

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