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UPDATE 1-Poland rejects higher deficit to boost growth

Published 01/20/2009, 11:43 AM
Updated 01/20/2009, 11:48 AM

(Updates with details, quotes)

By Marcin Grajewski

BRUSSELS, Jan 20 (Reuters) - Poland's finance minister vowed on Tuesday to keep its budget deficit under strict control this year, saying any attempts to boost economic growth with fiscal stimulus would be counterproductive.

Jacek Rostowski said any loosening of Poland's fiscal policy would worry investors, who might then ask for higher rates when buying Polish bonds. This would boost debt-servicing costs and cut funding for the government.

"We do not want to increase the deficit only to secure funds for higher costs of debt servicing," Rostowski told reporters during a meeting of European Union finance ministers.

"We see a lot of nervousness on the markets over countries that increase their deficits," he said.

His stance contrasted with policies adopted by many EU governments that want to spend their way out of an economic downturn caused by the global financial crisis.

Rostowski said Greece and Spain faced higher debt issuance costs after announcing bigger budget deficits.

He said he would ensure Poland's budget deficit remained at 2.5 percent of gross domestic product this year as planned.

He added there would be no need to amend the budget even if the country's economic growth fell to 2.0 percent as forecast by the European Commission.

Poland's 2009 budget assumes growth of 3.7 percent.

"Even if the Commission's growth forecast proves to be true, ... there will be no need to amend the budget," he said.

He rejected the forecast of the EU executive's arm that Poland's deficit would swell to 3.6 percent of GDP in 2009 and 3.5 percent in 2010.

"It is to be 2.5 percent this year, there is no reason why it should not be the case," he told reporters.

A deficit below 3 percent of GDP is a key criterion for a country wishing to join the euro zone. Poland's right-centre government hopes to adopt the euro in 2012. (Editing by Dale Hudson)

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