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UPDATE 2-Poland raises 2009 public debt fcast, deficit high

Published 10/22/2009, 07:58 AM

* Threat increases of public debt breaching key threshold

* Deficit to be tackled from 2011, says minister

(Recasts with debt estimates, stats office data, adds analysts)

By Marcin Goettig and Kuba Jaworowski

WARSAW, Oct 22 (Reuters) - Poland's public debt may rise to 51.2 percent of gross domestic product in 2009, the finance ministry said on Thursday, highlighting a growing risk of painful fiscal tightening ahead.

The statistics office, citing the finance ministry's forecast, said the general government deficit would stand at 6.3 percent of GDP in 2009 as the economic slowdown puts pressure on budget revenues, worsening the gap.

The rising general government debt contributes to greater public debt which, if it breaches 55 or 60 percent of GDP, requires significant fiscal adjustment by law.

The ministry's previous forecast of public debt in 2009 was 49.8 percent. It expects the figure to stand at 54.7 percent next year.

"The threat of breaching the (55 percent) safety level is real... But it depends on many factors, which the government cannot impact -- the zloty exchange rate, or the pace of the global and as a result of the local economic rebound," said Piotr Bielski, economist at Bank Zachodni WBK.

Warsaw is trying to avert this risk by implementing an ambitious privatisation plan, which is meant to tap about 37 billion zlotys for the budget in 2009-2010.

"If there is no public finance consolidation, then public debt will almost certainly exceed 55 percent of GDP in 2011," Deputy Finance Minister Ludwik Kotecki said on Thursday in an interview for the Rzeczpospolita daily.

Many analysts fret that rising debt levels will undermine Poland's fragile recovery if it triggers big spending cuts.

They say the government may resort to all sorts of accounting tricks to avoid breaching the containment levels without having to take an axe to public spending ahead of 2010 presidential polls and parliamentary elections due in 2011.

"The government will do anything in order not to let the deficit top the containment level," Bielski said.

EURO FACTOR

Kotecki said cutting the general government deficit, seen by the statistics office at 6.3 percent in 2009, up from a revised 3.6 percent a year earlier, would start in 2011 as part of efforts to prepare Poland for the euro zone.

"(From 2011 the deficit) will be falling for three reasons. First, we want to adopt the euro as soon as possible, we have a public finance law that obliges us to tighten fiscal policy and the EU growth and stability pact requires us to do so," he said.

Euro zone aspirants must hold their general government gap below a ceiling of 3 percent of GDP and their public debt cannot exceed 60 percent of GDP.

Warsaw has put its plans for swift euro adoption on the back-burner because the slowdown has prevented it meeting all the entry requirements.

But with its economic recovery now under way, the government wants to release plans later this year for cutting the deficit.

Analysts polled by Reuters expect Poland's economy to expand by 1.1 percent in 2009 and by 1.8 percent in 2010.

On Thursday, the statistics office confirmed its previous estimates of GDP growth for the first and second quarters of 2009, at 0.8 percent and 1.1 percent respectively. (Editing by Gareth Jones and Andy Bruce)

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