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Polish Errors & Omissions Grab Market’s Attention

Polish Errors & Omissions Grab Market’s Attention

5.4.2011 10:25

Everything began with a simple remark of Miroslaw Gronicki, a former Minister of Finance and current advisor of the NBP Governor, Marek Belka. He said that Poland had shown a export surplus of EUR 2.1bn against Germany in their 2010 statistics, while Germany says the opposite – that the surplus is on its side to the tune of a huge EUR 9.6bn. Where is the error? The doubts drew attention to deeper inconsistencies in Poland’s balance of payments, because the negative effect of errors and omissions has jumped to a whopping 4% of GDP over the last two years. Poland’s statisticians and the central bank cannot currently figure out where the 4% of GDP gone missing from the Polish economy.

Differences in foreign trade reporting between Germany and Poland may be part of explanation of the apparent inconsistencies. Poland, in monitoring imports from Germany, only includes goods really originating in Germany, while Germany includes everything into its exports to Poland, i.e., also re-exports of goods from other parts of the world. While this may explain some of the discrepancies between the German and Polish approaches, it says nothing about the 4% of GDP that Polish statisticians cannot find. Another problem may be the mere transit of goods through Poland by tax non-residents. This also overvalued the exports of goods and undervalued imports in the Czech Republic. Nonetheless, even these two reasons do not suffice and cannot explain the rapid increase in errors and omissions in the balance of payments, notably if compared to the other Central European neighbours. There is every indication that something more, which was of importance, has disappeared from Polish statistics over the last few years.

The reason may be either the overvaluation of investment inflow in the financial account (likely through banks’ foreign exchange swaps), although, given the fairly reliable reporting of those transactions, this is not very likely, or another mistake may be based on undervalued imports. This is where Poles may have much greater reporting problems. The NBP itself has admitted that many of motor-vehicle imports may not have been included in official statistics. The doubts are also fuelled by the low numbers of official vehicle registrations in Poland. Poles, whose population is four times larger than that of the Czech Republic, officially registered only twice the number of motor vehicles in 2010 that Czechs did.

What does it all mean for Poland? If the mostly undervalued imports really prove to be responsible for the increase in the errors and omissions, this may lead to a fairly significant increase in the current account deficits and a reduction of the nominal GDP for the last 4-5 years. However, this would also worsen all ratio indicators in respect to GDP. That said, the amount of Poland’s public debt is another associated problem, as it might exceed the lawful limit of 55% of GDP as early as the end of 2010, if it were to be revised significantly. This would automatically trigger tough austerity measures in the 2012 budget. Nevertheless, if this were to be true, the question is how much the Polish statisticians will be willing to unveil the truth, particularly now that a general election is scheduled for the autumn. Concluding, the Polish statistics show some inconsistencies that are not well understood. Still more importantly, they may eventually paint a different picture of the Polish economy in recent years. Higher current account deficits, lower growth and higher deficit/Debtto- GDP figures are a possibility, but no certitude. The outcome may transcend the mere statistical level and impact policy and on financial markets. Let’s hope the mystery is solved soon.

Jan Bures, KBC-CSOB Prague

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