Yesterday the Polish Prime Minister Donald Tusk announced that the government will suspend fiscal rules for this and the next year, which has been limiting the fiscal stimuli if the debt/GDP ratio exceeds 50 % (last year the debt has reached 52.7%). Government plans to widen budget deficit by 16 bn PLN in order to support stagnating economy. This amount corresponds roughly to 1% of GDP.
Fiscal stimuli plans boosted Polish FX market and the zloty gained 0.8%. Regarding Monday’s announcement to close IMF office in Budapest and repay loans ahead of schedule, we believe that this new plans should have only marginal effect on Hungary’s financing situation. Hungary’s existing loan to IMF roughly EUR2.2bn, which has to be paid back till mid next year – from only EUR0.5bn belongs to 2014. The government has roughly EUR7bn reserves at NBH, from which EUR4bn is denominated in foreign currency. Technically it will mean that NBH’s foreign currency reserves (staid at EUR34.3bn at end-June) may decrease by EUR2bn in 2013, if Debt Management Agency doesn’t issue new foreign currency bond. But as the Debt Management Agency has an ongoing issuance of premium euro bond, from which it may issue roughly EUR300 million till the end of the year and there are also around EUR500m EU funds inflows quarterly, the total size of foreign reserves may remain around EUR33bn at the end of the year. Gross public debt may decrease only marginally from 79.2% of GDP in 2012 to 78.1% of GDP in 2013.