Poland needs more belt-tightening to hit deficit target: OECD

Mon Mar 10, 2014 4:46am EDT

* OECD report leaves GDP growth forecast unchanged

* Target is for budget deficit of 3 pct of GDP in 2015

* Report says deeper spending cuts needed to achieve that

By Christian Lowe

March 10 (Reuters) - Poland's government needs to make deeper spending cuts if it is to meet its target agreed with Brussels of getting the budget deficit under 3 percent of economic output by 2015, the OECD said in a report issued on Monday.

The organisation of the world's most developed countries left its forecasts for Polish gross domestic product (GDP) growth unchanged, at 2.7 percent this year and 3.3 percent in 2015.

It said the economy, the biggest in central Europe, was performing well after a sharp slump last year, but if it was to meet longer-term challenges, Poland would need to make its labour market more efficient and remove barriers to doing business.

The OECD said Poland needed to reverse its track record of missing targets for cutting its budget deficit, especially if it wants to exit the European Commission's Excessive Deficit Procedure as planned in 2015.

Poland's general budget deficit widened to 4.8 percent in 2013 because of the slowdown in growth and over-optimistic assumptions about tax revenues.

Mateusz Szczurek, named finance minister last November, has pledged two years of austerity to meet the target. A change in the pension system to transfer assets from private funds on to the state books is to help.

But the OECD said: "Sticking to the target of 3 percent of GDP for the 2015 deficit so as to ensure the government debt-to-GDP ratio is firmly on a downward path would still require additional fiscal tightening."

It said measures the government should consider included reforming social security privileges for farmers, cutting back more generous pensions for certain professions and tightening the qualification criteria for disability pensions.

However those measures could be awkward for the government, since in faces re-election in late 2015 and professions such as farmers and miners wield big political influence.

On interest rates, the OECD said monetary policy so far had been appropriate, but that as growth and inflation accelerated, the central bank would need to consider bringing rates back up from their current level of 2.50 percent, an historic low.

"The exact timing and scope of interest rate normalisation should, however, depend on incoming data and the resulting risks for the inflation target in the medium term," the report said.

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