IMF initially approves new credit line for Poland

WARSAW (Reuters) - International Monetary Fund (IMF) has initially approved an increase in flexible credit line for Poland to $29 billion from $21 billion in a previous facility, Poland’s Finance Ministry said in a statement.

As confidence remains a scarce commodity amidst the turmoil in the euro zone, analysts said the approval of FCL for Poland may support confidence in the price of its assets.

The FCL which acts as a credit backstop without strict conditions and targets well-run emerging economies will run for two years.

“Having access to the FCL lowers the risk of liquidity crisis on the Polish debt market and this is very important because the beginning of the Irish crash was precisely a liquidity crisis that led to such a rise in bond yields that led to a solvency crisis,” said Rafal Benecki senior economist at ING Bank Slaski.

At 1153 GMT the euro traded at 3.9839 zlotys almost flat compared with Thursday morning levels.

Countries that ran into trouble such as Greece and Ireland as well as emerging economies of Hungary, Latvia and Romania had to resort to different IMF facilities which usually call for meeting certain, mostly painful conditions, set by the Fund.

Poland was granted the FCL for the first time last year when the global financial crisis was in full swing and when the European Union’s largest ex-communist economy slowed to 1.7 percent.

Analysts now expect gross domestic growth (GDP) at 3.7 percent this year and at 4.0 percent in 2011. However Poland’s deficit is seen at 7.9 percent of GDP in 2010 and public debt nears a key safety level at 55 percent of GDP.

The Polish law obliges the government to enforce painful fiscal cuts once debt tops the threshold, a move Warsaw is keen to avoid ahead of 2011 parliamentary polls.

Reporting by Patryk Wasilewski, writing by Kuba Jaworowski