FOR Communication 9/2023: Polish public debt continues to grow
From the beginning of 2020 to the end of the third quarter of 2022 Polish public debt, calculated in line with the EU methodology, increased by 68.8 billion zł, that is by over 11,000 zł per person.
Public debt-to-GDP declines as high inflation fuels nominal economic growth. In 2022 a real economic growth slowed down sharply, with the difference between nominal and real GDP change exceeding 13 p.p.
According to the projection of the European Commission, in 2023 and 2024 Poland will pay the highest interest on public debt among all EU Member States - 5.9% and 5.8%, respectively.
Mateusz Morawiecki, during the recent press conference "Stable public finances in unstable times", bragged that under the rule of PiS’ government "the [public] debt in relation to GDP will fall" and it will be the case "despite gigantic expenses during the pandemic, despite huge expenses on the anti-inflation shield". He stressed that "there are no catches here, there are no special operations." However, it should be remembered that although debt in relation to gross domestic product is actually falling, it is due to double-digit inflation. When calculating the ratio of public debt to GDP, nominal GDP is taken into account, which in conditions of high inflation may grow even when in real terms we are becoming poorer.
To begin with, let us remind that when it comes to "huge expenses during the pandemic" and "huge expenses on the anti-inflation shield", this funds originated in debt. As a result, Polish public debt calculated in line with the EU methodology, from the beginning of 2020 to the end of the third quarter of 2022 increased by as much as 433.3 billion zł (41%), that is by over 11,000 zł per person.
In 2020 alone, the public debt in relation to GDP also increased sharply - from 45.7% to 57.2%. It started to decline only in the following years. However, it is worth to recall here that the ratio of public debt to GDP is calculated on the basis of the nominal amount of public debt and, what is extremely important, nominal GDP. In conditions of fast-growing prices, the economy can grow nominally even when in real terms – that is after cleaning GDP from the impact of inflation - it shrinks.
In 2021, the average annual inflation in Poland amounted to 5.1%, and in 2022 it reached the level of 14.4%. As a result, while real growth slowed abruptly last year, nominal growth accelerated, with the difference between nominal and real GDP change exceeding 13 percentage points. Also, during this year, according to forecasts, we will have to deal with a huge difference between real and nominal growth. The European Commission predicts that in real terms, growth will slow down to 0.7%, while in nominal terms it will be double-digit - 11%.
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Contact to authors:
Marcin Zieliński, FOR Board member & Chief economist
Bartłomiej Jabrzyk, FOR analyst
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