Since the global financial crisis erupted, Poland, in relative terms, largely escaped the maelstrom, thanks to its strong domestic banking liquidity and cleaner debt profile. Anna Suszynska, deputy director of the public debt department at the ministry of finance in Poland, speaks to Euromoney about the country’s economic outperformance and issuance plans.
Q: How did Poland fare so well after the crisis in 2008?
A: Luckily for us, we introduced certain fiscal policies at just the right moment. In 2008, we lowered income tax. This came at a huge cost to the government and our budget revenue dropped. But after the crisis hit, people in Poland had more cash at hand to spend in the domestic market. The tax cuts supported private consumption and growth during what should have been a stressful time for the economy.
Government spending for public investment increased between 2009 and 2011, which did support total investment into Poland. Once the crisis hit in 2008, private investment into Poland did decrease, and government spending for public investments had to increase to take its place and to keep GDP growth at a relatively high level. But as a consequence, the budget deficit rose and the currency weakened, which forced some investors out. The lowest point for the currency was in the first quarter of 2009 when the zloty lost between 40% and 45% of its value against the dollar and euro.
But a weak currency did help the real economy because low prices meant that exports grew. Poland is a major supplier to Germany, and as Germany’s exports to Asia flourished, Poland’s exports to Germany did as well. Moreover, when the currency weakened, imports decreased, thus domestic spending rose which also stimulated the economy.
Q: When did investors’ interest turn to Poland?
A: Investors began to see the potential once the fallout from the crisis became apparent in 2009. Investors were shocked that Poland stayed so strong during a time that rocked the rest of the region and the world. Having an independent monetary policy helped Poland stay resilient after 2008 because this meant, by and large, that Poland could select interest rates and exchange-rate policy as needed.
Poland offers investors a stable economy with prospects for growth with greater profit. To a certain extent, investors turn to Poland to find the safety of German bunds with higher yields.
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| Anna Suszynska, deputy director of the public debt department at the ministry of finance in Poland |
Q: How do Polish bonds compare with those from other emerging markets?
A: Poland has had a good credit story for some time and we are grouped together with other attractive emerging markets like Brazil, South Africa and Mexico, with equally strong credit stories. It plays in our favour to be compared to these markets.
Poland has always considered itself as a gateway between the east and west. Poland is close enough to Europe to reap the benefits of the good parts of its reputation while keeping enough distance from the linear monetary policy adopted by the eurozone to avoid any meaningful contagion.
Q: How has Poland reached its funding needs so far this year?
A: Although the zloty market is the main source of funding for Poland, we will continue to issue bonds in dollars, euros, Swiss francs and yen to maintain an open dialogue between currencies. When we construct our funding programme, we issue enough foreign-currency bonds to repay those previously issued. This is the strategy we will continue with. And because of our successful credit story, international investors are increasingly turning to zloty-denominated bonds.
We have already reached 66% of our funding needs this year, quicker than any previous years. The main reason we chose to do this faster this year is because we wanted to prepare against any external shocks which may lead to a relaxation in the bond market. By getting in early, we hoped to avoid this. Now we can choose more carefully the rest of our issuances this year. We recently cancelled treasury bills due for May because we are already ahead in funding.
We know that what we have is a good strategy. Countries such as Slovakia and the Czech Republic are diversifying and are beginning to issue bonds in various other currencies, where as they traditionally stuck to one. They are following a similar strategy to us, which shows that we are moving in the right direction.