Poland is turning to international lenders to fund a growing budget deficit at loan rates that are lower than those available from debt markets.
The government is seeking 2 billion euros ($2.6 billion) in loans by Aug. 30 to show that “there is another option for financing than market auctions,” Deputy Finance Minister Wojciech Kowalczyk said last week. Poland is set to pay the equivalent of a 0.79 percent yield for an 18-year, 1 billion-euro facility from the World Bank, the lender’s website shows. That compares with 3.65 percent on Poland’s 2035 euro notes and 2.18 percent on German euro bonds maturing in 2031.
Prime Minister Donald Tusk, who also asked for help from the European Investment Bank, is facing a 2013 budget shortfall 45 percent bigger than earlier estimated amid the slowest economic growth since the 1990s. Poland had 52 billion zloty ($16.1 billion) in outstanding loans from the World Bank, the EIB and the Council of Europe Development Bank as of April 30, according to Finance Ministry data.
“Taking loans from international institutions makes sense when markets are less favorable and investors wonder how the government will finance the higher deficit,” Wojciech Labryga, who helps manage the equivalent of $3 billion at PKO Bank Polski SA’s pension fund in Warsaw, said by phone two days ago. “It can’t fully replace typical market financing, but demonstrates the government has different budget options.”