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Poland gives initial thumbs up for gov't plans to rejig public debt calculation method

October 2, 2012
Poland's Cabinet has approved assumptions to the draft amendments to public finance and VAT laws, rejiging the calculation of debt to GDP levels to decrease the risk of breaching cautionary thresholds, the government's press office said.

The bill assumes conversion of the public debt into PLN using the arithmetic mean of FX exchange rate for the period for which the debt-to-GDP ratio is reported, and deducting from that sum the Finance Ministry's end-year means used to pre-finance the following year's borrowing needs.

Public finance law places restrictions on fiscal policy as public debt crosses thresholds at 50, 55 and 60% of GDP. Poland's VAT tax law mandates VAT rate hikes when public debt exceeds 55% of GDP.

To date Poland has needed to provide a buffer to insure that year-end FX movements don't boost the value of Poland's foreign debt enough to kick the nation over a new threshold.