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The National Debt Of Poland
Poland’s national debt can be measured in a number of different ways. The government of the Republic of Poland counts only the debts of the central government that are raised through debt instruments.
The OECD and the IMF are two international bodies that monitor the wealth of nations.
The IMF counts general government debt, which includes all debts of the central government plus those of local government and utility governing bodies, such as port authorities. The IMF calculates that at the end of 2017, Poland’s gross national debt equated to 51% of the country’s Gross Domestic Product. For the same period, the IMF judged that Poland’s net national debt to GDP ratio was 46.6%. The difference between these two figures is that gross debt only counts all of the actual debt, whereas net debt deducts the government’s assets from the total debt figure.
Local government borrowing accounts for 7% of Poland’s national debt.
The OECD counts “public debt” as the national debt, although it also refers to it as “general government debt.” This includes some organizations that are in the public sector, but not part of the governmental structure. This would include state utilities such as the national railways system. By this measure, Poland’s national debt to GDP ratio stands at 67.8%
Is Poland’s national debt rising?
The chart below was produced by the OECD. It shows Poland’s public debt as a percentage of GDP. The time series for the graph gives a plot point for each year since 1995.
As you can see, Poland’s debts have been on a generally upward trajectory since 2001. The debt to GDP figure is also influenced by a country’s annual income, so, if Poland’s GDP fell one year, its debts would work out as a higher figure in this calculation. Poland’s GDP did fall slightly in 2008/2009, thanks to the global financial crisis. However, apart from those years, the country has logged a growth in income every year.
The chart shows that Poland’s debt has risen as a proportion of GDP, but other factors show that it has also risen as an absolute value.
What is Poland’s credit rating?
The three main credit ratings agencies in the world each give assessments of the creditworthiness of countries and expresses that judgement as a grade. The top mark that a credit agency will give to a country is “AAA,” or “triple A.” The current ratings given to Poland by the top three credit ratings agencies are shown in the table below.
S&P Moody's Fitch Long-term investments AAA Aaa AAA Shot-term investments A-1+ P-1 F1+
As a general rule of thumb, a higher credit rating signals that the investment devices issued by a government to finance debt have low risk. Investments that have little risk and are easy to sell on offer a safe place to store money that can quickly be converted back into cash. Under these circumstances, traders will accept a lower rate of interest. Thus, governments with AAA rating have lower borrowing costs.
Who manages Poland’s national debt?
The national government’s Ministry of Finance has the overall responsibility for deciding on what debt needs to be raised and how to source that money. However, the Ministry doesn’t implement that policy itself. Instead, it has given the responsibility for the day-to-day management of the national debt to the country’s central bank. This is the Narodowy Bank Polski, which translates to National Bank of Poland in English.
How does the Polish government raise loans?
The National Bank of Poland has three channels to raise money and operates the sales process differently for each. These three channels are:
- the domestic wholesale market
- the international market
- the retail market
Debt from the domestic wholesale market
When selling to the domestic market, the Bank prices its government securities in the Polish currency, which is the Zloty. The Bank will only issue new securities to a group of financial organizations that have been checked out and listed as Primary Dealers.
The Bank issues bonds and Treasury bills according to a schedule that it publishes in advance and circulates to the Primary Dealers. Sales are conducted by auction and each Primary Dealer is expected to submit a tender for a proportion of the securities being sold.
Debt from the international market
The Polish government attracts international traders by issuing some bonds in foreign currencies. To date, the government has issued bonds denominated in:
- US Dollars
- Swiss Francs
- Japanese Yen
- Chinese Yuan
The National Bank of Poland has a different procedure when it sells foreign currency bonds. It takes an offer from a consortium of commercial banks in the country of the currency in which the bonds are being issued. That consortium buys out the entire issue of bonds.
In both of the above commercial bonds sale scenarios, members of the public and institutions other than the primary dealers can buy bonds and treasury bills from a primary offering by contacting one of the primary dealers and getting that business to act as an agent. Another way that those other than primary dealers can buy Polish government securities is to wait until the primary dealers resell their allocations by placing them on the secondary market.
About 30% of all of the debt instruments issued by the national government of Poland are held by non-residents.
Debt from the retail market
The Polish government offers savings devices to the general public. The National Bank of Poland manages this process, but does not implement it directly. The issuing agent for retail bonds is PKO Bank Polski S.A, which makes them available to the public through its retail outlets.
The retail market covers both short-term and long-term financing instruments. These are:
- OTS series (3-month fixed rate savings bonds)
- DOS series (2-year fixed rate savings bonds)
- TOZ series (3-year floating rate savings bonds)
- COI series (4-year inflation rate indexed savings bonds)
- EDO series (10-year inflation rate indexed savings bonds)
Each bond has a face value of PLN 100. Anyone can buy the retail bonds, including individuals, companies, and people and businesses abroad. These bonds are not tradeable on the secondary market, but the government does offer a buy-back scheme for those who want to bail out before the maturity dates of their bonds.
What government securities does the National Bank of Poland sell?
The commercial debt instruments that the National Bank of Poland sells can be categorized into two divisions:
- Short-term debt instruments
- Long-term debt instruments
You can read a little more about these strategies below.
Short-term debt instruments
The National Bank of Poland calls its short-term debt instruments “T-bills.” As a short-term debt device, T-bills never have a maturity of more than one year, which is the cut off point in the definition of “short-term financing.”
These are the classic Treasury bills that most governments use for short-term financing. The T-bill pays no interest. Buyers get a profit because the government sells the bills at a discount, buy repays the debt at the full face value of the T-bill. Auctions of T-bills sell debt in multiples of 1,000 Zloty.
Long-term debt instruments
The long-term financing instruments issued by the National Bank of Poland are called “T-bonds.” These bonds are issued with maturity dates of more than one year, with the 10-year bond being the standard maturity that the international bond trading community uses as a benchmark. T-bonds are issued in multiples of 10,000 Zloty.
The chart below shows the different interest methods applied to T-bonds and how each has contributed to the Polish national debt in the past few years.
There are three types of bonds issued by the government of Poland:
- Benchmark bonds
- Inflation-linked bonds
- Floating rate bonds
The benchmark T-bond pays a fixed interest rate for every year of their lifetime. Index-linked T-bonds also pay the same interest rate each year. However, their face values are adjusted in line with the Consumer Price Index of Poland. This means that the actual sum paid out in interest increases each year, even though the interest rate stays the same. The Bank redeems these bonds on the inflation-adjusted value. Floating rate T-bonds are redeemed at face value on maturity, but the interest rate printed on the certificate is expressed as the Base Rate plus a margin.
What facts should you know about Poland's national debt?
- You could wrap $1 bills around the Earth 1,231 times with the debt amount.
- If you lay $1 bills on top of each other they would make a pile 34,532 km, or 21,457 miles high.
- That's equivalent to 0.09 trips to the Moon.