Poland Soaring Debt Costs Countered by Bank, Insurance, Retailer Taxes

Summary: In Poland soaring debt costs yield, despite Standard & Poor’s downgrade, to annual taxes on banks, insurance, and retailers earning above 1.5 million złoty.

World countries by Standard and Poor's rating, updated Jan. 15, 2016, to reflect change in Poland's rating (source: https://euobserver.com/tickers/131860) ~ derivative work: DOSGuy; BlankMap-World6: Canuckguy et al.; World countries Standard & Poor's ratings: NovaNovaBn et al., CC BY SA 3.0, via Wikimedia Commons

In Poland soaring debt costs are countered, despite Standard & Poor’s downgrade, by annual taxes on retailers who are earning above 1.5 million złoty ($364,121.86), according to public announcements Jan. 26, 2016.

The Finance Ministry based “supermarket tax” decisions upon netting an estimated 2 billion złoty ($485,578,340) in 2016 beyond newly-imposed annual 0.44-percent bank and insurance taxes. The announcement came after Standard & Poor’s downgrading Poland from A- positive outlooks to the third-lowest investment guide level at BBB+ negative outlooks Jan. 15, 2016.

Primary credit analyst Felix Winnekens determined that “Poland’s system of institutional checks and balances has been eroded significantly” by overhauling the Constitutional Tribunal and public broadcasting.

Friday’s announcement by Standard & Poor’s echoed the same criticisms as the European Commission regarding government-planned institutional makeovers.

The budget amended by the Prawo I Sprawiedliwość (Law and Justice) furnishes an outline for lengthening the maturity of outstanding local currency debt within three years. Friday’s downgrade in investment guide status generates doubts among managers of Warsaw and Warsaw-based mutual funds in regard to changes since electoral victories Oct. 25, 2015.

Pawel Gołębiewski helps to manage the equivalent of $63 million bonds at the mutual fund BPH TFI SA based in Warsaw, capital city of Poland. He indicates that “The spread between two-year and 10-year yields is close to record levels, so it’s most rational to shorten the maturity of new issuances.” He judges that consequently “The Finance Ministry may have to give up its long-term goal to extend the debt maturity.”

Skepticism over Law and Justice Party government policies managing to realize anything other than worsening fiscal deficits over time keeps investors wary of longer-dated bond opportunities.

The Law and Justice Party’s public debt management strategy for 2016 through 2019 lists as goals extending maturities on average from 4.27 years to 4.5 years. Exemption from new levies makes government securities more appealing than the central bank notes that lenders traditionally turn to when short-term cash needs to be parked.

Konrad Krasuski and Maciej Onoszko, writers for Bloomberg, note that plans to tax bank assets raise yields far more dramatically for two-year rates than at 10-year.

Yet auctions by the Finance Ministry occasion high sales since demand is five times the supply of 32-week Treasury bills.

Radosław Gałecki, fixed income specialist, provides help in managing the equivalent of USD $3.1 billion at the mutual fund Aviva Investors TFI SA in Warsaw, Poland. In Poland soaring debt costs qualify as maturity-extending incentives even though “… we’ve recently seen large demand from banks in the short end of the curve.” He reveals that “In case demand from foreign investors drops, issuing shorter bonds on bills could be a good solution for the government” to consider pursuing.

In Poland soaring debt costs on securities longer-dated to 10 years surpass those on 2-year securities, for widest sell-offs in longer over shorter premiums since 2002.

The downgrade triggered Finance Minister Pawel Szalamacha’s observation that “S&P is wrong and will correct its decision” as 2016 unfolds.

Finance Minister Paweł Szałamacha expects Standard & Poor's correction of a "wrong" rating decision: Prime Minister Beata Szydło (left) Deputy Prime Minister Mateusz Morawiecki (center) and Paweł Szałamacha (right) discuss the "supermarket tax" with over 100 trade representatives at the Chancellery, Jan. 8, 2016: Paweł Szałamacha via Facebook Jan. 8, 2016

Acknowledgment

My special thanks to talented artists and photographers/concerned organizations who make their fine images available on the internet.

Image credits:

Standard & Poor's country ratings: NovaNovaBn et al., CC BY SA 3.0, via Wikimedia Commons @ https://commons.wikimedia.org/wiki/File:World_countries_Standard_%26_Poor%27s_ratings.svg#mw-jump-to-license

Finance Minister Paweł Szałamacha expects Standard & Poor's correction of a "wrong" rating decision: Prime Minister Beata Szydło (left) Deputy Prime Minister Mateusz Morawiecki (center) and Paweł Szałamacha (right) discuss the "supermarket tax" with over 100 trade representatives at the Chancellery, Jan. 8, 2016: Paweł Szałamacha via Facebook Jan. 8, 2016, @ https://www.facebook.com/212338865494457/photos/a.218227481572262/1000137733381229/

For further information:

Goettig, Marcin. 15 January 2016. “UPDATE 3-S&P Shocks Poland with Credit Rating Downgrade.” Reuters > Markets.
Available @ http://www.reuters.com/article/poland-ratings-sp-idUSL3N14Z532

Maqsood, Fawad. 26 January 2016. “Poland Announces New Supermarket Tax.” Business Recorder > Markets > Energy > Europe.
Available @ http://www.brecorder.com/markets/energy/europe/275219-poland-announces-new-supermarket-tax.pdf

Onoszko, Maciej; and Krasuski, Konrad. 18 January 2016. Updated on January 19, 2016. “Poland Feels Sting from Downgrade as Long-Term Debt Costs Soar.” Bloomberg > Business > News.
Available @ http://www.bloomberg.com/news/articles/2016-01-18/poland-feels-sting-from-downgrade-as-long-term-debt-costs-soar

Paweł Szałamacha. 8 January 2016. "Rząd PiS wsłuchuje się w głos obywateli. W Kancelarii Prezesa Rady Ministrów trwają właśnie konsultacje dotyczące podatku od sklepów wielkopowierzchniowych. Razem z premier Beata Szydło i premierem Morawieckim rozmawiamy z ponad setką przedstawicieli przedsiębiorstw z branży handlowej." Facebook.
Available @ https://www.facebook.com/212338865494457/photos/a.218227481572262/1000137733381229/

“Poland Government Budget Forecast 2016 – 2020.” Trading Economics > Countries > Poland.
Available @ http://www.tradingeconomics.com/poland/government-budget/forecast

“S&P Downgrades Polish Rating.” Radio Poland > News > 16 Jan. 2016.
Available @ http://www.thenews.pl/1/12/Artykul/236759,SandP-downgrades-Polish-rating

Skolimowski, Piotr. 16 January 2016. “Poland’s Finance Chief Says Currency Will Recover After S&P Cut.” Bloomberg > Business > News.
Available @ http://www.bloomberg.com/news/articles/2016-01-16/poland-seeks-to-reassure-investors-after-rating-downgrade-shock

SPTVbroadcast. 15 January 2016. "Standard & Poor's Rating Action On Poland Reflects On Weakening Institutions." YouTube.
Available @ https://www.youtube.com/watch?v=kHCAdYqFczU