Jan NettigLess than three weeks before Poland’s highly contested general election, Warsaw pensioner Jadwiga Buczek feels more optimistic about the cost of living crisis, which has hit central Europeans particularly hard for the past two years. The ruling Law and Justice (PiS) party has raised her pension as part of significant welfare spending, which has helped ease Poles’ concerns over high inflation.
Now, PiS and its rivals are competing to outdo each other with promises of even more generous spending. This means that whoever wins the October 15 election will have to deal with the consequences of policies that could fuel inflation and strain the state budget.
Poland’s economy, the largest among the ex-communist countries in the European Union, has seen a surge in foreign investment since the COVID-19 pandemic. This investment has helped fund the expansion of pro-family policies, increases in minimum wages, and payments to pensioners. However, there are concerns that these welfare supports could hinder efforts to lower inflation, which reached a peak of 18.4% in February and is still around 10%.
The National Bank of Poland’s decision to cut its main interest rate by a larger-than-expected 75 basis points ahead of the election has raised concerns about the bank’s focus on economic growth over inflationary pressures.
Regardless of the election outcome, credit rating agencies believe that pledges of higher social outlays will be hard to reverse, raising deeper questions over public finances. Polish state spending is set to rise to more than 46% of gross domestic product this year. The Polish minimum wage, already the highest in central Europe, will rise by nearly a fifth next year.
The election also carries the risk of being inconclusive, which could further delay the delivery of some 110 billion euros worth of EU funding held up in a dispute with Brussels over rule of law concerns.
For more details, you can read the original article on Reuters.
