A "reasonable" weakening of the zloty currency may help Poland as it battles deflation and slowing exports, Finance Minister Mateusz Szczurek told Reuters. He also said in an interview that he saw a chance that Poland could exit European Union's excessive deficit procedure next year, one year earlier than the official plan. The zloty, central and eastern Europe's most liquid currency, fell to a 16-month low against the euro on Wednesday in the fallout from Russia's currency crisis.
Szczurek's comments signal the ministry, which can redirect the flow of billions of EU funds either to or outside the currency market, is comfortable with the fall in the zloty's value. "In a situation when we are dealing with deflation, not inflation, when we are worried about economic growth abroad and of weakening net exports, a weakening of the zloty on a reasonable scale may be beneficial," Szczurek said in comments authorised for release on Wednesday.
Swings in the zloty "that we are seeing today are not a reason for concern," he added. The zloty has lost nearly 3 percent versus the euro since the start of last week. Poland has converted part of the euros it receives from the EU at the central bank this year to build up foreign exchange reserves to make up for the lower flexible credit line (FCL) it has requested from the IMF, Szczurek said. The minister said Poland's relatively low stock of foreign-exchange loans and its diversified economy mean it could benefit from a weaker currency, which will compensate for a sudden loss of competitiveness against some trading partners.
He said that Poland's base case scenario was still to bring its fiscal deficit below the EU ceiling of 3 percent in a sustainable way starting from 2015, but this could already be achieved this year. "If the result for 2014 will be lower than 3 percent then yes, we will exit the excessive deficit procedure in June (2015)," Szczurek said. "A lower deficit this year means a smaller increase in public debt and this is a goal in itself."
Coming out of the procedure would strengthen Poland's reputation for prudent fiscal policymaking and could potentially open the way to a credit rating upgrade. The only European Union economy to avoid recession since the 2008 global financial crisis, Poland is among the most exposed to Russia. Exports there accounted for about 5 percent of Poland's total in 2013 and have fallen by over 10 percent in the January-October period.
Szczurek, a bank economist who became minister in 2013, said these exports will certainly fall further because of the Russian rouble crisis, but said lower energy prices were "fully compensating" for this negative impact on the Polish economy. He said Poland's economic growth was likely to stay at about 0.8-0.9 percent quarter-on-quarter in the coming quarters, which was in line with the ministry's 3.3 and 3.4 percent growth forecasts for 2014 and 2015, respectively.
He said the biggest risk for growth was stagnation in the euro zone, Poland's main trade partner that could ultimately sap the optimism of Polish firms, lowering a currently "promising" pace of investment and employment growth. The finance minister said Polish consumer prices were "very likely" to continue falling in the first months of 2015. They fell 0.6 percent in November, the second straight month that they have fallen at the steepest rate in more than three decades.