Communication 2/2017: 17 most frequently asked questions about public debt
Communication 2/2017:
17 most frequently asked questions about public debt
The amount displayed on the FOR counter of public debt has already exceeded PLN 1 trillion (a million million), and by the end of 2017, the government plans to have a debt-to-GDP ratio of 55% (see: FOR Communication 1/2017 of 10 Jan 2017). Therefore, FOR recalls and updates answers to frequently asked questions about public debt.
1. What is dangerous about public debt in Poland?
2. What is the difference between public debt and budget deficit?
3. What is the safe level of debt and deficit?
4. Can Poland's debt be repaid?
5. Is Polish debt mainly foreign?
6. When did this public debt arise? Maybe the debt should be paid off by those generations that run up the most of it?
7. Can a country go bankrupt? What happens in that case? Is there any bailiff who can seize the state assets?
8. Is sudden increase of public debt possible?
9. What countries free of debt?
11. From whom do countries lend?
12. Germany, Great Britain, France, and Italy have a higher ratio of public debt to GDP than. So our situation is not at all the worst - maybe we worry about this debt unnecessarily?
13. Where does the Polish government hide debts? What is the difference between the EU methodology and the Polish one?
14. How did the bankruptcy of countries look like in the past?
16. How did Greece go bankrupt?
17. What is the difference between implicit and explicit public debt?
18. What was the cause of a significant decline in the ratio of public debt to GDP in 2014?
1. What is dangerous about public debt in Poland?
The largest problem is the rapid increase of the debt, because the higher it is, the more we have to pay for its service. If Poland started to be seen by investors as a country that might have problems paying off its debts in the future, then today it would be harder for us to find people willing to buy our bonds. We could continue to borrow, but only on much worse terms (for a higher percentage) than now.
So far, the increase in the ratio of public debt to gross domestic product (GDP) has been slowed down by rapid GDP growth. However, with each subsequent economic downturn, the speed of GDP growth in Poland is declining. At the same time, Poland has a high share of exports in GDP, which negatively affects its sensitivity to turmoil in the global economy. After each such breakdown, public debt grew by more than 5% of GDP in Poland. At the same time, the government assumes public debt at the end of 2017 as 55% of GDP, so it can be expected that one year after the occurrence of a global economic crisis, we would approach the constitutional debt limit of 60% of GDP (see: FOR Communication 1/2017. Actually it would still place under the constitutional threshold because for this purpose it is calculated according to the domestic methodology, which slightly lowers the level of indebtedness). It is worth remembering that 60% of GDP is not only the constitutional limit of debt, but also the EU limit, and - above all - the level where the debt begins to slow down the rate of growth of economies that are developed comparably to the Polish one ...
Full communication (in Polish) aviliable here.
You are welcome to contact our experts:
Tomasz Dróżdż, Junior Analyst
e-mail: tomasz.drozdz@for.org.pl
Aleksander Łaszek, Chief Economist
e-mail: aleksander.laszek@for.org.pl
Rafał Trzeciakowski, Economist
e-mail: rafal.trzeciakowski@for.org.pl
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