Kluza: We will soon have to pay for accepting inflation and the expansion of the national debt

– Monetary policy aimed at accepting increased inflation and a large expansion of the national debt were two very big mistakes – says Dr. Stanisław Kluza, former Minister of Finance and the first Chairman of the Polish Financial Supervisory Authority, in an interview with DoRzeczy.pl.

DoRzeczy.pl: During this year’s elections, the economy entered the world of politics, or rather, the world of politics entered the economy. I have the impression that what has happened in recent weeks is a small earthquake. The interest rate cut was a surprise, and if we include the costs of election promises, it is difficult to believe that they will materialize. How does the economic world assess this campaign?

Dr. Stanisław Kluza: The end of the election campaigns is not conducive to in-depth evaluations. It would be best if economic specialists refrained from judging. Many of these announcements and demands that we hear are kind of events prepared for the election campaign process, and let’s not forget that there is still one last month left until the elections, so the last phase of the wave is before us.

Buckle up and wait?

Not only that. The economy needs to be looked at over a longer period than just a quarter. The perspective needs to be expanded to make a more reliable assessment.

Looking at a broader perspective, the biggest shock caused by global events that impacted our economy – the pandemic and the war in Ukraine – is already behind us. Is it time for stabilization?

These events changed many things in the global economy, changing them permanently. We certainly live in a new world when it comes to supply chains and risk management models at a supranational level. For example, in the area of ​​cost control, the expected value used to be optimized with less attention to the risk measure; Today, the risk-weighted expected value is more important. This is especially true for global producers. If we take into account only these processes, Poland will have a very favorable position in the new times. We are a country in the European Union with relatively lower labor costs and located in a place that is well connected to the entire European Union. From this point of view, different types of suppliers from the Far East, but also from other directions, may find it attractive to diversify through their presence in Poland. A certain difficulty may be that Poland is starting to experience problems due to the growing demographic crisis. In retrospect, working with us will be more expensive and employees will be less available. Poland has also not developed or pursued a consistent migration policy. Therefore, this criterion can also pose an additional barrier to the development of certain types of companies. Moreover, apart from the global situation, two processes have intensified in Poland over the past three to four years, which should be assessed negatively.


These are areas where we have and have had a significant impact. These are matters that could have been arranged much better in advance. The first problem is the expansion of public debt, especially off-budget debt, which is actually public debt, and so reported according to the ESA (European System of Accounts) methodology. Such a large increase in public debt, which is not directly covered by domestic savings, will in retrospect pose a major risk to the stability of public finances in Poland. This disrupts the idea of ​​stable and sustainable growth and will also be a crisis-generating factor. Naturally, such crises do not arise immediately, but as a result of the long-term accumulation of the above-mentioned adverse processes.

It doesn’t happen suddenly, but it does have a negative effect. The second issue, from a long-term perspective, is the issue of controlling the inflation process and the price stability process in Poland. Well, inflationary pressures in Poland started to emerge in the second half of 2019. This was temporarily extinguished by the shock of the pandemic, but from a macroeconomic point of view this pressure smoldered longer in the Polish economy. I believe that the central bank unnecessarily cut interest rates to zero in the first months of the pandemic. First, he misdefined the goals to be achieved. Subsequently, it caused adverse side effects, such as reducing the propensity to save and have safe deposits, causing a price bubble in the real estate market and shifting stable savings to the capital market and alternative investments.

After the pandemic ended, inflation accelerated rapidly and approached double-digit levels, regardless of the war in Ukraine, which started a little later. I estimate that the central bank’s policy has been deliberately postponed, which means that it has accepted the high inflation pressures. The combination of these two events – large government debts, including those that we cannot directly see, and acceptance of high inflation, lack of safe financial instruments that protect the value of money against inflation – has led us to lose the macroeconomic balance in have disrupted the world. country. In 2022 alone, citizens and non-financial businesses lost as much as PLN 150 billion in purchasing power as a result of their cash and deposits. If we add up all the state income from PIT and CIT, we paid less in taxes than the loss of purchasing power due to the interest rate policy and the lack of risk-free financial instruments that safeguard the value of money against inflation.

What does it mean?

You could say that we have become so much poorer during this period. In my opinion, this will have negative consequences in the medium and long term. For example, in the area of ​​a very low investment rate in the economy. For years it remained significantly above 20% (temporarily almost 23%). In recent years we have experienced a deep decline, barely exceeding 16%. This is by no means a global or European trend.

But let’s get back to the “inflation tax.” It is not set by the state, there is no specific rate. This shows how much prices have risen in the economy compared to the best risk-free financial instruments that could secure the value of money over time. This difference is still several percent. With these values, this amounts to tens of billions of zlotys per year. Perhaps sometimes it is better to limit social programs so as not to affect those who save. In Poland, savings are relatively small compared to savings in other European Union countries or developed economies. Moreover, it is a greater inconvenience to the needy. Their assets and financial resources include a larger share of bank deposits and simple financial instruments. These are often measures for the proverbial rainy day, the so-called “widow’s penny”. People who have greater financial resources can purchase more diversified assets and higher-risk instruments, diversify and defend the value of the entire portfolio over time. Unfortunately, the less wealthy a person is, the more he or she is relatively exposed to a greater loss of real purchasing power of financial resources due to the “inflation tax.” In summary, the monetary policy aimed at accepting increased inflation and a large increase in the national debt were two very big mistakes for which we will continue to pay for the foreseeable future.

Source: Do Rzeczy