Polish Debt Chief Welcomes Central Bank’s Weak Zloty Policy

(Bloomberg) -- The Polish finance ministry welcomes the central bank’s attempts to weaken the zloty as the country’s debt pile has become less sensitive to exchange-rate swings.

The government’s strategy of reducing reliance on foreign financing allows the currency to weaken without a significant rise in debt servicing costs, Deputy Finance Minister Sebastian Skuza, who is in charge of debt management, said in an interview. The depreciation helps exporters and should also indirectly shore up public finances, he added.

The central bank said this week it may continue to intervene on currency markets after its first-in-a decade foray to weaken the zloty last month. Citibank said the operations may have drained the equivalent of $7 billion from the market.

The central bank wants a weaker zloty to make sure the economy takes full advantage of ultra-lax monetary conditions. The move will also boost the monetary authority’s profit, which is transfered to the state budget.

“The central bank is an independent institution and runs its own policy, but a weakening of the zloty would certainly have a positive impact on the competitiveness of exports,” Skuza said. A lower share of non-zloty debt “makes managing foreign exchange risk easier” and the sovereign “more resistant to zloty fluctuations,” he said.

Skuza, who took over as head of debt policy during the past month, said he sees no “fiscal goal” in the interventions or any “need for urgent, additional budget revenue from the central bank’s profit.”

Pawel Borys, the head of state development fund PFR SA, said a weak zloty policy “makes sense and has worked” in boosting net exports, but that it’ll become tougher to maintain in 2021. “The stronger the Polish economy, the stronger that appreciation pressure,” he told Dziennik Gazeta Prawna daily.

Front Loaded

Poland has reduced bond issuance in foreign currencies to 3.7 billion euro ($4.5 billion) last year, about half of its sales from 2016. Domestic bonds, meanwhile, have benefited from the central bank’s quantitative easing program, which has absorbed 107 billion zloty ($28.6 billion) of sovereign and quasi-sovereign bonds, while pinning down yields near record lows.

“QE had a very positive impact on the costs of treasury issuance and stabilized the domestic debt market in 2020,” said Skuza in his first interview as debt policy chief. “Further such actions would support the government in dealing with the economic effects of the pandemic. But it’s the central bank’s prerogative.”

The government wants to front-load issuance in 2021 and finance at least half of its full-year borrowing requirement in the first quarter, he said. Poland isn’t currently looking to tap international debt markets, especially amid the availability of European Union recovery funds, according to Skuza.

“The first quarter will be most intense in terms of issuance and in the following quarters we will analyze the situation to reduce sales as much as possible,” he said.

(Updates with comments from Polish development fund chief in paragraph 7)