WARSAW: Foreign net inflows to Poland’s local currency bond market hit their highest level in nearly three years in March, data showed on Friday, signalling a turnaround for the region’s largest fixed income market that was once shunned by investors.
Deputy Finance Minister Piotr Nowak said the inflows were also positive in April, adding EU member Poland has already financed 61 percent of its 2016 borrowing needs and had a cash buffer of 70 billion zlotys ($18.08 billion).
The inflows reached 9.9 billion zlotys ($2.56 billion) in March, finance ministry data showed, the highest value since June 2014 and the third-highest on record spanning back to 2004.
Following the 2015 electoral victory of the eurosceptic, right-wing Law and Justice (PiS) party, many investors had worried about Poland’s fiscal prospects.
In January last year, rating agency S&P downgraded Poland to BBB+, outlook negative, after PiS overhauled the constitutional court in a move that was criticised by the EU as undermining rule of law. The downgrade triggered a sell-off in Polish assets and foreign outflows from the bond market.
Opposition politicians had also warned that PiS’ fiscal programme would lead to a budget catastrophe. But while PiS sharply increased social spending, it also managed to reduce the fiscal deficit to 2.4 percent last year from 2.6 percent in 2015, partly thanks to improved tax collection.
Economists pointed to investors’ conviction that a rebound in the Polish economy has taken place as a reason for the record inflows in March.
In December last year, S&P brought the outlook on Poland’s rating back to stable but left the rating unchanged.
Earlier in April, a batch of upbeat economic data prompted several banks to revise upwards their economic growth forecasts for Poland. The government currently expects the economy to pick up to 3.6 percent this year from 2.8 percent in 2016.
Separate data from the ministry has shown first quarter tax revenue rising by 41 percent year-on-year.
“Poland’s economic growth should keep accelerating and chances for another positive deficit surprise this year have risen, so that calls for further tightening of the spread with German bonds,” ING’s Benecki said.
The agreement is historic and “commercially attractive,” Polish Prime Minister Beata Szydlo said in an interview with TVP Info television on Thursday, without being more specific on pricing.
Poland’s purchase suggests that LNG is capable of competing with Russian gas, but it won’t be a quick transition. As we noted earlier this week, Gazprom is confident of its position because it believes its supplies will remain cheaper than LNG alternatives (it’s expensive to liquify, ship, and re-gassify natural gas). But Warsaw clearly sees value in purchasing American gas, and that’s a step in the right direction for European energy security.