High public debt servicing costs for the agency model of debt management in Poland

Abstract

The main reason of limiting the possibility of using external institutions in the context of public debt management seems to be high political nature of economic policy in Poland and lack of consequence and effectiveness in the realization of strategy aims in the context of public debt management (frequent changes in terms of not overly ambitious aims which loosen the discipline). A few phenomena have become significant: ad hoc public debt management and temporary actions for rating agencies (only to prevent rating decrease) or for not exceeding of national and/or EU limits in terms of acceptable public debt or deficit level (to avoid precautionary procedures which limit the expansive character of fiscal policy or the procedure of excessive deficit which decreases credibility and increases capital cost). And although this issue can be found in the majority of the EU member states, its effects are much more severe in the case of developing economies where more expensive capital, as a result of overestimated investment risk, in combination with stronger demand for foreign capital, limits the process of catching up in terms of development and further strengthens the dependency: more expensive capital – faster debt growth.