Poland's foreign-currency budget buffer falls to EUR 8.5 billion from EUR 23.2 billion

Poland's stock of foreign-currency funds held on state budget accounts fell to the equivalent of EUR 8,507.2 million at the end of September, from EUR 23,202.7 million at the end of June, according to monthly releases from the Ministry of Finance. The buffer shrank by EUR 14,695.5 million, or 63 per cent, in three months.

The decline was steady rather than a single drawdown. The balance stood at EUR 17,888.9 million at the end of July, according to the ministry's July release, and at EUR 13,061.1 million at the end of August, according to its August release. That implies falls of EUR 5,313.8 million in July, EUR 4,827.8 million in August and EUR 4,553.9 million in September.

Debt service explains only a fraction

The ministry also reports the foreign-currency payments it makes on State Treasury foreign debt each month. In July it paid principal equivalent to EUR 69.8 million and interest of EUR 153.5 million. In August it paid EUR 1,000.3 million of principal and EUR 125.8 million of interest, and in September EUR 54.0 million of principal and EUR 154.2 million of interest, according to the July, August and September releases.

On those figures, foreign-currency debt service over the third quarter totalled EUR 1,557.6 million: EUR 1,124.1 million of principal and EUR 433.5 million of interest. That accounts for about a tenth of the EUR 14,695.5 million fall in the balance. The releases do not say how the rest of the funds were used, and the ministry does not break down the change in the balance beyond debt service in these monthly notes.

In June, the month before the decline began, the ministry paid principal equivalent to EUR 585.9 million and interest of EUR 70.4 million, according to its June release.

What the zloty figures show

Each release gives the balance in both euros and zloty, which allows an implied exchange rate to be calculated. Dividing the zloty value by the euro value gives about PLN 4.296 per euro at the end of June, PLN 4.313 at the end of July, PLN 4.326 at the end of August and PLN 4.367 at the end of September, based on the balances of PLN 99,685.6 million, PLN 77,151.1 million, PLN 56,507.4 million and PLN 37,152.7 million reported in the June, July, August and September releases. The calculation is the Data Desk's and reflects the ministry's valuation, not a market fixing, but on that basis the zloty weakened by about 1.6 per cent against the euro over the quarter.

In zloty terms the buffer fell from PLN 99,685.6 million to PLN 37,152.7 million, a decline of PLN 62,532.9 million. The weaker zloty slightly cushioned the fall in local-currency terms: at a constant end-June rate, the September balance would have been worth about PLN 36,550 million.

Why the buffer matters

The ministry publishes the balance in the same note as its foreign debt service, under the heading of operations related to the management of the State Treasury's foreign debt, which places the funds within its external debt management rather than general cash management. The smaller the balance, the less of the coming foreign-currency redemptions and coupons it covers on its own. The ministry tapped the Swiss franc market in May, according to its notice on the pricing of CHF bonds, and its news page lists no further foreign-currency bond pricing since then.

The figures come from short monthly notes published around the middle of the following month, with the September release dated 15 October. The October balance is due in mid-November and will show whether the drawdown seen over the third quarter continued.

Method: balances and payments are as reported by the Ministry of Finance. Quarterly totals, percentage changes and implied exchange rates were calculated by the Data Desk from those figures.