Economists have called on Poland to repay some or all of its approximately zł.52.81 billion debt to the Club, saying now is an ideal time for a buyback of the debt

A cozy cushion of budget reserves and a tough currency on the table means Poland will have to settle its tab at the Paris Club early. The Paris Club is an informal group of rich countries that work together on debt-restructuring plans. Economists have called on Poland to repay some or all of its approximately zł.52.81 billion debt to the Paris Club, saying now is an ideal time for a buyback of the debt. Poland is the only EU member with outstanding Paris Club debt, and former Deputy Finance Minister, Ryszard Michalski, said recently that buyback negotiations with the Club have been ongoing for some time. "It's high time to do the transaction as our savings erode each day we get closer to the settlement date. Some of the agreements carry almost 10 percent interest, which for us is very expensive," said Michalski last week. The government said that it would ultimately finance the prepayment through foreign debt issues, adding that it already had €6 (zł.24.66) billion in bridge financing, but markets had remained unsure on the origins of that cash. However, sources indicate that this is not credit from the central bank. According to Dariusz Rosati, a former central bank rate-setter and member of the European parliament: "The conditions are beneficial-the złoty is strong, budget revenues are high and Poland's balance of payments position is good," he says. "I expect this transaction to happen in 2005, probably in the second half." Last year's strong economic performance gave the Finance Ministry a liquidity cushion of zł.22 billion at the end of November. Meanwhile, Poland's Paris Club debts amount to more than 10 percent of its overall public sector debt burden. According to Rosati, repayment could be done in several stages across two to three years. Poland will this month tap foreign markets with a €1-1.5 (zł.4.12-6.18) billion eurobond issue. Market concerns are also fading that the financing could come from the hefty budget reserves built up late last year, which would have to be exchanged into hard currencies, potentially weakening the złoty.