Transcript: Interview with Polish DMO Head Karol Czarnecki
31 January 2025

By Marta Vilar – MADRID (Econostream) - Following is the full transcript of the interview conducted by Econostream on 21 January 2025 with Karol Czarnecki, Director of the Public Debt Department at the Polish Ministry of Finance.:
Q: Poland has sold its first foreign-currency bond of the year for €3 billion, on the upper part of the range. Are you satisfied?
A: Yes, definitely. We should be satisfied. We saw the market has been very strong since the start of the year. We were happy with investor demand and its structure, which was very stable. It reflects the trust in and the value of Polish debt. We were also happy with the fact that we were able to tighten the price. We have achieved two goals: we received a substantial part of the funding, and at a relatively good price.
Q: Bond yields all over the world have been rising in the last few weeks due to the return of President Donald Trump to the White House. Do you envision the situation getting much worse? Are you getting ready for this scenario?
A: Not necessarily. What we've been experiencing in the last couple of months or weeks in the market is increased volatility, which was rather natural. We are pretty sure that even if something happens, our pre-financing was over 30% at the turn of the year, so we can just do our job in the usual way.
Q: But do you expect this uncertainty to continue in 2025, along with rising yields? In that case, would you increase your issuance now in case the situation gets worse in the coming months?
A: The probability exists but our response would be having a relatively broad investor base in the wholesale market, which is our main source of funding. Diversification in the international market is the key to perform better. Of course, we should assume that there might some events that increase the volatility. But we are not feeling pushed by the situation to issue at any price. If there is higher volatility, we should take into consideration that there will be a correction after a yield surge. So, eventually we can be opportunistic. We have the tools and possibilities to adapt to the situation.
Q: How should markets expect Poland to adapt its issuance activity within the projected range, given the increased uncertainty due to Trump?
A: If you’re asking if we could extend the volume of our issuance, then definitely not. There are no signs suggesting that should happen. The budgetary requirements for 2025 were rather on the upper limit. So, we are not expecting to extend the range of the whole financing project.
Q: This year you will return to the Treasury bill market again, which you had not tapped since the Covid pandemic. What do you expect from this return?
A: Our strategic aim is to achieve as much diversification as possible. So, the return to the T-bill market is a consequence of the policy we have been conducting for a couple of years. But the more opportunities you have to acquire funding and the more niche markets you can explore, the better. So, this definitely delivers stabilisation for our funding process. We have also seen demand on the rise for some time from the money market investment fund sector. Liquidity in Poland is mainly concentrated on the central bank's accounts, and we want to give banks and investors the opportunity to use other instruments. We don't want to treat T-bills as last resort lending tools. Using them should result in lower borrowing cost in a medium-term perspective, having in mind what the predictions are regarding mainly the inflationary processes. This segment of the market should be rather stable and bring some quality for investors, as it gives them the opportunity to use tools with the lowest risk in the country.
Q: So, if I understood correctly, you're not going to deliver an opportunistic approach on T-bill issuance. It's going to be more predetermined.
A: Yes. We want to be predictable, and we want to do it on a permanent basis in a volume that responds to market demand.
Q: Your first T-bill auction was delivered in mid-January. How did it go? What does this tell you about the demand that you can expect for T-bills for the rest of the year?
A: Yesterday we had the second T-bill auction, and both of those auctions show that there was a price formation process still ongoing, which is natural. In the first T-bill tender we saw a rather widely spread demand in terms of prices. On the second one, demand was not only higher, but also more concentrated in terms of price.
Q: Other DMOs have been saying that there is increased demand for long-term debt. Is this your case too? And if so, would you be willing to extend your maximum maturity?
A: Our strategy assumes that the maturity of the total debt portfolio should rise. For the last two years we succeeded in doing this. An important factor that enabled us to achieve this was not only the market activity, but also the Recovery and Resilience Facility that has been granted to Poland, mainly the loans, which allowed us to extend the maturity at a relatively low cost. On the market we have met demand for some duration. At the moment, there are rather different opportunities in different markets. As for the US dollar market, the willingness to issue from the issuer side is skewed to the shorter end of the curve rather than the longer end. As for the euro market, we see demand for longer duration. When the opportunity arises, we will consider such an activity on the market.
Q: Your strategy assumes that the maximum maturity of the total debt portfolio will rise. What would the ideal maximum maturity be for your total debt portfolio?
A: We have to achieve a minimum on duration. For the whole portfolio, the average time to maturity should exceed 5 years. At the moment, we are close at 5.38 years. Domestic debt portfolio should exceed 4.5 years, which we expect to achieve in 2025. Now we are at 4.35 years. So, we are close to it.
Q: In 2025 your net funding needs will rise to 367 billion PLN from 308.6 billion last year, as Poland is also boosting its defence spending. To how much uncertainty do you think this figure is subject, given that President Trump aims to bring the Ukraine conflict to an end soon?
A: Our budget includes a minimum level of 3% of GDP dedicated to defence spending. The funding process will not be affected by such factors. Our budgetary needs are rather stable, no events should change it on the upside or on the downside.
Q: What is your take on EU defence bonds that were proposed by the Polish Finance Ministry? Would demand for your national bonds decrease?
A: Not necessarily. We are positive about that because defence is very important and one of the pillars of our EU presidency. This instrument would not influence demand for Polish bonds because it's a different type of instrument. If the issuer was to be some European institution (as we know disputes on final structure are still ongoing), that would also represent a different risk class and pockets of demand would be different. So, it wouldn’t affect demand for Polish bonds. In fact, it could be helpful for the debt matrix and borrowing cost.
Q: Would it have an impact on your issuance strategy if the proposal were successful?
A: Definitely, it could help to finance those expenditures which are located at the National Development Bank.
Q: Would you decrease your issuance?
A: I don't think so. Our issuances are for general budgetary purposes, not only defence. We would rather wait for the next projections which will be delivered continuously throughout the following months, and then we’ll see what we do. Defence spending is important, but not the only factor that influences budgetary plans.
Q: The Ministry of Finance projected that it would raise the equivalent of 120.5 billion PLN abroad, almost twice last year’s figure. How reliably will you reach this target?
A: Foreign financing consists not only of our issuances but also of predicted loans from the Recovery and Resilience Facility, which is predicted to be equivalent to €10 billion, which is also international funding in our accountancy. So, the level of bond issuances should remain similar to what we have been doing in 2024, between €12 and €14 billion in gross issuances.
Q: Foreign investors now make up only a small part of your investor base. Are you planning to increase their share anytime soon?
A: Not necessarily. For the state Treasury they account for 30%. There is a smaller participation in the domestic market. There is definitely potential to increase the share here, but overall we should take also into consideration international issuance. Around 30% of State Treasury debt is held by international investors, but the vast majority of this is in international issuances or issuances in core currencies like the euro or the US dollar.
Q: Last year you issued bonds in euros, US dollars and yen, and you plan to do the same in 2025. You already delivered the first issuance of euro-denominated debt. When should we expect the sale of bonds in US dollars and yen to take place?
A: It will depend on market conditions. It would be unwise to try and predict when it would happen.
Q: But I'm guessing the conditions are not the best right now for you to start issuing US dollars and yen anytime soon.
A: We need to see how the situation in the US dollar market will develop in the nearest future, and then we can say a little bit more about it. The most stable source of funding has been partially utilised by us in the beginning of the year.
Q: You are also planning to return to the green bond market. When should we expect this to happen?
A: I think that this year is very likely. We are finishing our green bond framework.
Q: When that happens, will you reopen one of your previous green bonds or will go you for a new one?
A: A new one.
Q: Could you give us any details on it?
A: There is definitely space on the euro market to issue a bit longer duration this year.
Q: Is your issuance strategy for 2025 going to be more opportunistic than last year due to higher uncertainty?
A: Maybe a little bit more, but the level of diversification and certainty we have achieved in the beginning of the year, will definitely not change our funding strategy dramatically in the direction of full opportunity. We will take a look on the market and use the preferable conditions when needed.
Q: Which part of the curve are investors demanding more?
A: It depends on which market. We see an interest in duration on the international market. Delivering quality credit is appreciated by investors. On the domestic market we see stronger demand up to the 5/6-year tenors.
Q: Poland’s rating has been pretty stable lately. What should change for Poland to get an upgrade?
A: We need to have our debt under control. We could get an upgrade if we manage to bring debt-to-GDP below 60%. One of the factors is also fiscal consolidation, which is reflected in the medium-term fiscal plan. Higher GDP growth could also be a factor, because it naturally influences the debt-to-GDP ratio.
Q: With a deficit over 5%, Poland has been placed under the EU's excessive deficit procedure in July, and the government has outlined a plan to bring that figure back to under 3%. Does this have any impact on your issuance? Will it affect demand in any way?
A: Not necessarily. Our debt management strategy is consistent. We are very transparent when it comes to the presentation of the data referring to fiscal policy. Being under such procedure does not change much, really.