NBP: BGK securities for military weapons must be guaranteed by the government

The securities for the Armed Forces Support Fund (FWSZ) issued by the Bank Gospodarstwa Krajowego (BGK) must be guaranteed by the State Treasury under the Act. This is what the National Bank of Poland (NBP) puts forward.

– In order to receive additional funding for military expenditure through the Armed Forces Support Fund, the securities issued by Bank Gospodarstwa Krajowego for the FWSZ are required by law to be guaranteed by the State Treasury – We read the opinion of the Central Bank on the draft law to protect the homeland.

Meanwhile, the government bill to protect the Fatherland submitted to the Polish Republic’s Sejm – unlike the November 12, 2021 and February 22, 2022 editions – did not provide for compulsory insurance of bonds issued for BGK’s obligations. FWSZ with state treasury guarantee.

– Without the guarantee of the state treasury, the possibility of issuing bonds for the support fund of the Armed Forces would be empty because there are no buyers of such bonds. – Refers to NBP.

The draft law to protect the Fatherland provides, among other things, raising the number of military personnel to about 300,000. The self-correction announced in the draft would increase Polish defense spending by 3 percent. GDP by 2023. By 2022, Poland will spend 2.2 percent on this target. Your GDP. Self-correction provides for the technological modernization of the military and a further increase in defense spending.

The law provides, among other things, the introduction of a mechanism to obtain additional funding for the weapons and modernization of the Polish army and to increase its numbers.

The Armed Forces Support Fund is to be established in the bank Kospodorstva Krazoveko. It can be derived from treasury bonds, BGK bonds or payments from the state budget, among others.

Problems with the bill

As the NBP points out, the fund will not be eligible for its own credit. On the other hand, arms purchases do not generate future revenue, which can be used to finance the recovery of securities. The Central Bank of Poland has stated that non-bond securities in the form of state treasury guarantees will not be included in the potential bond purchase program by the NBP.

Therefore, under the regulation proposed in the present form, it will not be allowed to introduce any solution leading to the recovery of the indicated securities. If there is any person holding the claim, it can be redeemed. This is different from debt securities.

In addition to inconsistencies with key structural solutions of civil law, the proposed solution would also exclude the possibility of a potential plan by the NBP to purchase these securities. This includes due to the cash flow restriction specified in EU law, the bank states. This is specifically Article 123 of the Convention on the Functioning of the European Union.

Therefore, the Polish Central Bank proposes to include securities for the benefit of the FWSZ with the guarantee of the State Treasury under the law. This will ensure that the securities issued for the fund find the buyers, which will enable the government to finance the planned military expenditure.