Question:

Low water levels in the Danube have boosted energy exports of Bulgaria. Is there evidence based on data or anecdotal that low water levels in the Bulgarian section of the Danube river have an impact on Bulgarian/neighbours trade?

The question was asked in relation to the following story: Press Mood of the Day

Answer:

There is data-driven and anecdotal evidence about Bulgaria's rising electricity exports to neighbouring countries, correlated to the low water levels throughout the entire Danube river basin, not to the Bulgarian section of the river specifically. Bulgaria's advantage, compared to neighbouring countries where energy production was reduced, is related to the fact that the local NPP Kozloduy utilises reserve water sources and additional wells to secure the cooling of the reactors and continues to work at full capacity, as the Nuclear Regulatory Agency explained. However, officials noted that if the extremely low Danube river levels persist for more than a few consecutive weeks, precautionary reduction in NPP Kozloduy's operations might be required eventually. On Aug 7, in a TV interview, energy minister Iva Petrova confirmed that Bulgaria is achieving record electricity exports of around 32,000 to 33,000 MWh per day, explicitly attributing the surge to the regional production deficits and the good intersystem connectivity.

Figures can be found on the Electric System Operator website and the ENTSO-E Transparency Platform Portal, which track physical cross-border flows with the immediate neighbouring countries, i.e. Romania, Serbia, North Macedonia, Greece, and Turkey. The ESO identifies Romania as the largest export destination for Bulgaria. Probably, for historical comparison (e.g. comparing flows in early August against July), the ENTSO-E portal is more useful, offering interactive charting tools and broader context on neighbouring countries' trade.

The central grid load, generation by source, and total net export balance can be viewed live on the main Electricity System Operator (ESO) Homepage, while the real-time exchanges for each specific border to neighbouring countries are updated hourly on the ESO Realized Inter-System Physical Flows Portal.

Question:

Do you have a story that elaborates more on the NBH forex swap operations?

The question was asked in relation to the following story: International reserves increase by 6.6% m/m to EUR 64.3bn at end-July

Answer:

No, we do not have a specific story. The NBH has used this instrument quite regularly since the coronavirus epidemic. This is the NBH page dedicated to its swap operations, on which you can find data for all auctions carried out so far and a document describing the terms of the instrument. In this particular case, there was a large swap providing forex to banks in June, which expired in July, and probably explained the rise in reserves in July.

Question:

Is there any limitation on how much electricity Hungary can import to offset the shutdown of Paks? Are there for example capacity limits from cross-border transmission lines?

The question was asked in relation to the following story: Cabinet adopts decree for unilateral power cuts for large industrial consumers

Answer:

It seems there are such limitations, but these are comfortably above the output losses due to the Paks plant shutdown. PM Peter Magyar assured that Hungary can import up to 3,600-3,800MW of electricity already at the start of the crisis, while the installed capacity of the Paks plant is 2,000MW. It is another question altogether whether there will be such power supplies available, taking into account that Romania has problems with its nuclear power plant and a Slovenian-Croatian nuclear power plant is also at risk due to low water levels. Slovakia has offered help to Hungary with potential electricity exports, although it has not become clear how much. Overall, the situation appears difficult but not unmanageable at this stage.

Question:

What do you think is behind the recent depreciation of the zloty? More generally, what do you think are the main drivers of the USD/PLN and EUR/PLN exchange rate?

The question was asked in relation to the following story: Press Mood of the Day

Answer:

I think the PLN was riding fairly steady until NBP and MPC chair Adam Glapinski's Jul 9 post-MPC sitting press conference in which he said the inflation outlook was largely benign (despite then rising fuel prices due to the ending of the government's fuel-tax cut program) and that, if nothing changed over the summer, he would submit a motion to cut rates by 25bps at the subsequent policy sitting in September (there's no Aug meeting; the Sep meeting was delayed to Sep 8-9 from Sep 1-2). That was a surprisingly dovish message for a market that had been expecting a potential hike and no cuts for some time. Most analysts also did not see growth or inflation being conducive to a cut in 2026, let alone in September.

But of course, the seeming peace in Iran did not last and the conflict escalated not long after Glapinski made his comments. The EUR/PLN and USD/PLN then fluctuated largely based on global risk factors, but the PLN has in fact strengthened slightly since falling to around EUR/PLN 4.35 in mid-July to about 4.30. I imagine a lot of that is the fact investors are convinced that the rise of CPI inflation to 3.0% y/y in July from 2.5% in June and the prospect for more inflation from fuel prices end any chance of rate cuts in September and likely this year.

We would caution that the outlook for inflation ex-fuel is largely benign. This does mean that any sign of lasting peace in the Middle East could quickly alter the inflation outlook and bring the chance of cuts this year back onto the table considering that Glapinski's reaction function has clearly shifted to a more dovish footing. It is good to remember that Glapinski is just one of 10 members, but also that he is the key member and that Law and Justice (PiS) arguably chose 6 MPC members precisely in order to give Glapinski a majority. Only one of these 6 members has ever voted against Glapinski (Wnorowski on the March cut by 25bps). But because Glapinski has the tie-breaking vote, he could carry a motion as long as 4 of these 6 PiS-backed MPC members supported him. I thus think that Glapinski's voice is key.

In terms of other main drivers, I would think the 2027 budget draft could have the ability to move the PLN in the coming weeks since the deficit is high and the market will be looking at how credible the fiscal plans are, especially with talk out there of the ruling coalition deciding on tax cuts (i.e., doubling the standard tax deduction to PLN 60,000 or raising the tax threshold to PLN 140,000 from PLN 120,000). The budget draft is expected to be released by end-August. The flash inflation release for August to be released on Aug 31 is also important since a surprisingly low print could re-heat cut talk whereas a high print will safely push cuts off, helping the PLN.

Question:

In what forum did FinMin Domanski say this please: "Domanski also said the ministry was looking at raising the standard tax deduction to PLN 60,000 from PLN 30,000, as was promised by the senior ruling Civic Coalition (KO) during the 2023 election campaign"?

The question was asked in relation to the following story: FinMin Domanski denies having agreed to up tax threshold, says decisions to come

Answer:

Domanski made the first comments in an interview with radio broadcaster RMF FM, which I covered here. He made the comments cited in this story with TV broadcaster TVN24, which are in that story (link).

It is clear Domanski and/or PM Tusk are preparing something regarding taxes for 2027, which is, after all, an election year. I think the question is the extent. That will probably depend on how much relief, if any, the budget gets from lower debt redemptions from COVID-era issues, SAFE funds, or some combination of EU funds helping offset spending. I imagine that if Domanski wins out, whatever is decided will be limited and backloaded whereas if the political side of the question wins -- and especially the interests of Polska 2050, the PSL, and the Left -- there will be a surprisingly large pledge. We shall see!

Question: Would it be possible to get a summary of the status of all the various laws/prior actions that are needed to get the remaining RRF grants?

The question was asked in relation to the following story: Senate approves Chamber-backed biodiversity strategy for 2026-2030

Answer: Here is the latest status as of today:

1. Integrity law - approved, but currently under Constitutional Court review. CCR judges are expected to interrupt their recess and issue a ruling next week.
2. Urban Code - approved, including amendments that do not affect NRRP implementation.
3. Decarbonisation package - approved, but includes several controversial amendments now under assessment by the EC.
4. Heating and household energy measures - approved.
5. Tax and customs authority bonuses (collection‑improvement reform) - approved.
6. Water resource management law - approved.
7. Public sector wage reform - still under negotiation with unions; may enter parliamentary debate during next week's session.
8. SOE governance and Administrative Code adjustments - approved by the Senate; scheduled for debate in the Chamber of Deputies next week.
9. The law on the deinstitutionalisation of adults with disabilities - approved by the Senate; scheduled for debate in the Chamber of Deputies next week.

In addition, PSD requested that the already‑approved government bill on the Biodiversity Strategy be added to the parliamentary agenda. Parliament adopted it with amendments that now require reassessment by the EC. Each of the remaining measures should disburse around EUR 770mn, except the biodiversity strategy, which is worth almost EUR 1bn.

Question: What do you think about the PSD-AUR decision on the coal plant?

The question was asked in relation to the following story: Press Mood of the Day

Answer: The PSD-AUR amendment concerning coal‑fired plants bans their closure unless new stable‑grid generation capacities are built as replacements. EU Funds Minister Dragos Pislaru said the measure has no short‑term effects because no mine closures were planned in the near term. He also stressed that PSD-AUR did not request the reopening of already closed mines to revive energy production during the current crisis, which suggests to us that the amendment is largely a populist gesture.

However, this amendment introduces a new condition into Romania's decarbonisation commitments to the EU: coal‑fueled units can be closed only if new capacities replace them. I honestly don't know how the EC will interpret this. If the Commission trusts that authorities can build replacement capacities in time, it may consider the law compliant with NRRP commitments. If it sees the amendment as a major obstacle to achieving decarbonisation targets, it could block the disbursement linked to this objective.

Question: Is there any news/colour on what the state of the negotiations for a potential government is? Are we currently in summer recess - meaning there is not much happening?

The question was asked in relation to the following story: Nearly half of Romanians want early elections to end political deadlock

Answer: This is actually the second week in which the parliament is holding an extraordinary session to approve NRRP‑linked laws, so MPs are working. There are no major changes in party positions regarding potential coalitions, and all actors seem to be waiting for President Dan's move. He currently has two PM proposals on his desk: PSD leader Grindeanu and MEP Siegfrid Muresan, proposed by the PNL‑USR‑UDMR alliance. Neither has yet demonstrated majority support in parliament, which is the primary condition Dan requested for a new designation.

Media sources close to the presidency say that President Dan is once again considering the option of nominating a non‑affiliated PM. Such a choice would need acceptance from both sides: PSD on one hand, and the PNL‑USR‑UDMR alliance on the other. This implies finding someone who can satisfy PSD's slower reform pace while also meeting the reformist alliance's objective of reducing PSD's influence in the administration. Given these conditions, we honestly cannot think of anyone who fits.

Media also report that both sides are holding talks with the nationalist opposition AUR to secure support for their PM proposals. In our view, both could potentially attract AUR MPs, as the party is split between a more moderate current and an extremist nationalist one. However, Dan has still not expressed openness to accepting a government involving AUR or backed by AUR, even if his stance has become somewhat more nuanced lately.

Question:

Does this mean that NBK views the KZT seasonality in July was positive so that they bought dollars to counter KZT appreciation effect? Or does it simply mean that sovereign fund has more revenue in July? And how would NBK use this dollar?

"Quasi-sovereigns sold USD 195mn as part of the mandatory sale of export proceeds in the first half of the month as this requirement was scrapped from Jul 15" - As far as I know the authority removed the requirement because they think exporters convert more than the previous 50% threshold of their dollar proceeds. This sentence seems to me that after removing the requirement, the exporters are hoarding dollars and do not continue to sell their dollars any more.

The question was asked in relation to the following story: NBK expects USD 200-300mn FX sales from sovereign fund in August

Answer:

The USD 500mn purchased from the National Fund will be sold gradually on the market till the end of the year in order to withdraw liquidity and sterilize the effect of transfers to the budget. For the same reason the NBK bought USD 460mn from the National Fund in June. We don't think this amount reflects any intent to move the exchange rate.

On quasi-sovereigns, as far as we understand, the NBK reports only the mandatory sales. This is consistent with the amounts as they sold roughly USD 0.4bn in the entire month of June and USD 0.2bn in the first half of July. In the second half of July there were no obligatory sales as the requirement was scrapped. This does not mean quasi-sovereigns stopped selling dollars, but we don't know the amount.

Question:

Under what conditions could the CB ease policy in 2027, even if service inflation does not reach 3%? What will be their key reasoning, and what could they be pointing at to justify it?

The question was asked in relation to the following story: CB to hold policy rate at 6.50% on Thursday, anticipate no adjustment soon

Answer:

The more dovish members of the CB's board made all sorts of arguments to justify monetary easing in late 2025 and early 2026 even as CPI inflation stood on no path to converge to their 3.00% target, disregarding the pressures seen on core inflation and loosely anchored mid-term market expectations. We will not be surprised if the CB takes a similar position in 2027, trimming its policy rate even while service prices maintain upward pressure and as mid-term market expectations remain solidly above the CB's punctual target.

Given the arguments given recently, some of the excuses we would expect from the dovish board members are 1) The currency's strength, which might continue into 2027. Although we note there is little evidence suggesting the currency's strength is having a significant role in pressuring goods' prices down. 2) The economy's weak growth and modest mid-term outlook. Although the economy is expected to gain momentum in coming years, it will not surprise us if growth expectations remain below potential, given a weak business climate. Indeed, the output gap should remain among the factors favoring disinflation ahead. 3) The claim that inflationary pressures show a correction in relative prices. One of the most repeated arguments by the more dovish board members in recent months, trying to minimize lingering service inflation, is likely to come up again. On this, we note the dovish board members might have a point, considering service inflation since the pandemic does show a correction in relative prices, even if this is unlikely to be the whole story.

We'd expect any 2027 monetary easing to come with inflation below 4.0%; thus, we expect the board to cite the fact that inflation has converged to its tolerance band. On this, we note only Deputy Governor Jonathan Heath has stressed the CB's target is punctual, insisting the bank cannot be complacent with meeting this tolerance band. This already unpopular position is likely to lose relevance in monetary sittings with Heath's departure at the turn of the year.

There might be other less orthodox arguments in favor of monetary easing, particularly from the most dovish board members. We believe one of the best windows into such unorthodox pretexts came in an interview with Deputy Governor Omar Mejía, where he questioned the own CB's view that the policy rate was already in neutral territory and cherry-picking inflationary data to justify a new rate cut.

To be clear, we assume the dovish board would like to cut its policy rate in 2027; however, we believe it won't do so at any cost and might have to hold or even raise its policy rate if CPI inflation accelerates significantly, if mid-term expectations converge well outside of the CB's tolerance band or if the Federal Reserve engages in sharper-than-expected monetary tightening.

Question:

With this pace of tax collection, does it materially affect the primary deficit projections, or is the increase in revenues already budgeted for?

The question was asked in relation to the following story: Tax collection growth slows in July, up 20.4% y/y

Answer:

Tax collection is outperforming the government's expectations. The 2026-2029 Multiannual Macroeconomic Framework (MMM) published by the Ministry of Economics and Finance (MEF) anticipates tax collection hitting PEN 187.3bn in 2026, 64.4% of which has been collected by July-end, suggesting the target might be exceeded by some PEN 19.5bn at the current trend (per back of the envelope calculations).

These above-target revenues exceed the FinMin's primary deficit projection for the year, anticipated in the MMM at PEN 0.9bn, or 0.1% of GDP. This does suggest the current pace of tax collection should affect primary deficit projections.

However, we note 1) the MEF's primary deficit projection for 2026 was already optimistic, with the IMF projecting the 2026 primary deficit at 0.5% of GDP, 2) while the 12-month primary deficit is indeed declining, particularly after a strong surplus posted in April, the primary deficit fell to 1.3% of GDP to close H1 (our story), still far from the MEF's projection (you can see the trend published by the BCRP, with the 12-month deficit declining swiftly as a share of GDP in Q2), 3) there is a risk of unanticipated pressure on expenditures because of the likely impact of El Niño.

All in all, we'd say that the strong growth in public revenues should have an impact on primary balance expectations, particularly so if GDP growth remains robust and the prices of gold, copper, and oil remain well above original MEF expectations.

Question:

Are the funding sources from the government or your estimates?

The question was asked in relation to the following story: Ministry of Finance projects 2026/27 gross financing needs at 51% of GDP

Answer:

These are indicative figures published by the ministry of finance, not our calculations.

Question:

A couple of questions on fiscal outlook - Based on the March 2026 budget, fiscal deficit was projected at 4.9% of GDP. Using this, gross funding through local debt comes to around at NIS 150-160bn. However, I saw in one of your published articles that estimated gross issuance via LCD is above NIS 200bn. Could you pls elaborate on this? How is funding progress going on? Are there any risks to the fiscal outlook ahead of the upcoming elections? Also, are there any discussions around cut in increased defence spending if the Middle East conflict recedes?

Answer:

1. According to the 2026 budget plan, the government intends to raise NIS 224.06bn by selling tradable bonds on the local market for the whole year, which is indeed above the NIS 200bn figure you mentioned. When looking at borrowing plans, you should keep in mind that the government appears to be preparing the annual borrowing plan on the safe side. For example, the target for selling tradable bonds and T-bills on the domestic market was approved at total of NIS 192.4bn in 2025 but the sum from the monthly borrowing plans reached only NIS 124.5bn for the full year and the state raised NIS 139.8bn eventually (including non-competitive auctions, which are not part of the monthly targets). The monthly borrowing plans were met when looking at competitive auctions. I believe that this has something to do with the unexpectedly high revenues both this and last year (revenue forecasts were updated upwards), partly related to the sale of companies (especially this year), which has eased the pressures on the budget. You can look up the annual borrowing targets for this and past years in the detailed budget plans in the excel tables on that link.
2. The latest budget execution report shows that the annual foreign financing plans were met at 90.5% while 46.1% of the domestic financing target was accomplished by the end of June. Here is a link to our story and the budget report itself.
3. Fiscal risks are notable ahead of the Oct 27 general election. They stem mainly from the persistently increasing defence spending, which has reached around 8% of GDP and nearly doubled compared to the pre-war levels. The lack of credible medium-term fiscal consolidation agenda has also increased fiscal risks. Additionally, the government has pushed for tax cuts that target specific demographics, which have been criticised as pre-election populism.
4. There have been no discussions about a general reduction in military spending after the end of the military conflict as the government has already accepted that higher spending needs are necessary with the new security realities. However, the government has pledged to reduce the number of active reservists to save funds related to payments of extraordinary compensations. Yet, the defence establishment has been constantly increasing its demands for more funds. Given the still high security risks, I do not expect defence spending to fall in the near term, at least not to pre-war levels, as the security system has accumulated debts to local defence producers while pressing them to advance with new technologies, for example to build equipment to respond to drone threats. Moreover, they will most likely need to replenish inventories that have been depleted during the war. PM Netanyahu is promoting a NIS 350mn (almost USD 120bn) programme for additional defence spending over the next decade to expand domestic arms production, which is much higher than the recommendations of NIS 133bn extra defence spending of a specially-established committee to review the issue. The government has approved neither of the two amounts thus far and they are not included in the 2026 budget.

The question was asked in relation to the following story: Treasury raises planned NIS 2.6bn from local market

Question:

Can you please explain how you got ytd borrowing estimate and also share 2026 budget document?

Answer:

The ytd borrowing estimate can be found here by pressing the Domestic Tradable Bonds Issuance by periods button.

It is found at the bottom of the table.

As for the second question, here is the link to the 2026 budget bill.

The question was asked in relation to the following story: Treasury sells tradable bonds worth NIS 2.8bn on local market