Polish solvency and its pension fund

I previously posted about the Polish national debt and the perspective of repayment.  However, no word was spoken about the Polish public pension fund - this was no fluke.  Different consequences for failing to meet different financial obligations justifies a different categorization of financial obligations. 

The reason why solvency of the national debt matters so much is that it is basically the sum of budget deficit*.  Budget deficits are financed with money people and institutions invest in national debt in the form that are also known as treasury bonds in the case of the US government.  If the government were to default on these bonds, the government would not be able to finance future deficits by raising money (relatively cheaply) through such bonds: financial actors would apply an expensive risk premium to future bonds.  If the Polish government were to run a budget deficit and was unable to find buyers for its debt, it’d have to either 1) print money to finance its deficit, generating unsustainably high levels of inflation or 2) declare bankruptcy. 

On the other hand, if Poland were to be unable to afford paying the pension plan or ZUS (healthcare) benefits, it could 1) pass laws that’d lower the amount of transfers to make through direct or indirect effects (for example, raising the age of retirement); 2) refuse to make transfers to beneficiaries and negotiate an alternative.  Obviously, the first option looks more likely than the second. 

All is not green for Poland, yet Polish public finance challenges are shared by other advanced economies. 

* The national debt is actually the sum of deficits minus payments of the debt plus interests of the debt