Problem of Potential Obligations and Hidden Debt in Public Finances on Selected Examples

Abstract

The problem of the existence of hidden debt and the high level of potential liabilities (potential debt) appear more and more often in economic debates. It can be said one can see the seed of a future economic crisis within these two key issues. Not so long ago, the European Union demanded that Member States disclose the amount of pension liabilities, i.e. hidden debt. In the case of Poland, the analysts of the Central Statistical Office had no way out, and for the first time in history, they estimated the hidden debt of our country. The sum turned out to be gigantic – it is 4.96 trillion PLN, or 276% of Polish GDP. Similarly, high scores could be noted for most Member States of the Community. The following article is of a theoretical and reviewing nature and is largely based on the analysis of available statistical data. It is further developed by comparing the results with other authors’ research in the same area. The research covers the member countries of the European Union. The main intention of the author is to present the risk of failure of the financial system in the coming years due to the growing level of financial liabilities. These obligations are the main component of the potential debt and hidden debt. Potential debt causes a high risk of collapse of a country’s public finance system, and it carries a number of adverse phenomena, such as an unexpected increase in real debt servicing costs as a result of unplanned budget deficit increase, or the problem of moral hazard. In turn, hidden debt concerns, for example, anticipated effects that may occur in the future as a result of a lack of decisions regarding current and future problems of the functioning and efficiency of the pension system and the health care system.