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Republic of Poland

Author(s):
International Monetary Fund
Published Date:
January 2012
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I. Context

1. Poland’s resilience during the global crisis and rapid return to robust growth thereafter attest to its very strong economic fundamentals and institutional policy framework. The economy was severely affected by the global crisis through both real and financial channels. Nonetheless, countercyclical policies, facilitated by the room for maneuver afforded by limited imbalances prior to the crisis, helped Poland escape a recession in 2009 and aided a strong economic recovery in 2010–11. This enviable performance was buttressed by the insurance provided by the FCL arrangement.

2. Timely and comprehensive policy responses underpinned the resilience of the Polish economy. During the global crisis, the authorities balanced short-term cyclical and medium-term fiscal sustainability concerns by allowing automatic stabilizers to work while strengthening the medium-term fiscal framework. In 2011, significant fiscal consolidation helped to reduce the deficit and contain government debt. Similarly, monetary policy was accommodative at first, with aggressive cuts in the policy interest rate, but when financial conditions normalized, exceptional liquidity facilities were withdrawn, and when capacity constraints started to tighten, the central bank hiked the policy rate. The financial supervisory framework continued to enhance the resilience of the banking system, including by fostering strong capitalization and tightening lending standards for households.

3. Precautionary access to the FCL supported the authorities’ macroeconomic policy framework, by providing a buffer against global risks. The Fund has supported the authorities’ policies through three successive FCL arrangements. Poland’s initial FCL arrangement, in an amount of SDR 13.690 billion, was approved in May 2009. A successor arrangement in the same amount was approved in July 2010. The current arrangement approved in January 2011 increased access to SDR 19.166 billion on account of heightened external risks. The authorities consider that these FCL arrangements allowed for a more flexible policy response to the global crisis while preserving favorable access to capital markets, even as volatility increased amid the euro area debt crisis.

II. Recent Economic and Policy Developments

4. Economic growth in 2011 was robust and well balanced (Figure 1). In the first three quarters of 2011, real GDP expanded by 4¼ percent year-on-year, led by fixed investment and exports, and private sector employment grew by 2¼ percent. Headline CPI inflation was 4¾ percent in November, with core inflation at 3 percent. The current account deficit widened slightly to about 4¾ percent of GDP in the four quarters to 2011Q3 and was mostly financed by capital transfers from the EU (2 percent of GDP) and FDI inflows.

Figure 1.Poland: Recent Economic Developments, 2008–11

Sources: Haver; and IMF staff estimates.

5. In recent months, amid heightened global investor risk aversion, interest rate spreads have widened and capital inflows have eased, putting downward pressure on the exchange rate (Figure 2). After strong capital inflows in the first half of 2011, inflows have become more volatile since July. The sovereign CDS spread has widened and equity prices have fallen. In late September, the exchange rate came under sharp downward pressure, prompting the central bank to intervene. Nonetheless, the government issued a ten-year $2 billion international bond in October at an average yield of 5.2 percent (and with a bid-to-cover ratio of 4).

Figure 2.Poland: Financial Market Developments, 2007–11

Sources: Poland Minstry of Finance; Bloomberg; EPFR; and CMA.

6. Substantial fiscal consolidation is under way and the government is committed to its medium term objective (MTO) of a deficit of 1 percent of GDP. In 2011, a combination of measures (notably a ceiling of CPI+1 on the growth of discretionary expenditure, a VAT hike, and increases in excise taxes) as well as pension contribution changes helped to reduce the fiscal deficit to an estimated 5.5 percent of GDP. For 2012, staff project that, on the baseline outlook, the fiscal measures in the draft budget (including the CPI+1 rule and a rise in the employer disability contribution rate) will lower the deficit to 3.3 percent of GDP (compared to staff’s projection of 4.6 percent of GDP a year ago). This constitutes significant progress towards the MTO, which is necessary to put debt firmly on a downward path. In addition, consistent with Fund advice, the government announced its intention to enact legislation in the first half of 2012 that will increase the statutory retirement age and reform the special pension schemes.

7. Sound monetary policy has anchored inflation expectations and bolstered the inflation targeting framework. To contain inflationary pressures, the central bank hiked the policy rate by a cumulative 1 percentage point to 4½ percent in the first half of 2011. With core inflation still rising but the economic outlook dimming and inflation expectation contained, the central bank has appropriately kept the policy rate unchanged since midyear. Recent central bank interventions in the foreign exchange market appropriately countered disorderly movements in the exchange rate, with the level of the exchange rate remaining broadly in line with fundamentals. The interventions were small and consistent with the floating exchange rate regime. Moreover, over the past year, the central bank has enhanced its communication, including by providing greater detail in its assessment of risks in the inflation report and post-MPC meeting communiqués.

8. Further policy measures have been taken to safeguard financial stability. Given the pick-up in private sector credit growth after the global crisis (Figure 3), the financial supervisor (KNF) reinforced the previously issued Recommendation S (on mortgage lending standards) by capping the debt-service-to-income ratio for FX loans. Regarding capital buffers, the average capital adequacy ratio is 13¼ percent, with Tier 1 capital representing 90 percent of total capital. To further build buffers, the KNF is encouraging banks with riskier profiles to retain profits. Given banks’ large foreign liabilities and the associated risk of liquidity shortages, the authorities are closely monitoring the liquidity situation. To address potential liquidity strains, the central bank is prepared to provide liquidity support to the banking system, including by offering FX swaps. Existing law provides authority for the government to inject public capital and nationalize problem banks. The authorities are working to broaden the range of resolution instruments and allow for the earlier involvement of the Bank Guarantee Fund.

Figure 3.Poland: Banking Sector Developments, 2007–11

Sources: National Bank of Poland; KNF; Bloomberg; and IMF staff estimates.

III. Outlook and Risks

9. The economic expansion is expected to slow in 2012, given the deteriorating outlook for the euro area. Poland is likely to be less affected by the euro area slowdown than some other emerging economies in Europe, given its lower share of exports in GDP (40 percent versus 65 percent on average for other new EU members) and a well-capitalized and profitable banking system. Nonetheless, weaker external demand, ongoing fiscal consolidation, a slowdown in EU-funded public investment, and diminished appetite for private investment projects are together expected to reduce GDP growth from 4¼ percent in 2011 to 2½ percent in 2012, with large uncertainties around this forecast.

10. Risks to the outlook are firmly on the downside, mainly reflecting the possibility of spillovers from escalating financial and sovereign stress in the rest of Europe. Poland’s gross external financing need in 2012 is projected to be about 30 percent of GDP and the government’s gross financing need to be about 11 percent of GDP. With the share of nonresident holdings of domestic government debt at 30 percent, Poland is vulnerable to a turnaround in investors’ risk appetite. Banks’ net foreign liabilities are around 12 percent of GDP and foreign-owned banks and branches (with parents mostly based in the euro area) account for about 66 percent of Poland’s banking system, making Poland vulnerable to parent bank deleveraging (including declining rollover rates) and reducing the likelihood of parent support in a stress scenario. The banking system’s FX-denominated lending is largely hedged by off-balance sheet transactions (so the open FX position is just 1¼ percent of regulatory capital), but banks are exposed to credit risk (households’ FX-denominated borrowing amounts to 14 percent of GDP).

11. The authorities view the precautionary access under the FCL arrangement as effective insurance against increased downside risks and heightened external uncertainty. The economy is exposed to adverse external shocks via trade and financial channels. Uncertainty has intensified and downside risks have increased, especially related to the economic and financial setting in Europe. Moreover, Poland’s relatively deep and liquid financial markets give investors the opportunity to express views on the region, which makes Poland vulnerable to global or regional shocks. The authorities reaffirmed the usefulness of the FCL arrangement as insurance against such shocks and as an effective complement to their own reserves. While reserves have increased over the past year, the authorities consider that the external environment has become more fragile, with a higher likelihood of tail events.

Sources: IMF, International Financial Statistics; EIU; and IMF staff estimates.

IV. FCL Qualification Criteria

12. Staff believes that Poland continues to meet the qualification criteria for an FCL arrangement. Poland’s very strong economic fundamentals and institutional policy framework, together with its sustained track record of implementing very strong policies, have allowed the authorities to adjust economic and financial policies in a timely and effective manner during the global financial crisis and more recently during the euro area debt crisis. Regarding the institutional framework, Poland’s Public Finance Act establishes a 55 percent of GDP threshold on the national definition of government debt, which if breached requires the implementation of measures to curb the increase in debt. In addition, the Constitution limits debt to 60 percent of GDP. The effective inflation-targeting framework and floating exchange rate regime provide a firm anchor for inflation expectations. The financial supervisory framework is effective, as evidenced by the supervisor’s proactive approach to limiting risks related to consumer and FX lending and to building capital buffers. The authorities remain committed to maintaining very strong policies. Poland’s achievements and policies have been recognized by the Executive Board, most recently in the 2011 Article IV Consultation concluded on July 1, 2011 (IMF Country Report No. 11/166). As to the relevant criteria for the purpose of assessing qualification under the FCL arrangement, identified in ¶2 of the FCL decision, staffs assessment is as follows (see also Figure 4):

  • A sustainable external position: The current account deficit is moderate and is projected to remain so over the medium term, while the exchange rate remains broadly in line with fundamentals. External debt increased slightly to an estimated 68 percent of GDP at end-2011 and is expected to remain at about this level over the medium term. The sustainability of the external debt position is generally robust to a range of standard stress scenarios (Figure 6 and Table 5).

  • A capital account position dominated by private flows: The bulk of capital flows to Poland continues to originate from the private sector, with official creditors accounting for only 9.1 percent of the stock external debt as of 2011Q2.

  • A track record of steady sovereign access to international capital markets at favorable terms: Poland has continued to enjoy one of the highest credit ratings among emerging markets, which it has maintained despite the prolonged financial uncertainties in the region. In 2011, the government successfully issued about €5 billion sovereign debt in international capital markets, and foreign investor holdings of domestic government securities have increased.

  • Relatively comfortable reserve position: International reserves remain broadly adequate, though the current elevated external risks imply the need for additional tail risk cover in the form of the FCL. Compared to peers (Figure 5), Poland is line with the median on the IMF’s new reserve adequacy metric, above the median on reserves to broad money, but below the median on reserves to short-term external debt at remaining maturity plus the current account deficit (estimated to be about 71 percent as of end-2011).

  • Sound public finances, including a sustainable public debt position: Fiscal policy provided appropriate counter-cyclical support to the economy during the 2008-09 downturn by using the fiscal space afforded by a track record of sound policies leading up to the global financial crisis. In 2011, substantial fiscal consolidation helped lower the fiscal deficit to an estimated 5.5 percent of GDP. Looking ahead, the authorities are committed to further consolidation in order to achieve their medium-term objective, as demonstrated by the measures included in the 2012 draft budget, and have announced ambitious pension reforms that will further improve long-term sustainability. Based on announced measures, staff project that general government debt (ESA95 basis) will fall gently to about 53 percent of GDP in 2016. (Figure 7 and Table 6). The debt path over the medium term is sensitive to a growth shock.

  • Low and stable inflation, in the context of a sound monetary and exchange rate policy framework: The authorities responded effectively to rising inflationary pressures in the first half of 2011. Since then, with rising core inflation but a deteriorating economic outlook, the central bank has kept the policy rate unchanged. Inflation is projected to return to target over the next 18–24 months. The authorities remain committed to preserving their credible and transparent inflation-targeting framework, which has successfully anchored low and stable inflation.

  • The absence of bank-solvency problems that pose an immediate threat of a systemic banking crisis: Poland’s banking system continues to be liquid, well capitalized, and profitable. However, Poland is highly exposed to banks in Europe’s core, which is an important source of risk.

  • Effective financial sector supervision: According to the 2011 Basel Core Principles assessment, Poland’s supervisory framework is effective, as evidenced by a comprehensive regulatory framework aligned with emerging risks and well-developed supervisory methodologies and processes. During the 2008-09 global crisis, the supervisor took proactive measures to preserve financial stability, including limited risks related to consumer and FX lending and successfully persuading banks to retain profits.

  • Data transparency and integrity: The overall quality of Poland’s macroeconomic data remains good, consistent with the findings of the 2003 data ROSC, and Poland remains in observance of the Special Data Dissemination Standard (SDDS). Reflecting improvements to the balance of payments compilation system, supported by Fund technical assistance, the level of errors and omissions in 2010 declined from 3.7 percent of GDP (pre-revision) to 2.2 percent of GDP (post-revision). In the first three quarters of 2011, errors and omissions amounted to 2.0 percent of GDP. The authorities are continuing their work to improve BOP data.

Figure 4.Poland: Qualification Criteria

Sources: Bloomberg; Poland authorities; and IMF staff estimates.

1/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.

2/ IMF’s new reserve adequacy metric as discussed in Assessing Reserve Adequacy (IMF Policy Paper, February 2011).

Figure 5.Poland: Reserve Coverage in International Perspective, 2010

Sources: IMF, World Economic Outlook; and IMF staff estimates.

1/ Measured as the ratio of GIR to the sum of 30% of short-term debt at remaining maturities, 10% of long-term debt and equity liabilities, 5% of broad money (M2), and 5% of exports. See Assessing Reserve Adequacy (IMF Policy Paper, February 2011).

2/ GIR at the end of 2010 in percent of ST debt at remaining maturity and current account deficit in 2010. The current account is set to zero if it is in surplus.

Figure 6.Poland: External Debt Sustainability: Bound Tests, 2005–16 1/

(External debt in percent of GDP)

Sources: International Monetary Fund, Country desk data, and staff estimates.

1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.

2/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.

3/ One-time real depreciation of 30 percent occurs in 2011.

Figure 7.Poland: Public Debt Sustainability: Bound Tests, 2005–16 1/

(Public debt in percent of GDP)

Sources: International Monetary Fund, country desk data, and staff estimates.

1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.

2/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance.

3/ One-time real depreciation of 30 percent and 10 percent of GDP shock to contingent liabilities occur in 2011, with real depreciation defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).

V. Safeguard Assessment

13. Staff has completed the safeguards procedures applicable to an FCL arrangement. Specifically, staff has concluded the review of the outcome of the most recent external audit of the National Bank of Poland. The authorities have provided the necessary authorization for Fund staff to communicate directly with the bank’s external auditor, PricewaterhouseCoopers (PwC) Warsaw. PwC issued an unqualified audit opinion on the 2010 financial statements on March 24, 2011. Staff has reviewed the results of the related audit and held discussions with the audit partner and manager on July 11, 2011. No significant safeguards issues emerged from the conduct of these procedures. Contact with PwC will be maintained for the duration of the FCL arrangement, and in the event of purchase, for as long as FCL credit remains outstanding.

VI. Staff Appraisal

14. Poland is benefiting from the FCL arrangement, which has helped sustain access to global capital markets and bolster confidence in the country’s fundamentals and polices. The mild downturn during the global crisis and the rapid recovery thereafter attest to the strength of Poland’s fundamentals and policy frameworks.

15. The staff’s assessment is that Poland continues to meet the qualification criteria for access to FCL resources and remains committed to responding appropriately to actual or potential balance of payments difficulties. In view of this, staff recommends completion of the review under the FCL arrangement for Poland.

Table 1.Poland: Selected Economic Indicators, 2009–13
20092010201120122013
Proj.Proj.Proj.
Activity and prices
GDP (change in percent) 1/1.63.94.22.53.4
Domestic demand-1.14.63.62.53.7
Private consumption growth2.03.23.12.43.2
Public consumption growth2.04.41.41.62.0
Domestic fixed investment growth-1.2-0.27.13.86.6
Inventories (contribution to growth)-2.51.90.10.00.1
Net external demand (contribution to growth)2.7-0.70.50.0-0.4
Output gap-1.2-0.20.2-0.5-0.4
CPI inflation (change in percent)
Average3.52.54.33.72.7
End of period3.53.14.53.12.5
Unemployment rate (average, according to LFS)8.29.69.49.39.0
Public finances (percent of GDP) 2/
General government revenues37.237.539.440.941.1
General government expenditures44.545.444.944.244.0
General government balance-7.3-7.8-5.5-3.3-2.8
Structural primary balance adjusted for pension changes-4.2-5.2-3.6-2.1-0.9
Public debt50.954.956.456.756.0
national definition 3/49.952.8
Money and credit
Private credit (12-month change) 4/8.09.214.7
Broad money (12-month change) 4/8.18.611.6
Policy Rate 5/3.83.54.34.5
Balance of payments
Current account balance (transactions, millions U.S. dollars)-17,155-21,873-24,514-26,015-27,889
Percent of GDP-4.0-4.7-4.8-4.9-5.1
Exports of Goods (millions U.S. dollars)142,085165,709189,221196,801207,992
Export volume growth-6.812.17.33.55.7
Imports of Goods (millions U.S. dollars)149,702177,519202,398209,867222,493
Import volume growth-12.413.96.03.46.4
Net oil imports (millions U.S. dollars)12,46816,57922,77622,19422,124
Terms of trade (index 1995=100)98.797.796.796.997.2
FDI, net (in percent of GDP)2.00.80.91.01.1
Official reserves (millions U.S. dollars)79,59193,51498,66599,848100,852
In percent of short-term debt plus CA deficit79.775.371.462.964.8
Total external debt (millions U.S. dollars)280,187315,341343,805365,537384,780
Percent of GDP65.167.267.669.470.1
Exchange rate
Exchange rate regimeFloating
Zloty per US$, period average 6/3.123.022.963.45
Zloty per Euro, period average 6/4.333.994.124.46
Real effective exchange rate (INS, CPI based) 7/105.5112.1112.1
percent change-15.16.30.0
Sources: Polish authorities; and IMF staff estimates.

Real GDP is calculated at constant average prices of previous year.

According to ESA95 (inc. pension reform costs). Including the 2011 budget and all announced measure as of March 2011.

Excluding debts of the National Road Fund.

For 2011, 12-month change at end-November 2011.

NBP Reference Rate (avg). For 2012, as of January 3.

For 2012, exchange rate as of January 3.

Annual average (2000=100); for 2011, January-October average.

Sources: Polish authorities; and IMF staff estimates.

Real GDP is calculated at constant average prices of previous year.

According to ESA95 (inc. pension reform costs). Including the 2011 budget and all announced measure as of March 2011.

Excluding debts of the National Road Fund.

For 2011, 12-month change at end-November 2011.

NBP Reference Rate (avg). For 2012, as of January 3.

For 2012, exchange rate as of January 3.

Annual average (2000=100); for 2011, January-October average.

Table 2.Poland: Balance of Payments on Transaction Basis, 2009–16(Millions of US dollars)
20092010201120122013201420152016
Proj.Proj.Proj.Proj.Proj.Proj.
Current account balance-17,155-21,873-24,514-26,024-27,906-29,675-30,203-30,856
percent of GDP-4.0-4.7-4.8-4.9-5.1-5.2-5.0-4.9
Trade balance-7,617-11,810-13,177-13,066-14,502-14,710-14,837-15,744
percent of GDP-1.8-2.5-2.6-2.5-2.6-2.6-2.5-2.5
Exports
percentage change in unit values-20.116.014.24.05.75.96.36.0
percentage volume growth-6.812.17.33.55.76.06.66.0
growth in foreign demand-15.914.59.23.74.54.75.15.1
Imports
percentage change in unit values-27.419.114.03.76.05.66.06.1
percentage volume growth-12.413.96.03.46.46.26.16.0
growth in domestic demand-1.14.63.62.53.73.73.83.8
Terms of trade percentage change3.5-1.1-1.10.20.40.5-0.10.1
Services balance4,7953,0983,5893,8393,9424,2814,6854,967
Credit28,98632,71837,36038,85741,06643,48046,22649,021
Debit24,19129,62033,77135,01737,12439,19941,54044,054
Net Income-16,551-16,923-17,683-19,960-21,252-22,826-24,230-24,300
Net transfers2,2183,7622,7573,1623,9053,5804,1784,220
o/w EU receipts4,6105,1505,1925,8226,5606,2456,6676,733
o/w payment to EU-5,194-4,637-5,122-4,919-4,884-4,847-4,813-4,781
Capital and financial account balance41,94246,43338,51435,85137,66039,86640,97242,992
Capital account balance7,0408,6208,9089,99711,27510,7169,7819,683
o/w net EU transfers6,9117,6888,6179,66310,88710,3659,4849,389
Financial account balance34,90237,81329,60625,85426,38529,14931,19233,310
Foreign direct Investment (net)8,4603,5745,9136,3467,2378,2339,34510,833
by nonresidents13,0229,10411,62812,31113,45214,69816,06017,548
o/w privatization1,2632,699351132131128126124
Portfolio investment (net)14,75425,55518,79315,01013,07313,54212,57212,614
by non-residents16,20226,64919,93216,17814,28114,79313,87213,895
o/w equities1,5797,8753,2813,0273,1293,2423,3693,496
Other investment (net)13,3809,1324,9014,4986,0767,3749,2759,863
Assets5,275-4,114-6,785-3,955-1,889432,0452,722
Liabilities8,10513,24611,6868,4537,9657,3317,2307,141
Financial derivatives-1,692-448000000
Errors and omissions-10,045-9,426-7,551-7,551-7,551-7,551-7,551-7,551
Overall balance14,74215,1346,4492,2762,2032,6403,2184,585
Financing
Reserve assets-14,742-15,134-6,449-2,276-2,203-2,640-3,218-4,585
Memorandum items:
Current plus capital account (percent of GDP)-2.3-2.8-3.1-3.0-3.0-3.3-3.4-3.4
Official reserves79,59193,51498,665100,941103,143105,784109,002113,587
in months of imports6.46.35.85.85.65.45.35.2
Ratio of reserves to short-term debt 1/96.391.386.776.080.781.287.488.5
Ratio of reserves to ST debt plus CA deficit 1/79.775.371.463.666.366.270.371.4
Total external debt (percent of GDP)65.167.267.569.370.070.270.069.7
Total external debt (percent of exports) 2/163.8158.9151.7155.0154.3152.9150.2147.5
External debt service (percent of exports) 2/ 3/48.550.444.256.951.951.348.047.5
Gross FDI inflows (percent of GDP)3.01.92.32.32.52.62.72.8
Net FDI inflows (percent of GDP)2.00.81.21.21.31.41.61.7
Sources: National Bank of Poland; and IMF staff estimates.

Projected reserve level for the year over short-term debt by remaining maturity.

Exports of goods and services.

Excluding repurchase of debt and including deposits.

Sources: National Bank of Poland; and IMF staff estimates.

Projected reserve level for the year over short-term debt by remaining maturity.

Exports of goods and services.

Excluding repurchase of debt and including deposits.

Table 3.Poland: General Government Revenues and Expenditures, 2009–16(In percent of GDP, ESA95 basis)
20092010201120122013201420152016
Proj.Proj.Proj.Proj.Proj.Proj.
General government revenue37.237.539.440.941.141.041.141.2
Taxes20.320.621.421.821.921.721.921.9
Indirect taxes12.913.614.214.414.314.014.014.0
Direct taxes7.46.97.37.47.67.77.97.9
Capital taxes0.00.00.00.00.00.00.00.0
Social contributions11.311.111.812.712.712.712.812.8
Other current revenue4.94.64.34.34.34.34.34.3
Capital revenue0.61.31.82.02.22.22.12.1
General government expenditure44.545.444.944.244.043.643.243.2
Goods and services5.66.25.95.95.95.85.85.8
Compensation of employees10.210.110.110.09.89.59.29.2
Interest payments2.62.72.72.92.92.92.92.9
Subsidies0.60.50.50.50.50.50.50.5
Social benefits16.917.016.716.316.116.216.216.3
Other current expenditure2.42.52.32.32.22.12.12.1
Capital transfers and investment6.26.46.66.36.56.46.46.4
General government balance-7.3-7.8-5.5-3.3-2.8-2.6-2.1-2.0
Memorandum items:
Cyclically-adjusted balance-6.9-7.8-5.5-3.1-2.7-2.5-2.1-2.0
Primary balance-4.7-5.2-2.7-0.40.10.30.80.9
Structural primary balance adjusted for pension changes-4.2-5.2-3.6-2.1-0.9-0.7-0.2-0.1
Public debt50.954.956.456.756.055.354.052.7
Sources: Eurostat; and IMF staff estimates.Notes: The projections include measures announced to date.
Sources: Eurostat; and IMF staff estimates.Notes: The projections include measures announced to date.
Table 4.Poland: External Financing Requirements and Sources, 2008–13(In million of U.S. dollars)
200820092010201120122013
Proj.Proj.Proj.
GROSS FINANCING REQUIREMENTS117,52997,101119,335132,272154,483151,010
Current account deficit34,95717,15521,87324,51426,02427,906
Medium and long-term debt amortization29,98212,67526,24318,48433,17723,515
Public sector2,6606976,8214,92315,9129,736
Banks4,4533,2026,6374,4479,2477,982
Non-bank Corporates22,8698,77612,7859,1148,0185,797
Short-term debt amortization52,59067,27171,21989,27495,28299,589
Public sector61,1471,1691,4341,8932,082
Banks (inc. s.t. deposits)17,48229,91223,49532,13834,40136,702
Non-bank Corporates35,10236,21246,55555,70258,98860,805
o/w trade credit29,23429,21229,21234,84936,90538,041
SOURCES OF FINANCING115,565111,843134,469138,721156,759153,213
Foreign direct investment (net)10,3658,4603,5745,9136,3467,237
o/w inward (net)14,97813,0229,10411,62812,31113,452
Equities (net)2,021-2836,8622,2261,9452,011
by nonresidents5641,5797,8753,2813,0273,129
New borrowing and debt rollover103,611113,188144,178133,830147,129140,454
Medium and long-term borrowing36,34041,96954,90438,54847,54036,225
Public sector-9,05519,64729,59322,69027,84619,472
Banks12,6284,27320,2975,68210,63410,377
Non-bank Corporates32,76718,0495,01410,1769,0606,377
Short-term borrowing67,27171,21989,27495,28299,589104,229
Public sector1,1471,1691,4341,8932,0822,228
Banks29,91223,49532,13834,40136,70238,517
Non-bank Corporates36,21246,55555,70258,98860,80563,484
EU transfers5,8286,9117,6888,6179,66310,887
Other-6,260-16,433-27,833-11,865-8,325-7,376
of which: Errors and omissions-12,161-10,045-9,426-7,551-7,551-7,551
BUFFERS
Use of official reserves1,964-14,742-15,134-6,449-2,276-2,203
FINANCING GAP000000
Sources: National authorities and staff estimates and projections.
Sources: National authorities and staff estimates and projections.
Table 5.Poland: External Debt Sustainability Framework, 2005–16(In percent of GDP, unless otherwise indicated)
ActualProjections
200520062007200820092010201120122013201420152016Debt-stabilizing

non-interest

current account 6/
Baseline: External debt43.749.754.946.265.167.267.669.470.170.370.169.8-3.9
Change in external debt-7.66.05.2-8.618.82.10.41.80.70.2-0.2-0.3
Identified external debt-creating flows (4+8+9)-10.1-6.2-9.0-7.111.2-1.3-0.50.60.1-0.1-0.6-0.7
Current account deficit, excluding interest payments1.32.75.05.43.03.93.73.94.03.83.22.7
Deficit in balance of goods and services0.81.93.44.80.71.91.91.81.91.81.71.7
Exports37.140.441.040.439.742.344.544.745.445.946.647.3
Imports37.842.344.345.340.444.146.446.547.347.748.349.0
Net non-debt creating capital inflows (negative)-3.8-5.2-5.5-2.9-3.4-3.6-2.7-2.7-2.8-2.9-3.0-3.1
Automatic debt dynamics 1/-7.5-3.6-8.6-9.511.6-1.6-1.5-0.6-1.1-1.0-0.8-0.3
Contribution from nominal interest rate1.11.21.21.21.00.81.11.01.11.41.82.2
Contribution from real GDP growth-1.5-2.4-2.7-2.3-0.9-2.4-2.6-1.6-2.3-2.4-2.6-2.5
Contribution from price and exchange rate changes 2/-7.1-2.4-7.1-8.511.5
Residual, incl. change In gross foreign assets (2-3) 3/2.412.114.2-1.57.73.40.91.20.70.30.40.4
External debt-to-exports ratio (in percent)117.9123.0133.9114.4163.8158.9151.7155.1154.5153.1150.4147.8
Gross external financing need (in billions of US dollars) 4/43.456.973.5125.895.7118.1119.1154.5151.0156.7153.9158.1
in percent of GDP14.316.617.323.822.225.223.429.327.527.325.625.1
Scenario with key variables at their historical averages 5/65.261.757.853.950.146.6-7.3
Key Macroeconomic Assumptions Underlying Baseline
Real GDP growth (in percent)3.66.26.85.11.63.94.22.53.43.63.93.8
GDP deflator in US dollars (change in percent)15.95.816.618.4-20.04.94.11.10.81.00.70.8
Nominal external interest rate (in percent)2.53.03.02.81.81.31.81.61.72.12.73.3
Growth of exports (US dollar terms, in percent)18.222.626.222.8-20.116.014.24.05.75.96.36.0
Growth of imports (US dollar terms, in percent)13.625.830.327.1-27.419.114.03.76.05.66.06.1
Current account balance, excluding interest payments-1.3-2.7-5.0-5.4-3.0-3.9-3.7-3.9-4.0-3.8-3.2-2.7
Net non-debt creating capital inflows3.85.25.52.93.43.62.72.72.82.93.03.1

Derived as [r - g - ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock, with r = nominal effective interest rate on external debt; ρ = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, ε = nominal appreciation (increase in dollar value of domestic currency), and α = share of domestic-currency denominated debt in total external debt

The contribution from price and exchange rate changes is defined as [-ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock. ρ increases with an appreciating domestic currency (ε> 0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

Derived as [r - g - ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock, with r = nominal effective interest rate on external debt; ρ = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, ε = nominal appreciation (increase in dollar value of domestic currency), and α = share of domestic-currency denominated debt in total external debt

The contribution from price and exchange rate changes is defined as [-ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock. ρ increases with an appreciating domestic currency (ε> 0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

Table 6.Poland: Public Sector Debt Sustainability Framework, 2005–16(In percent of GDP, unless otherwise indicated)
ActualProjections
200520062007200820092010201120122013201420152016Debt-stabilizing

primary

balance 9/
Baseline: Public sector debt 1/47.147.745.047.150.954.956.456.756.055.354.052.7-0.2
o/w foreign-currency denominated10.610.110.311.212.412.814.612.712.412.211.911.6
Change in public sector debt1.40.6-2.82.13.84.01.50.3-0.6-0.8-1.3-1.3
Identified debt-creating flows (4+7+12)2.2-0.9-4.42.34.13.61.50.3-0.6-0.8-1.3-1.3
Primary deficit1.31.0-0.41.54.75.22.70.4-0.1-0.3-0.8-0.9
Revenue and grants39.440.240.339.537.237.539.440.941.141.041.141.2
Primary (noninterest) expenditure40.641.239.941.041.942.742.141.341.040.740.340.3
Automatic debt dynamics 2/1.0-1.9-4.00.9-0.20.1-0.60.2-0.4-0.5-0.5-0.4
Contribution from interest rate/growth differential 3/0.1-0.8-2.4-1.30.30.1-0.60.2-0.4-0.5-0.5-0.4
Of which contribution from real interest rate1.62.00.50.91.02.01.51.51.41.41.61.5
Of which contribution from real GDP growth-1.6-2.7-2.9-2.1-0.7-1.9-2.1-1.3-1.8-1.9-2.0-1.9
Contribution from exchange rate depreciation 4/0.9-1.1-1.52.1-0.4
Other identified debt-creating flows0.00.00.00.0-0.4-1.7-0.6-0.3-0.20.00.00.0
Privatization receipts (negative)0.00.00.00.0-0.4-1.7-0.6-0.3-0.20.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.00.00.0
Other (specify, e.g. bank recapitalization)0.00.00.00.00.00.00.00.00.00.00.00.0
Residual, including asset changes (2-3) 5/-0.81.51.6-0.2-0.30.40.00.00.00.00.00.0
Public sector debt-to-revenue ratio 1/119.6118.6111.6119.2137.0146.3143.1138.6136.3134.9131.4128.0
Gross financing need 6/18.915.411.19.915.315.912.710.59.99.68.98.6
in billions of U.S. dollars57.552.647.352.665.874.864.655.154.355.253.554.4
Scenario with key variables at their historical averages 7/55.957.158.660.161.763.30.0
Scenario with no policy change (constant primary balance) in 2011-201658.863.868.473.177.782.4-0.3
Key Macroeconomic and Fiscal Assumptions Underlying Baseline
Real GDP growth (in percent)3.66.26.85.11.63.94.22.53.43.63.93.8
Average nominal interest rate on public debt (in percent) 8/6.56.15.45.45.95.65.35.45.55.65.65.7
Average real interest rate (nominal rate minus change in GDP deflator, in percent)3.94.61.42.32.24.23.02.92.82.83.13.1
Nominal appreciation (increase in US dollar value of local currency, in percent)-8.312.119.5-17.83.9
Inflation rate (GDP deflator, in percent)2.61.54.03.13.71.42.32.52.72.72.52.5
Growth of real primary spending (deflated by GDP deflator, in percent)5.67.73.38.03.86.02.80.52.72.72.93.9
Primary deficit1.31.0-0.41.54.75.22.70.4-0.1-0.3-0.8-0.9

General government gross debt, ESA95 definition.

Derived as [(r -π(1+g) - g + αε(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; α = share of foreign-currency denominated debt; and ε = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 2/ as αε(1+r).

For projections, this line includes exchange rate changes.

Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.

Derived as nominal interest expenditure divided by previous period debt stock.

Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

General government gross debt, ESA95 definition.

Derived as [(r -π(1+g) - g + αε(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; α = share of foreign-currency denominated debt; and ε = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 2/ as αε(1+r).

For projections, this line includes exchange rate changes.

Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.

Derived as nominal interest expenditure divided by previous period debt stock.

Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

Table 7.Poland: Indicators of Fund Credit, 2012–17
Projections
201220132014201520162017
Stocks from prospective drawings 1/
Fund credit in millions SDR19,16619,16619,16611,9792,3960
in percent of quota1,1351,1351,1357091420
in percent of GDP655310
in percent of exports of goods and services131211710
in percent of gross reserves 2/2929281730
Flows from prospective drawings 3/
GRA Charges188226226198895
Level Based Surcharge235282282327840
Service Charges9600000
Principal0007,1879,5832,396
Debt Service due on GRA credit (millions SDR)5195085087,7129,7572,400
in percent of quota313030457578142
in percent of GDP000221
in percent of exports of goods and services000451
in percent of gross reserves 2/11111143
Memo Item:
Total external debt, assuming full drawing (in percent of GDP)757575737069
Sources: IMF Finance Department; Polish authorities; and IMF staff estimates.

End of Period. Assumes full drawing under the FCL at the start of 2012. The Polish authorities have expressed their intention to treat the arrangement as precautionary. At an SDR/USD rate of 0.648633 as of December 20,

Excludes IMF purchases.

Based on the rate of charge as of end-November 2011. Includes surcharges under the system currently in force and service charges.

Sources: IMF Finance Department; Polish authorities; and IMF staff estimates.

End of Period. Assumes full drawing under the FCL at the start of 2012. The Polish authorities have expressed their intention to treat the arrangement as precautionary. At an SDR/USD rate of 0.648633 as of December 20,

Excludes IMF purchases.

Based on the rate of charge as of end-November 2011. Includes surcharges under the system currently in force and service charges.

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