Republic of Poland: Staff Report for the 2003 Article IV Consultation Supplementary Information

This 2003 Article IV Consultation highlights that the economy of the Republic of Poland began to recover during 2002 from the sharp weakening of growth in 2000–01, but the recovery is fragile. Private consumption picked up gradually, fueled by rising real fiscal transfers, easing monetary policy, and a drop in the savings ratio. Exports outpaced rather weak market growth as competitiveness improved. The recovery also reflected a lessening of negative influences: a sharp drop in inventories ended, and the contraction of fixed investment lessened.

Abstract

This 2003 Article IV Consultation highlights that the economy of the Republic of Poland began to recover during 2002 from the sharp weakening of growth in 2000–01, but the recovery is fragile. Private consumption picked up gradually, fueled by rising real fiscal transfers, easing monetary policy, and a drop in the savings ratio. Exports outpaced rather weak market growth as competitiveness improved. The recovery also reflected a lessening of negative influences: a sharp drop in inventories ended, and the contraction of fixed investment lessened.

1. This statement reviews development in Poland since the preparation of the staff report for the 2003 Article IV consultation. The additional information does not change the thrust of the staff appraisal.

2. Recently-released data for April show a continuation of the recovery in output with low inflation but high unemployment.

  • Industrial sales were up by 8.3 percent (year-on-year, compared to 5.5 percent in March). Construction continued to decline (by 13.5 percent year-on-year), but considerably less than in March (when it declined by 25.3 percent).

  • The seasonally adjusted unemployment rate remained unchanged at around 18 percent.

  • Headline CPI inflation dropped to 0.3 percent (year-on-year, from 0.6 percent in March). Net inflation (excluding food and fuel) fell to 1.2 percent.

3. Macroeconomic policies have seen two new developments. First, the Monetary Policy Council further reduced the key policy interest rate by 25 basis points at end-May. Second, the government reviewed the fiscal reform program at a meeting in mid-May, but no decision on its final form was made. Separately, the Minister of Finance announced that the state budget for 2004 would include a transfer of realized gains on the National Bank of Poland’s (NBP) foreign exchange holding of some Z1 9 billion (1.1 percent of GDP). This transfer would close the gap between targeted and projected deficits in 2004 in the program. On the other hand, the President of the NBP has mentioned only a possibility of lending foreign exchange to the government to retire foreign debt, a transaction that would not realize holding gains.

4. Some revisions to official GDP forecasts and estimates have occurred. The Ministry of Finance revised downward its projection for GDP growth in 2003 to 3 percent (from 3.5 percent in the budget), but left its revenue projections unchanged. The Central Statistical Office (GUS) revised its GDP estimate for 2002 to 1.4 percent (up from 1.3 percent in the preliminary estimates). This revision would modify several of the ratios used in the tables and text, but only marginally, and not in a way that would modify the analysis and conclusions of the staff report.