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© 2008 International Monetary Fund
April 2008
IMF Country Report No. 08/130
Republic of Poland: 2007 Article IV Consultation—Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Poland
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2007 Article IV consultation with the Republic of Poland, the following documents have been released and are included in this package:
the staff report for the 2007 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on January 21, 2008, with the officials of the Republic of Poland on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on March 19, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF;
a staff supplement of April 9, 2008 updating information on recent developments;
a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its April 16, 2008 discussion of the staff report that concluded the Article IV consultation; and
a statement by the Alternate Executive Director for the Republic of Poland.
The document listed below has been or will be separately released.
Selected Issues Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
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Price: $18.00 a copy
International Monetary Fund
Washington, D.C.
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INTERNATIONAL MONETARY FUND
REPUBLIC OF POLAND
Staff Report for the 2007 Article IV Consultation
Prepared by the Staff Representatives for the 2007 Consultation with the Republic of Poland
Approved by Michael Deppler and Adnan Mazarei
March 19, 2008
Executive Summary
Growth is slowing and core inflation rising. Supply-side constraints are emerging, with real wages growing well above productivity. GDP growth is set to ease from 6½ to 5 percent in 2008, while inflation is projected to remain outside the upper end of the band in 2008–09.
Policy tightening is warranted. Monetary policy should retain a tightening bias to prevent higher inflation expectations from becoming entrenched and a prolonged tightening bias from causing excessive appreciation in the future. The 2008 budget will, at best, be neutral, but the government plans to cut the structural deficit by about ½ percent of GDP annually over the medium-term. This will help safeguard external sustainability and maintain the zloty within its equilibrium range as the current account deficit otherwise will approach the limit of what is safe. Staff suggest a three-year fiscal framework to protect against pro-cyclical policy and broaden support for fiscal targets.
There is no evidence of the current turmoil spilling over through financial channels. Banks are very profitable, have scant exposure to US sub-prime assets and structured products, and the corporate bond market is small. While systemic vulnerabilities are limited, the unification of supervision comes at a sensitive time and vigilance is needed during the transition period.
Automatic stabilizers should be allowed to work. Downside risks arising from the possibility of stronger-than-expected external spillovers are broadly offset by risks that domestic demand will be more robust than assumed. Should downside risk materialize, monetary tightening should pause and the fiscal stabilizers should be allowed to work.
Boosting labor participation is essential for long-term growth prospects. Participation is low and the scope for increasing utilization is being exhausted. Reforming generous provisions for early retirement and for disability payments is of highest priority, and reducing the tax wedge at lower incomes and reforming the agricultural pension system could also boost participation.
The authorities will set a timetable for euro adoption once they deem that the conditions for success have been established.
Contents
Executive Summary
I. Introduction
II. Strong Growth Continued in 2007, But Bottlenecks Have Emerged
A. Recent Economic Developments
B. Economic Policies
C. Financial Sector Developments
III. Outlook: Gradually Slowing Output Growth, But Inflationary Risks Remain
IV. Should the Monetary Policy Tightening Cycle Continue?
V. Sustained Fiscal Consolidation Required
VI. Limited Financial Sector Vulnerabilities and Supervision
VII. Enhancing Growth and Flexibility, and Euro Adoption
VIII. Staff Appraisal
Boxes
1. Macroeconomic Effects of European Union Transfer to the New Member States (NMS)
2. What Can Poland Learn from Other EU Countries Regarding Labor Market Reforms?
Figures
1. Poland and Other Emerging European Countries: Private Credit, 2000–06
2. Poland and Other EU Countries: Labor Market Indicators, 1980–2006
3. Poland and Other CEE Countries: Real and Nominal Convergence with the Euro Area, 1995–2007
4. External Debt Sustainability: Bound Tests
5. Public Debt Sustainability: Bound Tests
Tables
1. Selected Economic Indicators, 2002–09
2. Balance of Payments on Transaction Basis, 2004–2013
3. Underlying Current Account in 2007
4. External Debt Sustainability Framework, 2002–2012
5. General Government Revenues and Expenditures, 2002–09
6. Financial System Structure, 1998–2007
7. The Core Set of Financial Soundness Indicators for Banks, 1998–2007
8. Encouraged and Other Financial Soundness Indicators, 1998–2007
9. Medium-Term Scenario, 2005–13
10. Public Sector Debt Sustainability Framework, 2002–2012
11. Indicators of External Vulnerability, 2002–07
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INTERNATIONAL MONETARY FUND
REPUBLIC OF POLAND
Staff Report for the 2007 Article IV Consultation—Informational Annexes
Prepared by the European Department
March 19, 2008
Contents
Appendix
I. Fund Relations
II. Statistical Issues
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INTERNATIONAL MONETARY FUND
POLAND
Staff Report for the 2007 Article IV Consultation Supplementary Information
Prepared by the European Department
(In consultation with the Policy Development and Review Department)
Approved by Michael Deppler and Adnan Mazarei
April 9, 2008
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Public Information Notice (PIN) No. 08/xx
FOR IMMEDIATE RELEASE
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
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Public Information Notice (PIN) No. 08/46
FOR IMMEDIATE RELEASE
April 18, 2008
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
