On July 17, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Poland. 1
Despite its resilience in recent years and very strong fundamentals, the Polish economy has slowed markedly. Real GDP growth moderated to 1.9 percent in 2012 from 4.5 percent in 2011. A slowdown in Poland’s main export markets, combined with uncertain prospects for euro area growth and a sharp drop in public investment, weighed on demand. Household consumption was affected by adverse confidence effects, sluggish disposable income, falling real wage growth, and rising unemployment. Credit growth decelerated sharply to 3.5 percent in the first quarter of 2013 (down from 11 percent a year before), on the back of weak credit demand and tight lending policies by banks.
Reflecting the slowdown, as well as lower fuel and energy prices, CPI inflation has fallen sharply and stood at 0.5 percent (year-on-year) in May. A monetary easing cycle was started in November 2012, and the policy rate was cut by a cumulative 200 basis points to 2.75 percent in June 2013.
Fiscal consolidation has continued, albeit at a slower than envisaged pace. The fiscal deficit declined from 5 percent of GDP in 2011 to 3.9 percent in 2012. The latter was somewhat larger than expected, as the economic slowdown dented on indirect tax collections, especially the VAT. Public debt (ESA95 definition) dropped to 55.6 percent of GDP in 2012.
The banking sector remained well-capitalized, profitable, and liquid. Reliance on foreign currency funding has declined. But the impaired loan ratio inched up to 9 percent mainly due to deterioration in the corporate loan portfolio, reflecting rising bankruptcies (notably in the construction sector). Stress tests conducted as part of the recent IMF-World Bank Financial Sector Assessment Program update confirm the sector’s resilience: bank capital and liquidity buffers can withstand large shocks and contagion risks are limited.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.