Statement by the IMF Staff Representative, June 27, 2016

Poland continued its convergence to average EU income levels, growing well above most of its peers. Yet, significant regional disparities and long-term structural challenges remain. The new government, which took office in November 2015, has introduced a number of new policies, some of which have dented investor sentiment and could weaken growth going forward. The near-term outlook is for continued expansion with low oil prices weighing on inflation. External risks to the outlook remain elevated and prospects of controversial policy initiatives have heightened domestic risks. Sound institutions, growth-friendly policies, and structural reforms are critical to achieve sustainable and inclusive growth.

Abstract

Poland continued its convergence to average EU income levels, growing well above most of its peers. Yet, significant regional disparities and long-term structural challenges remain. The new government, which took office in November 2015, has introduced a number of new policies, some of which have dented investor sentiment and could weaken growth going forward. The near-term outlook is for continued expansion with low oil prices weighing on inflation. External risks to the outlook remain elevated and prospects of controversial policy initiatives have heightened domestic risks. Sound institutions, growth-friendly policies, and structural reforms are critical to achieve sustainable and inclusive growth.

1. This statement provides information that has become available since the Staff Report was circulated to the Executive Board on June 14, 2016. The information does not alter the thrust of the staff appraisal.

2. The authorities recently indicated that although they will support legislation later in the year that would reverse the 2013 retirement age increases and increase the constitutional court-mandated personal income tax (PIT) tax-free allowance, these changes are unlikely to take effect before 2018. This will postpone the fiscal impact of the retirement age increase, about 0.5 percent of GDP per annum, by one year. The government will also reform the PIT framework to introduce a unified tax on income, and social security and health contributions. The staff report accounts for these measures as fiscal risks that are not included in the baseline projections.