Abstract
2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Alternate Executive Director for the Republic of Poland
On January 18, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the Republic of Poland.
The Polish economy experienced a strong upswing in growth during the past two years. Three coincident cycles—a rebound in euro-area activity, a substantial increase in EU transfers, and new large social benefit programs—boosted GDP growth from 3.1 percent in 2016 to more than 5 percent during 2018. The resulting gains in employment were achieved by reducing unemployment to a record low and attracting inflows of foreign workers. Recent data suggest that the economic cycle has now begun to moderate alongside slowing external demand. For 2019, growth is projected to be a still-strong 3½ percent, underpinned by buoyant private consumption and continued absorption of EU funds. Over the medium term, the economy is projected to expand by around 2¾ percent per year, reflecting the dampening effects of a shrinking working-age population, subdued private investment and tepid productivity gains. While headline inflation has been persistently below the mid-point of the target, core inflation is expected to edge up gradually from the current very-low level. The current account balance has shifted from a surplus in 2017 to a small deficit in 2018, and is expected to widen gradually over the medium term, while remaining broadly in line with medium-term fundamentals.
In recent years, macroeconomic policies have facilitated a further narrowing of fiscal and external imbalances, while also supporting growth. The policy interest rate has been on hold at a historically-low level for more than three years amid persistently low inflation. Substantial fiscal adjustment has been achieved through strengthened revenue administration and automatic savings from low rates of expenditure indexation, with part of these savings used to fund new social spending programs. Credit continues to grow at a moderate pace, although unsecured consumer lending is expanding strongly. Profitability of Polish banks compares favorably with systems in other European countries, despite a tax on financial institutions’ assets. New legislation to amend the governance structure of the financial supervisor gives representatives of ministries and the President a primary position on the Board, while potentially improving budgetary independence.
Looking ahead, the Polish economy faces important challenges in the near term and beyond. On the external side, an escalation of global trade tensions or a disruptive Brexit could impact Poland’s trade and financial flows and dent growth. Renewed turbulence in global financial markets could abruptly tighten financial conditions in Poland and lead to exchange rate depreciation that feeds into inflation. Poland could also face severe labor shortages if foreign workers were to leave in response to new opportunities elsewhere in the region. On the domestic front, a larger footprint of the state in the economy could slow productivity growth, while investors’ risk appetite could be lowered in the event of slippage from prudent policies and sound governance principles, or if relations with the European Union were to deteriorate.
Executive Board Assessment2
Executive Directors commended the Polish authorities for the economy’s strong and sustained expansion, low imbalances, improved social outcomes, and the smooth graduation from the FCL. They noted that solid macroeconomic fundamentals have helped to insulate the economy from volatile global financial markets. Going forward, Directors expected growth to moderate gradually in 2019, but noted that ongoing global trade tensions and reduced availability of foreign workers could cloud the outlook. Directors underscored the need for prudent, market-based policies and sustained reforms to raise productivity and ensure continued robust growth.
Amid continued low inflation, Directors supported the current accommodative monetary policy stance. While inflation is expected to rise gradually toward the mid-point of the target, the outlook is uncertain. Directors recommended that monetary policy remain data-dependent and respond to persistent inflation developments.
Directors welcomed the impressive fiscal adjustment of recent years, supported by improved tax compliance. However, they noted that some of the measures taken have reduced the quality of the budget. Directors accordingly recommended implementing sustainable and growth-friendly measures to support further efforts to create room for aging- and health-related spending and replacing part of EU funds with national resources. Measures could include enhancing tax administration and better targeting social benefits. Directors supported the authorities’ plan to increase the effectiveness and efficiency of spending and develop a medium-term budget framework.
Directors welcomed the finding of the Financial System Stability Assessment that the aggregate banking sector is resilient to adverse shocks, but noted that weaknesses are present in a few small and mid-sized banks. Directors called for close monitoring of unsecured consumer credit, which has grown rapidly, and many suggested that the financial institutions asset tax be reexamined to make it less distortive. Given the sharp decline in foreign currency-denominated mortgages, Directors did not consider them a systemic risk and recommended that any restructurings proceed through voluntary bilateral agreements. Directors underscored the importance of ensuring sufficient resources and operational independence for the Financial Supervision Authority.
Directors emphasized the need for further structural reforms to maintain income convergence amid the declining working-age population. They stressed that expanding the workforce and boosting labor productivity is key. In this regard, they encouraged facilitating more reliable access to skilled labor, removing investment barriers, providing education and training to workers, and ensuring policy predictability. Directors noted that the significant state presence in the financial and nonfinancial sectors underscores the need for a level playing field. They recommended protecting the rights of minority shareholders, maintaining a competitive environment, limiting the state footprint in the economy and increasing the role of the private sector, and ensuring that price signals reflect economic costs.
Republic of Poland: Selected Economic Indicators, 2013–22
According to ESA2010.
The difference from general government debt reflects different sectoral classification of certain units.
Credit defined as in IFS: “Claims on other sectors.”
NBP Reference Rate (avg).
Annual average (2000=100).
Republic of Poland: Selected Economic Indicators, 2013–22
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Projections | |||||||||||
| Activity and prices | |||||||||||
| GDP (change in percent) | 3.8 | 3.1 | 4.8 | 5.1 | 3.6 | 3.0 | 2.8 | 2.8 | 2.8 | ||
| Domestic demand | 3.3 | 2.3 | 4.9 | 5.9 | 4.4 | 3.5 | 2.7 | 2.7 | 2.7 | ||
| Private consumption growth | 3.0 | 3.9 | 4.9 | 4.3 | 4.0 | 3.5 | 3.0 | 3.0 | 3.0 | ||
| Public consumption growth | 2.3 | 1.9 | 3.5 | 3.0 | 2.7 | 2.7 | 2.6 | 2.4 | 2.2 | ||
| Domestic fixed investment growth | 6.1 | -8.2 | 3.9 | 8.7 | 8.6 | 4.8 | 2.5 | 2.5 | 2.5 | ||
| Inventories (contribution to growth) | -0.2 | 1.2 | 0.5 | 1.1 | -0.2 | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Net external demand (contribution to growth) | 0.6 | 0.8 | 0.1 | -0.7 | -0.6 | -0.5 | 0.1 | 0.1 | 0.1 | ||
| Output gap | -0.5 | -0.5 | 0.2 | 0.5 | 0.5 | 0.3 | 0.1 | 0.0 | 0.0 | ||
| CPI inflation (percent) | |||||||||||
| Average | -0.9 | -0.6 | 2.0 | 1.7 | 2.3 | 2.6 | 2.5 | 2.5 | 2.5 | ||
| End of period | -0.5 | 0.8 | 2.1 | 1.2 | 2.6 | 2.6 | 2.5 | 2.5 | 2.5 | ||
| Unemployment rate (average, according to LFS) | 7.5 | 6.2 | 4.9 | 3.7 | 3.5 | 3.4 | 3.4 | 3.4 | 3.4 | ||
| Saving and Investment (percent of GDP) | |||||||||||
| Saving | 20.5 | 19.3 | 20.1 | 20.7 | 21.0 | 21.0 | 20.7 | 20.5 | 20.2 | ||
| Investment | 20.5 | 19.5 | 19.7 | 21.1 | 21.6 | 21.8 | 21.7 | 21.7 | 21.6 | ||
| Saving-Investment | 0.1 | -0.3 | 0.5 | -0.4 | -0.6 | -0.8 | -1.0 | -1.2 | -1.4 | ||
| Public finances (percent of GDP) 1/ | |||||||||||
| General government revenues | 39.0 | 38.9 | 39.7 | 40.9 | 41.1 | 40.4 | 40.0 | 39.7 | 39.5 | ||
| General government expenditures | 41.7 | 41.1 | 41.1 | 41.4 | 41.9 | 41.7 | 41.6 | 41.6 | 41.6 | ||
| General government net lending/borrowing | -2.7 | -2.2 | -1.4 | -0.6 | -0.8 | -1.3 | -1.7 | -1.9 | -2.1 | ||
| General government structural balance | -2.4 | -2.3 | -2.0 | -1.6 | -1.7 | -1.7 | -1.8 | -1.8 | -1.9 | ||
| General government debt | 51.3 | 54.2 | 50.6 | 48.6 | 46.1 | 44.7 | 44.1 | 43.7 | 43.6 | ||
| National definition 2/ | 48.7 | 51.9 | 48.4 | … | … | … | … | … | … | ||
| Money and credit | |||||||||||
| Private credit (change in percent, end-period) 3/ | 7.5 | 4.9 | 3.4 | 6.2 | 7.4 | 7.4 | 6.4 | 5.9 | 5.5 | ||
| Credit to GDP (percent) | 56.9 | 57.8 | 56.0 | 55.5 | 55.8 | 56.6 | 57.3 | 57.7 | 57.9 | ||
| Deposits (change in percent, end-period) | 8.8 | 8.4 | 3.8 | 7.2 | 6.8 | 6.2 | 5.5 | 5.5 | 5.5 | ||
| Broad money (change in percent, end-period) | 9.1 | 9.6 | 4.6 | 7.1 | 6.7 | 6.2 | 5.4 | 5.4 | 5.3 | ||
| Policy Rate (percent) 4/ | 1.6 | 1.5 | 1.5 | 1.5 | … | … | … | … | … | ||
| Balance of payments | |||||||||||
| Current account balance (billion U.S. dollars) | -2.7 | -2.5 | 0.6 | -4.4 | -5.4 | -7.1 | -8.8 | -10.3 | -12.1 | ||
| Percent of GDP | -0.6 | -0.5 | 0.1 | -0.8 | -0.9 | -1.1 | -1.3 | -1.4 | -1.5 | ||
| Exports of Goods (billion U.S. dollars) | 191.0 | 196.3 | 228.0 | 254.2 | 273.7 | 292.4 | 308.7 | 323.8 | 338.1 | ||
| Export volume growth | 7.7 | 8.8 | 9.5 | 6.0 | 5.7 | 5.2 | 5.2 | 4.9 | 4.5 | ||
| Imports of Goods (billion U.S. dollars) | 188.6 | 193.1 | 226.5 | 259.6 | 281.3 | 302.5 | 320.6 | 336.6 | 351.3 | ||
| Import volume growth | 6.6 | 7.6 | 10.0 | 8.0 | 7.4 | 6.5 | 5.2 | 4.8 | 4.3 | ||
| Terms of trade (index 1995=100) | 105.2 | 106.3 | 107.0 | 106.0 | 107.0 | 107.6 | 107.3 | 107.0 | 106.9 | ||
| Official reserves (billion U.S. dollars) | 94.9 | 114.4 | 113.3 | 113.7 | 114.0 | 114.6 | 115.3 | 115.9 | 116.5 | ||
| In percent of short-term debt plus CA deficit | 85.5 | 88.5 | 97.6 | 101.6 | 98.0 | 98.2 | 98.4 | 98.1 | 100.8 | ||
| In percent of IMF ARA metric | 111.2 | 126.5 | 112.7 | ||||||||
| Total external debt (billion U.S. dollars) | 330.0 | 335.9 | 378.6 | 378.0 | 383.0 | 389.9 | 398.8 | 409.5 | 424.6 | ||
| In percent of GDP | 69.4 | 71.7 | 72.1 | 68.2 | 64.6 | 60.5 | 57.5 | 54.8 | 52.7 | ||
| Exchange rate | |||||||||||
| Exchange rate regime | Freely floating | ||||||||||
| Zloty per USD, period average | 3.8 | 3.9 | 3.8 | … | … | … | … | … | … | ||
| Zloty per Euro, period average | 4.2 | 4.4 | 4.3 | … | … | … | … | … | … | ||
| Real effective exchange rate (INS, CPI based) 5/ | 105.5 | 100.9 | 104.3 | … | … | … | … | … | … | ||
| Appreciation (percent change) | -3.4 | -4.4 | 3.4 | … | … | … | … | … | … | ||
| Memorandum item: | |||||||||||
| Nominal GDP (billion zloty) | 1800.2 | 1861.1 | 1988.7 | 2125.4 | 2270.8 | 2404.7 | 2528.4 | 2658.6 | 2795.9 | ||
According to ESA2010.
The difference from general government debt reflects different sectoral classification of certain units.
Credit defined as in IFS: “Claims on other sectors.”
NBP Reference Rate (avg).
Annual average (2000=100).
Republic of Poland: Selected Economic Indicators, 2013–22
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Projections | |||||||||||
| Activity and prices | |||||||||||
| GDP (change in percent) | 3.8 | 3.1 | 4.8 | 5.1 | 3.6 | 3.0 | 2.8 | 2.8 | 2.8 | ||
| Domestic demand | 3.3 | 2.3 | 4.9 | 5.9 | 4.4 | 3.5 | 2.7 | 2.7 | 2.7 | ||
| Private consumption growth | 3.0 | 3.9 | 4.9 | 4.3 | 4.0 | 3.5 | 3.0 | 3.0 | 3.0 | ||
| Public consumption growth | 2.3 | 1.9 | 3.5 | 3.0 | 2.7 | 2.7 | 2.6 | 2.4 | 2.2 | ||
| Domestic fixed investment growth | 6.1 | -8.2 | 3.9 | 8.7 | 8.6 | 4.8 | 2.5 | 2.5 | 2.5 | ||
| Inventories (contribution to growth) | -0.2 | 1.2 | 0.5 | 1.1 | -0.2 | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Net external demand (contribution to growth) | 0.6 | 0.8 | 0.1 | -0.7 | -0.6 | -0.5 | 0.1 | 0.1 | 0.1 | ||
| Output gap | -0.5 | -0.5 | 0.2 | 0.5 | 0.5 | 0.3 | 0.1 | 0.0 | 0.0 | ||
| CPI inflation (percent) | |||||||||||
| Average | -0.9 | -0.6 | 2.0 | 1.7 | 2.3 | 2.6 | 2.5 | 2.5 | 2.5 | ||
| End of period | -0.5 | 0.8 | 2.1 | 1.2 | 2.6 | 2.6 | 2.5 | 2.5 | 2.5 | ||
| Unemployment rate (average, according to LFS) | 7.5 | 6.2 | 4.9 | 3.7 | 3.5 | 3.4 | 3.4 | 3.4 | 3.4 | ||
| Saving and Investment (percent of GDP) | |||||||||||
| Saving | 20.5 | 19.3 | 20.1 | 20.7 | 21.0 | 21.0 | 20.7 | 20.5 | 20.2 | ||
| Investment | 20.5 | 19.5 | 19.7 | 21.1 | 21.6 | 21.8 | 21.7 | 21.7 | 21.6 | ||
| Saving-Investment | 0.1 | -0.3 | 0.5 | -0.4 | -0.6 | -0.8 | -1.0 | -1.2 | -1.4 | ||
| Public finances (percent of GDP) 1/ | |||||||||||
| General government revenues | 39.0 | 38.9 | 39.7 | 40.9 | 41.1 | 40.4 | 40.0 | 39.7 | 39.5 | ||
| General government expenditures | 41.7 | 41.1 | 41.1 | 41.4 | 41.9 | 41.7 | 41.6 | 41.6 | 41.6 | ||
| General government net lending/borrowing | -2.7 | -2.2 | -1.4 | -0.6 | -0.8 | -1.3 | -1.7 | -1.9 | -2.1 | ||
| General government structural balance | -2.4 | -2.3 | -2.0 | -1.6 | -1.7 | -1.7 | -1.8 | -1.8 | -1.9 | ||
| General government debt | 51.3 | 54.2 | 50.6 | 48.6 | 46.1 | 44.7 | 44.1 | 43.7 | 43.6 | ||
| National definition 2/ | 48.7 | 51.9 | 48.4 | … | … | … | … | … | … | ||
| Money and credit | |||||||||||
| Private credit (change in percent, end-period) 3/ | 7.5 | 4.9 | 3.4 | 6.2 | 7.4 | 7.4 | 6.4 | 5.9 | 5.5 | ||
| Credit to GDP (percent) | 56.9 | 57.8 | 56.0 | 55.5 | 55.8 | 56.6 | 57.3 | 57.7 | 57.9 | ||
| Deposits (change in percent, end-period) | 8.8 | 8.4 | 3.8 | 7.2 | 6.8 | 6.2 | 5.5 | 5.5 | 5.5 | ||
| Broad money (change in percent, end-period) | 9.1 | 9.6 | 4.6 | 7.1 | 6.7 | 6.2 | 5.4 | 5.4 | 5.3 | ||
| Policy Rate (percent) 4/ | 1.6 | 1.5 | 1.5 | 1.5 | … | … | … | … | … | ||
| Balance of payments | |||||||||||
| Current account balance (billion U.S. dollars) | -2.7 | -2.5 | 0.6 | -4.4 | -5.4 | -7.1 | -8.8 | -10.3 | -12.1 | ||
| Percent of GDP | -0.6 | -0.5 | 0.1 | -0.8 | -0.9 | -1.1 | -1.3 | -1.4 | -1.5 | ||
| Exports of Goods (billion U.S. dollars) | 191.0 | 196.3 | 228.0 | 254.2 | 273.7 | 292.4 | 308.7 | 323.8 | 338.1 | ||
| Export volume growth | 7.7 | 8.8 | 9.5 | 6.0 | 5.7 | 5.2 | 5.2 | 4.9 | 4.5 | ||
| Imports of Goods (billion U.S. dollars) | 188.6 | 193.1 | 226.5 | 259.6 | 281.3 | 302.5 | 320.6 | 336.6 | 351.3 | ||
| Import volume growth | 6.6 | 7.6 | 10.0 | 8.0 | 7.4 | 6.5 | 5.2 | 4.8 | 4.3 | ||
| Terms of trade (index 1995=100) | 105.2 | 106.3 | 107.0 | 106.0 | 107.0 | 107.6 | 107.3 | 107.0 | 106.9 | ||
| Official reserves (billion U.S. dollars) | 94.9 | 114.4 | 113.3 | 113.7 | 114.0 | 114.6 | 115.3 | 115.9 | 116.5 | ||
| In percent of short-term debt plus CA deficit | 85.5 | 88.5 | 97.6 | 101.6 | 98.0 | 98.2 | 98.4 | 98.1 | 100.8 | ||
| In percent of IMF ARA metric | 111.2 | 126.5 | 112.7 | ||||||||
| Total external debt (billion U.S. dollars) | 330.0 | 335.9 | 378.6 | 378.0 | 383.0 | 389.9 | 398.8 | 409.5 | 424.6 | ||
| In percent of GDP | 69.4 | 71.7 | 72.1 | 68.2 | 64.6 | 60.5 | 57.5 | 54.8 | 52.7 | ||
| Exchange rate | |||||||||||
| Exchange rate regime | Freely floating | ||||||||||
| Zloty per USD, period average | 3.8 | 3.9 | 3.8 | … | … | … | … | … | … | ||
| Zloty per Euro, period average | 4.2 | 4.4 | 4.3 | … | … | … | … | … | … | ||
| Real effective exchange rate (INS, CPI based) 5/ | 105.5 | 100.9 | 104.3 | … | … | … | … | … | … | ||
| Appreciation (percent change) | -3.4 | -4.4 | 3.4 | … | … | … | … | … | … | ||
| Memorandum item: | |||||||||||
| Nominal GDP (billion zloty) | 1800.2 | 1861.1 | 1988.7 | 2125.4 | 2270.8 | 2404.7 | 2528.4 | 2658.6 | 2795.9 | ||
According to ESA2010.
The difference from general government debt reflects different sectoral classification of certain units.
Credit defined as in IFS: “Claims on other sectors.”
NBP Reference Rate (avg).
Annual average (2000=100).
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.