Abstract
iIMF Country Report No. 22/58
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REPUBLIC OF POLAND
2021 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE REPUBLIC OF POLAND
February 2022
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 2021 Article IV consultation with the Republic of Poland, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its February 18, 2022 consideration of the staff report that concluded the Article IV consultation with the Republic of Poland.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 18, 2022, following discussions that ended on December 13, 2021, 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 February 1, 2022.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for the Republic of Poland.
The document listed below have been or will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
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Press Release
PR22/48
IMF Executive Board 2021 Article IV Consultation with the Republic of Poland
FOR IMMEDIATE RELEASE
Washington, DC – February 18, 2021: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the Republic of Poland on February 18, 2021.
While the pandemic has taken its toll on lives in Poland, as elsewhere, the economy has weathered the pandemic comparatively well. After contracting 2.5 percent in 2020, one of the least-severe recessions among members of the European Union, the economy recovered strongly in 2021, expanding an estimated 5.7 percent. Although a winter wave of the pandemic may slow growth in the near term, the economy has shown increased resilience to successive waves, and the economy is projected to grow 4.6 percent in 2022. Over the medium term, strong household and corporate balance sheets and anticipated Next Generation EU grants should maintain solid economic growth, with little scarring to output anticipated from the pandemic.
Poland’s substantial fiscal buffers permitted a strong fiscal response to the crisis. Many of the initially broad-based measures were extended with greater targeting to support sectors most impacted by later waves of the pandemic. Driven by strong revenue growth associated with the economic recovery and a lower level of pandemic-related fiscal support, the general government deficit is estimated to have declined from 7.1 percent of GDP in 2020 to 2.9 percent of GDP in 2021, with general government debt decreasing slightly to 56 percent of GDP. Over the medium term, the general government deficit is projected to stabilize around 2½ percent of GDP, with debt stable around 50 percent of GDP.
Inflation has increased substantially in 2021, primarily driven by external factors, including energy prices, though core inflation has also increased in recent months and become broader based. After easing monetary policy aggressively at the start of the pandemic, the central bank has pivoted to tightening. Headline inflation is projected to remain elevated in 2022, primarily driven by energy price increases, with inflation falling within the target tolerance range by the end of 2023, assuming some further monetary policy tightening in response to emerging capacity constraints and strengthening wages.
Bank asset quality has remained stable during the pandemic, permitting a gradual removal of pandemic-related regulatory relief. Non-performing loan ratios have been broadly stable, and loan performance has not deteriorated even after the end of pandemic payment holiday schemes. Capital adequacy remains significantly above minimum levels. The legal risks stemming from foreign-currency denominated mortgages remain a source of uncertainty and potential losses for banks.
Executive Board Assessment2
Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for the effective policy support during the pandemic, which will help minimize medium-term scarring. Given the strength of the recovery and inflation prospects, Directors welcomed the shift of policy focus from broad emergency responses. They recommended extending targeted support if the recovery weakens. They also encouraged continued efforts to increase vaccination coverage.
Directors considered that, given robust private demand, fiscal policy should avoid an expansionary stance and aim at rebuilding buffers. In this context, they stressed the importance of enhancing expenditure policies and transparency, including by phasing out off-budget support and improving the targeting of social benefits to shield low-income households from inflation. They also recommended offsetting revenue losses from the tax reform with savings elsewhere in the budget. Directors encouraged a moderate reduction of the fiscal deficit over the medium term to replenish policy space.
Directors supported the ongoing tightening of monetary policy, noting that further rate increases could be necessary to drive inflation back to the target and stave off overheating. They encouraged the central bank to retain flexibility, taking into account evolving economic conditions and communicating its policy decisions clearly. Directors welcomed the end of the asset purchase program consistent with the shift in monetary policy.
Directors noted that the banking sector remained sound through the pandemic, and welcomed the gradual phase-out of crisis-related measures. Given the legal risks surrounding foreign currency denominated mortgages, Directors welcomed the voluntary restructuring of these loans by banks. They recommended close monitoring of housing market conditions and continued efforts to enhance the oversight of virtual currency trade.
Directors underscored the importance of addressing labor shortages and promoting green and digital transformation, supported by an enhanced public investment framework and EU funds. Active labor market policies, especially those focused on upskilling the labor force, will help workers move to expanding activities and increase labor participation. Directors welcomed the authorities’ intention to gradually reduce the country’s reliance on coal and increase the use of renewables. In this context, they saw value in developing a long-term investment financing strategy, possibly including consideration of carbon taxation to reinforce incentives for emissions reduction.
Poland: Selected Economic Indicators, 2020–26
Real GDP according to 2015 base year. Based on data through January 19, 2022.
According to ESA2010.
Poland: Selected Economic Indicators, 2020–26
| 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | |||
|---|---|---|---|---|---|---|---|---|---|
| Est. | Projections | ||||||||
| Activity and Prices | |||||||||
| GDP (change in percent) 1/ | -2.5 | 5.4 | 4.6 | 3.7 | 3.0 | 3.0 | 3.0 | ||
| Output gap (percent of potential GDP) | -2.9 | -0.6 | 0.6 | 0.7 | 0.3 | 0.1 | 0.0 | ||
| CPI inflation (percent) | |||||||||
| Average | 3.4 | 3.4 | 5.1 | 7.4 | 5.1 | 3.1 | 2.9 | ||
| End of period | 2.4 | 2.4 | 8.6 | 6.3 | 3.3 | 3.0 | 2.7 | ||
| Unemployment rate (average, according to LFS) | 3.2 | 3.5 | 3.3 | 3.0 | 3.0 | 3.0 | 3.0 | ||
| Public Finances (percent of GDP) 2/ | |||||||||
| General government net lending/borrowing | -7.1 | -2.9 | -3.1 | -2.5 | -2.6 | -2.6 | -2.6 | ||
| General government cyclically adjusted overall balance | -5.6 | -2.6 | -3.4 | -2.9 | -2.8 | -2.6 | -2.6 | ||
| General government primary balance | -5.8 | -1.8 | -1.9 | -1.2 | -1.3 | -1.2 | -1.2 | ||
| General government debt | 57.4 | 56.2 | 52.1 | 49.8 | 49.7 | 49.5 | 49.6 | ||
| Balance of Payments | |||||||||
| Current account balance, percent of GDP | 2.9 | -0.3 | -0.5 | -0.9 | -1.0 | -1.0 | -1.0 | ||
| Total external debt, percent of GDP | 62.9 | 61.6 | 56.7 | 53.4 | 50.7 | 47.9 | 45.3 | ||
| Memorandum item: | |||||||||
| Nominal GDP (billion zloty) | 2326.7 | 2590.2 | 2886.6 | 3115.9 | 3307.5 | 3504.4 | 3700.5 | ||
Real GDP according to 2015 base year. Based on data through January 19, 2022.
According to ESA2010.
Poland: Selected Economic Indicators, 2020–26
| 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | |||
|---|---|---|---|---|---|---|---|---|---|
| Est. | Projections | ||||||||
| Activity and Prices | |||||||||
| GDP (change in percent) 1/ | -2.5 | 5.4 | 4.6 | 3.7 | 3.0 | 3.0 | 3.0 | ||
| Output gap (percent of potential GDP) | -2.9 | -0.6 | 0.6 | 0.7 | 0.3 | 0.1 | 0.0 | ||
| CPI inflation (percent) | |||||||||
| Average | 3.4 | 3.4 | 5.1 | 7.4 | 5.1 | 3.1 | 2.9 | ||
| End of period | 2.4 | 2.4 | 8.6 | 6.3 | 3.3 | 3.0 | 2.7 | ||
| Unemployment rate (average, according to LFS) | 3.2 | 3.5 | 3.3 | 3.0 | 3.0 | 3.0 | 3.0 | ||
| Public Finances (percent of GDP) 2/ | |||||||||
| General government net lending/borrowing | -7.1 | -2.9 | -3.1 | -2.5 | -2.6 | -2.6 | -2.6 | ||
| General government cyclically adjusted overall balance | -5.6 | -2.6 | -3.4 | -2.9 | -2.8 | -2.6 | -2.6 | ||
| General government primary balance | -5.8 | -1.8 | -1.9 | -1.2 | -1.3 | -1.2 | -1.2 | ||
| General government debt | 57.4 | 56.2 | 52.1 | 49.8 | 49.7 | 49.5 | 49.6 | ||
| Balance of Payments | |||||||||
| Current account balance, percent of GDP | 2.9 | -0.3 | -0.5 | -0.9 | -1.0 | -1.0 | -1.0 | ||
| Total external debt, percent of GDP | 62.9 | 61.6 | 56.7 | 53.4 | 50.7 | 47.9 | 45.3 | ||
| Memorandum item: | |||||||||
| Nominal GDP (billion zloty) | 2326.7 | 2590.2 | 2886.6 | 3115.9 | 3307.5 | 3504.4 | 3700.5 | ||
Real GDP according to 2015 base year. Based on data through January 19, 2022.
According to ESA2010.
Title page
REPUBLIC OF POLAND
STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION
February 1, 2022
KEY ISSUES
Background: The Polish economy has rebounded strongly, with policy actions limiting the damage from the pandemic-induced recession by supporting employment and avoiding unnecessary bankruptcies. While the pandemic continues to take a toll on lives, the economy has been less impacted by successive waves of the pandemic.
Outlook and risks: The robust economic expansion is projected to continue in 2022–23, with inflation remaining high in the near term. Policies must navigate the risks from the pandemic against the countervailing risk of overheating as output moves above potential. The continuation of disputes with the EU risks delays in investments.
Policy Recommendations
Fiscal policy: An expansionary fiscal stance should be avoided in the context of overheating risks, calling for the fiscal impact of the tax reform to be offset elsewhere in the budget. However, the extension of targeted fiscal support would be appropriate should the pandemic again significantly disrupt economic activity. Some additional deficit reduction over the medium term would be appropriate to rebuild fiscal buffers.
Monetary policy: The central bank should continue to tighten monetary policy to drive inflation back to the target. The conclusion of asset purchases is consistent with monetary tightening, and this instrument should be reserved to periods of disorderly market conditions.
Financial sector policy: With the banking sector remaining stable through the pandemic and sound asset quality and capital levels, the ongoing gradual phase out of crisis-related financial sector measures is appropriate. Legal risks of foreign exchange mortgages are the main source of risk to the banking system. Banks should proactively seek to reach voluntary restructuring agreements with clients, supported by supervisory policy initiatives.
Structural policies: To bolster long-term growth and convergence, the authorities should strengthen active labor market policies, outline a strategy for the financing of the energy transition, and improve central coordination of public investment.
Approved by
Jörg Decressin (EUR) and Kristina Kostial (SPR)
Discussions were held remotely on November 29–December 13, 2021. The team comprised Alfredo Cuevas (head), Karim Foda, William Lindquist, and Marzie Taheri Sanjani (all EUR). Nadeem Ilahi (Senior Resident Representative) and Robert Sierhej and Krzysztof Krogulski (both Resident Representative Office) also participated in the discussions. Messrs. Trabinski (Executive Director) and Piasecki (Advisor to Executive Director) also joined the mission. The mission met with senior officials from the government, central bank, and financial supervision agency, along with representatives of trade unions, businesses, and financial institutions. Rafaela Jarin (EUR) provided administrative support, while Shituo Sun and Sadhna Naik (both EUR) provided analytical support.
Contents
CONTEXT
RECENT ECONOMIC DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
STAFF APPRAISAL
FIGURES
1. COVID-19 Indicators
2. Trends in COVID-19 Vaccination
3. Economic Activity Indicators
4. Labor Market Developments
5. Banking Sector Indicators
6. External Sector Indicators
7. Economic Growth Outlook
8. Non-Financial Corporate and Household Balance Sheets
9. Medium-Term Fiscal Outlook
10. Next Generation EU
11. Inflation Developments and Outlook
12. Asset Purchase Program
13. NBP Loan Officer Survey
14. Housing Market Indicators
15. Impact of the Polish Deal Tax Reform on Salaries and Pensions
16. Carbon Emissions
17. Selected Economic Indicators, 2006–2022
18. Selected Economic Indicators, 2011–2022
19. Balance of Payments Developments, 2011–2021
20. Inflation and Asset Price Indicators, 2011–2021
21. Financial Market Developments
22. Banking Sector Developments
TABLES
1. Timeline for Duration of “Anti-Crisis Shield” Fiscal Measures
2. Estimated Impact of COVID-19 Fiscal Measures on General Government
3. Summary of “Anti-Inflation Shield” Measures
4. Impact of Anti-Inflation Shield Measures on Average Headline Inflation
5. Main Pandemic-Related Measures in Financial Sector
6. Selected Economic Indicators, 2018–2026
7. Balance of Payments on Transaction Basis, 2016–2027
8. Statement of Operations of General Government, 2016–2026
9. Monetary Accounts, 2016–2023
10. Financial Soundness Indicators, 2013–2021
ANNEXES
I. Implementation of Past IMF Recommendations
11. Implementation of 2018 Financial Sector Assessment Program Recommendations
III. Labor Market Developments During Pandemic
IV. Inequality and Poverty
V. Foreign Exchange Mortgages: Legacy Portfolio with Substantial Legal Risks
VI. Public Sector Debt Sustainability Analysis
VII. External Debt Sustainability Analysis
VIII. Risk Assessment Matrix
IX. External Sector Assessment
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 summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
