16 May 2012

IMF: Concluding statement of the 2012 Article IV mission to the Republic of Poland

While Poland may be less affected than some other countries, a deeper-than-expected recession or intensification of the crisis in the euro area would have an impact through confidence effects and substantial trade and FDI linkages with core euro area countries, as well as the exposure of the banking system to deleveraging by European parent institutions.

Near-term policy challenges

The fiscal deficit was reduced substantially last year, and is set to decline further this year. In 2011, the overall fiscal deficit fell to just over 5 per cent of GDP and public debt (ESA95 definition) reached about 56 per cent of GDP. On current policies, staff projects a further reduction of the overall deficit to 3.1 per cent of GDP in 2012, which would start putting public debt firmly on a downward path. If the growth outlook were to deteriorate significantly, automatic stabilisers should be allowed to operate to support the economy.

Over the medium term, public debt should be further reduced. A much lower public debt ratio would give policymakers flexibility and markets comfort. The IMF supports the authorities’ medium-term objective (MTO) of achieving a structural fiscal deficit of 1 per cent of GDP by 2015, which will allow for sustained reductions in public debt. The IMF estimates that meeting the MTO will require additional permanent fiscal measures of about ¾-1 per cent of GDP. A broad expenditure review would identify areas where public expenditure could be reduced and help ensure that priority spending is safeguarded. In addition, there is room to simplify and eliminate inefficiencies in the tax system and to reduce tax preferences. This will help avoid excessive cuts in public investment, which is crucial to meeting Poland’s still-significant infrastructure needs.

IMF supports the authorities’ intention to improve the fiscal framework. The proposed permanent expenditure rule, anchored on the MTO, should help strengthen public finances while still providing flexibility to deal with unexpected shocks. The IMF also welcomes the proposed fiscal rules for the local governments.

The recent pension reform will contribute to long-term fiscal sustainability. The gradual increase and equalisation of retirement ages will improve public finances and support higher pensions in the long term, while also contributing to increase labour participation rates. The IMF welcomes the authorities’ initiatives to reform the special pension regimes. In the longer run, the latter could be aligned with the main pension system.

Recent and proposed improvements in Poland’s supervisory framework are welcome. The KNF stepped up the intensity of its supervisory processes in line with the recommendations of the 2011 Report on Observance of Standards and Codes. More frequent on-site examinations, targeted and timely supervisory actions and a close dialogue with home supervisors are necessary for monitoring and containing risks in the banking sector. Additional supervisory resources may be needed to ensure that the KNF can effectively increase the scope and intensity of supervision, including of the credit union sector (SKOK). The authorities’ efforts to develop a more comprehensive framework for long-term bond issuance are an important step toward improving banks’ funding profiles in line with regulatory requirements outlined in the Basel III framework.

A specific bank resolution regime is needed to enable the authorities to resolve financial institutions promptly and in an orderly manner should the need arise. Work on such a framework, led by the Bank Guarantee Fund and with the engagement of the World Bank, should provide a diversified toolkit and a clearly identified resolution authority, taking into consideration the Financial Stability Board’s Key Attributes for Effective Resolution Regimes and evolving European legislation. Conclusion of this work and passage of relevant legislation are priorities.

IMF supports the authorities’ intention to establish a macro-prudential framework under the aegis of a multi-agency Systemic Risk Board. In line with the recommendations of the European Systemic Risk Board, the framework should aim to identify, monitor, and contain systemic risks, and to become fully operational by end-June 2013.

Press release

© International Monetary Fund