Poland has become a major actor within the European Union (EU). With a population of about 38.2 million, and a Gross National Income (GNI) per capita of $13,080 (2013, Atlas method), Poland has the largest economy in Central Europe. Since joining the EU in 2004, the country’s ambitions have been marked by the desire to fully catch up with the core of the EU in terms of economic development and living standards (Gross Domestic Product per capita currently stands at only 67% of the EU average) and to become one of the key participants in European debates.
Economic growth slowed considerably in 2012 and 2013. Overall GDP growth declined from 4.5% in 2011 to 1.9% in 2012 and 1.6% in 2013 amid slowing domestic demand. Investment declined as fiscal consolidation and lower EU co-funded investments curbed public investment, while private consumption was lackluster as a result of Euro Area recession, falling corporate and consumer confidence, high unemployment and subdued wage growth. Net exports, supported by the performance of German economy (Poland’s main trading partner) were the sole driver of growth from late 2012 to mid-2013.
Monetary policy remains accommodative. The Monetary Policy Council started an easing cycle in November 2012, cutting rates by a total of 225 bps, bringing the reference rate to 2.5%. With economic activity below potential, weak labor markets, and subdued consumer demand, annual headline inflation dropped to a record low of 0.2% in June 2013. Since then, the inflation rate has increased to around 1%, which is still well below the National Bank of Poland’s (NBP) target band of 1.5-3.5%. Poland’s real effective exchange rate appears to be broadly consistent with fundamentals.
The banking sector has remained well capitalized, liquid, and profitable, but credit growth has been weak. Capital adequacy is strong (at 15.7% in September 2013, 90% of which is Core Tier 1 capital), and liquidity is high. In the first nine months of 2013, the profit of the banking sector stood at PLN 12 billion, which is in line with results in previous years. The deleveraging of the Euro area banks continued in an orderly fashion: a fall in foreign funding was offset by rising domestic deposits. Private sector credit growth was slightly above 4% in December 2013, due to an increase in household credit - in particular consumer credit, and despite a decline in credit to the corporate sector.
Poland’s challenge is two-fold. In the short-term, Poland ought to further mitigate the impact of a difficult external environment and support a rapid recovery of economic activity. Beyond this horizon, Poland needs to avoid sharp declines in long-term growth potential resulting from the aging of society and the diminishing returns of its current “catching up” growth model. This will require action on a multiplicity of fronts, including but not limited to: enhancing the business environment, increasing innovativeness, and further strengthening public finance effectiveness.
Poland: Commitments by Fiscal Year (in millions of dollars)*
*Amounts include IBRD and IDA commitments
The World Bank Group’s role in Poland has changed over the years. In the 1990s and early 2000s, the World Bank Group had a large lending and analytical program in a broad range of sectors. With the country’s admission into the European Union (EU) in 2004, the situation changed significantly. In financial terms, IBRD’s annual lending represents a fraction of EU grants and European Investment Bank (EIB) operations.
The World Bank’s Country Partnership Strategy for Poland (CPS) 2014- 2017 was presented to the Board in August 2013 and has the two-fold aim of: (i) fostering sustainable income growth for the bottom 40 percent of the population within the context of Poland's economic convergence process within the EU; and (ii) supporting Poland's emerging role as a global development partner. The WBG program is expected to remain very selective and demand-driven. It will rest on four strategic engagement areas, which are aligned with the "Europe 2020" strategic agenda of smart, sustainable, and inclusive growth and with the national development strategy. These four areas are:
equity and inclusion
Poland as a global development partner
The CPS is informed by the overall strategic goals of the World Bank Group. In a country like Poland, where extreme poverty is marginal, the WBG program is aimed at promoting shared prosperity - boosting economic competitiveness, economic growth in a difficult external environment, and equity and inclusion in order to ensure that the benefits of growth are enjoyed by the bottom 40% of the population - and climate action, designed to support the sustainability of Poland's economic and social development. The CPS is also aligned with the Europe and Central Asia (ECA) Regional goals.
The recent lending program has been anchored around a successive programmatic series of Development Policy Loans in support of Government reforms in public finance, labor markets and social sectors, and private sector development. The new series is focused on resilience and growth and the first operation is scheduled to go to the World Bank Board on May 22, 2014. In parallel, the investment portfolio in the country has gradually shrunk, with only one project remaining under implementation (on flood prevention along the Odra River).
Analytical and Advisory Assistance (AAA) Program. The World Bank program is largely based on “knowledge products” – analyses and advisory services, in part reimbursed by the Government. The authorities value their partnership with the World Bank as a way to access global knowledge in specific technical “niches” (e.g. on the Bank’s resolution framework, innovation and competitiveness, climate change modeling, infrastructure financing, etc.). This serves several purposes, including informing policy debates and facilitating the design or implementation of technical reforms. Examples of such work include: (1) support on Doing Business, which is provided across several ministries (on insolvency, contract enforcement, access to electricity, etc.); (2) dialogue on innovation and smart specialization, with a series of engagements with the Ministry of Infrastructure and Development, the National Center for Innovation and Development, the Polish Agency for Enterprise Development, and some regional authorities; (3) support to the development of a macroeconomic model to assess the economy-wide impact of climate change-related policy decisions; (4) analytical work on aging (healthy, active, and prosperous aging), and on savings and growth (in a context of aging); (5) support to the Ministry of Finance on issues such as forecasting for subnational governments and macroeconomic analysis as part of preparation for an eventual adoption of the euro; (6) development of financial instruments in the energy efficiency and waste management sectors; and (7) financial reporting (funded by the Government of Switzerland).
Poland: Commitments by Fiscal Year (in millions of dollars)*
*Amounts include IBRD and IDA commitments
Poland joined the World Bank in 1946 as a founding member, and then withdrew in 1950 before re-joining the institution in 1986. The Bank provided significant analytical and advisory services, as well as (starting in 1990) substantial financial resources. This assistance has totaled $7.1 billion for 64 projects in areas such as environmental health, transportation and infrastructure, state-owned enterprise restructuring and privatization, energy efficiency and climate change mitigation.
There is a broad consensus that World Bank support was instrumental in supporting Poland’s successful economic transformation, its adoption of a market economy system, and its continued progress and economic and social growth since the early 1990s. This has translated into a large increase in incomes and living standards, in an environment of limited inequalities.
Recent results from knowledge services include:
Supporting Transition Toward a Low-Carbon Future
In late 2008, Poland engaged in implementing new EU policies on climate change mitigation: a 20% reduction in emissions by 2020, an increase to 20% for energy consumption coming from renewable energy, and a 20% improvement in energy efficiency. At the request of the government, the World Bank produced the report “Transition to a Low Emissions Economy in Poland,” which has been widely disseminated by the government. The analysis influenced the government’s Guidelines to the National Program of Greenhouse Gas Abatement in Poland, adopted in August 2011. Government officials and local experts have applied innovative, economy-wide models to address critical economic questions, such as carbon leakage and competitiveness and the distributional effects of climate policies.
Recent results from financial support include:
Bringing People Out of Isolation in Rural Poland
In rural Poland, relatively limited access to services has left some people isolated and excluded. The Poland Post Accession Rural Support Project (PARSP) has delivered assistance to selected rural communities and vulnerable groups—especially youth, the elderly, and the disabled— to directly tackle this isolation. Under the Social Inclusion Program (SIP), over 10,500 contracts worth €36 million have been signed with local service providers to provide innovative social services to marginalized groups, thereby strengthening the capacity of 500 rural social services offices.
New kindergartens, women's groups and village associations have sprung up with cooking demonstrations and folk dancing groups. There are new activities for the disabled—many of whom had not been able to participate before. There are music programs and sports for youth. Seniors go on outings to parks and museums. Villagers connect more with one another and the wider world. Projects do not only build roads or hospitals, they also build human connections and create inspiration for people to reach out to others and improve their lives.
New road signs, crosswalks and traffic lights were installed on some major Polish roads, along new local driveways that were built off the highways to make the lives of local communities easier. For example, thanks to some new local driveways children can get on and off school buses inside school property instead of dodging lanes of traffic. Crosswalks on some of the national roads are now brightly lit at night thanks to an innovative solar systems, allowing drivers and pedestrians to see better at night and reducing the number of car accidents.
In addition to promoting safety, the project improved roads, increased the effectiveness of staff responsible for fixing and maintaining roads and highways, and established funding for maintenance. The percentage of Polish national roads that are in good condition increased from 49% in 2005 to nearly 60% in 2011. The length of the road network that can handle heavy trucks has more than doubled, significantly exceeding its target.