Poland successfully managed its integration into the European Union since joining in 2004, and during the 2008-09 global financial crises it was the only member to experience growth. Poland is a high-income country with a large and diversified domestic economy.
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A new World Bank Country Economic Memorandum (CEM), titled Poland: Saving for Growth and Prosperous Aging, is attempting to address this issue of saving by looking at whether the Polish economy is sav... Show More +ing enough to finance its growth and whether citizens in the country are saving enough to ensure they are financially secure into old age.As the country continues to age, a greater share of its population is heading into retirement, while fewer and fewer workers are entering the workforce to replace them. This trend not only affects the future supply of labor in the country, it also impacts social systems such as pensions. This is particularly worrisome in Poland, where retirees draw 80 percent of their income from their pensions – compared to just 60 percent in other, similar economies. As the population ages, household savings - which amounted to just 3% of Gross Domestic Product (GDP) in 2012 - are expected to reduce even further. As pensions transform in response to reforms introduced in 1999, household savings will need to increase in order to bridge income gaps not filled by public pensions in the future and avoid old age poverty.According to this CEM, individuals are not the only group that needs to alter its saving habits. At the macroeconomic level, both the state and the corporate sector will need to make adjustments to their savings to help the country meet the economic challenges of the next phase of Poland’s development. Today, government policies do not provide incentives to private savings, while corporate savings often occur in the absence of reinvestments into new technologies, training, and innovation. Policies and regulations may need to be reformed at the state level in order to better incentivize savings at the individual level, while the corporate sector is tasked with a difficult balancing act – the need to sustain high saving and translate these into productive investments.In addition to identifying key areas of engagement, the CEM also provides a series of actions and recommendations that can help mitigate the negative impacts of aging. For individuals, the report argues that increased levels of education and a higher retirement age can help bolster income and savings in the future. By supporting income and growth – through the introduction of measures that can increase employment and remove disincentives to work – the government can play a key role in encouraging households to save more for their futures.Finally, further development of Poland’s financial sector beyond the current credit penetration of 54% of GDP would benefit saving and growth. The promotion of savings and their efficient use is closely linked to the issue of developing a local currency capital market. Local currency capital markets can provide savers with long-term investment instruments. In order to promote capital market development the report advise regulatory changes to improve functioning of the second pillar (OFE) and third pillar and facilitate bond issuance such as covered bonds or corporate bonds.A complex understanding of both the causes and solutions of Poland’s growth dilemmas, like the one offered in the latest Country Economic Memorandum, can be an invaluable tool in helping policymakers design appropriate measures today that can have a lasting impact tomorrow. But time is of the essence. The cost of delaying this response is high. If Poland takes immediate action to moderate the impacts of the challenges being posed by aging – primarily by handling projected growth in health spending – GDP in 2050 could be 1.5% higher than in the baseline developed in the report. Show Less -
WARSAW, October 20, 2014 – Growth boosted by increased household and public savings can help the Polish economy stay on a path of sustained long-term economic development, says a new World Bank report... Show More +, Poland Country Economic Memorandum (CEM): Saving for Growth and Prosperous Aging. Recent economic trends in advanced and emerging economies point to a lukewarm growth outlook. Against the backdrop of rapidly aging populations and slowing productivity growth, Poland too wrestles with the challenge of revisiting its growth model.The report emphasizes the importance of national saving in promoting economic growth and development. Sustaining growth in Poland, with remaining infrastructure gaps and an aging population, will require further investment as well as continuous improvements in productivity. In order to keep the balance of payments and net international investment position intact, the increased level of investment spending needs to be financed by increased savings. The report says that in order for Poland to sustain its per-capita economic growth at 3.5 percent annually, the national saving rate needs to increase from below the current 18 percent to 23 percent by 2030, provided a strong total-factor productivity (TFP) growth continues.“Poland’s economy has grown impressively over the last two decades and the country has become the European growth champion. Now the main challenge is to ensure that these achievements are sustained going forward so that income levels in Poland continue to converge with those in the rest of Europe,” said Marina Wes, World Bank Country Manager for Poland and the Baltic Countries.The rapid aging of the Polish population not only acts as a possible brake on growth, but also raises challenges for the sustainability of the pension scheme. The pension reform of 1999 made the pension system fiscally sustainable and fair, but the cost of achieving this will be a substantial fall in the average replacement rate. Additional transfers of part of national income to pensioners will be needed to prevent from old-age poverty. Part of the solution is individual saving and asset accumulation. The report demonstrates that the current working age population will have to save an additional 10 percent of their annual earnings to guarantee current replacement rates.“With this report we hope to stimulate public discussion and help policymakers design appropriate measures to support saving-based growth agenda in Poland,” said Emilia Skrok, Senior Economist and the author of the report.A number of complementary policy changes are likely to be needed to achieve a sustained increase in national saving in Poland. Government policy choices influence how individuals save. According to the report, policies to mobilize national savings in Poland will need to cover five areas: i) policies to support incomes and growth; ii) policies to encourage households to save; iii) policies to limit government dis-saving; iv) policies to substitute for foreign savings; and, v) policies to develop a long-term local currency capital market. Hence, the recommended policies cover a wider range of measures aiming at increasing the employment and quality of education, strengthening the balance of payments, limiting fiscal dis-saving, encouraging banks to be more assiduous in soliciting deposits and domestic borrowings, improving tax treatment of assets, developing a more functional domestic capital market, and encouraging individuals to save more for their own retirement as well as for precautionary purposes. In the case of the latter, there is a strong case for introducing a new savings product to give new life to the third pillar of Poland’s pension system. Show Less -
* The World Bank Group comprises five institutions, including the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA), which together make up t... Show More +he World Bank; International Finance Corporation (IFC); and the Multilateral Investment Guarantee Agency (MIGA). Show Less -
Signs of recoverySome signs of hope show through in the region. Central and East European (CEE) countries are expected to see growth accelerate to 2.5 percent in 2014 and to 2.8 percent in 2015 – a si... Show More +gnificant improvement from the previous two years when growth was very modest (0.8 percent in 2012 and 1.3 percent in 2013). But recovery in the new EU member states remains mixed and growth in Western Europe is disappointing.Unemployment rates in several countries have peaked and are now showing signs of improvement. While they remain above 10 percent in several CEE countries, they are declining the most in countries such as Estonia, Latvia, and Lithuania, where structural reforms and prudent policies were implemented swiftly. Given past trends, these positive developments are expected to be reflected in higher income growth for the bottom 40 percent of the population.In the Western Balkans, economic growth is expected to drop from 2.4 percent in 2013 to only 0.6 percent in 2014, due to its debt overhang that is reducing financing for business and lack of reform momentum, and then recover modestly to a projected 1.9 percent in 2015. Ukraine crisisMeanwhile, in Ukraine, geo-political tensions have developed into a deep crisis for the country. Recent trends point to a sharper decline in Ukraine’s real GDP in 2014 and continued retrenchment in 2015 compared to earlier projections. Ukraine’s GDP is expected to contract 8 percent in 2014 and 1 percent in 2015.The conflict in the east has disrupted economic activity, made collection of taxes difficult, adversely affected exports, and hurt investor confidence. Meanwhile, weak revenue performance, rising spending pressures, and a growing Naftogaz deficit make fiscal adjustment more challenging. The current account deficit has adjusted because of the sharp depreciation, but balance of payments pressures remain high due to large external debt refinancing needs, low FDI, and limited access to external financing. A prolonged confrontation in the east, constrained credit supply due to risks in the banking sector, constrained domestic consumption, and investment demand all pose risks and affect prospects for recovery.Russian stagnationIn Russia, the World Bank warned earlier this year of an unfinished transition, including ongoing problems in the business environment and heavy reliance on oil revenues. Currently, the Russian economy is slowing as its past growth drivers have weakened. GDP growth in Russia was just 0.8 percent in the first half of 2014, compared to 0.9 percent in the first half of 2013.Economic activity was already hamstrung in 2013 by lingering structural problems and a wait-and-see attitude on the part of both businesses and consumers. An additional negative impact on the economy – besides slow structural reforms – came from increased geopolitical tensions and an uncertain policy environment. It is policy uncertainty about the economic course the country will take that is casting the longest shadow on Russia’s medium-term prospects. There is a greater need for reforms to enhance the business climate to build avenues for growth and less reliance on the energy sector.The Commonwealth of Independent States (CIS) economies have faced headwinds due to the crisis in Ukraine and ongoing stagnation in Russia, however broad spill-overs to other countries have been limited so far. Immense reliance of the CIS economies on energy exports persists, and progress on structural reforms has slowed. Growth for these countries is expected to be a meager 1 percent in 2014 and to rise only slightly to 1.3 percent in 2015.In Turkey, growth has also slowed from over 4 percent in 2013, but is projected to stabilize at about 3.5 percent in 2014 and 2015.Going forward“The forecast for the Emerging Europe and Central Asia region remains tepid because of deferred structural reforms, as well as ongoing weak growth in Western Europe and stagnation in Russia,” noted Hans Timmer, Chief Economist in the World Bank’s Emerging Europe and Central Asia region. “Economic growth in the region remains lower than in most other regions of the world. Going forward, the emphasis should be on improving governance and the investment climate, strengthening competitiveness, ensuring the stability of the financial sector, and maintaining a sound macroeconomic framework.”“To be sustainable in the longer term, economic growth and shared prosperity need to be fiscally affordable, environmentally responsible, and conducive to social inclusion,” said Timmer.The World Bank, working jointly with other World Bank Group institutions, is helping its client countries in Emerging Europe and Central Asia address these and other challenges to reduce poverty and boost shared prosperity through policy dialogue, analytical work, project funding, and reimbursable advisory services.-----------------------------------------------------------------------------------Watch the video: Press Briefing - Regional Economic Update Show Less -
These all-day discussions centered around key aspects of public finance management at the local level. The Warsaw City authorities shared their experience on budgetary planning and forecasting, with a... Show More + special focus on performance-based budgeting and multiyear fiscal forecasting. Poland’s reporting and monitoring requirements for local governments are very strict, with the Public Finance Act in 2009 mandating that local governments prepare standard reports on current budget and debt outcomes, as well as formulate medium-term fiscal forecasts with a 3-year horizon minimum. These forecasts, which are submitted on a quarterly basis, are wide in scope and include input from Local treasurers, local Chambers of Accounts, and the national Ministry of Finance.While rigorous, most stakeholders involved nonetheless agree that this is a useful tool for budgetary and financial planning, assessing creditworthiness, and for controlling compliance with legislation.The Chinese delegation also got to know the nitty-gritty of the Polish public debt regulations at the national level, and their impact on debt management at the local level. They were particularly interested in the newly-introduced individual indebtedness limit for each local government in Poland. This indicator measures self-government’s debt repayment capacity rather than is a pure ratio of debt to revenue or GDP, which is still the most common approach.“We are surely the most advanced local government in Poland. We have been engaged in knowledge sharing with other local governments in our country and we are happy to see that our achievements in sound public finance management can be of interest to such a large and important city as Shanghai,” said Treasurer of the Warsaw City and the host of the event Mirosław Czekaj.In both Poland and China, the World Bank Group has been developing platforms for facilitating knowledge and sharing experience. For example, Poland becoming a Global Development Partner is a cross-cutting theme of the latest Country Partnership Strategy for Poland, while Advancing Mutually Beneficial Relations with the World is one of the goals of the Country Partnership Strategy for China. Creating platforms where practitioners can exchange views and ideas is one of the most powerful tools for facilitating knowledge-sharing among partners, and also remains at the heart of the Bank’s mission to create knowledge platforms for sharing experiences and new ideas. Show Less -