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.
Read More »
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 -