The World Bank In Poland

COUNTRY CONTEXT

The well-diversified Polish economy has proven to be one of the most resilient in the European Union (EU), with employment growth in 2020 despite a relatively small contraction in GDP of 2.5 percent, the first output contraction since 1991.

Since the start of the war in Ukraine, more than 2.3 million displaced Ukrainians have arrived in Poland. The Government has reacted rapidly, granting them the right of temporary residence and access to key public services (health, education), social assistance, and housing.

Over the medium term, a key challenge is a tightening labor supply made more acute by the aging population. The recent large influx of displaced people from Ukraine could help address the labor market tightness. Achieving decarbonization commitments is another challenge. Institutional strengthening is

needed to promote sustained and inclusive growth and to narrow regional disparities.

Last Updated: Apr 18, 2022

Strategy

Since the 1990s, the World Bank has been one of the most prominent development institutions in Poland, providing a total of US$16 billion in loans and helping introduce a number of key policy reforms. Poland’s relationship with the World Bank is based on the recognition that the Bank’s presence in the country continues to generate value-added for both sides: for Poland through access to financial and knowledge services in critical areas, and for the World Bank through a strengthened relationship with a high-income country that can bring development lessons to other countries around the world. The current Country Partnership Framework for Poland concentrates the Bank’s engagement on key remaining development concerns, including environmental threats, the health care system, and regional convergence.

Key Engagement

Despite significant efforts to reduce harmful air emissions during and after the economic transition in the 1990s, Poland remains home to many of the most polluted cities in the EU. Tens of thousands of people die prematurely every year because of smog. The economic costs associated with disease and premature death from exposure to ambient, small particulate matter (PM2.5) could be as high as US$40 billion a year.

Aware of these problems, as well as of the growing pressure from civil society, the Polish Government has begun taking steps to improve air quality. The World Bank has been supporting these efforts and advising Poland on the implementation of financial mechanisms to launch a national program for anti-smog and energy efficiency. The already established Clean Air Priority Program (CAPP) will reach roughly 3 million single-family buildings that are now primarily responsible for smog and that need to replace their heating sources and carry out a thermal retrofitting. 

After three years of advisory help provided to Poland, the World Bank Group’s Board of Executive Directors approved a Program-for-Results operation in December 2021 to further support reforms in this critical area.

In addition to the expected improvement in health outcomes in society, the CAPP may also become a driving force for the Polish economy due to the sheer magnitude of the huge financial resources needed for its implementation and the associated creation of jobs related to insulating buildings and replacing heating systems.

Last Updated: Apr 18, 2022

Recent Economic Developments

The economy rebounded strongly from the COVID-19-related recession, with output expanding by 5.7 percent in 2021. Poorer workers, who saw sharper income impacts during the early stages of the pandemic that fed into rising inequality, saw a rebound in incomes.

A strong labor market supported wage growth, while high-capacity utilization and strong corporate balance sheets supported investments.

Inflation has accelerated markedly since mid-2021 to 8.5 percent in February 2022, well above the upper limit of the targeted range. Strong increases in energy and agricultural commodities, as well as continued disruptions in supply chains, fueled inflation.

High inflation triggered a faster than expected normalization in the monetary policy stance, and the Central Bank has raised its reference rate by 300 basis points since October 2021.

The unwinding of the large 2020 fiscal stimulus and the strong increase in tax revenues resulted in an improvement in the general government deficit to 3.5 percent of GDP in 2021 from 7.1 percent in 2020. The financial sector is well capitalized and has limited direct exposure to Russia, Ukraine, or Belarus. 

Economic Outlook

Economic growth is expected to decelerate to 3.9 percent in 2022, as high inflation, monetary policy tightening, negative confidence due to the war in Ukraine, and slowing demand in key trading partners have an adverse effect.

The spillover from the war in Ukraine is expected to be significant, with key transmission channels that include forced displacement, commodity prices, trade, and confidence levels. Although direct economic linkages outside the energy sector are limited, higher energy and food prices, increased uncertainty, and disruptions in supplies to the auto industry will weigh on growth.

On the positive side, a large infrastructure and local public investment program, including through the National Recovery and Resilience Plan (NRRP), higher spending on health, and a boost to consumption related to the large influx of displaced people are expected to support growth.

Rising food and electricity prices are expected to weigh heavily on poorer segments of the population that devote 50 percent of their monthly spending to food and energy. Although measures under the so-called anti-inflation shield will soften the impact on households, the share of the population at risk of poverty is expected to remain elevated through 2022 and 2023.

The fiscal deficit is expected to remain above the medium-term budgetary objective.

Last Updated: Apr 18, 2022