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Results Briefs September 19, 2019

World Bank Group Partnership: Consolidating Poland’s Prosperity

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Nieboczowy, a small village in southwest Poland, was built from the scratch supported by the World Bank Odra River Basin Flood Protection Project. The Project itself aims to protect more than 2.5 million people and their properties against the risk of flooding.


Poland, the largest formerly communist country in the European Union, has become a development success story. Over the last two decades, it has had the highest, most stable growth in the EU which helped the country move from middle-income to high-income status in record time. Poland’s economic growth was also inclusive: wages and jobs increased, while poverty declined.

Challenge

Poland is a High-Income Country (HIC) with a GNI per capita of $14,150 in 2018 . The country’s annual economic growth accelerated to 3.3 percent during the period 2014-2017 from 2.9 percent over the previous four years, 2010-13. The consistency of the country’s macro and structural policies has been the key driver behind the economy’s growth and helped its transition to HIC status in less than 15 years. Poland’s economic growth has been inclusive in the past decade, as evidenced by growing employment and earnings for all income groups, which led to a substantial reduction in poverty and stronger-than-average growth of the bottom 40 percent of the distribution.

It's been 15 years since Poland joined the EU. The country took full advantage of the institutional reforms associated with EU accession, which suited the move toward a market-based economy, and it then quickly became the largest recipient of EU funds.

However, Poland still faces some challenges. First, dramatic demographic shifts will place an increasing strain on the health care and pension systems and create labor force constraints. The accelerated pace of global technological change (including automation) will require innovation-led approaches to growth to generate greater opportunities for people (skills) and firms (conducive business and innovation environment). Second, there remain significant disparities on shared prosperity between regions and local communities - including in human capital outcomes.

Finally, with climate change exacerbating the environmental externalities of growth, sustainable management of natural resources, including water and air quality management will be particularly important for Poland’s future and its contributions to delivering regional and global public goods.

Approach

While the rest of Europe fell into recession following the start of the global crisis in 2008, Poland kept growing. European funds were one of the factors that helped Poland avoid the serious effects of the financial crisis. The Bank’s engagement was correctly placed within the broader framework of complementary and support of the EC program.

The Bank showed flexibility and responsiveness by focusing on Development Policy Loans (DPLs) as the global financial crisis emerged, which provided quick disbursing financing to the budget at attractive rates. Relevant risks (economical, political and institutional) were identified and the Bank had a clear strategy on how to respond to external economic and political shocks.

Through DPLs, the Bank’s partnership with Poland since the financial crisis helped advance major policy reforms. Eight DPLs for a total amount of $9,261.04 million (2009-2017) supported employment and entrepreneurship, public finance management and employment/private sector development, energy, and administrative reform. In addition, Bank support in the areas of fiscal management and investment climate contributed to the twin goals indirectly by strengthening institutional foundations for sustainable growth.

Results

Several program’s objectives (especially, on labor markets, lagging regions, and health services) are likely to make a direct contribution to the twin goals, particularly shared prosperity, which is more relevant for Poland.

Economic Competitiveness

Poland’s overall rank in Doing Business (DB) has improved from 45th in DB2014 to 27th in DB2018.

The Bank made contribution to broad improvements in Poland’s fiscal sustainability and effectiveness. Specifically, the budget deficit was reduced, while public debt has stabilized at the sustainable level. Through the Bank-supported DPL series, the GoP brought its budget deficit under 3% of GDP in 2014.

Several policy changes were introduced as part of the reform program supported by the DPL series, including

(i) amendments to the Labor Code to increase flexibility of labor markets,

(ii) legal amendments to strengthen employment services and promote employment amongst vulnerable groups,

(iii) deregulation of almost 250 professions to ease access for new workers, and

(iv) strengthening labor incentives for low-income families with children.

Equity and Inclusion

The Bank program made exceptional progress in the area of labor markets by supporting across-the-board increases in employment rates in an inclusive manner. In the health sector, the program helped to accomplish several key reform steps to advance the transition to an integrated health delivery system. On regional development, four key regional planning instruments have been prepared and under implementation and important regional pilots have been launched and scaled up to eight regions with European Commission (EC) funding.

Climate Action

The Odra River Basin Flood Protection Project and the Odra-Vistula Flood Management Project aim to reduce flood-related risk for 15 million people living in selected areas of the Odra River and the Upper Vistula River basins and to strengthen the institutional capacity of the Borrower to mitigate the impact of floods. The Bank’s implementation support helped preserve cultural heritage under the ongoing Odra River Basin Flood Protection Project, while showing best practice in resettlement processes, with full compliance with the safeguards requirements.

Poland as a Global Partner

Lessons from Poland—Insights for Poland. The report has strengthened Poland’s profile on the global development scene by raising awareness about Poland’s unique experience of successful economic transition and giving the country an opportunity to influence international development debate. The pieces of work prepared for the report were used during consultation process of the government medium term strategic documents (so called Morawiecki plan and Strategy for Responsible Development).

International Finance Corporation (IFC) investments in financial institutions contributed to progress towards program objectives on innovativeness, regional development, and climate policy.

Bank Group Contribution

During the period 2014-2017, IBRD approved a total of new commitments of $2.469.8 billion: a series of two Development Policy Financing (DPF) on Resilience and Growth ($1.965.8 billion) and one Investment Project Financing on flood management ($504.04 million). Nine grants/trust funds were active at the beginning of this period, with total commitments of $58.3 million, mostly dedicated to green energy.

During the same period, 49 Advisory Services and Analytics (ASA) tasks were completed, most of them were Technical Assistance (TA) products. The Reimbursable Advisory Services (RAS) accounted for 42% (19 products) of the total ASA tasks. Some Bank advisory work was quite innovative, including in the areas of fiscal rules and tax administration. Most RAS outputs were made publicly available, contributing to global knowledge. The RAS program focused on delivery of highly technical outputs intended to help the client with the detailed design of its reform plans.

IFC scaled up its activities in Poland investing US$450 million mostly in the financial sector (US$390 million). IFC program contributed to economic competitiveness, climate action, and inclusion. IFC invested in two different bond issuances by one of the leading banks, one earmarked for gender/SME finance and the other was in a green bond, both the first of the kind in Poland. In addition, IFC invested in two private equity funds, focused mainly on investments in Poland. The rest of IFC financing was in the agribusiness sector.

Partners

The EC and the World Bank share a long-standing partnership for development, ranging from the joint financing of infrastructure projects to the provision of TA to European Union (EU) and non-EU countries. The EC considers the World Bank capable of bringing its technical and operational expertise, as well as its convening power and role as an honest broker, to address some of the constraints facing the lagging regions. It was assumed that by combining its operational expertise with its global knowledge, the World Bank would deliver strategic development outcomes and respond to key development challenges.

Catching-up Regions: Poland has been selected to participate in the “Catching-Up Regions” project, initiated by the EC in 2016. The EC launched this initiative to identify constraints to growth in the less developed regions of the European Union, and to provide targeted assistance and action, aiming to unlock their growth potential. The WB assists the EC in providing hands-on TA to the selected 10 regions in Poland by assisting these regions to prepare for the implementation of EU funded programs, in the following thematic areas: work-based learning, vocational education, food inspections, health, transport, entrepreneurship, technology transfer, financial instruments, spatial planning and energy efficiency.

The Bank also helped to bring in considerable amounts of European co-financing for scaling-up the initial Bank projects. The Odra River Basin Flood Protection Project and the Odra-Vistula Flood Management Project are co-funded by the Council of Europe Development Bank (CEB).

There was also collaboration with the International Monetary Fund on macroeconomic issues, especially in the context of DPLs, and with bilateral partners (Swiss and Korean Governments).

Moving Forward

The current Country Partnership Framework (CPF) objectives (for the period 2019-2024) are squarely aligned with government priorities and consistent with feedback received from key stakeholders. The Government Program is articulated in the Strategy for Responsible Development, which has a forward-looking focus on innovation, inclusive growth and a more efficient state. This is reinforced by the presentation to Parliament in December 2017 which emphasized the following government priorities:

(i) investing in human capital;

(ii) addressing environmental sustainability; and

(iii) strengthening companies and entrepreneurship.

These priorities were broadly confirmed by the outcomes of CPF consultation process among government and key stakeholders, which revealed specific areas of potential WBG cooperation with the highest value for Poland, i.e., improving air quality and energy efficiency, and modernizing the health and higher education systems.

Integration of Health Care. The Bank helps the National Health Fund (NFZ) to determine an optimal integrated model of primary health care for Poland that best meets the reform goals of enriching patient experience and enhancing quality of care. The desired outcome is the decentralizing of competencies to the lowest possible effective level and creating open communication between medical all practitioners, patient and his family. This is population-based model for the selected at least 45 facilities covering services for 300 000 patients in Poland.

Poland Energy Efficiency in Single Family Buildings Program. Low-stack air pollution from Single-Family Buildings (SFBs) caused by the combustion of coal in space heating systems is a major source of pollution in Poland. The WB, with support from the EC, has been assisting GoP since 2017 to propose how to address low-stack air pollution through a heat source replacement and energy efficiency (EE) upgrades. The current activity is supporting the GoP to design financial instruments and program implementation mechanisms for launching a National Program for Anti-Smog and Energy Efficiency.

This Program would build from the existing Clean Air Priority Program that started implementation in September 2018. The challenge to implementing a national program lies in developing a robust and scalable implementation mechanism given that there are about 4.5 million SFBs that need to undertake heat source replacement and EE retrofit in Poland.

Beneficiaries

Mateusz Morawiecki, Prime Minister of Poland: “I think that the World Bank is going in a very similar direction where our thinking goes to, focusing on Human Capital Development, energy efficiency, reduction of smog and integrated health system.”

Wolfgang Munch, EC’s DG REGIO Department for Poland: “The World Bank offers this combination out of practical knowledge, because it is financing and developing projects itself, as having this academic arm where all these expertise is mobilized”.

Jadwiga Emilewicz, Minister of Entrepreneurship and Technology: “Smog is a deadly serious problem in Poland. It is not an exaggeration, as over 46 thousand people die every year because of very poor air quality in Poland. This is more than the number of people who die in car accidents in every year. Transforming the economy from imitation to innovation is an important challenge that we need to face. How do we encourage entrepreneurs, who have already achieved success, to invest in difficult, risky research and development projects? Together with the European Commission and the World Bank, we are developing a framework to provide financing for a comprehensive thermal insulation program. This “Clean Air" program will allow us to breathe deeply in Poland, inhaling quality air by 2027.”

Wladyslaw Ortyl,  Marshal of the Podkarpackie Region of Poland: “The World Bank experts have shown us good practices in the area of industrial development, as well as support for economic growth among small and medium enterprises.”

Maciej Reluga, Chief Financial Officer at Bank Zachodni WBK (Santander Group): “Last year, we decided to issue green bonds – the first financial entity, and the first from the private sector in Poland, to do so. We did this in partnership with the IFC, without which the project could not have been finalized.”

Mateusz Szczurek, former Minister of Finance of Poland: “Poland can also be useful for the rest of the world. Its success so far allows it to be a role model in many respects for countries aspiring to this development path and this is how institutions like the World Bank can help not only to bring knowledge in, but to bring knowledge out to other countries”.