IMF Executive Board Concludes 2012 Article IV Consultation with the Republic of Poland

Public Information Notice (PIN) No. 12/70
July 5, 2012

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2012 Article IV Consultation with Poland is also available.

On July 2, 2012 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Poland.1


The economy fared well throughout the crisis, and growth was robust and well-balanced in 2011. Despite substantial fiscal consolidation and challenging external conditions, real GDP expanded by a solid 4¼ percent, driven by a strong rebound of fixed investment—mainly infrastructure spending—and net exports, which picked up toward the end of the year. The current account deficit improved to 4.3 percent of GDP, and was largely financed by capital transfers from the EU and net FDI inflows.

The fiscal deficit narrowed to 5.1 percent of GDP in 2011, reflecting buoyant tax collections and consolidation measures. The government’s financing needs were comfortably met in financial markets (with successful international bond issuance and increasing foreign holdings of domestic government securities) and also helped by privatization receipts. Fiscal consolidation measures amounting to 1¼ percent of GDP are being implemented in 2012. A narrowing of local government deficits and a redirection of pension contributions from the second to the first pillar are expected to generate an additional ¾ percent of GDP in general government deficit reduction.

Throughout 2011, headline inflation remained persistently above the National Bank of Poland’s (NBP) target (2½ percent), driven by energy and commodity prices, increases in administered prices and VAT rates, and robust economic activity. In response, the NBP hiked the policy rate by a cumulative 100 basis points to 4½ percent in the first half-of 2011, before pausing for nearly a year. A further rate hike to 4¾ percent took place in May 2012. Meanwhile, wage pressures have remained subdued and there is no compelling evidence of second round effects.

The banking sector remained profitable and well-capitalized. Declining provisioning boosted profitability and the average capital adequacy ratio remained high at around 13 percent. The nonperforming loan ratio reached 8.2 percent at end-2011, helped by a recovery in credit growth. In response to credit risk stemming from foreign currency denominated mortgages, the authorities tightened the prudential framework and asked banks with riskier profiles to retain profits. The latest stress tests by the NBP showed that the majority of banks are resilient to adverse macro scenarios, with some institutions exposed to liquidity risk stemming from the hedging of their foreign exchange positions.

Executive Board Assessment

Executive Directors commended the authorities for sound macroeconomic management, which has underpinned the good performance of the Polish economy in a challenging environment. Directors noted that Poland’s precautionary Flexible Credit Line arrangement has contributed to maintaining confidence and the forward momentum of the recovery. However, in light of continued regional turbulence and weakening growth prospects, Directors encouraged the authorities to address remaining vulnerabilities.

Directors observed that Poland’s strong economic links to the rest of Europe and

large external financing needs could give rise to adverse spillovers. Directors noted,

however, that recent actions by the authorities, including frontloading public debt issuance and further strengthening banks’ capital and liquidity buffers, should help mitigate these risks.

Directors broadly supported the on-going fiscal adjustment, which is necessary to

rebuild fiscal buffers. Most Directors, however, considered that automatic stabilizers should be allowed to operate if growth slows more than anticipated. Over the medium term, additional permanent fiscal measures would be needed to achieve the authorities’

medium-term objective, but excessive cuts in public investment should be avoided. Directors welcomed the proposed fiscal rule and the recent pension reform, which should strengthen public finances and contribute to long-term fiscal and external sustainability.

Directors agreed that, given the absence of inflationary pressures, monetary policy

should remain on hold. In case the inflation outlook worsens, the National Bank of Poland (NBP) has room to respond while trying to avoid abrupt exchange rate adjustments. Directors concurred that the NBP should stand ready to provide emergency liquidity support if needed. They noted that the decision to increase international reserves could further boost the adequacy of external buffers, although, in the view of a few Directors, the costs of this strategy would need to be considered.

Directors noted the resilience of Poland’s banking system, but underscored that vulnerabilities remain owing to households’ foreign currency exposure and non-performing loans (NPLs). Directors welcomed recent supervisory measures to contain foreign currency lending and encouraged a more proactive approach to addressing NPLs. Directors commended the recent and proposed improvements to the oversight of the financial sector, including plans to establish a macro-prudential framework, and underscored the need to develop a bank resolution regime.

Directors encouraged the authorities to continue with structural reforms in order to boost the growth potential. In particular, they stressed the importance of strengthening the labor market, improving the business climate, and advancing privatization plans.

Poland: Selected Economic Indicators, 2008–12
        Est. Proj.

Real economy (change in percent)

Real GDP

5.1 1.6 3.9 4.3 2.6

CPI (end of period)

3.3 3.5 3.1 4.6 3.2

Unemployment rate (in percent)

7.1 8.2 9.6 9.6 9.4

Public finances(percent of GDP)


General government balance 1/

-3.7 -7.4 -7.9 -5.1 -3.1

Public debt 1/

47.1 50.9 54.8 56.3 54.8

Money and credit


Private sector credit (change in percent)

34.9 9.1 9.2 14.5 6.3

Broad money (change in percent)

18.6 8.1 8.8 12.5 7.0

Policy rate 2/

5.7 3.8 3.5 4.3 4.75

Balance of payments


Current account balance (percent of GDP)

-6.6 -4.0 -4.7 -4.3 -4.4

Official reserves (billion U.S. dollars)

62.2 79.6 93.5 97.9 106.8

Total external debt (percent of GDP)

46.2 65.1 67.1 64.8 66.3

Exchange rate


Exchange rate regime


Present exchange rate (June 1, 2012)

PLN 3.58 = US$1

Zloty per US$, period average

2.41 3.12 3.02 2.96 . . .

Zloty per Euro, period average

3.55 4.35 4.00 4.12 . . .

Real effective exchange rate (INS, CPI based) 3/

124.2 105.5 112.1 110.4 . . .

Sources: Polish authorities; and IMF staff estimates.

1/ ESA95 definition.

2/ NBP Reference Rate (avg). For 2012, as of June 1.

3/ Annual average (2000=100).

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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