## 1polea2021001 ## Source details **Canonical URL:** [1polea2021001](https://www.imf.org/-/media/files/publications/cr/2021/english/1polea2021001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1polea2021001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1polea2021001.pdf.json) --- ### Impact of Next Generation EU (NGEU) on Medium-Term Growth - Size and timing of grants: - Poland may receive some €23 billion, 4.5 percent of 2020 GDP, under Next Generation EU. - Funds distributed over 2021–23, but staff assumes full spending not completed until 2024 with the bulk in 2022–23. - Staff assumes half of the funds spent by general government and that 25 percent finance capital expenditures that would have occurred without the funds. - Fiscal transmission and persistence: - Spending multiplier: 1.0 in 2021, declining to 0.5 by 2025. - Persistence factor: 0.8 (effect on level of GDP dissipates after about five years). - Projected GDP impacts (versus previous baseline): - 2021: GDP growth 2.7 percent (2.7 versus 2.4 percent baseline comparison noted). - 2022: GDP growth 5.1 percent (5.1 versus 4.3 percent baseline comparison noted). - 2023: GDP projected 1.3 percent higher than without new spending. - 2024–28: Growth below previous baseline due to base effects as additional spending tapers and effects dissipate. - External and fiscal implications: - Current account surplus of 3.3 percent of GDP in 2020 projected to return to balance by 2025. - Next Generation EU transfers contribute to a projected reduction in external debt from 59 percent of GDP in 2019 to 38 percent of GDP by 2025. - General government deficit and debt estimated to have increased to 8.4 percent and 59 percent of GDP in 2020, respectively. - General government deficit projected to decline to 5.1 percent of GDP in 2021 under current policies; debt projected to stabilize around 58 percent of GDP in the medium term. - Policy guidance: - Use NGEU-funded investment to boost growth in the near term. - Maintain flexible, broad-based fiscal support during further waves to minimize scarring; complement targeted measures with support for health care and vulnerable households. - As recovery is entrenched, reorient policies toward retraining workers, easing job transitions, stimulating investment, and accelerating restructuring/liquidation/opening of firms. - Governance safeguards for anti-crisis programs: objective eligibility criteria, ex-ante verification using social security and tax data, distribution through commercial banks for AML safeguards, ex-post checks and audits. ### Macroeconomic Outlook and Risks - Recent activity and baseline forecast: - Q1:2020 GDP contraction: 0.3 percent (q/q). - Q2:2020 GDP contraction: 9.0 percent (q/q). - Q3:2020 GDP expansion: 7.9 percent (q/q); output 2 percent below pre-crisis peak after Q3. - 2020 estimated GDP contraction: 3.4 percent. - Baseline assumes GDP flat in Q1:2021 and rebound from Q2:2021. - Projected growth: 2.7 percent in 2021; 5.1 percent in 2022; averaging about 3¼ percent annually over 2023–25. - GDP level projected to reach pre-virus peak in Q4:2021; projected to be about 2½ percentage points lower in 2025 than the pre-pandemic baseline. - Vaccination and recovery assumptions: - Vaccinations by early January: 92,000 persons; authorities expect nearly 3 million vaccinated by end-Q1 (about 10 percent of the adult population). - Key risks: - Duration and severity of mobility restrictions and timing of vaccine rollout. - Potential banking-sector stress from higher provisioning and reduced profits. - External demand and capital flow volatility as sources of risk. ### Inflation, Monetary Policy, and NBP Measures - Inflation outlook: - Headline inflation declined to 2.4 percent in December. - Core inflation at 3.6 percent remained above the 2.5 percent target and ±1 percent tolerance range. - Staff projection: core inflation declines to 1.9 percent (end of period) in 2021 (averaging 2.5 percent), then back to target beginning in H2:2022 with closing output gap and EU grant-assisted expansion. - NBP projection: headline inflation to average 2.6 percent in 2021 and 2.7 percent in 2022. - Monetary policy stance and recommendations: - NBP should maintain current policy stance until recovery is well established. - Tolerate additional near-term supply-induced inflation given negative output gap. - In adverse scenarios, increase pace of asset purchases; expanded asset purchases seen by staff as best channel for further monetary easing. - FX intervention may be appropriate as part of a well-specified, clearly communicated strategy (including exit), and was used in December to limit pro-cyclical appreciation of the PLN. - NBP actions and effects: - Interest rate cuts and asset purchases supported consumption, investment, and government bond market stability. - APP lowered yields and reduced term premium; purchase program amounts and sterilization described in Annex V. ### NBP Asset Purchase Program (APP) — Scale and Impact - Scale and composition: - Since March, NBP purchased PLN 106 billion (4.6 percent of GDP) in securities. - Purchases included Treasury securities and government-guaranteed securities (PFR and BGK); concentrated in BGK and PFR bonds starting late April. - NBP cumulatively purchased about 40 percent of the combined issuance of domestic Treasury bonds/bills and PFR/BGK bonds since March 15; in the Treasury market NBP accumulated a 7 percent share while foreign investor share fell from 23 to 17 percent. - Effectiveness: - Government financing costs declined despite higher borrowing needs; yields fell across the curve and term spread arrested. - APP provided significant backstop demand in secondary markets. - Operational notes: - NBP sterilized a significant portion via open market operations selling seven-day NBP bills; sterilization used to keep overnight rate close to reference rate (reference rate 0.1 percent; overnight deposit facility 0 percent). - Pace of purchases slowed significantly from June onward; scope exists to increase purchases if issuance accelerates. ### Banking Sector, Financial Soundness, and Policy Recommendations - Banking-sector starting position and crisis response: - Capital adequacy ratio at start-2020: 19 percent. - Measures: reserve requirement cut from 3.5 to 0.5 percent (increasing liquidity by PLN 41 billion); repeal of 3 percent systemic risk buffer (freeing PLN 30 billion); profit retention recommendations; lower risk weights for real-estate-collateralized loans (100 → 50 percent recommended; MoF estimates release PLN 0.5 billion capital enabling up to PLN 10 billion new credit); MREL deadlines extended; discount credit facility and repo auctions introduced. - Asset quality and profitability: - NPL ratio rose 0.4 p.p. from end-2019 to 7.1 percent in September. - Poland’s strict NPL definition: 3.8 percent of gross loans at end-2019 under FSI definition. - Increased provisioning and compressed interest margins halved bank profits in Q1–Q3 2020 relative to same period in 2019. - Credit moratoria covered about 1 million loans worth PLN 80 billion (7 percent of non-financial loan portfolio) as of end-May. - FX mortgage legal risks: - Legacy FX mortgage portfolio below 6 percent of GDP; borrower lawsuits more than doubled after 2019 ECJ ruling. - FX mortgage risk accounted for about 1/3 of banking sector provisioning in 2020; sector overall able to generate provisions but some small and medium banks face larger challenges. - Recommendation: authorities and banks remain vigilant; banks proactively pursue voluntary borrower agreements. - Tax distortion and credit supply: - Banks increased holdings of government bonds partly due to exemption of Treasury securities from the bank asset tax. - Recommendation: redesign bank asset tax in favor of less distortionary instrument (e.g., quasi-VAT on bank profits and remuneration) to support credit during recovery. - Supervisory strengthening: - KNF financial independence increased in 2019; spending roughly doubled from 2018 and employment increased by one-fifth; AML/CFT department created. ### Fiscal Policy, Expenditure Rule, and Debt Sustainability - Fiscal response in 2020: - Fiscal package for first wave: up to 11½ percent of GDP total, about 6½ percent of GDP in above-the-line measures. - Additional second-wave targeted measures: 1.5 percent of GDP. - General government deficit and debt estimated at 8.4 percent and 59 percent of GDP in 2020. - Expenditure Rule (SER) adjustments: - Escape clause allows suspension if growth projected ≥ 2 p.p. below six-year historical average; normalization within two–four years depending on recovery speed. - Revisions imply large fiscal space in 2021: returning to pre-crisis path in 2022 may imply close to 3 percent drop in spending limit as ratio of GDP. - Recommendation: temporary space should not finance new permanent social programs hard to phase out; consider broader review to enhance rule completeness and flexibility. - Debt Sustainability (Annex VI): - General government debt: 46 percent of GDP in 2019 → 59 percent in 2020; projected to stabilize around 58 percent of GDP medium term. - Debt assessed as sustainable; effective interest rate estimated at 3.0 percent in 2020, projected to decline to 1.7 percent by 2022 and increase to 1.9 percent over medium term. - Public gross financing needs: 13.7 percent of GDP in 2020; baseline: 2021 9.9, 2022 6.0, 2023 6.5, 2024 6.8, 2025 6.3 (percent of GDP). - Stress tests: - Primary balance shock: debt-to-GDP about 61 percent in 2021 and 60 percent by 2025. - Growth shock: debt-to-GDP about 62 percent in 2025. - Interest rate shock (permanent +500 bps): debt-to-GDP about 61 percent in 2025. - Combined macro-fiscal shock: debt-to-GDP increases to 65 percent in 2021 and 69 percent in 2025. ### External Sector and External Debt Risks (Annex VII) - External balances and reserves: - Current account: projected 3.3 percent of GDP in 2020. - Gross reserves: US$154 billion by end-2020 (increase of 20 percent); net reserves US$131 billion at end-2020. - Gross reserves about 159 percent of Fund’s reserve adequacy metric. - External debt composition and risks: - Gross external debt: 60 percent of annual GDP as of Q3:2020; long-term debt 75 percent of debt; intercompany loans 29 percent of debt. - Short-term debt (excluding intercompany short-term): 14 percent of total debt (9 percent of GDP) in Q3:2020. - Foreign holdings of domestic government securities in Nov 2020: 17 percent of total (stock ~6 percent of GDP). - IMF staff REER assessment: 2020 REER gap -9 percent (±1.4 percent). - Scenario outcomes (selected): - Baseline external debt in percent of GDP: 39 (baseline repeated in figures). - Historical scenario: 75; interest rate shock: 46; growth shock: 48; current account shock: 52; combined shock: 44. - Policy implications: - Short-term: allow exchange rate to adjust; extend fiscal support; extend NBP asset purchase program; provide liquidity support to banks; use regulatory actions to facilitate asset quality absorption and private debt resolution. - Medium-term: taper expansionary policies once recovery established; use NGEU funds to boost public investment for digitalization and climate change; implement structural reforms to boost productivity and potential growth; reduce fiscal deficit post-crisis and better target social benefits. ### Labor Market Impact and Structural Policy Priorities - Labor market developments: - Unemployment rate (LFS): 3.1 percent (Q1) → 3.3 percent (Q3). - Number of unemployed: +5.5 percent y/y in Q3. - Youth (15–24) unemployment: 12.5 percent. - Workers benefiting from anti-crisis measures at peak: 2.4 million. - Average wage growth slowed from nearly 8 percent pre-crisis to about 5 percent. - Temporary contracts and contact-intensive sectors disproportionately affected; women and youth experienced larger swings in participation and employment. - Policy recommendations for reallocation and inclusion: - Transition labor market policies toward supporting workers (not specific jobs/sectors). - Enhance Active Labor Market Policies (AMLPs): re-training, employment services, transportation stipends, job search assistance, localized investment. - Target support to youth and women; address childcare availability to boost female participation. - Use NGEU/EU funds to align AMLPs for green and digital transitions and prepare economy for carbon neutrality and digitalization. - Authorities’ plans: - Prepare Recovery and Resilience Plan covering energy transition, upskilling, digitalization, regional integration, and governance for transparent fund use. ### Structural and Energy Transition Priorities - EU funds and public investment: - If proposals adopted, Poland would receive annual capital transfers close to 2½ percent of GDP over next five years. - At least 30 percent of EU funds earmarked for climate change. - Energy transition: - Draft energy strategy: share of coal-powered energy planned to decline from 69 percent in 2020 to 28 percent in 2040. - Coordination between central government and local authorities key for productive use of EU financing and successful clean energy transition. ### Implementation of Past IMF Recommendations and Technical Assistance - Monetary policy: policy interest rate held at 1.5 percent until pandemic when reduced to 0.1 percent. - Fiscal recommendations: continue revenue administration strengthening, narrow VAT gap, better target social benefits, consider raising pension age; progress mixed. - Bank asset tax recommendation: not implemented. - FX mortgage conversion: no central government-designed solution; banks pursue bilateral conversions. - Financial sector supervision: PFSA governance strengthened, increased resources and staffing; ongoing implementation of FSAP recommendations and supervisory reforms. - Data adequacy: data provision adequate for surveillance; GUS and NBP compile national accounts and financial statistics per ESA2010 and BPM6; SDDS subscriber. ### Key Selected Exact Figures (as presented) - Fiscal package first wave: up to 11½ percent of GDP total; about 6½ percent of GDP above-the-line. - Q1:2020 GDP contraction: 0.3 percent (q/q). - Q2:2020 GDP contraction: 9.0 percent (q/q). - Q3:2020 GDP expansion: 7.9 percent (q/q); output 2 percent below pre-crisis peak after Q3. - 2020 GDP contraction estimate: 3.4 percent. - 2021 projected growth: 2.7 percent. - 2022 projected growth: 5.1 percent. - Projected average growth 2023–25: about 3¼ percent annually. - GDP level gap vs pre-pandemic baseline in 2025: about 2½ percentage points lower. - Vaccinations by early January: 92,000 persons; target by end-Q1: nearly 3 million (about 10 percent of adult population). - NBP APP purchases: PLN 106 billion (4.6 percent of GDP). - Gross reserves: about 160 percent of the Fund’s reserve adequacy metric (also cited as US$154 billion end-2020; net reserves US$131 billion). - Current account balance: 3.3 percent of GDP in 2020 (estimate). - General government deficit and debt 2020: 8.4 percent and 59 percent of GDP, respectively. - General government deficit projected 2021: 5.1 percent of GDP. - Effective interest rate: 3.0 percent in 2020 (projected decline to 1.7 percent by 2022). - Public gross financing needs 2020: 13.7 percent of GDP. *Source: IMF staff report — "1. Impact of Next Generation EU on Medium-Term Growth" (Poland), IMF staff projections and annexes contained in 1polea2021001.* ### 1. Impact of Next Generation EU on Medium-Term Growth _____________________________________ 12 ### 1. Impact of Next Generation EU on Medium-Term Growth ### Context - Poland experienced a pronounced second wave of COVID-19 with cases and deaths rising sharply in late September and peaking in November; restrictions were progressively reintroduced with broad national restrictions in early November, eased from November 28 through December 27, and tightened again for December 28–January 17. - Figures showing pandemic dynamics include: - Figure 1: COVID-19 Second Wave (new cases, fatalities, hospitalizations, ventilator use, active cases, positive test share; data as of January 7, 2021). - Figure 2: COVID-19 Cumulative Cases and Mobility Restrictions (comparative cumulative cases per 100,000 residents as of January 6; government response stringency index; retail and recreation mobility as of January 3; COVID-19 deaths per 100,000 residents as of January 3, 2021). - Policy support during the pandemic: - The fiscal package for the first wave was worth up to 11½ percent of GDP, including about 6½ percent of GDP in above-the-line measures. - Second-wave policy support was more modest and targeted due to abundant liquidity from first-round measures and milder mobility restrictions. ### Recent Economic Developments - Output and activity: - GDP contracted 0.3 percent quarter-on-quarter (q/q) in Q1:2020 and 9.0 percent (q/q) in Q2:2020. - The economy expanded 7.9 percent (q/q) in Q3:2020, leaving output only 2 percent below the pre-crisis peak. - Baseline assumption: GDP contracted about 2 percent (q/q) in Q4:2020 for the preliminary 2020 contraction estimate. - Labor market: - Unemployment rate (labor force survey) increased from 3.1 percent in Q1 to 3.3 percent in Q3. - Number of unemployed increased by 5.5 percent year-on-year in Q3. - NBP estimates anti-crisis measures benefited some 2.4 million workers at the peak. - Youth (15–24 years) unemployment rate remained higher at 12.5 percent; participation rate of women sharply declined in Q2 and recovered in Q3. - Average wage growth slowed from nearly 8 percent pre-crisis to about 5 percent. - Minimum wage changes: 2020 increase nearly 16 percent; announced plan for 2021 of 15 percent reduced post-pandemic to 8 percent. - Inflation: - Headline inflation peaked at 4.7 percent in February 2020 and averaged 3.0 percent in H2:2020. - Core inflation (CPI excluding food/energy) averaged 4.1 percent in H2:2020. - Banking and corporate sectors: - Private sector credit growth was 5 percent in 2019; credit/GDP ratio around 55 percent pre-pandemic. - Banks tightened lending standards; profits halved in Q1–Q3 2020 relative to the same period in 2019 due to lower interest margins and increasing provisioning. - Corporates entered the pandemic with: - Stronger liquidity (short-term financial assets to short-term financial liabilities ratio shown in Figure 5), - Less leverage (NFC: Debt+ Loans (% GDP)), - Net worth above most EU peers (NFC: Net Worth (% GDP)), - Net financial liabilities below peers, particularly non-equity liabilities. - Policy support averted a deterioration in corporate balance sheets despite the historic drop in GDP. - External sector and exchange rate: - Current account estimated to have increased to 3.3 percent of GDP in 2020 from 0.5 percent in 2019. - Gross reserves around 160 percent of the Fund’s reserve adequacy metric. - NEER and REER depreciated 1.3 and 0.5 percent respectively from end-February through November 2020. - PLN is 3.7 percent weaker against the euro since end-February (as of early January), with larger swings: depreciated 6.9 percent through late October then appreciated 4.3 percent in November/early December. - NBP intervened in FX in the second half of December (first intervention since 2013); in ensuing days PLN depreciated nearly 4 percent before partially reversing. ### Outlook and Risks - 2020 contraction and baseline forecast: - The economy is estimated to have contracted 3.4 percent in 2020. - Baseline assumes GDP flat in Q1:2021 and a rebound beginning in Q2:2021. - Annual GDP growth projected at 2.7 percent in 2021. - Growth projected at 5.1 percent in 2022 and then averaging about 3¼ percent annually over 2023–25. - GDP level projected to reach the pre-virus peak in Q4:2021 and be about 2½ percentage points lower in 2025 than the pre-pandemic baseline, indicating some permanent loss of output. - Vaccination and recovery assumptions: - National vaccination program: 92,000 persons received the vaccine by early January; authorities expect to vaccinate nearly 3 million people by end-Q1 (about 10 percent of the adult population). - Risks: - Shorter or longer mobility restrictions and vaccine rollout timing can materially alter the path to recovery. - Potential banking sector stress from increased provisioning and reduced profits. - External demand and capital flow volatility remain sources of risk. ### Key Figures and Indicators (selected exact values from the chapter) - Fiscal package first wave: up to 11½ percent of GDP total, about 6½ percent of GDP above-the-line measures. - Q1:2020 GDP contraction: 0.3 percent (q/q). - Q2:2020 GDP contraction: 9.0 percent (q/q). - Q3:2020 GDP expansion: 7.9 percent (q/q); output 2 percent below pre-crisis peak after Q3. - Unemployment rate: 3.1 percent (Q1) → 3.3 percent (Q3). - Number of unemployed: +5.5 percent y/y in Q3. - Workers benefiting from anti-crisis measures at peak: 2.4 million. - Youth (15–24) unemployment rate: 12.5 percent. - Average wage growth: about 5 percent (post-slowing from nearly 8 percent). - Headline inflation peak: 4.7 percent in February 2020; H2:2020 headline inflation averaged 3.0 percent. - Core inflation (H2:2020 average): 4.1 percent. - Private sector credit growth in 2019: 5 percent. - Current account balance: 3.3 percent of GDP in 2020 (estimate) from 0.5 percent in 2019. - Gross reserves: about 160 percent of the Fund’s reserve adequacy metric. - NEER depreciation: 1.3 percent (end-Feb through Nov 2020); REER depreciation: 0.5 percent. - PLN vs EUR: 3.7 percent weaker since end-February (as of early January); depreciated 6.9 percent through late October then appreciated 4.3 percent in Nov/early Dec. - 2020 GDP contraction estimate: 3.4 percent. - 2021 projected growth: 2.7 percent. - 2022 projected growth: 5.1 percent. - Projected average growth 2023–25: about 3¼ percent annually. - GDP level gap vs pre-pandemic baseline in 2025: about 2½ percentage points lower. - Vaccinations by early January: 92,000 persons; target by end-Q1: nearly 3 million (about 10 percent of adult population). *Source: IMF staff report excerpt — "1. Impact of Next Generation EU on Medium-Term Growth" (Poland).* ### Box 1. Impact of Next Generation EU on Medium-Term Growth ### Box 1. Impact of Next Generation EU on Medium-Term Growth ### Next Generation EU grants for Poland: size and timing - The proposed “Next Generation EU” recovery package aims to distribute €390 billion in grants to member states, of which Poland may receive some €23 billion, 4.5 percent of 2020 GDP. - The funds are to be distributed over 2021–23, though staff assumes that given limited near-term absorptive capacity, the funds would not be spent in full until 2024, with the bulk of the funds spent in 2022–23. - Staff assumes that half of the funds would be spent by the general government and that 25 percent of the funds finance capital expenditures that would have already occurred without the new funds, with a small proportional reduction in the fiscal deficit. ### Assumptions on fiscal transmission and persistence - Spending multipliers and timing: - Multiplier of 1.0 in 2021 (when there is still a significant output gap). - Multiplier declines to 0.5 by 2025 as the output gap closes. - Persistence: - The increased output persists by a factor of 0.8, meaning that the effect on the level of GDP dissipates after about five years. ### Projected GDP impacts (versus previous baseline) - 2021: GDP growth increases marginally (2.7 versus 2.4 percent). - 2022: GDP growth increases more significantly (5.1 versus 4.3 percent) as spending scales up. - 2023: GDP is projected to be 1.3 percent higher than without the new spending. - 2024–28: Growth would be below the previous baseline due to base effects as the additional spending tapers and the effect on output eventually dissipates. ### Medium-term external and fiscal implications - Current account and external debt: - The current account surplus of 3.3 percent of GDP in 2020 is projected to return to balance by 2025. - Next Generation EU transfers will increase the capital account surplus, contributing to a projected reduction in external debt from 59 percent of GDP in 2019 to 38 percent of GDP by 2025. - Fiscal assumptions and space: - Staff assumes half of the Next Generation EU funds are spent by general government; 25 percent of funds finance capital expenditures that would have occurred without the funds (small proportional reduction in the fiscal deficit). - Poland received sizeable crisis support in 2020; general government deficit and debt estimated to have increased to 8.4 percent and 59 percent of GDP in 2020, respectively. - The general government fiscal deficit is projected to decline from 8.4 percent of GDP in 2020 to 5.1 percent of GDP in 2021 under current policies. - The modified escape clause of the stabilizing expenditure rule provides scope to increase the deficit up to around 8 percent of GDP for 2021 by increasing the expenditure limit by up to half of anti-crisis expenditures for 2020. - General government debt (under ESA-2010/GFSM-2014) is projected to stabilize around 58 percent of GDP in the medium term. ### Policy context and recommendations - Corporate sector and recovery: - Corporate sector entered the pandemic with comparatively strong balance sheets (low debt, strong liquidity), and significant policy support (including liquidity loans subject to partial forgiveness) positions Poland well for a robust recovery. - Increase in investment spending from Next Generation EU grants would boost growth over the next few years. - Fiscal policy guidance: - Targeted fiscal support during further waves should be flexible enough to support indirectly affected sectors and complemented by support for other firms experiencing strains. - With available fiscal space and favorable prospects for vaccine availability in 2021, programs should maintain flexibility to provide support beyond a narrow set of sectors to minimize scarring. - Additional support recommended for health care and vulnerable households. - As recovery is entrenched, policies should shift toward retraining workers, easing transitions to new jobs, stimulating investment, and expediting restructuring, liquidation, and opening of firms. - Anti-crisis programs include governance safeguards: objective eligibility criteria, ex-ante verification using social security and tax data, distribution through commercial banks for AML safeguards, ex-post checks and audits (including by the Supreme Chamber of Audit (NIK) for PFR). - Consolidation guidance: - Over the medium term the fiscal deficit should be gradually reduced as recovery takes hold; under current policies the deficit is projected to stabilize around 3¼ percent of GDP versus pre-pandemic projections of about 2 percent of GDP. - Improvement in expenditure policies (including increasing the pension age and better targeting of social benefits), narrowing the VAT policy gap, and strengthening revenue administration should contribute to eventual consolidation. - In a downside scenario, fiscal space exists for postponement of fiscal consolidation to avoid premature fiscal drag. ### Uncertainty and risks - Uncertainty about the outlook is historically large: - A second wave could reduce activity more significantly in the near term. - Delays in vaccine administration could postpone a durable recovery. - Improved confidence in vaccine efficacy and availability could boost consumption and investment and drive a faster recovery in 2021. - Delayed effects on employment and bankruptcies, and medium-term productivity effects from reduced investment during the crisis, are difficult to anticipate. - Authorities’ views: - The Ministry of Finance and the National Bank of Poland broadly agreed with the baseline scenario and balance of risks, while noting differences in growth projections and the importance of continued support and monitoring of the exchange rate as a shock absorber. *Source: IMF staff projections and analysis in Box 1. Impact of Next Generation EU on Medium-Term Growth.* ### 25. Core inflation currently remains elevated, partly driven by one-off factors, but is ### 25. Core inflation currently remains elevated, partly driven by one-off factors, but is ### Inflation outlook and monetary policy stance - Headline inflation declined to 2.4 percent in December. - Core inflation at 3.6 percent remained above the 2.5 percent target and ±1 percent tolerance range. - Recent months’ core inflation influenced by large monthly price increases likely to be one-off (high-contact services, bank fees). - Staff projection: - Core inflation to decline to 1.9 percent (end of period) in 2021 (averaging 2.5 percent). - Drivers: slower wage growth, higher unemployment, subdued core inflation in the Euro Area lowering imported price inflation. - A closing output gap and EU grant-assisted expansion projected to raise end-of-period core inflation back to the target beginning in the second half of 2022. - Headline inflation expected to remain within the target range over the projection period. - Policy recommendations and scenarios: - The NBP should maintain its current policy stance until a recovery is well established, given significant uncertainty and projected decline in inflation. - Additional near-term supply-induced inflation should be tolerated in view of the negative output gap. - In an adverse scenario with additional interruption of economic activity or heightened market volatility, the NBP could increase the pace of asset purchases. - Continued clear policy communication will support the effectiveness of the asset purchase program. - FX intervention may be appropriate beyond smoothing volatility if part of a well-specified and clearly communicated strategy (including exit strategy) and could be justified if expanded asset purchases fail to pass through to prices, leaving achievement of monetary accommodation in doubt. - Staff’s view: further support for monetary easing would be best achieved through expanded asset purchases. ### Authorities’ views on monetary policy and inflation - The NBP believed monetary policy easing appropriately supported economic activity during the crisis via interest rate cuts and asset purchases. - NBP view on asset purchases: - Supported consumption and investment by lowering financing and debt service costs. - Stabilized the government bond market, contributed to fall in bond yields, reduced bond price volatility, and increased market liquidity. - Managed transparently; timing and scale depend on market conditions. - NBP emphasized additional pandemic-related costs borne by companies in maintaining inflation at a higher level in the near term. - NBP projections: - Headline inflation to average 2.6 percent in 2021 and 2.7 percent in 2022. - NBP rationale for FX intervention in December: limit pro-cyclical appreciation of the PLN and strengthen the impact of monetary easing given low inflation pressures projected for 2021. ### Financial sector policies and resilience - Banking-sector starting position and crisis response: - Banking sector entered 2020 with positive profits and a capital adequacy ratio of 19 percent. - Macroprudential actions taken: reduction in reserve requirements, repeal of the systemic risk buffer, and recommendation to retain profits to preserve bank liquidity and absorb losses. - Measures were appropriate, clearly communicated, and presented as crisis response; some measures time horizons conditional on economic developments. - Specific measures and effects (selected items from anti-crisis measures): - Reduced reserve requirements: mandatory bank reserve requirement reduced from 3.5 to 0.5 percent; increased banking sector liquidity by PLN 41 billion. - Repeal of systemic risk capital buffer: repeal of 3 percent systemic risk buffer to free up PLN 30 billion in capital for banks. - Profit retention: KNF recommended banks and insurance companies retain profits from 2019 and undistributed profits from previous years to strengthen capital bases. - Lower risk weights for loans collateralized by real estate: recommended lowering risk weight from 100 to 50 percent (exclusions apply); MoF estimates it will release PLN 0.5 billion in capital, allowing up to PLN 10 billion in new credit with the reduced risk weight. - Longer deadline for MREL: intermediate MREL targets could be met by Jan 2022 instead of end-2020; final MREL target postponed from 2023 to 2024. - NBP asset purchase program: NBP purchase of Treasury bonds and government-guaranteed debt securities provided liquidity and helped stabilize Treasury bond market and improve monetary policy transmission. - Discount credit facility and repo auctions: tools introduced but used marginally so far (discount credit PLN 50 million; one repo PLN 7.3 billion 4-day on March 16). - Credit moratoria: covered about 1 million loans worth PLN 80 billion (7 percent of non-financial loan portfolio) as of end-May. - Credit guarantees: BGK increased SME guarantee share from 60 to 80 percent and increased amounts; introduced liquidity guarantees for large firms. - Asset quality and profitability: - Overall NPL ratio increased only 0.4 p.p. from end-2019 to 7.1 percent in September. - Poland’s NPL definition is strict; NPLs were 3.8 percent of gross loans at end-2019 (FSI database definition). - Most banks can absorb significant increases in NPLs without breaching capital requirements. - Increased provisioning and compressed interest margins will reduce earnings, posing a particular challenge for cooperative banks reliant on net interest income. - Cooperative banks: numerous (533 cooperative banks versus 30 commercial banks) but small, accounting for about 6 percent of banking sectoral capital. - Credit supply and tax distortion: - Banks increased holdings of government bonds reflecting tightening lending conditions and subdued credit demand, and the exemption of Treasury securities from the bank asset tax. - Recommendation: authorities should redesign the bank asset tax in favor of a less distortionary instrument, such as a quasi-VAT on banks’ profits and remuneration, to support credit during the recovery. - Supervisory strengthening: - KNF financial independence increased in 2019; spending roughly doubled from 2018 and employment increased by a fifth. - A department for AML/CFT compliance was created. - FX mortgage legal risks: - Legacy FX mortgage portfolio steadily shrinking, now below 6 percent of GDP. - Post-2019 ECJ ruling: growing wave of borrower lawsuits; number of lawsuits more than doubled in the last year. - FX mortgage risk accounted for about 1/3 of banking sector provisioning in 2020. - Value of disputed loans is a small fraction of outstanding FX mortgages but potential losses depend on court decisions, volume of dispute loans, and possible out-of-court settlements. - Sector as a whole should be able to generate adequate provisions from current profits, but some small and medium-size banks with large exposures face larger challenges. - Recommendations: authorities and banks should remain vigilant; banks should proactively work with borrowers to reach voluntary agreements to settle disputes. - Supervisory and authorities’ stance: - Authorities highlighted banking sector resilience and strong capital buffers. - Weak demand for credit reflected subdued private-sector borrowing and firms’ liquidity from official liquidity loans. - Authorities not contemplating changes to bank asset tax design to make it neutral across asset classes. - Authorities require banks to hold additional capital against FX mortgage risks and monitor legal developments; banks are increasing provisioning as required by auditors and are encouraged to promote voluntary bilateral restructuring. ### Structural policies to support recovery - Post-crisis structural reforms recommended to bolster investment and adjust labor market policies to foster participation and facilitate labor reallocation. - EU funds and public investment: - If current proposals are adopted, Poland would receive annual capital transfers from the EU worth close to 2½ percent of GDP over the next five years. - EU funds to support public investment with emphasis on modernization (digitalization, health, and R&D); at least 30 percent of EU funds earmarked for climate change. - Energy transition: - Poland’s draft energy strategy calls for substantial changes in energy generation and efficiency. - Decarbonization targets: share of coal-powered energy planned to decline from 69 percent in 2020 to 28 percent in 2040. - Effective coordination between central government (majority owner of coal mines) and local authorities will be key to productive utilization of EU financing and ensuring successful transition to a clean energy economy. *International Monetary Fund staff summary of chapter content.* ### 38. As the recovery proceeds, the authorities should promote a smooth sectoral ### 1polea2021001 - 38. As the recovery proceeds, the authorities should promote a smooth sectoral ### Labor market reallocation and support for disadvantaged groups - Findings: - The authorities’ response has been effective in reducing the impact of the pandemic on the labor market, but certain groups including youth and women have suffered disproportionally. - There was a broad-based recovery in labor markets in Q3:2020, though the full impact of the pandemic remains to be seen. - The planned transition from coal energy will necessitate a strategy to transition workers employed in the industry to other sectors to avoid disproportional impacts on coal-rich regions. - The higher impact of the pandemic on employment for women has underscored practical barriers to greater female labor force participation, such as the availability of childcare. - Policy recommendations: - Transition labor market policies to providing support for workers, not particular jobs or sectors. - Enhance active labor market policies to help workers acquire the skills needed to adapt to the post-pandemic economy. - Develop a strategy to transition coal-industry workers to other sectors to prevent disproportionate regional impacts. - Address practical barriers to female labor force participation (for example, childcare availability). ### Authorities’ views on recovery, EU funds, and labor-market reforms - Findings: - The authorities plan to use future EU funds to support the energy and digital transformations and to reform labor market regulations to confront future challenges. - The authorities are preparing a Recovery and Resilience Plan, required to access proposed EU funds, based on over 2000 project proposals submitted by agencies and regional governments. - The plan will cover: the energy transition, upskilling of the labor force, digitalization, regional integration, and include a governance component to promote the transparent use of the funds. - The authorities acknowledged that aging, migration, digitalization, and the climate transition pose challenges for labor markets. - They are preparing an action plan for employment policies and placing greater emphasis on lifelong learning and the regulation of remote work. ### Staff appraisal — macroeconomic and financial assessment - Policy actions and immediate effects: - Policy actions have limited the damage from the pandemic-induced recession. - Poland experienced a recession in 2020, though one that is estimated to be among the least severe in the European Union. - Strong and effective policy support protected workers and firms during lockdowns and bolstered a significant rebound in activity after the initial phase of the pandemic, preventing destructive losses of employment and bankruptcies. - Actions by Polish and global authorities supported financial and foreign exchange market stability after the initial period of turmoil in the spring. - The external position is preliminarily assessed to be stronger than the level implied by medium-term fundamentals and desirable policies. - Recovery outlook and risks: - Poland is well positioned for an economic recovery, though pandemic uncertainty remains a fundamental risk. - Economic growth in 2021 is likely to be limited by ongoing restrictions during the winter but is expected to rebound later in the year with expected vaccine access. - The corporate sector entered the pandemic with comparatively strong balance sheets and has benefited from ample policy support. - The level of external reserves is adequate, providing protection against external shocks. - Over the medium term, sizeable new grants from the EU would facilitate an increase in investment and boost growth. - Significant uncertainty regarding the course of the pandemic requires the authorities to maintain vigilance and flexibility on public health and economic support measures. ### Fiscal policy assessment and recommendations - Findings: - Fiscal policy actions have provided significant support to companies and workers during the pandemic. - Key actions have incentivized firms to maintain employment through wage subsidies, and income support for self-employed and unemployed workers has been provided. - Companies have received guarantees and loans, with the possibility for substantial forgiveness, helping preserve equity while providing access to liquidity. - Implementation of these programs has generally been fast and robust. - Recommendations: - Continue to utilize substantial fiscal space available to support the economy as needed during the pandemic. - Extension of fiscal support during the ongoing second wave is welcome. - To minimize scarring, programs should err on the side of providing broad-based sectoral support. - Additional support for health care and vulnerable households should continue. - Over the medium-term, the fiscal deficit should be gradually reduced to replenish fiscal buffers against unpredictable shocks and foreseeable long-term budget pressures. - The pace of eventual consolidation should be determined once the recovery is firmly under way. ### Monetary policy and inflation - Findings: - The accommodative monetary policy stance remains appropriate until a recovery is well established. - Monetary policies were quickly and appropriately eased at the onset of the pandemic. - The central bank’s asset purchase program has been effective in providing liquidity to government securities markets and strengthening monetary policy transmission. - Core inflation remains above the target range, partly driven by pandemic-related one-off factors, but is projected to decline next year given continued slack in the economy. - Recommendation: - Tolerate additional near-term supply-induced inflation, if it materializes, in view of the negative output gap. - Continue clear policy communication and transparency to support the effectiveness of the asset purchase program. ### Banking sector supervision and structural issues - Findings: - Supervisory actions have mitigated the impact of the crisis on the banking sector, but challenges remain. - Asset quality remains sound, earnings have declined, and credit risk and provisioning for losses are likely to increase going forward. - Cooperative banks will need to further consolidate and increase service sharing within affiliating banks to improve cost efficiencies. - Foreign exchange mortgage lawsuits remain a source of significant uncertainty for banks. - Recommendations: - Supervisors and banks should continue to adapt strategies to stay ahead of possible implications of court rulings. - To support credit to the private sector during the recovery, the authorities should redesign the bank asset tax, which incentivizes banks to hold government securities. ### Post-crisis structural reform priorities - Findings and recommendations: - Post-crisis structural reforms can help mitigate the long-term effects of the crisis; some scarring is still likely despite effective policy support. - Authorities should bolster investment and adjust labor market policies to encourage participation and facilitate the reallocation of labor in the post-pandemic recovery. - Proposed Next Generation EU funds provide an opportunity to boost public investment, with a focus on digitalization and a green recovery to help modernize the economy. *Republic of Poland — International Monetary Fund, selected excerpts from staff report and appraisal.* ### 47. It is recommended that the next Article IV consultation be held on the standard ### 1polea2021001 - 47. It is recommended that the next Article IV consultation be held on the standard 12-month cycle. ### Recommendation - It is recommended that the next Article IV consultation be held on the standard 12-month cycle. ### Macroeconomic outlook and activity - GDP (change in percent) 2017–25: 4.8; 5.4; 4.5; -3.4; 2.7; 5.1; 4.2; 2.9; 2.6. - Domestic demand 2017–25: 4.9; 5.6; 3.5; -4.7; 3.7; 6.1; 4.4; 3.3; 2.6. - Private consumption growth 2017–25: 4.7; 4.5; 3.9; -2.9; 4.1; 4.6; 3.8; 3.3; 3.2. - Domestic fixed investment growth 2017–25: 4.0; 9.4; 7.2; -7.6; 2.1; 13.6; 7.5; 3.8; 2.0. - Output gap 2017–25: 0.4; 0.7; 0.9; -2.7; -2.5; -0.8; 0.0; 0.0; 0.0. ### Inflation and labor market - CPI inflation (average) 2017–25: 2.0; 1.6; 2.3; 3.4; 2.6; 2.2; 2.3; 2.5; 2.5. - CPI inflation (end of period) 2017–25: 2.1; 1.1; 3.4; 2.3; 2.2; 2.1; 2.5; 2.5; 2.5. - Unemployment rate (average, according to LFS) 2017–25: 4.9; 3.8; 3.3; 3.3; 4.9; 4.6; 4.5; 4.5; 4.5. ### Fiscal position and public debt - General government revenues (percent of GDP) 2017–25: 39.8; 41.3; 41.0; 41.0; 40.7; 42.2; 41.3; 41.0; 40.8. - General government expenditures (percent of GDP) 2017–25: 41.2; 41.5; 41.8; 49.4; 45.9; 44.8; 44.5; 44.2; 44.0. - General government net lending/borrowing (percent of GDP) 2017–25: -1.5; -0.2; -0.7; -8.4; -5.1; -2.5; -3.2; -3.2; -3.2. - General government cyclically-adjusted balance (percent of GDP) 2017–25: -1.7; -0.6; -1.2; -7.0; -3.8; -2.1; -3.2; -3.2; -3.2. - General government debt (percent of GDP) 2017–25: 50.6; 48.8; 45.7; 58.6; 59.0; 57.3; 56.7; 56.9; 57.5. ### Saving, investment, and external sector projections - Saving (percent of GDP) 2017–25: 19.5; 19.5; 20.2; 20.3; 18.6; 18.5; 18.9; 18.8; 18.6. - Investment (percent of GDP) 2017–25: 19.9; 20.8; 19.7; 16.9; 16.6; 18.0; 18.6; 18.8; 18.7. - Saving - Investment (percent of GDP) 2017–25: -0.4; -1.3; 0.5; 3.3; 1.9; 0.4; 0.2; 0.0; -0.1. - Current account balance (billion U.S. dollars) 2017–25: -2.1; -7.5; 2.9; 19.5; 12.0; 3.0; 1.8; -0.2; -0.9. - Current account (percent of GDP) 2017–25: -0.4; -1.3; 0.5; 3.3; 1.9; 0.4; 0.2; 0.0; -0.1. - Exports of Goods (billion U.S. dollars) 2017–25: 228.3; 256.3; 260.7; 246.3; 269.0; 282.9; 299.5; 316.1; 333.6. - Imports of Goods (billion U.S. dollars) 2017–25: 228.8; 263.6; 259.4; 235.5; 263.3; 280.4; 297.6; 316.0; 334.4. ### External financing and reserves - Official reserves (billion U.S. dollars) 2017–25: 113.3; 117.0; 128.4; 154.3; 160.9; 165.1; 168.8; 172.8; 172.7. - International Investment Position, Net (Percent of GDP) 2017–25: -66.4; -53.7; -50.0; -45.4; -38.7; -32.1; -27.8; -25.4; -23.9. - Total external debt (billion U.S. dollars) 2017–25: 383.0; 362.2; 354.0; 349.0; 363.5; 348.0; 335.1; 334.0; 331.0. - Total external debt (percent of GDP) 2017–25: 72.3; 61.7; 59.4; 59.9; 58.5; 51.2; 45.5; 42.4; 39.4. ### Monetary accounts and policy - Policy Rate (percent) (NBP Reference Rate (avg).) 2017–20: 1.5; 1.5; 1.5; 0.5. - Broad money (M3) change (percent, end-period) 2017–21: 4.6; 9.2; 8.3; 16.4; 2.0; 5.4; 5.0; 4.4; 4.4. - Private credit (change in percent, end-period) 2017–25: 3.4; 7.1; 4.8; 0.0; 6.1; 6.3; 6.3; 6.4; 6.5. - Credit to GDP (percent) 2017–25: 55.8; 56.1; 54.5; 54.5; 54.6; 54.0; 53.8; 54.3; 55.0. ### Balance of payments details (selected) - Current account balance (millions of U.S. dollars) 2015–25 (Est./Proj.): -4,347; -3,719; -1,960; -7,530; 2,931; 19,484; 11,970; 2,999; 1,778; -206; -932. - Trade balance (millions of U.S. dollars) 2015–25: 12,954; 17,484; 19,707; 17,794; 27,808; 31,724; 30,955; 29,847; 31,895; 31,816; 33,861. - Balance on Goods (millions of U.S. dollars) 2015–25: 883; 2,262; -463; -7,327; 1,339; 10,835; 5,698; 2,485; 1,958; 33; -749. - Balance on Services (millions of U.S. dollars) 2015–25: 12,071; 15,222; 20,170; 25,121; 26,469; 20,889; 25,257; 27,362; 29,937; 31,784; 34,610. - Financial account balance (net) (four-quarter rolling sum as percent of GDP, 2011–20 shown in figures): financial inflows have varied with notable portfolio and other investment flows; detailed annual projections included in Table 4. ### Banking sector and financial soundness - Nonfinancial sector loans to deposits (percent) 2011–2020 shown in figures (time series). - Private sector deposits growth (year-on-year percent change) 2011–2020 shown in figures. - Financial Soundness Indicators (selected, 2012–2020Q2): - Regulatory capital to risk-weighted assets: 2012–2020Q2: 14.8; 15.7; 14.7; 16.0; 17.2; 18.0; 18.3; 18.6; 17.9; 19.1. - NPLs to gross loans (nonfinancial sector) 2012–2020Q2: 5.2; 5.0; 4.8; 4.3; 4.0; 3.9; 3.9; 3.8; 3.8; 3.8. - Return on average assets (after tax) 2012–2020Q2: 1.2; 1.1; 1.1; 0.8; 0.8; 0.8; 0.7; 0.7; 0.6; 0.4. - Loans to deposits 2012–2020Q2: 110.5; 106.7; 103.1; 100.5; 96.7; 95.9; 94.0; 89.5; 89.9; 83.0. - One month liquidity gap to assets 2012–2020Q2: -46.4; -46.1; -46.7; -47.7; -47.9; -49.2; -42.7; -42.6; -41.2; -36.1. ### Fiscal operations (general government, percent of GDP) - Revenue 2015–25: 39.0; 38.7; 39.8; 41.3; 41.0; 41.0; 40.7; 42.2; 41.3; 41.0; 40.8. - Expenditure 2015–25: 41.7; 41.1; 41.2; 41.5; 41.8; 49.4; 45.9; 44.8; 44.5; 44.2; 44.0. - Net lending/borrowing 2015–25: -2.6; -2.4; -1.5; -0.2; -0.7; -8.4; -5.1; -2.5; -3.2; -3.2; -3.2. - Primary balance 2015–25 (memorandum): -0.9; -0.7; 0.1; 1.2; 0.6; -7.1; -4.1; -1.6; -2.2; -2.2; -2.2. *Sources: Polish authorities; and IMF staff calculations.* ### Annex I. Implementation of Past IMF Recommendations ### Annex I. Implementation of Past IMF Recommendations ### Monetary Policy - Recommendation: Monetary policy should follow a data dependent approach. Interest rates should be raised if inflation approaches the mid-point of the target on a sustained basis. - Implementation and outcomes: - "Inflation reached and remained within the upper end of the target range starting in mid-2019." - "The policy interest rate remained on hold until the pandemic, when it was reduced from 1.5 to 0.1 percent." ### Fiscal Policy - Recommendation: Sustainable and growth-friendly fiscal measures should support the remaining adjustment needed to reach the Medium-Term Objective. - Implementation and outcomes: - "The fiscal deficit increased modestly in 2019 to 0.7 percent of GDP, up from 0.2 percent of GDP in 2018." - Recommended measures: "Continuing to strengthen revenue administration, narrowing the VAT policy gap, more-targeted social benefits, and raising the pension age would generate fiscal savings." - Progress: "Efforts to strengthen revenue administration continue. An expansion of excise taxation has raised revenues but been more than offset by other tax changes, special pension payments (13th/14th pensions), and extending the coverage of child benefits without more precise targeting." ### Financial Sector Policy - Recommendation: Replace the bank asset tax with one on profits and/or remuneration. - Progress: "No changes to the design of the tax have been made." - Recommendation: Conversion of legacy foreign-exchange mortgages into zloty should be on terms bilaterally agreed between the creditor and the borrower. - Progress: "No government-designed central solution to this issue has been legislated. Banks continue to pursue bilateral agreements, while lawsuits have increased following an ECJ ruling in 2019." - Recommendation: Ensure independent and well-resourced financial sector supervision. - Progress: "Legislation has changed the governance structure of the PFSA, increasing budgetary autonomy and allowing for an increase in resources and personnel." ### Structural Reforms - Recommendations: Maintain a level playing field for all investors by protecting the rights of minority shareholders; avoid inefficient and distortive lending by state-controlled banks and reducing state ownership; ensure that price signals reflect economic costs; remove existing barriers to investment and facilitate access to skilled labor. - Progress: "No significant policy actions taken. So far, there has been no evidence of different lending behavior by state-owned banks versus private banks during the pandemic." *Source: IMF staff.* ### Annex II. Implementation of 2018 FSAP Recommendations ### Overview (agencies and time frames) - Agencies noted in text: MoF=Ministry of Finance; NBP=National Bank of Poland; PFSA=Polish Financial Supervision Authority; BGF=Bank Guarantee Fund; FSC-M=Financial Stability Committee-Macroprudential. - Time Frame codes: C = continuous; I (immediate) = within one year; NT (near term) = 1–3 years; MT (medium term) = 3–5 years. ### Financial Sector Oversight and Bank-Specific Measures - Address weaknesses in medium-sized banks, including affiliating banks for cooperative banks (PFSA; I-NT): In Progress - "Affiliating banks are limiting business activity to improve apex functions and focus on service provision for cooperative banks. The use of IPS support funds allowed safe repair of member banks at risk. IPSs have made progress in performing internal control among members." - Replace the asset tax on financial institutions with a tax on profits and/or remuneration (MoF; I-NT): Not Done - "There are no legal initiatives to modify the tax." - Pursue bilateral negotiations to restructure distressed FX loans instead of law changes (PFSA, MoF; I): In Progress - "Parliamentary work on a law promoting bilateral conversion of FX loans was discontinued. After EU Court of Justice verdict in 2019, a growing number of clients are filing lawsuits, while banks try to encourage voluntary bilateral restructuring." - Close data gaps and improve data for credit risk and interconnectedness analysis (PSFA; I-NT): In Progress - "The NBP started a project to build a central credit registry (KRK), with PFSA participation. KRK will allow to monitor loans of a single debtor and a group of affiliated entities at bank-level, as well as at the level of the banking sector. It will also provide a basis for sampling loans for on-site examination. The first reporting is planned in 2023." - Reform and strengthen arrangements for supervision (MoF, PFSA, NBP; I): Done - "Legal changes were made to grant the PFSA status of state legal person in 2019, which gave freedom in managing budget and reduced the risk of under-financing. PFSA spending and staffing have increased. Organizational changes were made to improve efficiency of supervisory activities, and new units were established." - Provide missing essential enforcement powers including (i) easing rigidities constraining prompt corrective action due to Administrative Code procedures; and (ii) power to dismiss both management and supervisory board members (MoF, PFSA; NT): In Progress - "Amendments to the Banking Law are currently processed to grant PFSA the authority to dismiss members of management board and supervisory board of banks in a situation where they no longer meet the necessary requirements." - Increase sampling of loans across the supervisory and business cycle (PFSA; NT): Done - "On-site Inspection Department modified approach to inspections, which resulted in increase of examined samples in commercial and cooperative banks in the last two years. The number of loans in the samples increased between 2018 and 2019 by over 20 percent (with higher increase in cooperative banks). In case of significant irregularities, the sample is appropriately modified." ### Insurance Sector - Implement approach to supervision of the insurance-led financial conglomerate (PFSA; I): Done - "Repealing the waiver issued by the PFSA in 2018 and three administrative decisions on capital adequacy calculation, intragroup transactions (IGT) and significant risk concentration (RC) issued in 2019. Capital adequacy, IGT and RC reports, as well as recovery plan (incl. banks) regularly assessed as a part of on-going supplementary supervision process; organizational changes (dedicated employees, improved cooperation)." - Review approach to insurance conduct of business supervision across relevant agencies to increase preventative work (MoF, PFSA; NT): In Progress - Actions: "Additional reporting for unit-linked products since 2019, incl. on mismatched cases and on underwritten insurance contracts. New methodology in Risk Assessment Framework since 2018, based on stages of the product lifecycle, focus on customer protection and micro-prudential risk. Customer protection inspections, including POG (product oversight and governance)... Organizational changes in the PFSA to enhance conduct of business supervision and increased staffing. Thematic reviews, inspections and development of insurance intermediaries register. In Q3:2020, the PFSA introduced additional reporting for selected entities to enhance market monitoring." ### Capital Markets - Review and clarify regulations on private placements, market conduct supervision (MoF, PFSA; I): Done / In Progress - Done: "MoF and the PFSA closed the loophole exempting from the prospectus private placements for less than 150 people... A new regulation was implemented in 2019, requiring to prepare information memorandum for PFSA approval when number of persons to whom the offer is addressed and persons to whom the issuer offered securities of the same type in previous 12 months is at least 150 persons." - In Progress (market conduct): "PFSA introduced an internal plan to conduct on-site inspections of market infrastructure entities on a regular basis... Given current staff supervising market infrastructure (six persons) and number of infrastructure entities (six companies that mostly have several different licenses), there is one on-site inspection per year. The PFSA works on improving off-site tools by collecting information on sale of investment products by banks, digitalized reporting of the correspondence and automating the supervisory process." - Conduct periodic assessments of the enforcement functions (PFSA; I): Done - "The PFSA introduced internal policy, which allows Enforcement Department to focus on significant cases, where hard supervisory tools are used... The PFSA maintains a register of administrative proceedings and monitors the stage of progress..." - Strengthen criminal law enforcement (PFSA; NT-MT): Done / In Progress - Done: "Legal amendments from November 2018 expanded the KNF’s Board to include inter alia the Minister responsible for special services coordination... the amended law allows effective exchange of information... among the PFSA, Internal Security Agency, Central Anti-Corruption Bureau, National Tax Revenue Administration, Police, and the Competition and Consumer Protection Office." - In Progress: "Recently the PFSA proposed to broaden the above catalogue of institutions by adding the National Prosecutor’s Office to facilitate and accelerate exchange of information between PFSA and National Prosecutor’s Office." ### Macroprudential Policies - Include vulnerability assessments of payment and settlement systems in the FSR and overall systemic risk monitoring (NBP; I): Partially Done - "After analyzing internally in the NBP, it was decided not to include the assessment of risks related to the payment system in the Financial Stability Report but present them to the NBP Board and Financial Stability Committee (FSC-M) in a separate report. The FSC-M takes a note of the Polish Payment System Oversight Report, presented for the first time in Dec. 2019. FSC-M noted in Macroprudential Policy Strategy in Poland (2019) that one of the systemic risk dimensions is the resilience of financial infrastructure." - Ensure timely and substantive vetting of all use of macroprudential instruments by the FSC-M (Members of the FSC-M; I): In Progress - "The NBP proposed to formalize in the 'Macroprudential Strategy' a requirement for FSC-M to discuss changes to macroprudential instruments prior to implementation, but this did not gain support from other institutions. A permanent working group in FSC-M has been assigned with this task, but operationalization stalled due to the Covid-19. There is a growing number of cases, where member institutions consult intended measures within the FSC-M prior to implementation." ### Crisis Management and Bank Resolution - Propose legal amendments to provide for (i) more timely petitions for bank bankruptcy; (ii) harmonize the triggers for bankruptcy and use of resolution powers; (iii) address the need for third-party opinion on solvency; (iv) conduct P&A transactions in lieu of a deposit payout; and (v) BGF independence (MOF with KNF & BGF; NT): Partially Done - (i) "Timely petitions for bank bankruptcy are a matter of a proper application of the law, and not additional rules." - (ii) "Triggers for payouts of covered deposits and resolution have been used in each case three times, without problems... Bankruptcy triggers have been used 11 times for credit unions and three times for banks..." - (iii) "Legal provisions necessitate audited financial statement to confirm insolvency before PFSA’s filing a bankruptcy petition." - (iv) "Banking Law was amended to add a provision that an insolvent bank can be taken over by another bank, and amendments was added to the Act on Bank Guarantee Fund (BGF) to allow financial assistance in such takeovers." - (v) "The BGF is a part of public finance sector... MoF may request BGF Council to dismiss Management Board member in certain cases (e.g., violation of law), but cannot dismiss BGF Board member on its own." - Require recovery plans for affiliating banks, significant credit unions, and banks undergoing rehabilitation (PFSA; I): Partially Done - "Affiliating banks, as participants of IPSs, can be a part of the group recovery plan. Cooperative banks under rehabilitation are under regime of recovery plans or IPS’ group plans. Credit Unions (CUs) are not obliged by the law to prepare resolution plans. CUs recognized by the BGF as intended for resolution may be obliged to prepare such plans. SKOK Stefczyka (largest CU) is in the process preparing a resolution plan, monitored by the BGF. Other CUs are designed for standard insolvency process, and each CU, in case of loss, is obliged to prepare and present rehabilitation program for PFSA approval. Major CUs were obliged to prepare such programs, and are revising them to reflect new circumstances (COVID19, or EU Court of Justice verdict on consumer loans)." ### Cooperative Banks and Credit Unions - Strengthen supplementary internal control and resolution arrangements; promote integration/consolidation (PFSA, MoF, ABs, IPS; I): In Progress - "Cooperative banking sector is undergoing consolidation, helped by IPSs, with 17 mergers since 2018. IPSs are strengthening internal control and the PFSA reviews its quality. The PFSA promotes integration, including sharing of services and products, and cooperation among cooperative banks is gaining importance." - Develop and implement a restructuring strategy to consolidate viable and resolve non-viable credit unions; revisit appropriateness of a stand-alone credit union sector (PFSA, MoF; I): In Progress - "Restructuring and consolidation of credit unions is ongoing. CUs initiate mergers within the sector, but there are problems with inability to generate funds and lack of interested external stakeholders." - Key figures and developments: - "Number of CUs decreased from 30 at end-2018 to 23 in Sep. 2020." - "Balance sheet of the sector is steadily declining." - "Share of CUs in the Polish financial sector is very small, but they serve almost 1.5 million customers, providing basic services important for financial inclusion." - "To the extent possible, the priority is to maintain activity of the sector with restructuring and recovery. A working group has been created in the Financial Stability Committee to develop relevant proposals." *Source: IMF staff.* ### Annex III. Labor Market Developments During COVID-19 ### Summary findings - "While the unemployment rate has not increased significantly in Poland during the pandemic, additional indicators point towards a broader impact on labor markets." - Unemployment rate: - "The unemployment rate has been stable around 3 percent (with a modest increase in Q3:2020 to 3.3 percent)." - Job creation and destruction: - "The creation of new jobs slowed significantly in Q2:2020 relative to Q4:2019, while the number of liquidated jobs increased in the first half of 2020." - "While there was a broad-based recovery in labor markets in Q3:2020, the full impact of the pandemic remains to be seen, including because of the reintroduction of restrictions in Q4:2020." - Distributional and sectoral impacts: - "Contact-intensive jobs have been the hardest hit by pandemic restrictions." - "Quarterly variation in labor force participation rates points to larger swings in activity among women and the young." - "Larger employment losses were observed in urban areas, the private sector, the industrial sector, part-time workers, and family workers, with some increase noted in self-employment." - "From a different perspective, youth, low-skilled workers, and those without rights to receive social benefits experienced the largest employment losses." - "While the number of unemployed youth declined in Q3, the level is still elevated." - Wage growth: - "Average wage growth has also slowed from nearly 8 percent pre-crisis to around 5 percent year-on-year." - Labor market dynamics: - "After declining in Q2, job creation rebounded in Q3." - Notes on female labor attachment: "While labor force participation and employment of women recovered in Q3, the decline in female employment and the large flow into inactivity in Q2 suggest that women are more loosely attached to the labor market (possibly due to unequal childcare responsibilities or lower wages). Women also dominate the sectors most affected by the pandemic." ### Data and monitoring - Figures and data sources cited in the annex: - Figure 1: "Newly Created and Liquidated Jobs in Poland (Thousands, not seasonally adjusted)" — Sources: Statistics Poland. - Figures 2–4: Labor Force Survey, Labor Market Developments, Distributional Impact of COVID-19 Shock on Registered Unemployment — Sources: Haver; Statistics Poland; Eurostat; and IMF staff calculations. - Comparative and cross-country notes: - "Note: Latest data available is Nov 2020. Estonia, Estonia, Greece, and Hungary data shown is from Oct 2020." - "Note: Latest data shown is 2020Q3, Germany data is 2020Q2." *Source: IMF staff.* ### 2. Headline (ILO-defined) unemployment figures understate the impact of the pandemic on ### 2. Headline (ILO-defined) unemployment figures understate the impact of the pandemic on labor ### Labor market slack and emergency employment-support policies - Headline (ILO-defined) unemployment understates pandemic impact; various augmented measures point to increased slack in Q2:2020 and partial reversal in Q3:2020. - Forms of slack observed (Q2:2020 relative to Q4:2019 and reference-week data): - more part-time workers (underemployed part-time), - increase in population searching for jobs, - additional temporary absences from work (temporary lay-offs, holidays, own illness or disability, other reasons), - fewer hours of work. - Government employment-support policies played a significant role in preventing potentially significant additional unemployment; comparison of beneficiaries of emergency measures with registered unemployment highlights this role (see Figure 5). - Selected quantitative indicators shown in figures (age 20–64, in thousands; average stocks and time series in source figures) illustrate large flows in: - Total Labor Force Slack at the Age 20-64 Years (in thousands) across 2019Q4, 2020Q1, 2020Q2, 2020Q3, - Absences from Work by Main Reason (in thousands) with components such as Temporary lay-off, Holidays, Own illness or disability, Other reasons, - Number of Employees Benefiting from the Anti-Crisis Shield by Type of Measure (average stock, in thous.) across Apr-20 to Oct-20, - Number of Employees with Remuneration Subsidies from the Guaranteed Employee Benefits Fund (average stock, in thous.) across Jan–Dec (2019 and 2020), - Average Daily Number of People on the Care Allowance (working days adjusted, in thous.) across Jan–Dec (2019 and 2020), - Share of Enterprises Using the Support and Facilities from the Anti-Crisis Shield by Sectors (September 2020) (%). ### Temporary contracts and employment protection - Temporary employment contracts carry a higher termination risk compared to regular contracts. - Cross-country comparisons: - Poland has stronger employment protection for regular contracts than the OECD average. - Protection for temporary contracts in Poland is in line with the OECD average. - Inclusion of civil law contracts as beneficiaries of anti-crisis employment support has benefited temporary contract holders. - Hours worked in primary employment returned to pre-crisis levels by 2020Q3 (Hours worked indexed, 2006=100; series shown for 2019Q3–2020Q3). ### Employment of foreign workers - Poland hosts about 1 million foreign workers, mostly from Ukraine; employed predominantly in contact-intensive and service sectors. - Only about half of foreign workers are registered in the social security database. - Social security data show a 10 percent decline in employed foreign workers in May (relative to pre-pandemic levels), followed by a rapid recovery in July and August. - Regular work permits decreased by 9 percent year-on-year in the first half of 2020. - Legislation automatically extended work permits for migrant workers due to the declared state of epidemic, mitigating outflows. ### Policy recommendations for the recovery and labor reallocation - Authorities should promote smooth sectoral reallocation of labor and provide support for disadvantaged groups as recovery proceeds. - Key recommendations: - Offer training for workers in temporarily depressed sectors (e.g., restaurants and tourism) to contribute to pandemic response efforts where feasible. - Facilitate transitions of affected groups back into the labor market to avoid permanent declines in participation and rises in structural unemployment. - Target policies to groups with more unstable employment during the pandemic (youth and women). - Use Active Labor Market Policies (AMLPs), including re-training, complemented with employment services, transportation stipends, job search assistance, and localized investment. - Align AMLPs to help close skill gaps necessary for EU recovery fund green and digital targets and prepare the economy for eventual carbon neutrality and digitalization. *Italic line: Source: IMF chapter text (figures and data as presented in the source).* ### Annex IV. Expenditure Rule: Before, During, and After COVID-19 ### Design and objectives of the Stabilizing Expenditure Rule (SER) - The SER aims to stabilize the fiscal deficit at the medium-term objective (MTO): fiscal deficit of 1 percent of GDP. - The SER sets a government spending path along long-term GDP growth and allows revenue measures (including tax administration gains) to be added to spending limits; EU funds spending is excluded. - The total ceiling (approximately 90 percent of general government outlays) is non-binding; a sub-limit (about 70 percent of spending) is binding and a breach implies a violation of fiscal discipline. - Spending limit formula (as presented): - E(t)=E(t-1)*(Y’+C)*CPI+ε; where the limit E(t) is linked to the previous year’s limit E(t-1) and trend growth (Y’ is average GDP growth in 8 years with MoF projection for t-1 and t, corrected for a factor depending on deficit and debt (C) and then multiplied by NBP inflation target (CPI), plus an adjustment parameter ε, which depends on revenue measures. ### Pre-crisis performance and adjustments - SER formally in place since 2015; guided expenditures already in 2014. - Rule softened at end-2015 (including replacing projected CPI with the NBP inflation target) to create room for a new child benefit program. - SER has imposed a consolidation bias: deficits and debt triggered downward expenditure limit adjustments, partly offset by tax measures. - Actual spending exceeded the SER path; the non-binding spending limit was breached in 2018. - In 2019, outlays (e.g., 13th pension) were moved to an extrabudgetary fund to avoid breaching the binding ceiling. ### COVID-19 suspension, revisions, and fiscal space implications - The law was revised to add an escape clause for pandemic emergency: suspension allowed if growth projected to be at least 2 p.p. below the six-year historical average; suspension lasts one year and could be extended. - Revisions specify return to regular spending path within two–four years, with part of anti-crisis spending allowed to be carried over during this period. Normalization depends on pace of recovery: - two years if nominal GDP returns to pre-crisis level in the first post-crisis year, - three years if not and GDP growth is less than 2 p.p. below trend, - four years otherwise. - In case of a two-year adjustment, half of anti-crisis spending is added to the limit in the first post-crisis year. - Investments were excluded from the limit, but only for 2021. - Revisions imply a large fiscal space in 2021: - Nominal GDP projected to surpass pre-crisis level, implying a two-year normalization period, with half of anti-crisis spending added to the spending limit in 2021. - Compared to the non-crisis limit, this will lift the expenditure ceiling by 1¾ percent of GDP. - Returning to the pre-crisis spending path in 2022 will denote close to 3 percent drop of the limit as a ratio of GDP, requiring significant fiscal adjustment if 2021 space is utilized. ### Assessment and recommendations for the SER - Reforms to accommodate anti-crisis spending and normalization triggers are appropriate, but temporary additional space should not finance new permanent social programs unrelated to the crisis and difficult to phase out. - Returning to the regular spending path may imply sharp fiscal consolidation in 2022, possibly triggering new measures or modifications to the escape clause; such legal changes could hurt SER credibility. - A broader review and overhaul may be considered to enhance completeness and flexibility; sustainability of the rule would be strengthened by underpinning it with a sound medium-term fiscal framework. *Italic line: Source: IMF annex text (figures and data as presented in the source).* ### Annex V. NBP Asset Purchase Program (APP) ### Rationale, timing, and objectives - The NBP introduced an asset purchase program (APP) on March 17 at the height of financial market turmoil to ensure liquidity in secondary markets and strengthen monetary policy transmission. - At introduction, Poland experienced large and sudden outflows from foreign investors, deteriorating Treasury market liquidity, and rising bond yields. ### Scale and composition of purchases - Since March, the NBP has purchased PLN 106 billion (4.6 percent of GDP) in securities. - These purchases are among the largest in emerging Europe (along with Croatia), though less than the ECB (7 percent of GDP). - Purchases initially covered Treasury securities; starting in late April, purchases concentrated in government-guaranteed securities issued by the Polish Development Fund (PFR) and development bank BGK. - Purchases were significant in March–May but slowed significantly afterwards. - The NBP has been transparent and published detailed data on purchases and holdings. ### Effectiveness and market impact - APP appears effective in meeting objectives: - Government cost of financing declined despite higher borrowing needs; yields fell across the curve, partly due to a reduction in the term premium. - NBP’s purchases appear to have arrested the surge in the term spread (long- minus short-term yield) during the crisis peak; in contrast, the Czech Republic (which did not implement an APP) saw continued increases in term spread. - Market shares and backstop role: - NBP cumulatively purchased about 40 percent of the combined issuance of domestic Treasury bonds/bills and PFR/BGK bonds since March 15. - In the Treasury market, the NBP accumulated a 7 percent share, while the share of foreign investors decreased by 6 p.p. (from 23 to 17 percent) during the same period. - As anti-crisis funding shifted off budget via PFR/BGK, NBP concentrated purchases in BGK and PFR bonds and now holds 30 to 40 percent of their securities issued to finance anti-crisis programs. - Purchases were made in the secondary market, providing a significant backstop for demand and yields. ### Sterilization and operational considerations - The NBP sterilized a significant portion of asset purchases by expanding open market operations selling seven-day NBP bills; sterilization has not been one-for-one but used as needed to keep the overnight interest rate close to the reference rate. - The overnight deposit facility carries an interest rate of zero; the reference rate is 0.1 percent. - Had additional liquidity not been sterilized, banks would likely have placed excess liquidity at the overnight deposit facility and earned slightly less than at the reference rate. ### Recent pace and prospective scope - The pace of purchases slowed significantly in recent months; bank bids in auctions fell well below NBP purchase offers beginning in June. - Decline in banks' interest tied to slowdown in issuance and banks’ preference to hold Treasury securities (exempt from the bank asset tax). - Should government securities issuance accelerate again, scope remains for the NBP to increase the pace of asset purchases. *Italic line: Source: IMF annex text (figures and data as presented in the source).* ### Annex VI. Public Sector Debt Sustainability Analysis ### Annex VI. Public Sector Debt Sustainability Analysis ### Overview and key assessment - General government debt increased from 46 percent of GDP in 2019 to 59 percent of GDP in 2020, driven by a fiscal deficit of 8.4 percent of GDP and GDP growth of -3.4 percent. - Over the medium term, debt is projected to broadly stabilize around 58 percent of GDP. - Debt is assessed to be sustainable; the impact of larger debt is significantly mitigated by a much lower projected effective interest rate, limiting fiscal resources needed to service the debt. - The analysis notes prudence in pursuing a gradual reduction in the fiscal deficit after the recovery is well established because debt would increase steadily under various shock scenarios. ### Baseline and realism of projections - Debt levels: - 2019: 46 percent of GDP. - 2020: 59 percent of GDP. - Medium term: broadly stabilize around 58 percent of GDP. - GDP growth: - 2020: real GDP contracted by -3.4 percent. - 2021 projected: 2.7 percent. - 2022–25 projected average: 3.7 percent. - Note: staff’s growth projections have been pessimistic on average since 2011, with a fairly large forecast bias relative to other countries. - Fiscal path: - 2020 fiscal deficit: 8.4 percent of GDP. - 2021 projected deficit: 5.1 percent of GDP (as most crisis-related expenditures phase out). - One-off revenues from an anticipated pillar II pension reform would lower the fiscal deficit temporarily in 2022. - Medium-term projected deficit: about 3.2 percent of GDP. - Staff projections have been modestly pessimistic in recent years. - Sovereign yields and interest burden: - Effective interest rate estimated at 3.0 percent in 2020; projected to decline to 1.7 percent by 2022 and increase to 1.9 percent over the medium term. - Share of tax revenues devoted to interest payments projected to fall from an average of 7.3 percent over 2015–2020 to 4.5 percent over 2021–2025. - Yields on 10-year domestic Treasury securities declined by 85 basis points in 2020 and are currently around 1.25 percent. - CDS spreads around 57 basis points in 2020. - Maturity and rollover: - Average maturity of outstanding debt: 4.7 years. - Share of short-term government debt: under 1 percent of the total. - State budget gross financing requirements for 2020 nearly met by September 2020. - Investor composition shifts in 2020: foreign investors reduced share from 23 percent at end-2019 to 17 percent; domestic banks increased share to nearly 50 percent (from 45 percent); NBP acquired a 6.5 percent share of outstanding Treasury securities in 2020. - Share of external debt in general government debt declined from 57 percent in 2015 to 41 percent in 2019. - Share of foreign currency debt in state debt: 26 percent in 2019. - Baseline assumes share of foreign currency debt < 30 percent and external debt around 40 percent over the medium term. ### Debt sustainability analysis (DSA) risk assessment - Main risks highlighted: - Large gross public financing needs (nearly 14 percent of GDP). - Relatively large economy-wide external financing requirements (about 19 percent of GDP in 2019). - Share of public debt held by non-residents (mitigated by institutional investor role). - Mitigating factors: - Gross financing needs were comfortably met in 2020. - High intra-company FDI loans boost gross external financing needs but tend to be more stable. - Domestic banks and the NBP stepped into the Treasury market facilitating smooth exit of foreign investors. - NBP holdings of government and government-guaranteed securities amount to about 8 percent of end-2020 general government debt. - Fan chart probabilistic outcomes: - Symmetric fan charts: 25 percent probability debt-to-GDP could drop to around 54 percent by 2025. - Symmetric fan charts: 25 percent probability debt-to-GDP could increase to 63 percent by 2025. - Asymmetric downside-only shocks (interest rates and GDP growth): 25 percent chance debt-to-GDP could increase to 65 percent in the medium term. ### Shocks and stress-test scenarios (selected outcomes) - Primary balance shock: - Assumed deterioration: more than 3 percentage points in 2021 and 0.5 percentage points in 2022. - Public debt outcomes: 61 percent of GDP in 2021 and 60 percent of GDP by 2025 (about 2 p.p. higher than baseline). - Gross financing needs proportionally larger in 2020 and 2021. - Growth shock: - Assumed: GDP growth decline by about 1.4 p.p. in both 2021 and 2022 relative to baseline; inflation decline 0.3 p.p.; primary balance deterioration by 0.7 and 1.4 p.p. in 2021–22. - Public debt outcome: 62 percent of GDP in 2025 (about 4 p.p. higher than baseline). - Gross financing needs increase in 2021–22. - Interest rate shock: - Assumed: permanent 500 bps increase in nominal interest rate beginning in 2021. - Public debt outcome: 61 percent of GDP in 2025 (3 p.p. higher than baseline). - Gross financing needs: increase to 8 percent of GDP in 2025 versus 6 percent in the baseline. - Exchange rate shock: - Assumed: 22 percent nominal depreciation in 2021 (maximum historical movement over last 10 years). - Impact: marginal on public debt stock and gross financing needs reflecting predominance of local currency debt (74 percent in 2019). - Combined macro-fiscal shock: - Combines lower GDP growth, larger primary deficit, higher interest rates, and exchange rate shock. - Public debt/GDP ratio: increases to 65 percent in 2021 and to 69 percent in 2025. - Gross financing needs remain above baseline during projection period. ### Selected quantitative projections and historical indicators (from Baseline DSA table and figures) - Effective interest rate (defined as interest payments divided by debt stock at end of previous year): - 2019: 3.0 percent (table shows 2019 effective interest rate 3.0 and 2020 3.0 in figure data). - 2020 estimate: 3.0 percent. - 2021 projection: 3.0 percent (figure table lists 2021 3.0 then 2022 1.9, 2023 1.7, 2024 1.8, 2025 1.9 in some figure rows). - Real GDP growth (selected years): - 2019: 4.5 percent. - 2020: -3.4 percent. - 2021: 2.7 percent. - 2022–25 average: 3.7 percent (text); figures list 2022 5.1, 2023 4.2, 2024 2.9, 2025 2.6 in one table. - Inflation (GDP deflator): - 2019: 3.1 percent. - 2020: 3.4 percent. - 2021–25 projections: 3.0, 2.3, 2.5, 2.4, 2.4 percent (figure data). - Change in gross public sector debt (cumulative projection 2020–25): 11.8 (percent of GDP cumulative, figure table). - Identified debt-creating flows (cumulative projection 2020–25): 8.1 (percent of GDP cumulative, figure table). - Primary deficit (projection cumulative 2020–25): 19.3 (percent of GDP cumulative, figure table). - Primary (noninterest) revenue and grants (2020–25 cumulative): 247.1 (percent of GDP cumulative, figure table). - Primary (noninterest) expenditure (2020–25 cumulative): 266.4 (percent of GDP cumulative, figure table). - Automatic debt dynamics (cumulative 2020–25): -10.3 (percent of GDP cumulative, figure table). - Public gross financing needs: - 2020: 13.7 percent of GDP (figure table). - Baseline path: 2021 9.9, 2022 6.0, 2023 6.5, 2024 6.8, 2025 6.3 (percent of GDP, figure table). - By-currency composition (selected): - Local currency-denominated share majority; foreign currency-denominated share 26 percent in 2019 (text). - External debt (Table 1): - External debt 2019: 59.4 percent of GDP. - External debt 2020: 59.6 percent of GDP. - Projected 2025 external debt: 39.0 percent of GDP. - Gross external financing need (in percent of GDP, Table 1): - 2019: 18.8 percent of GDP. - 2020 (US$ terms in table but percent listed): shows declines thereafter and projected levels (see table rows for year-by-year). *Source: IMF staff, Annex VI. Public Sector Debt Sustainability Analysis (Poland).* ### Annex VII. External Debt Sustainability Analysis ### Annex VII. External Debt Sustainability Analysis ### Bound Tests and Scenario Outcomes - Baseline external debt in percent of GDP: 39 (baseline value shown repeatedly). - Historical scenario value shown: 75. - Interest rate shock: 46. - Growth shock: 48. - Current account (CA) shock: 52; non-interest current account shock presented as percent of GDP in the figure. - Combined shock (permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance): 44. - Real depreciation shock: One-time real depreciation of 30 percent occurs in 2018 (figure label: "30% depreciation"). - Gross financing need under baseline is depicted on the right scale in the figure (no numeric time-series values beyond labels provided in the source excerpt). - Figure notes: - Shaded areas represent actual data. - Individual shocks are permanent one-half standard deviation shocks. - Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown. - For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead. - Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance. - One-time real depreciation of 30 percent occurs in 2018. ### Sources of Risk, Likelihood, Time Horizon, Impact, and Policy Responses (selected entries) - Unexpected shift in the Covid-19 pandemic - Relative Likelihood: Medium (downside). - Time Horizon: Short term (ST). - Impact if Realized: Limited access to, and longer-than-expected deployment of, vaccines in some countries prompt reassessment of growth prospects; disease proves harder to eradicate, requiring costly containment and prompting persistent behavioral changes rendering many activities unviable. High long-term scarring risk and fiscal limits. - Policy Response: - Allow exchange rate to adjust. - Extend fiscal support measures already in place. - Support affected workers and incentivize reallocation if disruption is persistent. - Extend NBP asset purchase program to support liquidity in bond markets and monetary transmission. - Provide liquidity support to banks and use regulatory actions to facilitate absorption of asset quality changes and encourage private debt resolution. - Faster-than-expected containment / vaccine distribution - Relative Likelihood: Medium (upside). - Time Horizon: Short term (ST) / High impact: Faster-than-expected recovery would boost confidence and activity. - Policy Response: Unwind crisis measures while avoiding a hasty withdrawal of fiscal support that risks undermining the recovery. - Widespread social discontent and political instability - Relative Likelihood: High. - Time Horizon: Short term, Medium term (ST, MT). - Impact if Realized: High; social tensions and political polarization weaken policymaking and confidence, raising unemployment and poverty. - Policy Response: Extend targeted social spending and unemployment support; keep broader fiscal and monetary policies accommodative. - Sharp rise in global risk premia - Relative Likelihood: Medium. - Time Horizon: ST, MT. - Impact if Realized: High; financial market volatility and tighter conditions reduce effectiveness of monetary easing, raise financing costs, and prolong downturn. - Policy Response: Allow exchange rate to adjust; extend NBP asset purchase program to support bond market liquidity and policy transmission. - Intensified geopolitical tensions and security risks - Relative Likelihood: High. - Time Horizon: ST, MT. - Impact if Realized: Medium; lower confidence, capital outflows, depreciation pressures. - Policy Response: Allow flexible exchange rate to adjust; extend NBP asset purchase program to support bond market liquidity and policy transmission. - Accelerating de-globalization (structural risk) - Relative Likelihood: High. - Time Horizon: ST, MT. - Impact if Realized: Medium; near-term growth undermined by trade tensions and volatility; medium-term reshoring could present opportunities for Poland. - Policy Response: Facilitate structural reforms (business climate, labor market, education and vocational training), boost infrastructure investment and R&D support to attract investment (including FDI) and raise productivity and income growth. ### Key External Sector and Debt-Related Statistics (2020 and model outputs) - 2020 (% GDP) — Net International Investment Position (NIIP): -46; Gross Assets: 57; Reserve Assets (Res. Assets): 26; Gross Liabilities (Gross Liab.): 103; Debt Liabilities (Debt Liab.): 60. - Short-term debt (excluding intercompany short-term debt): 14 percent of total debt (9 percent of GDP) in Q3:2020. - Share of debt owed to direct investors via intercompany loans: 29 percent of the debt. - Share of debt of long-term maturity: 75 percent of the debt. - Gross reserves: US$154 billion by end-2020 (increase of 20 percent). - Net reserves (excluding central bank repo operations and government FX deposits): US$131 billion at end-2020. - Gross reserves as a percent of the Fund’s reserve adequacy metric: about 159 percent. - Foreign holdings of domestic government securities in November 2020: 17 percent of the total (overall stock remains 6 percent of GDP). - Financial account outflows Jan–Oct 2020: US$13.6 billion (2.3 percent of GDP); projected to reach 1.7 percent of GDP for the year. - Current Account (2020, % GDP) - Projected CA (Proj. CA): 3.3 - Cyclically Adjusted CA (Cycl. Adj. CA): 3.6 - EBA CA Norm: -1.9 - EBA CA Gap: 5.5 - Staff Adjustment (Staff Adj.): -1.6 - Staff CA Gap: 3.9 - Real Exchange Rate (REER) - REER appreciation as of November vs 2019 average: 1.0 percent. - Nominal zloty movements since end-2019: depreciated by 4 percent against the dollar; appreciated by 5 percent against the euro. - REER movements Jan–April: depreciated by 3.9 percent; appreciated by 3.3 percent since April. - REER index model gap: -2.7 percent. - IMF staff assesses the 2020 REER gap to be -9 percent (±1.4 percent), assuming an elasticity of 0.43. - External debt characterization and assessment: - While gross external debt is sizable (60 percent of annual GDP as of Q3:2020), rollover risk is mitigated by the large share of long-term debt and intercompany lending that tends to be automatically rolled over. - Adequate reserves reduce residual rollover risk from short-term debt (gross reserves projected at 165 percent of short-term debt in 2020). ### Policy Implications Highlighted in the Analysis - Short-term: - Fiscal policy: bolster the health system, provide liquidity to businesses, and support incomes of vulnerable households, including preserving employment. - Monetary and financial policies: prevent tightening of financial conditions and enable the financial sector to support firms’ liquidity; extend NBP asset purchase program to support bond market liquidity and transmission. - FX policy: allow exchange rate to adjust; use FX intervention as part of reserve management if needed (the NBP purchased FX in December 2020). - Medium-term: - Gradually taper expansionary policies once recovery is established. - Use Next Generation EU funds to boost public investment, support recovery, and address infrastructure gaps, digitalization, and climate change. - If imbalances persist, boost corporate investment and productivity; implement active labor market policies to facilitate sectoral transitions; pursue structural reforms to raise potential growth. - Reduce fiscal deficit after the crisis abates and better target social benefits according to need. *Prepared by IMF staff (European Department) as presented in the informational annex materials.* ### Introduction of expert ### Introduction of expert ### Technical assistance and missions (1999–2020) - Multiple Fund missions and technical assistance engagements listed by department, subject, date, and counterpart (selected entries as presented): - FAD — Administering Social Security Mission — March 2000 — MoF - IMF/IBRD — FSAP Mission — May/Sept 2000 — MoF/NBP - MAE — Monetary Operations Mission — July 2001 — NBP - FAD — Expenditure restructuring Mission — December 2001 — MoF - MAE — Stress testing Mission — January 2002 — NBP - STA — Data ROSC Mission — January 2003 — CSO/MoF/NBP - STA — Government finance statistics (GFSM 2001) Mission — October 2003 — MoF - STA — Government finance statistics (GFSM 2001) Mission — January 2005 — MoF - IMF/IBRD — FSAP Update Mission — April/May 2006 — MoF/NBP - FAD — Developing a multi-annual fiscal framework Mission — June 2008 — MoF - STA — Errors and omissions in balance of payments accounts Mission — July 2009 — NBP - FAD — Medium-term fiscal framework Mission — April 2010 — MoF - MCM — Detailed assessment of observance of BCP for effective banking supervision Mission — Feb/March 2011 — KNF - STA — Errors and omissions in balance of payments accounts Mission — June 2011 — NBP - FAD — Developing the fiscal regime for oil and gas Mission — April 2012 — MoF - MCM — Macroprudential framework Mission — May 2012 — NBP - IMF/WB — FSAP update Mission — Feb/March 2013 — MoF/KNF/NBP - FAD — Tax administration—Modernization challenges and strategic priorities Mission — November 2014 — MoF - MCM — Bank Resolution Mission — March 2016 — BFG - FAD — Medium-term budget framework Mission — February/November 2017 — MoF - FAD — Tax administration Mission — April/June 2017 — MoF - IMF/WB — FSAP update Mission — Jan/May 2018 — MoF/KNF/NBP - FAD — Medium-term budget framework (MTBF), developing chart of accounts Mission — Apr/Dec 2019 — MoF - FAD — MTBF developing chart of accounts Resident advisor — May 2019 — MoF ### Statistical issues — Assessment of Data Adequacy for Surveillance (as of December 6, 2020) - General: - "Data provision is adequate for surveillance." - National Accounts: - Statistics Poland (GUS) compiles and disseminates annual and quarterly GDP by production and expenditure approaches, both at current and previous year’s prices following the 2008 SNA and ESA 2010. - Quarterly financial accounts of general government sector compiled by GUS. - Annual and quarterly financial accounts by institutional sectors compiled by Narodowy Bank Polski (NBP) following ESA 2010. - Dissemination schedule: annual financial accounts on the 20th of October the following year; quarterly financial accounts on the 20th calendar day of the 4th month following the end of the reference quarter (i.e., on the 20th of January, April, July, and October). - Poland publishes “flash estimates” of GDP 45 days after the reference quarter. - Price Statistics: - Consumer price index does not cover imputed rents of owner-occupied dwellings. - Scope covers all resident households; weights updated annually from monthly household budget survey. - Poland publishes “flash estimates” of CPIs and a monthly Harmonized Indices of Consumer Prices (HICP). - Producer price index: monthly dissemination up to 20 days after reference month; final data up to 50 days after reference month. - When price observation of an item is unavailable in a given month, its price is not imputed and the item is excluded from producer price index aggregation in that month; replacement selected during next month's survey. - Government Finance Statistics: - Ministry of Finance (MoF) compiles monthly data in accordance with the IMF's Government Finance Statistics Manual 2001 (GFSM 2001). - Monthly cash data cover “core” central government; revenue and expense divided by economic type; financing classified by sector and by type of debt instrument. - Starting in 2015 (annual data for 2014), GUS collects, processes, and disseminates annual government finance statistics compiled according to ESA2010 and adjusted to GFS Manual 2014. - Annual reports present fiscal data for general government divided by central government, local government, and social security funds; revenue and expense divided by transactions; financing classified by sector and by type of debt instrument. - General government data released quarterly, derived from detailed ESA data. - Monthly and annual data regularly disseminated on the SDDS website. - Monetary and Financial Statistics: - Beginning with data for January 2004, the NBP provides the ECB with monetary accounts in accordance with the ECB’s framework using the national residency approach; ECB reports monetary data for Poland to the IMF for publication. - Data on other financial corporations (OFC) are currently not available. - Poland reports several Financial Access Survey (FAS) indicators including commercial bank branches per 100,000 adults and ATMs per 100,000 adults. - Financial Sector Surveillance: - Since November 2009, NBP, in cooperation with GUS, KNF and MoF, began reporting financial soundness indicators (FSI) in line with the IMF’s Financial Soundness Indicators Compilation Guide. - Poland reports all core FSIs and 21 of the 28 encouraged FSIs on a quarterly basis with a lag of approximately one quarter. - NBP implemented EU regulation 680/2014 (supervisory reporting ITS); first data collected reference date March 2014; consolidated ITS reporting first for September 2014. - External Sector Statistics: - Poland disseminates balance of payments and international investment position data in accordance with BPM6 and external debt statistics in line with the 2013 EDS Guide. - Poland participates in the Coordinated Direct Investment Survey and Coordinated Portfolio Investment Survey and reports Reserves Data Template to the IMF. - Data Standards and Quality: - Subscriber to the Fund’s Special Data Dissemination Standard (SDDS) since April 17, 1996. - Uses SDDS flexibility option on timeliness of data on general government and central government operations. ### Table of Common Indicators Required for Surveillance — selected timing and frequency (as of December 3, 2020) - Exchange Rates: - Date of latest observation: 12/03/2020 - Date received: 12/03/2020 - Frequency of data/reporting/publication: D / D / D - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: - Date of latest observation: 10/2020 - Date received: 11/20/2020 - Frequency: M / M / M - Reserve/Base Money: - Date of latest observation: 10/2020 - Date received: 11/24/2020 - Frequency: M / M / M - Data quality: O, LO, O, LO (methodological soundness); O, O, O, O, O (accuracy and reliability) - Broad Money: - Date of latest observation: 10/2020 - Date received: 11/24/2020 - Frequency: M / M / M - Central Bank Balance Sheet: - Date of latest observation: 10/2020 - Date received: 11/24/2020 - Frequency: M / M / M - Consolidated Balance Sheet of the Banking System: - Date of latest observation: 10/2020 - Date received: 11/24/2020 - Frequency: M / M / M - Interest Rates: - Date of latest observation: 12/03/2020 - Date received: 12/03/2020 - Frequency: D / D / D - Consumer Price Index: - Date of latest observation: 11/2020 - Date received: 12/06/2020 - Frequency: M / M / M - Data quality: O, O, O, O (methodological soundness); O, O, O, O, O (accuracy and reliability) - Revenue, Expenditure, Balance, and Composition of Financing – General Government: - Date of latest observation: 2019 - Date received: 10/28/2020 - Frequency: A / A / A - Data quality: LO, O, O, O (methodological soundness); O, O, O, O, NA (accuracy and reliability) - Revenue, Expenditure, Balance and Composition of Financing – Central Government: - Date of latest observation: 9/2020 - Date received: 11/23/2020 - Frequency: M / M / M - Stocks of Central Government and Central Government-Guaranteed Debt: - Date of latest observation: 9/2020 - Date received: 11/20/2020 - Frequency: M / M / M - External Current Account Balance: - Date of latest observation: 9/2020 - Date received: 11/13/2020 - Frequency: M / M / M - Data quality: O, O, O, LO (methodological soundness); O, O, O, O, LO (accuracy and reliability) - Exports and Imports of Goods and Services: - Date of latest observation: 9/2020 - Date received: 11/13/2020 - Frequency: M / M / M - GDP/GNP: - Date of latest observation: Q3/2020 - Date received: 11/30/2020 - Frequency: Q / Q / Q - Data quality: O, LO, O, O (methodological soundness); LO, LO, O, O, LO (accuracy and reliability) - Gross External Debt: - Date of latest observation: Q2/2020 - Date received: 9/30/2020 - Frequency: Q / Q / Q - Balance of Payments: - Date of latest observation: Q2/2020 - Date received: 9/30/2020 - Frequency: Q / Q / Q - International Investment Position: - Date of latest observation: Q2/2020 - Date received: 9/30/2020 - Frequency: Q / Q / Q ### Statement by Polish authorities — Economic outlook and crisis response (February 3, 2021) - Context and assessment: - Authorities thanked staff for engagement during this year’s Article IV consultation and for the virtual mission hosted from Warsaw; they "broadly share staff’s findings" focusing on Covid-19 challenges and the authorities’ policy response. - At the onset of 2020, economic conditions in Poland were favorable after a period of strong expansion driven by domestic consumption, private investment, and exports. - Poland achieved a record-long expansion with declining unemployment and poverty rates to historically low levels. - Due to Covid-19, Poland entered a recession in 2020 — "For the first time since 1991, a recession is forecast for 2020." - Health and containment response: - Authorities implemented strict containment measures early in 2020 that helped stabilize the virus outbreak during the first wave. - Number of Covid-19 cases and deaths were "among the lowest in the EU" during the first wave, permitting an early, phased removal of restrictions in late spring. - Restrictions were reintroduced at end-2020 in response to a more challenging second wave. - Economic impact and policy actions: - Restrictions disrupted supply chains and adversely affected the service and manufacturing sectors. - Authorities launched a series of support measures for affected households and businesses. - National Bank of Poland (NBP) eased monetary policies, focusing on short-term stabilization by providing funding to banks and companies and supporting the financial system. - Growth projections (authorities vs. staff): - Authorities project GDP to decline by 4.6 percent in 2020, followed by a recovery of 4.0 percent in 2021. - Staff projections estimate negative 3.4 percent for 2020 and 2.7 percent GDP growth for 2021. - Vaccination strategy: - Authorities view faster economic and social recovery as hinging largely on swift vaccine distribution. - Daily number of vaccinations is estimated at around 45,000 doses, with an objective of nearly 3 million people vaccinated by end-Q1 (about 10 percent of the adult population). ### Fiscal policies (authorities' summary) - Past decade fiscal management: - "In the past decade, Poland has prudently managed its public finances." - Authorities "have built significant fiscal buffers, while decreasing public debt to 46 percent with 0.7 percent deficit in" [text ends at that point in the source]. *Source: "Introduction of expert," Republic of Poland — IMF country report content as provided.* ### 2019. According to the authorities’ projection, the 2020 public debt is estimated to reach 50.7 ### 1polea2021001 - 2019. According to the authorities’ projection, the 2020 public debt is estimated to reach 50.7 ### Fiscal policy and public debt - Authorities’ projection: 2020 public debt is estimated to reach 50.7 percent of GDP followed by 52.9 percent in 2021. - Fiscal framework and limits: - Constitutional debt ceiling of 60 percent of GDP. - Expenditure rule’s limitations did not apply in 2020; the revised escape clause requires a gradual return to the rule within 2 to 4 years, depending on the speed of economic recovery. - Next Generation EU (NGEU) support: - Recovery and Resilience Facility provides up to EUR 23 billion in grants and EUR 34 billion in loan access, amounting to 4.5 percent of 2020 GDP. - Authorities project these expenditures to raise GDP growth over the period of 2021–26. - Fiscal response to COVID-19: - Support measures account for 11.5 percent of GDP (social spending, allowances for parents, wage subsidies, benefits for self-employed and unemployed, partial non-repayable loans for SMEs, loan guarantees, liquidity loans). - Additional targeted measures to face the second wave amount to 1.5 percent of GDP (focused on most affected contact-intense sectors). - Fiscal stance and administration: - Despite the strong fiscal response, public debt remains relatively low and fiscal space remains substantial. - Authorities stepped up efforts to improve revenue administration, tax compliance, and tax collection efficiency. - Ongoing digitalization of customer-facing and back-office operations by AI and machine learning functions to increase detection rates of tax frauds. - Long-term sustainability: - Increasing pension-age population remains the main challenge. - New long-term savings scheme adopted in October 2018: the “Employee Capital Plan” (PPK). - Continued work to reform the budgetary framework to increase effectiveness and efficiency of spending. - Authorities intend to engage with staff and undertake a PIMA in the second half of 2021 to ensure envisaged capital expenditures will be properly supervised at every level. ### Monetary policy - NBP response to COVID-19: - Provided accommodation through interest rate cuts and asset purchases. - Lowered reserve requirements, introduced repo operations, and offered bill discount credit aimed at refinancing loans granted to enterprises by banks. - Launched foreign currency interventions in December 2020 to limit pro-cyclical appreciation of the PLN. - Effects and outlook: - Monetary easing mitigated negative economic impact, contributed to lower debt service costs, stabilized the bond market, and supported economic activity. - Inflation in December 2020 stood at 2.4 percent yoy (against the NBP’s target of 2.5 percent +/- 1 percentage points). - Medium-term inflation expectations remain firmly anchored. - Looking ahead, inflation expected to remain consistent with the NBP’s target: negative supply-side and regulatory forces (including further waste disposal and electricity price hikes) likely to boost prices in coming quarters, but negative output gap and low inflation abroad expected to moderate pressures. - Authorities agree accommodative policy stance should be maintained until recovery is well established; do not rule out further easing if downside risks materialize and risks to inflation fall below target increase. ### Financial sector - Pre-pandemic strength: entered pandemic with strong capital and liquidity buffers and without significant imbalances. - Policy and support measures during pandemic: - Financial Stability Committee withdrew the 3 percent systemic risk buffer, unlocking around PLN 30 bn of capital for new lending or absorbing pandemic-driven credit losses. - Government provided financial support to enterprises mainly as subsidies, ensuring liquidity and reducing demand for lending. - Credit moratoria introduced by Government with banks provided additional relief for borrowers. - PFSA offered a more flexible approach to banks’ risk management, coupled with EU-level COVID-19 Quick Fix actions. - NBP reduced interest rate and reserve requirement, introduced purchase of sovereign and sovereign-guaranteed bonds on the secondary market (QE), and offered discount credit to banks as refinancing for enterprise loans. - Sector outcomes: - Banking sector remained sound and stable, though profitability declined mainly due to increased credit risk costs. - Lending to the non-financial sector slowed substantially, attributed mainly to weak demand and government liquidity support reducing firms’ demand for loans. - No signs of excessive tightening of credit policies nor credit crunch; banks have sufficient capital and liquidity for credit activity. - FX mortgage legal risks: - Following ECJ ruling in late 2019, consumers can ask courts to convert loans into zloty; number of borrowers challenging contracts gradually increasing. - PFSA encouraged banks to launch voluntary conversion of FX mortgages; banks working on practicalities. - Capital markets and strategy: - Poland has one of the most developed capital markets in the region, with limited reliance on wholesale markets by banks. - “Capital Market Development Strategy” aims to improve access to finance for companies (especially SMEs) by increasing attractiveness to domestic and foreign investors, addressing barriers to financing, developing competitive infrastructure, and supporting EU Capital Market Union objectives. - Authorities addressing recommendations of the 2018 FSAP (as indicated in Annex II of staff report). ### External sector - Current account: estimated at +3.3 percent of GDP in 2020, driven mostly by improved surplus in goods and services. - External position: described as record-breaking and stronger than authorities forecasted. - Near-term outlook: authorities estimate a reversion to a more balanced current account. - Trade performance: relatively strong due to export performance and lower imports accompanied by the decrease in oil prices; Europe’s relatively well performing industrial sector supports Poland’s exports and position in international supply chain. ### Structural reforms and recovery strategy - Authorities view recovery as opportunity to advance structural reform agenda in line with “Strategy for Responsible Development.” - Developing medium-term Recovery Plan for 2021-26 (KPO); green transformation supported under KPO. - New medium-term strategy to fully utilize NGEU funds: - Target investment in climate-oriented and digital infrastructure, sustainable transportation, and gradual decarbonization of the economy. - Aim to reform and improve capacity and efficiency of healthcare sector through modernization of healthcare infrastructure, development of human resources, and digitalization of medical services. - Governmental Fund for Local Investments: - State-provided funding program for ready-made public and private investment projects to improve local roads, bridges, education infrastructure, and communal facilities. - Implementation note: - Authorities phasing in recovery strategy, which could be fully accelerated once the pandemic abates. *1polea2021001 - 2019. According to the authorities’ projection, the 2020 public debt is estimated to reach 50.7* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1polea2021001.pdf_