## 1polea2025002-print-pdf — 1. Firm Investment Trends and Obstacles

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### Key findings on investment trends
- Investment rates have been trending at weak levels; Poland has had low investment-to-GDP compared to peers.
- Despite a relatively low investment-to-GDP ratio compared to regional peers, capital accumulation was still relatively significant given a smaller initial stock, with estimates showing higher increase in net capital stock per worker since 2 011 relative to the region.
- Net capital stock per person employed increased (Text Figure 4), reflecting capital deepening from a low base.
- Gross fixed capital formation series (2004–2023) show Poland below peers: comparative groups include POL, HUN, CZE, ROU, EU27, EA, CESEE avg (excl. POL).
- Domestic financing for investment: much investment financed from retained earnings; domestic credit to private non-financial firms comprises less than 15 percent of GDP.
- Stock of NFC loans (Percent of GDP) in Poland remains lower than Euro area avg (excl. financial hubs) and CESEE avg (excl. POL).
- FDI liabilities stock has been stagnating around 50 percent of GDP since 2 010, significantly lower than 70 percent for the euro area and 80 percent for CESEE countries.
- Nominal values of announced greenfield investment in Poland and Europe have not recovered to the pre-GFC peak level.
- Strategic foreign direct investment in Poland and peers (number index, 2015Q1=100) and sectoral distribution indicate limited shift toward strategic goods exports and unclear near-shoring effects to date.

### Determinants and firm-level evidence on investment obstacles
- Firm-level surveys point to overall limited investment appetite and higher barriers to investment than in peers.
- Firm-level regression analysis confirms that uncertainty about future profitability and the macroeconomy had an impact on firm investment decisions, and weaker profit expectations contributed to lower investments following the global financial crisis.
- Credit intermediation for corporate investment is limited: Polish enterprises rely mainly on retained earnings for investment; the share of non-financial corporate loans to GDP is lower than for EU and CESEE comparators.
- Domestic financing sources (billion Polish zloty) show reliance on NFC loans, NFC retained earnings (REs), and public investment and gross capital formation (GCF) patterns indicating constrained domestic credit intermediation.

### FDI and geoeconomic fragmentation risks and opportunities
- FDI stock: Poland ~50 percent of GDP (since 2 010), compared with 70 percent for the euro area and 80 percent for CESEE.
- Announced greenfield FDI in Poland (Percent of GDP index series) and share of global greenfield FDI remain below pre-GFC peaks.
- Geoeconomic fragmentation poses two-sided risks: short- to medium-term opportunities from near-shoring and friend-shoring; long-term risks if fragmentation divides trade and FDI flows, with highly uncertain impact on Poland.
- Empirical patterns: Poland’s trade with Russia declined; imports from China intensified; limited shift toward strategic goods exports; unclear evidence of near-shoring in FDI inflows.

### Fiscal and public investment constraints
- Fiscal pressures are high and could crowd out public investment over the medium-term.
- Projection from the 2024 Article IV Staff Report: non-military non-EU financed investment is projected to decline as a share of GDP from around 3.9 to 3 .3 percent of GDP in 2 029.
- Maintaining public investment would require additional fiscal consolidation or a successor to NGEU funds.

### Scenarios and quantitative constraints relevant for investment outlook
- Capital deepening supported by NGEU funds provides a near-term boost, but sustained pickup faces uncertainty beyond the NGEU horizon.
- Credit constraint indicator: domestic credit to private non-financial firms comprises less than 15 percent of GDP.
- FDI liabilities stock: stagnation around 50 percent of GDP since 2 010 versus 70 percent (euro area) and 80 percent (CESEE).
- Public investment projection: decline from around 3.9 to 3 .3 percent of GDP by 2 029.

### Policy implications and recommendations
- Address investment uncertainty: reduce macroeconomic and profit expectation uncertainty that firms cite as major constraints to investment.
- Improve credit intermediation: enhance domestic financing channels for non-financial corporations given reliance on retained earnings and low NFC loan penetration.
- Mobilize FDI and strategic investment: pursue policies to attract strategic foreign direct investment while managing geoeconomic fragmentation risks and leveraging near-shoring/friend-shoring opportunities.
- Safeguard public investment: to avoid a decline in non-military non-EU financed investment from around 3.9 to 3 .3 percent of GDP by 2 029, consider additional fiscal consolidation or secure a successor to NGEU funds.

*Source: 1polea2025002-print-pdf - 1. Firm Investment Trends and Obstacles (Republic of Poland, International Monetary Fund).*

---

### 1polea2025002-print-pdf — Box 1. Firm Investment Trends and Obstacles

### Firm investment trends (survey evidence)
- Around four-fifths of firms do not intend to increase their investment beyond current levels (European Investment Bank’s Investment Survey).
- Compared to the rest of EU, a slightly higher share of Polish firms reports unmet investment demand.
- More firms in the infrastructure sector and more SMEs report investment needs that are higher than their current levels.
- Even among firms planning to invest, nearly two-fifths anticipate directing their investment toward replacing existing capacity rather than expanding capacity or introducing new products.
- Investment priorities, 2023 (percent of firms): categories include Replacing capacity, Capacity expansion, Developing new products/services, No investment planned (comparisons between EU Average and Poland across sectors: Manufacturing, Construction, Services, Infrastructure, SME, Large).

### Obstacles to long-term investment (2023)
- Top obstacles for Polish firms (percent of firms, rank order as presented):
  - Uncertainty about the future
  - Energy costs
  - Availability of skilled staff
  - Business regulations
  - Labour market regulations
  - Demand for products or services
  - Availability of finance
  - Access to digital infrastructure
  - Adequate transport infrastructure
- Polish firms face higher obstacles in most areas compared to the EU average.

### Firm-level determinants of investment (summary of Box 2 empirical results)
- Data and scope:
  - Firm balance sheet and income statement data for 5 10 publicly listed firms over 2 0 years in Poland (Thomson Reuters Worldscope). Finance, insurance and real estate, and government agencies excluded.
  - A 9 5% winsorization is applied on the variables used for the construction of total investment.
  - Net Investment rate defined as investment divided by lagged capital stock net of depreciation.
  - All specifications include firm fixed effects. Standard errors clustered at the firm level.
- Main empirical insights:
  - The overall investment rate has declined, on average, by about 2 .6 percentage points since the GFC.
  - Tobin’s q decreased by about 25 percent on average, contributing significantly to the decline in investment.
  - Interest rate and profit margins do not have a statistically significant impact in the regressions reported.
  - The impact of cash is statistically significant but relatively small.
  - At the macro level, GDP growth, economic uncertainty and capital flows are important determinants and contributed to the decline in investment after the GFC.

### Regression results (coefficients for determinants of Net Investment Rate)
- Tobin's Q (t-1): 0.0585***
- Leverage (t-1): -0.1514***
- Cost Debt (t-1): 0.0090
- Profit Margin (t-1): 0.0173
- Cash Stock over Assets (t-1): 0.1393***
- GDP Growth (t-1): 0.2537***
- Uncertainty Index: -0.0956***
- Capital Inflow over GDP (t-1): 0.5526***
- Observations: 4233
- Adjusted R-squared: 0.4231

### Implications, risks, and sectoral opportunities
- TFP growth:
  - Projected to recover from the impact of recent labor hoarding, but to remain below pre-pandemic levels.
  - Underlying TFP growth may be suppressed by diminishing low-hanging fruits; future gains rely more on within-sector productivity, FDI and technology transfers, allocative efficiency, or self-innovation.
- Sectoral opportunities:
  - Manufacturing and ICT identified as sectors with significant room for advancement toward the technological frontier.
  - Investing in digital infrastructure is crucial for productivity growth in Manufacturing and ICT.
- Downside risks:
  - Convergence in labor costs combined with stalled labor productivity growth could erode competitiveness, weigh on trade and FDI, and reduce technology transfer potential.
  - Regional conflicts and geoeconomic fragmentation add uncertainty to global supply chains and trade linkages.
  - Capacity of the banking system to accelerate private sector credit-to-GDP from current low levels matters for investment.
  - Crowding out of public and private investment given fiscal pressures could curtail potential growth.
- Upside potential:
  - Structural reforms at EU level and in Poland could support investment and productivity, especially as EU RRF funds wind down and population ageing accelerates.

### Policy recommendations (Box 1)
- Support business financing and ease regulatory hurdles to FDI and private investment.
- Address obstacles to long-term investment: efficiency of tax and business legislation, and basic infrastructure.
- Fully and effectively absorb NGEU grants to address infrastructure gaps and support digitalization.
- Relax labor and product market regulations, including regulatory barriers to competition in some professions.
- Strengthen insolvency procedures, including capacity of courts for timely processing.
- Strengthen vocational training and skill-matching; raise labor force participation among older cohorts; enhance adult learning.
- Support Female Labor participation by ensuring adequate child and elderly care.
- Better integrate foreign workers with language training, social support, and transportation.
- Transition from technology adoption to innovation, focus on Manufacturing and ICT.
- Increase R&D capital and R&D spending; reorient government incentives and the financial system toward R&D, private equity and venture capital.

*Sources: European Investment Bank Investment Survey; and IMF staff calculations.*

---

### 1polea2025002-print-pdf — 6. In an illustrative scenario where benefit ratios remain fixed, pension expenditures

### Forecasts and projected fiscal impact
- Under a constant benefit (fixed benefit ratio) scenario, pension expenditures would be about 6.3 ppts of GDP higher in 2 050 than in 2 022, raising total pension expenditures from about 11 to some 17 percent of GDP.
- Under the 2024 Ageing Report scenario, which allows some decline in the benefit ratio (10 percent relative to the 2 022 level), additional payments would be required around 2035 and pension expenditures would need to increase by some 4 ppts of GDP by 2050.
- The decomposition of factors behind the change in projected public pension expenditure between 2022 and 2050 suggests a cumulative dependency ratio effect of 6.3 ppts of GDP.
- The forecast assumes that gross public pensions will broadly remain at around 11 percent of GDP by 2 050 under the baseline.
- The replacement rate (the ratio of the first pension of those who retire each year over an economy-wide average wage at retirement) is projected to decline from 58 percent in 2 022 to about 27 percent in 2 050 and stabilize afterward.
- By 2050, benefit ratios and gross replacement rate levels are forecast to decline to low levels, well below EU and EA averages, because falling benefit and replacement rates will offset the effects of worsening demographics.

### Drivers of change
- Benefits decline due to worsening demographics, particularly strong in the 2 040-50 and 2050-60 periods, reflecting the aging of the post-war baby boomers.
- Projected changes reflect interaction of dependency ratio increases, declining benefit ratios and replacement rates, labor market effects and residual factors.

### System adequacy and fiscal responses observed
- The steep projected benefit ratio decline raises concerns over system adequacy and social sustainability.
- Benefit ratio declined during 2015-22 as average wages outpaced average pensions.
- Additional top-ups introduced: the 13th pension and 14th pension (introduced in 2019 and 2021 respectively), financed from the state budget and introduced initially as one-off cash benefits.
- Minimum pension top-ups are rising, financed through the state budget.
- Given decline in formula-based pensions, the average pension is expected to converge to the minimum pension under the current NDC system; the average pension to minimum pension ratio would be expected to approach unity.

### Distributional and adequacy challenges
- The number of individuals receiving less-than-minimum pensions increased ten-fold during 2012-22 from about 36 thousand to 365 thousand individuals, rising from 4.4 percent to 9.6 percent of pensions paid.
- Over 80 percent of less-than-minimum pension recipients in 2 022 were women.
- In 2023, the minimum pension was PLN 1,588.44.
- Older Polish women face higher poverty risk than men; the overall at-risk-of-poverty rate in Poland is lower than the EU average (15.2 vs. 17.3) and has declined over time.
- Pension replacement rates for a standard 40-year career (Theoretical Replacement Rates, TRR) are set to fall during the next four decades in most countries, including a significant decline in Poland over 2022-62—implying longer careers are critical to maintain pension adequacy.

### Gender and employment-type inequities
- Average benefit ratios as of December 2023:
  - Average for women: 46.8 percent
  - Average for men: 68.1 percent
  - Average benefit ratio (overall): 55.2 percent
- Many non-standard workers can expect worse pension prospects than employees. Non-standard employment constituted more than one-third of total employment in Poland; between 2012 and 2022 the share of non-standard employment declined but remains substantial.
- As of 2024Q2, about 11 percent of pension contributors to the Social Insurance Institution were self-employed (with and without employees) and another 8 percent were working on the basis of civil code contracts.
- Civil law contract workers and other temporary workers often earn less and may be less covered by social security, leading to lower contributions and lower pensions.
- Self-employed pension prospects are weaker because the mandatory contribution base for the self-employed is a flat-rate equal to about 60 percent of the average wage, resulting in most self-employed paying relatively low contributions and receiving theoretical pensions of roughly 60 percent of those expected by employees.

### Pension funds’ role in capital markets
- OFEs grew rapidly in the early 2000s; by 2007 OFEs' portfolios comprised about 60 percent of treasury securities and 34 percent of equities.
- In 2014 Pillar 2 was scaled back by transferring about half of pension fund assets to Pillar 1 and eliminating mandatory participation in Pillar 2, causing a sharp decline in OFEs' assets and membership.
- Between 2017 and 2024Q1, the number of OFEs declined from 12 to 8, membership dropped from 16.4 million to 14.5 million, and OFEs’ assets registered about 6.5 percent of 2023 GDP in March 2024.
- OFEs are heavily exposed to the domestic equity market: as of 2024Q1, 82 percent of OFEs’ portfolios were invested in domestic equities, 10 percent in foreign investments, 5 percent in bonds, 2 percent in bank deposits, and 1 percent in other instruments.
- The growing importance of the voluntary pension scheme PPK has the potential to increase savings and partly offset the decline in Pillar 2 investments, increase appetite for domestic securities, and attract foreign investor interest. PPK could mitigate effects of diminishing OFEs on equity prices and create pension portfolios more aligned with long-term individual interests.

*Source: 1polea2025002-print-pdf — chapter section on public pensions and ageing (Figures and data from EC 2024 Ageing Report, ZUS, Ministry of Finance, and IMF staff calculations as presented in the source).*

---

### 1polea2025002-print-pdf — 18. Under the current rules, implicit pension liabilities for the government could increase

### Long-term fiscal impact and key statistics
- Implicit pension liabilities for the government could increase by some 6 ppts of GDP by 2050 to maintain pension adequacy.
- To counteract population ageing, pension expenditures would need to increase by about 6 ppts of GDP by 2050.
- Adjusting benefits to life expectancy at retirement and employment size will substantially lower future pensions in Poland.
- Estimated savings to public pension expenditures from equalizing and increasing statutory retirement age in line with life expectancy would be about 0.9 ppts of GDP by 2050 (Economic Policy Committee, Ageing Working Group, 2023).

### Policy recommendations and measures to improve pension adequacy
- Equalize statutory retirement age for men and women and increase it over time with life expectancy.
- Extend working lives and incentivize pensioners to work.
  - Current incentives: the “PIT-0” scheme created a tax allowance for men and women older than the statutory retirement age who do not claim retirement or disability benefits and continue to work.
  - Current disincentive: pensioners who work past their retirement age do not qualify for the 13th and 14th pension payment benefits.
- Introduce a minimum contributory period.
  - Current situation: there is no minimum contributory period; even very small contributions are refunded with accumulated interest at retirement.
- Pursue active labor market policies and increase labor participation.
  - Objectives: reduce the shadow economy, raise the labor force participation rate, and increase contributors (bring more older people and women into the labor force; remove barriers to young parents working; promote part-time work).
- Improve workers' skills and better integrate vulnerable groups into the labor market (lifelong learning, promote best practices in training, mobilize persons with disabilities).
- Raise the minimum level of support for the poorest pensioners (noting fiscal cost).
- Promote and increase the level of household savings in the economy; maintain regulatory stability for Pillar 3 (such as the PPK) and increase financial education and communication to pension account holders.
- Base contributions of the self-employed on actual income.

### Implementation considerations and trade-offs
- Some measures (tax incentives to extend working lives, increasing support for poorest pensioners) carry direct fiscal costs that will offset some savings from higher participation or delayed retirement.
- Policy coherence is needed to remove mixed messages in the pension system (for example, align incentives like PIT-0 with eligibility for 13th and 14th pension payments).
- Rebuilding trust in voluntary pension pillars requires regulatory stability and communication, given past reversals (Pillar 2 to Pillar 1).

*1polea2025002-print-pdf - 18. Under the current rules, implicit pension liabilities for the government could increase*

### 1. Firm Investment Trends and Obstacles _____________________________________________ 12

### 1. Firm Investment Trends and Obstacles

### Key findings on investment trends
- Investment rates have been trending at weak levels; Poland has had low investment-to-GDP compared to peers.  
- Despite a relatively low investment-to-GDP ratio compared to regional peers, capital accumulation was still relatively significant given a smaller initial stock, with estimates showing higher increase in net capital stock per worker since 2 011 relative to the region.  
- Net capital stock per person employed increased (Text Figure 4), reflecting capital deepening from a low base.  
- Gross fixed capital formation series (2004–2023) show Poland below peers: comparative groups include POL, HUN, CZE, ROU, EU27, EA, CESEE avg (excl. POL).  
- Domestic financing for investment: much investment financed from retained earnings; domestic credit to private non-financial firms comprises less than 15 percent of GDP.  
- Stock of NFC loans (Percent of GDP) in Poland remains lower than Euro area avg (excl. financial hubs) and CESEE avg (excl. POL).  
- FDI liabilities stock has been stagnating around 50 percent of GDP since 2 010, significantly lower than 70 percent for the euro area and 80 percent for CESEE countries (Figure 1).  
- Nominal values of announced greenfield investment in Poland and Europe have not recovered to the pre-GFC peak level.  
- Strategic foreign direct investment in Poland and peers (number index, 2015Q1=100) and sectoral distribution indicate limited shift toward strategic goods exports and unclear near-shoring effects to date.

### Determinants and firm-level evidence on investment obstacles
- Firm-level surveys point to overall limited investment appetite and higher barriers to investment than in peers (Box 1).  
- Firm-level regression analysis confirms that uncertainty about future profitability and the macroeconomy had an impact on firm investment decisions, and weaker profit expectations contributed to lower investments following the global financial crisis (Box 2).  
- Credit intermediation for corporate investment is limited: Polish enterprises rely mainly on retained earnings for investment; the share of non-financial corporate loans to GDP is lower than for EU and CESEE comparators.  
- Domestic financing sources (billion Polish zloty) show reliance on NFC loans, NFC retained earnings (REs), and public investment and gross capital formation (GCF) patterns indicating constrained domestic credit intermediation.

### FDI and geoeconomic fragmentation risks and opportunities
- FDI stock: Poland ~50 percent of GDP (since 2 010), compared with 70 percent for the euro area and 80 percent for CESEE.  
- Announced greenfield FDI in Poland (Percent of GDP index series) and share of global greenfield FDI remain below pre-GFC peaks (Figure 1 data).  
- Geoeconomic fragmentation poses two-sided risks: short- to medium-term opportunities from near-shoring and friend-shoring; long-term risks if fragmentation divides trade and FDI flows, with highly uncertain impact on Poland (Figure 2).  
- Empirical patterns: Poland’s trade with Russia declined; imports from China intensified; limited shift toward strategic goods exports; unclear evidence of near-shoring in FDI inflows.

### Fiscal and public investment constraints
- Fiscal pressures are high and could crowd out public investment over the medium-term.  
- Projection from the 2024 Article IV Staff Report: non-military non-EU financed investment is projected to decline as a share of GDP from around 3.9 to 3 .3 percent of GDP in 2 029.  
- The source conclusion: maintaining public investment would require additional fiscal consolidation or a successor to NGEU funds.

### Scenarios and quantitative constraints relevant for investment outlook
- Capital deepening supported by NGEU funds provides a near-term boost, but sustained pickup faces uncertainty beyond the NGEU horizon.  
- Credit constraint indicator: domestic credit to private non-financial firms comprises less than 15 percent of GDP (text statement).  
- FDI liabilities stock: stagnation around 50 percent of GDP since 2 010 versus 70 percent (euro area) and 80 percent (CESEE).  
- Public investment projection: decline from around 3.9 to 3 .3 percent of GDP by 2 029.

### Policy implications and recommendations (as identified in the source)
- Address investment uncertainty: reduce macroeconomic and profit expectation uncertainty that firms cite as major constraints to investment.  
- Improve credit intermediation: enhance domestic financing channels for non-financial corporations given reliance on retained earnings and low NFC loan penetration.  
- Mobilize FDI and strategic investment: pursue policies to attract strategic foreign direct investment while managing geoeconomic fragmentation risks and leveraging near-shoring/friend-shoring opportunities.  
- Safeguard public investment: to avoid a decline in non-military non-EU financed investment from around 3.9 to 3 .3 percent of GDP by 2 029, consider additional fiscal consolidation or secure a successor to NGEU funds.

*Source: 1polea2025002-print-pdf - 1. Firm Investment Trends and Obstacles (Republic of Poland, International Monetary Fund).*

### Box 1. Firm Investment Trends and Obstacles

### 1polea2025002-print-pdf - Box 1. Firm Investment Trends and Obstacles

### Firm investment trends
- Around four-fifths of firms do not intend to increase their investment beyond current levels (European Investment Bank’s Investment Survey).
- Compared to the rest of EU, a slightly higher share of Polish firms reports unmet investment demand.
- More firms in the infrastructure sector and more SMEs report investment needs that are higher than their current levels.
- Even among firms planning to invest, nearly two-fifths anticipate directing their investment toward replacing existing capacity rather than expanding capacity or introducing new products.
- Investment priorities, 2023 (percent of firms): reported categories shown include Replacing capacity, Capacity expansion, Developing new products/services, No investment planned (comparisons between EU Average and Poland across sectors: Manufacturing, Construction, Services, Infrastructure, SME, Large).

### Obstacles to long-term investment (2023)
- Top obstacles for Polish firms (percent of firms, rank order as presented):
  - Uncertainty about the future
  - Energy costs
  - Availability of skilled staff
  - Business regulations
  - Labour market regulations
  - Demand for products or services
  - Availability of finance
  - Access to digital infrastructure
  - Adequate transport infrastructure
- Polish firms face higher obstacles in most areas compared to the EU average (chart: Obstacles to Long-Term Investment, 2023, percent of firms).

### Firm-level determinants of investment (Box 2)
- Data and scope:
  - Firm balance sheet and income statement data for 5 10 publicly listed firms over 2 0 years in Poland (firm-level data from Thomson Reuters Worldscope).
  - Finance, insurance and real estate, and government agencies excluded.
  - A 9 5% winsorization is applied on the variables used for the construction of total investment.
  - Net Investment rate defined as investment divided by lagged capital stock net of depreciation.
  - All specifications include firm fixed effects. Standard errors clustered at the firm level.
- Main empirical insights:
  - The overall investment rate has declined, on average, by about 2 .6 percentage points since the GFC.
  - Tobin’s q decreased by about 25 percent on average, contributing significantly to the decline in investment.
  - Interest rate and profit margins do not have a statistically significant impact in the regressions reported.
  - The impact of cash is statistically significant but relatively small.
  - At the macro level, GDP growth, economic uncertainty and capital flows are important determinants and contributed to the decline in investment after the GFC.

- Regression results (coefficients reported for determinants of Net Investment Rate):
  - Tobin's Q (t-1): 0.0585***
  - Leverage (t-1): -0.1514***
  - Cost Debt (t-1): 0.0090
  - Profit Margin (t-1): 0.0173
  - Cash Stock over Assets (t-1): 0.1393***
  - GDP Growth (t-1): 0.2537***
  - Uncertainty Index: -0.0956***
  - Capital Inflow over GDP (t-1): 0.5526***
  - Observations: 4233
  - Adjusted R-squared: 0.4231

- Shaped contributions to changes in investment rate since 2009 (percentage point): listed contributors include Capital Inflow over GDP, Uncertainty Index, GDP Growth, Leverage + Cash, Tobin's Q, and Observed change (chart shown in source).

### Implications and risks
- TFP growth:
  - Projected to recover from the impact of recent labor hoarding, but to remain below pre-pandemic levels.
  - Underlying TFP growth may be suppressed by diminishing low-hanging fruits; future gains rely more on within-sector productivity, FDI and technology transfers, allocative efficiency, or self-innovation.
- Sectoral opportunities:
  - Manufacturing and ICT identified as sectors with significant room for advancement toward the technological frontier.
  - Investing in digital infrastructure is crucial for productivity growth in Manufacturing and ICT.
- Downside risks to potential growth:
  - Convergence in labor costs combined with stalled labor productivity growth could erode competitiveness, weigh on trade and FDI, and reduce technology transfer potential.
  - Regional conflicts and geoeconomic fragmentation add uncertainty to global supply chains and trade linkages.
  - Capacity of the banking system to accelerate private sector credit-to-GDP from current low levels matters for investment.
  - Crowding out of public and private investment given fiscal pressures could curtail potential growth.
- Upside potential:
  - Structural reforms at EU level and in Poland could support investment and productivity, especially as EU RRF funds wind down and population ageing accelerates.

### Policy recommendations to sustain long-term growth
- Supporting investment:
  - Support business financing and ease regulatory hurdles to FDI and private investment.
  - Address obstacles to long-term investment: efficiency of tax and business legislation, and basic infrastructure.
  - Fully and effectively absorb NGEU grants to address infrastructure gaps and support digitalization.
- Improving allocative efficiency:
  - Relax labor and product market regulations, including regulatory barriers to competition in some professions (for example: architects, accountants, lawyers).
  - Strengthen insolvency procedures, including by strengthening the capacity of courts for timely processing.
- Ensuring an adequate labor force:
  - Strengthen vocational training and skill-matching.
  - Raise labor force participation among older cohorts and enhance adult learning.
  - Support Female Labor participation by ensuring adequate child and elderly care.
  - Better integrate foreign workers with language training, social support, and transportation.
- Nurturing innovation:
  - Transition from technology adoption to innovation, with focus on Manufacturing and ICT.
  - Increase R&D capital and R&D spending; reorient government incentives and the financial system toward R&D, private equity and venture capital.

*Sources: European Investment Bank Investment Survey; and IMF staff calculations.*

### 6.      In an illustrative scenario where benefit ratios remain fixed, pension expenditures

### 6. In an illustrative scenario where benefit ratios remain fixed, pension expenditures

### Forecasts and projected fiscal impact
- Under a constant benefit (fixed benefit ratio) scenario, pension expenditures would be about 6.3 ppts of GDP higher in 2 050 than in 2 022, raising total pension expenditures from about 11 to some 17 percent of GDP.
- Under the 2024 Ageing Report scenario, which allows some decline in the benefit ratio (10 percent relative to the 2 022 level), additional payments would be required around 2035 and pension expenditures would need to increase by some 4 ppts of GDP by 2050.
- The decomposition of factors behind the change in projected public pension expenditure between 2022 and 2050 suggests a cumulative dependency ratio effect of 6.3 ppts of GDP.
- The forecast assumes that gross public pensions will broadly remain at around 11 percent of GDP by 2 050 under the baseline.
- The replacement rate (the ratio of the first pension of those who retire each year over an economy-wide average wage at retirement) is projected to decline from 58 percent in 2 022 to about 27 percent in 2 050 and stabilize afterward.
- By 2050, benefit ratios and gross replacement rate levels are forecast to decline to low levels, well below EU and EA averages, because falling benefit and replacement rates will offset the effects of worsening demographics.

### Drivers of change
- Benefits decline due to worsening demographics, particularly strong in the 2 040-50 and 2050-60 periods, reflecting the aging of the post-war baby boomers.
- Projected changes reflect the interaction of:
  - Dependency ratio increases (population ageing).
  - Declining benefit ratios and replacement rates.
  - Labor market effects and residual factors (as shown in contribution charts for 2022-50 and beyond).

### System adequacy and fiscal responses observed
- The steep projected benefit ratio decline raises concerns over system adequacy and social sustainability.
- The benefit ratio declined during 2015-22 as average wages outpaced average pensions.
- Additional top-ups have already been introduced to support pensions, including through the 13th pension and 14th pension (introduced in 2019 and 2021 respectively), financed from the state budget and introduced initially as one-off cash benefits.
- Minimum pension top-ups are also rising, financed through the state budget.
- Given the decline in formula-based pensions, the average pension is expected to converge to the minimum pension under the current NDC system; the average pension to minimum pension ratio would be expected to approach unity, resembling a universal pension system in the projection.

### Distributional and adequacy challenges
- The number of individuals receiving less-than-minimum pensions increased ten-fold during 2012-22 from about 36 thousand to 365 thousand individuals, driven by growth in part-time workers and rising from 4.4 percent to 9.6 percent of pensions paid (under the new system).
- Over 80 percent of less-than-minimum pension recipients in 2 022 were women.
- In 2023, the minimum pension was PLN 1,588.44.
- Older Polish women face higher poverty risk than men; the overall at-risk-of-poverty rate in Poland is lower than the EU average (15.2 vs. 17.3) and has declined over time.
- Pension replacement rates for a standard 40-year career (Theoretical Replacement Rates, TRR) are set to fall during the next four decades in most countries, including a significant decline in Poland over 2022-62—implying that longer careers are critical to maintain pension adequacy.

### Gender and employment-type inequities
- Women receive lower pensions than men: average benefit ratios as of December 2023:
  - Average for women: 46.8 percent
  - Average for men: 68.1 percent
  - Average benefit ratio (overall): 55.2 percent
- Projected average benefit ratios by gender show declines for both men and women, with women remaining below men through 2050.
- Many non-standard workers can expect worse pension prospects than employees. Non-standard employment (self-employed, temporary, part-time) constituted more than one-third of total employment in Poland; between 2012 and 2022 the share of non-standard employment declined but remains substantial.
- As of 2024Q2, about 11 percent of pension contributors to the Social Insurance Institution were self-employed (with and without employees) and another 8 percent were working on the basis of civil code contracts.
- Civil law contract workers and other temporary workers often earn less and may be less covered by social security, leading to lower contributions and lower pensions.
- Self-employed pension prospects are weaker because the mandatory contribution base for the self-employed is a flat-rate equal to about 60 percent of the average wage, resulting in most self-employed paying relatively low contributions and receiving theoretical pensions of roughly 60 percent of those expected by employees.

### Pension funds’ role in capital markets
- OFEs (open pension funds) grew rapidly in the early 2000s; by 2007 OFEs' portfolios comprised about 60 percent of treasury securities and 34 percent of equities.
- In 2014 Pillar 2 was scaled back by transferring about half of pension fund assets to Pillar 1 and eliminating mandatory participation in Pillar 2, causing a sharp decline in OFEs' assets and membership.
- Between 2017 and 2024Q1, the number of OFEs declined from 12 to 8, membership dropped from 16.4 million to 14.5 million, and OFEs’ assets registered about 6.5 percent of 2023 GDP in March 2024.
- OFEs are heavily exposed to the domestic equity market: as of 2024Q1, 82 percent of OFEs’ portfolios were invested in domestic equities, 10 percent in foreign investments, 5 percent in bonds, 2 percent in bank deposits, and 1 percent in other instruments.
- The growing importance of the voluntary pension scheme PPK has the potential to increase savings and partly offset the decline in Pillar 2 investments, increase appetite for domestic securities, and attract foreign investor interest. PPK could mitigate effects of diminishing OFEs on equity prices and create pension portfolios more aligned with long-term individual interests.

*Source: 1polea2025002-print-pdf — chapter section on public pensions and ageing (Figures and data from EC 2024 Ageing Report, ZUS, Ministry of Finance, and IMF staff calculations as presented in the source).*

### 18.      Under the current rules, implicit pension liabilities for the government could increase

### 18.      Under the current rules, implicit pension liabilities for the government could increase

### Long-term fiscal impact and key statistics
- Implicit pension liabilities for the government could increase by some 6 ppts of GDP by 2050 to maintain pension adequacy.
- Both increases in longevity and declining aggregate employment lower pension benefits through automatic adjustments built into the NDC.
- To counteract population ageing, pension expenditures would need to increase by about 6 ppts of GDP by 2050.
- Adjusting benefits to life expectancy at retirement and employment size will substantially lower future pensions in Poland.
- Estimated savings to public pension expenditures from equalizing and increasing statutory retirement age in line with life expectancy would be about 0.9 ppts of GDP by 2050 (Economic Policy Committee, Ageing Working Group, 2023).

### Policy recommendations and measures to improve pension adequacy
- Equalize statutory retirement age for men and women and increase it over time with life expectancy.
  - Rationale: Extending working lives through gradual alignment and thereafter increasing the retirement age in line with life expectancy gains while in good health would help lower the implicit fiscal cost of pension liabilities over the long-term.
- Extend working lives and incentivize pensioners to work.
  - Note: Without consensus to increase statutory retirement age, raising the effective retirement age is desirable but may carry fiscal costs (tax incentives).
  - Current incentives: the “PIT-0” scheme created a tax allowance for men and women older than the statutory retirement age who do not claim retirement or disability benefits and continue to work.
  - Current disincentive: pensioners who work past their retirement age do not qualify for the 13th and 14th pension payment benefits.
  - Net effect: fiscal savings from incentives are reduced by the cost of incentives provided (OECD 2023c).
- Introduce a minimum contributory period.
  - Current situation: there is no minimum contributory period; even very small contributions are refunded with accumulated interest at retirement.
  - Rationale: introducing a minimum contributory period may reduce administrative costs, improve the pension outlook, and encourage longer working lives.
- Pursue active labor market policies and increase labor participation.
  - Objectives: reduce the shadow economy, raise the labor force participation rate, and increase contributors.
  - Specifics: bring more older people and women into the labor force; remove barriers to young parents working (improve availability of affordable childcare and establish options for elderly care); promote part-time work to mobilize students and young caregivers.
- Improve workers' skills and better integrate vulnerable groups into the labor market.
  - Rationale: lack of skills contributes to early withdrawal from the labor market.
  - Measures: lifelong learning, promote best practices in training, and mobilize persons with disabilities to increase labor market participation.
- Raise the minimum level of support for the poorest pensioners.
  - Motivation: Poland ranks relatively low on adequacy and sustainability in the 2023 Global Pension Index (Mercer CFA Institute 2023); increasing support would improve adequacy but come at a fiscal cost.
- Promote and increase the level of household savings in the economy.
  - Observation: Poland continues to have one of the lowest household savings rates in the EU.
  - Constraint: past policy reversals of pension savings (e.g., transferring Pillar 2 funds to Pillar 1) may undermine confidence in voluntary pension pillars (OECD 2023c).
  - Recommendations: maintain regulatory stability for the future development of Pillar 3 (such as the PPK); remind workers that PPK funds are private and can be withdrawn at any time (tax-free if withdrawn upon reaching 60); increase financial education and communication to pension account holders.
- Base contributions of the self-employed on actual income.
  - Rationale: would help improve future pensions of the self-employed and close the gap between the self-employed and employees.

### Implementation considerations and trade-offs
- Some measures (tax incentives to extend working lives, increasing support for poorest pensioners) carry direct fiscal costs that will offset some savings from higher participation or delayed retirement.
- Policy coherence is needed to remove mixed messages in the pension system (for example, align incentives like PIT-0 with eligibility for 13th and 14th pension payments).
- Rebuilding trust in voluntary pension pillars requires regulatory stability and communication, given past reversals (Pillar 2 to Pillar 1).

*1polea2025002-print-pdf - 18.      Under the current rules, implicit pension liabilities for the government could increase*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1polea2025002-print-pdf.pdf_