## Republic of Poland: Report on Observance of Standards and Codes—Fiscal Transparency Module—Update (June 2004)

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### I. Description of Practice — Clarity of Roles and Responsibilities
- Original ROSC recommended eliminating extrabudgetary funds and bringing gross privatization flows into the central budget; simplification of the tax system; improvements in tax administration.
- Progress toward greater transparency and efficiency:
  - Three state offices were consolidated with the government: the Technical Supervision Office, the Transport Technical Supervision Office, and the Accreditation Center. (1.1.1)
  - The Alimony Fund, an extrabudgetary fund, was liquidated and its functions were shifted to the local governments as of May 1, 2004. (1.1.1)
  - Use of “special means” (earmarked off-budget accounts in the budgetary units mainly used for bonus payments to civil servants) was curtailed in 2004, and 40 percent of these resources were consolidated with the state (central government) budget. (1.1.3)
  - A new law on local government revenue increased the share of local governments in central income taxes while reducing earmarked state subsidies by a similar amount, increasing local flexibility. (1.1.2)
  - Important progress in simplifying the tax system: effective 2004, a large number of exemptions and allowances in personal and corporate income taxes were eliminated; VAT exemptions granted to enterprises employing disabled workers were eliminated and replaced by direct subsidies; special offices for large taxpayers were created in January 2004. (1.2.2)
- Practices complicating transparency and impairing efficiency:
  - Privatization receipts continued to be earmarked for off-budget expenditure, mostly for enterprise restructuring; non-transparent use of government shares in listed companies to recapitalize ailing state-owned enterprises continued in 2003 and 2004. (1.1.4)
  - Amendments to the law on public highways increased resource earmarking and quasi-fiscal activities: a fuel surcharge—collected at the pump and earmarked for the National Road Fund (NRF)—was introduced in 2004; the NRF is managed by the state-owned Domestic Economy Bank (BGK); law allows possible use of government equity holdings in listed companies to augment NRF resources. (1.1.4)

### I. Description of Practice — Public Availability of Information
- Coverage and public availability of fiscal information improved significantly since the original ROSC; shortcomings on contingent liabilities, public debt, and expenditure arrears addressed; MoF improved communication with financial markets on government securities.
- Specific developments:
  - MoF web site expanded to include monthly data in the format of the IMF’s Government Finance Statistics (GFS 1986), and analytical economic reviews prepared by MoF staff. (2.1.1)
  - With EU accession, Poland must comply with EU information requirements, including preparation of convergence programs with medium term fiscal projections and fiscal sensitivity analysis; annual budget documents should be consistent with convergence reports. (2.1.2)
  - The primary market dealership system for government securities introduced in 2003 improved communication with financial markets; government intends to open the primary dealer system to foreign participation in coming years and plans to harmonize the electronic platform for bond trading with EU standards. (2.1.4)

### I. Description of Practice — Open Budget Preparation, Execution and Reporting
- Original ROSC suggested establishing a clear comprehensive concept of fiscal deficit to remove incentives for creative accounting.
- Key developments:
  - Limits on the state budget deficit continue to serve as the fiscal rule; fiscal stance measured by wider concepts of general government deficit. Starting with the 2004 budget, the official definition of state budget deficit was modified by excluding transfers to the open pension funds from state expenditure—this reduced the deficit by more than 1 percent of GDP. The treatment of these transfers is under discussion with Eurostat. (3.1.2)
  - Progress toward international reporting standards: with IMF technical support in 2003, MoF began compiling and disseminating fiscal data in the accrual-based 2001 version of the IMF’s Government Finance Statistics Manual (GFSM 2001); scope and coverage of accrual data is being expanded. Progress is being made to meet EU reporting requirements according to the ESA 95 format, compatible with GFSM 2001; the Central Statistical Office will start publishing historical data on government sector transactions on the ESA 95 basis later this year. With EU accession, fiscal stance measured on the ESA 95 basis will gain importance and ultimately become the main fiscal indicator; consideration is being given to adopting ESA 95 standards for public debt statistics. (3.2.1)
  - New public procurement law compatible with EU standards: extends procurement coverage to the broader ESA 95 definition of general government; abolishes national preference in procurement; increases transparency and scrutiny in large bids (exceeding €10 million in construction and €5 million in other areas); reduces administrative burden for small bids (euro €30,000–60,000). (3.3.2)

### II. IMF Staff Commentary — Outstanding Issues and Recommendations
- While fiscal transparency has improved and is generally in line with international standards, outstanding issues remain:
  - Harmonize reporting standards across the general government; intensify progress in implementing GFSM 2001 and ESA 95 standards. (3.2.1)
  - Establish an official headline measure of the deficit to serve as a policy target, to be monitored and published regularly with a short time lag, to provide clear market guidance. (3.2.3)
  - Prepare a medium-term budget framework in the context of the convergence report, with a comprehensive assessment of fiscal risks; adopt output-oriented budgeting with ex-post “value-for-money” monitoring to assess efficiency of public service delivery. (3.1.3/3.4.3)
  - Continue efforts to reduce budget fragmentation: consolidate budget entities where possible and eliminate scope for nontransparent activities such as recapitalization of ailing state enterprises using government equity holdings in listed companies. (1.1.1/1.1.4)
  - Maintain and strengthen communication with the financial markets on the government securities market as a core function of policy-makers. (2.1)

*IMF Country Report No. 04/219 — Republic of Poland: Report on Observance of Standards and Codes—Fiscal Transparency Module—Update, June 2004*

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