IMF Survey : Poland Renews IMF Credit Line for $33.8 Billion

IMF News, January 18, 2013

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The IMF’s Executive Board approved renewal of Poland’s Flexible Credit Line (FCL) for two years.
The amount of the new FCL, which the authorities intend to treat as precautionary, will be for about $33.8 billion.
Publication date on the page: January 18, 2013.

Poland was the only European Union (EU) economy not to enter into recession during the global financial crisis and has been one of the best performers in the EU.
The IMF observes that Poland’s economy has started to slow after showing resilience since the onset of the global economic crisis, due to sound policy frameworks and prudent economic management.
Causes of the slowdown identified:
- Weakening demand for Poland’s exports because most main trading partners are in the euro area.
- Domestic demand has weakened as households and businesses consume and invest less amid uncertainty in Europe.
- Rising unemployment and tighter credit are affecting household consumption.
The IMF does not anticipate a recession in the year of the assessment (2013); it characterizes the situation as a growth slowdown rather than a recession.

The FCL was created in 2009 for countries with very strong policy frameworks and track records in economic performance.
Qualified countries have the flexibility to draw at any time within a pre-specified window on the credit line, or to treat it as a precautionary instrument.
Benefits Poland has derived from having an FCL:
- Allowed for a more flexible policy response at the onset of the global financial crisis in 2008-2009.
- Provided useful insurance as the crisis evolved, particularly as it hit the eurozone.
- Played a critical role in allowing the Polish government to rebuild policy space and to strengthen the institutional policy framework.
Reasons for renewing and increasing the size of the FCL to about $33.8 billion:
- 2013 is expected to be a difficult year for Poland and some major trading partners.
- Poland faces some withdrawal of external funding from its banking sector.
- Volatile capital flows may pose risks.
- The FCL provides extra insurance, a cushion against potential risks, breathing space for fiscal consolidation and reserve accumulation, and more time for unfavorable conditions to dissipate.

Fiscal policy:
- The challenge is to strike the right balance between continuing belt-tightening and supporting the slowing economy.
- The IMF assessment states that the 2013 budget appropriately balances these objectives.
Monetary policy:
- The central bank should continue to cut policy interest rates to support the economy.
Financial sector:
- New challenges will arise from the slowing economy, particularly a rise in loans that are in default.
- Financial supervisors will need to tackle these issues going forward.

Maintain the very strong policy framework and economic underpinnings that supported resilience since the global economic crisis.
Specific reform areas identified:
- Raise the labor participation rate, which is described as relatively low in Poland.
- Improve the business climate by reducing red tape and administrative obstacles to investment.
Expected outcome of reforms:
- Boost potential growth, help maintain stability, and create more jobs.

Poland’s experience demonstrates that very strong fundamentals and sound policies strengthen resilience to crises.
The IMF suggests this is a key lesson for other countries in Central and Eastern Europe.

Source: IMF Survey: Poland Renews IMF Credit Line for $33.8 Billion, January 18, 2013.