{
  "title": "Poland: Staff Concluding Statement of the 2021 Article IV Mission",
  "publication": "IMF News, December 14, 2021",
  "sourceUrl": "https://www.imf.org/en/news/articles/2021/12/13/poland-staff-concluding-statement-of-the-2021-article-iv-mission",
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  "summary": "After contracting 2½ percent in 2020, the economy has already surpassed the pre-recession peak and is projected to grow 5.2 percent in 2021.",
  "publishDate": "2021-12-14",
  "sections": [
    {
      "heading": "Macroeconomic assessment and outlook",
      "content": "- After contracting 2½ percent in 2020, the economy has already surpassed the pre-recession peak and is projected to grow 5.2 percent in 2021.\n- Near term risks: the fourth wave of the pandemic may slow growth over the winter months; authorities should consider strategies to increase vaccination coverage to reduce health risks and mitigate potential economic disruptions.\n- Medium-term outlook: economic growth is projected to average 3¼ percent over 2023-26; minimal scarring from the pandemic is expected.\n- External sector: the current account is projected to return to deficit at 0.3 percent of GDP in 2021 and is preliminarily assessed to be moderately stronger than the level implied by medium-term fundamentals and desirable policies.\n- Foreign exchange reserves are assessed as adequate to insulate against external shocks and disorderly market conditions."
    },
    {
      "heading": "Fiscal policy findings and recommendations",
      "content": "- Fiscal support was initially broad-based and became more targeted as the pandemic evolved, supporting employment and corporate balance sheets.\n- The general government fiscal deficit is projected to decline from 7.1 percent of GDP in 2020 to 2.9 percent of GDP in 2021, driven mainly by the reduction in pandemic-related fiscal support.\n- General government gross debt is projected at 56 percent of GDP in 2021.\n- The mission advises avoiding an expansionary fiscal stance in 2022 amid overheating risks.\n- Specific policy notes:\n  - The “Polish Deal” initiatives are estimated to cost around 1 percent of GDP; their impact on the deficit is only partly offset by other factors.\n  - The PIT reform increases tax progressivity and could increase labor supply for the working age population, with a less clear impact on those near retirement age.\n  - The announced “anti-inflation shield” (tax and excise reductions on fuels and electricity and vouchers for lower income households) will temporarily reduce inflation but tax reductions are inefficient and should be temporary; energy poverty risks are better addressed through targeted instruments such as the vouchers.\n- Medium-term fiscal stance:\n  - Based on current and announced policies, general government debt is projected to stabilize around 50 percent of GDP, with the general government deficit around 2½ percent of GDP.\n  - The mission suggests additional reduction in the deficit toward a medium-term objective of 1 percent of GDP (similar to pre-pandemic level) to create more policy space for future shocks and long-term pressures (population aging, energy transition).\n  - Consider improvements to expenditure policies, including reversing the previous reduction in the pension age and improved targeting of social benefits."
    },
    {
      "heading": "Inflation, monetary policy, and central bank guidance",
      "content": "- Inflation developments:\n  - Headline inflation increased to 7.7 percent in November 2021, primarily driven by external factors including energy prices; core inflation has also increased and broadened.\n  - Headline inflation is projected to peak in late 2021 and decline over 2022, assisted in the near term by “anti-inflation shield” measures projected to temporarily reduce inflation by about 1 percentage point in early 2022, and by base effects as energy prices stabilize.\n  - After averaging 5.6 percent in 2022, inflation is projected to return close to the target by the end of 2023, supported by a slow moderation of core inflation.\n- Monetary policy recommendations:\n  - The National Bank of Poland (NBP) should continue to tighten monetary policies to drive inflation back to the target.\n  - Beginning in October, the NBP increased interest rates from 0.1 percent to 1.75 percent.\n  - Further rate increases are considered necessary to minimize second-round effects and stave off overheating as output moves above potential.\n  - Monetary policy decisions in 2022 must account for evolving economic and pandemic-related conditions.\n  - The recent conclusion of regular asset purchases is welcome; the NBP should provide timely guidance on its bond portfolio as initial maturity dates approach.\n  - Foreign exchange intervention should be reserved for periods of disorderly market conditions."
    },
    {
      "heading": "Financial sector resilience and FX mortgage issue",
      "content": "- Bank asset quality:\n  - Non-performing loan ratios have been broadly stable; loan performance did not deteriorate after the end of pandemic payment holiday schemes.\n  - Capital adequacy improved in 2020 to 20 percent of risk-weighted assets (significantly above the regulatory minimum), largely due to temporary suspension of dividend payments and increased holdings of low-risk government bonds.\n  - The gradual phasing out of crisis-related financial sector measures is appropriate.\n- Housing market: returned to pre-pandemic robust conditions; exit from monetary stimulus may discourage excessive new borrowing but could overstretch some households as interest rates rise.\n- Policy guidance for banks: vigorously test prospective borrowers’ ability to service loans in scenarios of significant interest rate increases.\n- FX mortgages:\n  - Legal risks of FX mortgages are the main source of risk to the banking system; severity appears moderated by recent legal guidance and improving bank profitability.\n  - The Polish Financial Supervisory Authority proposed banks offer clients conversion of FX mortgages to zloty; the Financial Stability Committee proposes temporarily lowering FX mortgage risk weights for banks that implement such programs.\n  - The mission supports voluntary restructuring/conversion of FX mortgages: conversion would be costly for the banking system but manageable for most banks given strong capitalization and rising provisions."
    },
    {
      "heading": "Energy transition, climate policy, and labor market",
      "content": "- Energy and emissions:\n  - Poland is one of the 20 largest emitters of greenhouse gases; the power sector (where coal accounts for a large share) is the main contributor.\n  - Poland’s 2021 energy strategy envisages a 30 percent reduction in emissions by 2030 relative to the 1990 level and pledges to significantly reduce coal power by the 2040s.\n  - The transition will demand substantial investments, mostly in power generation, for more than a decade; large investments are also needed to replace aging capacity and meet a growing economy’s needs.\n  - EU financing will support the transition but will not be sufficient alone; a long-term financing strategy is needed.\n  - The authorities should consider carbon taxation and rebates to incentivize private sector decarbonization while shielding the most vulnerable households from higher carbon prices.\n- Labor market and ALMPs:\n  - The decline in output in high-contact sectors exceeded declines in employment; expanding sectors increasingly demand skilled labor.\n  - Decarbonization presents longer-run regional challenges for coal mining employment.\n  - The mission welcomes authorities’ plans to modernize job search assistance and strengthen access to training, focusing on digital skills, including via the Recovery and Resilience Plan.\n  - The mission encourages implementing measures to allow longer periods of employment for foreign workers to help offset long-term population dynamics."
    },
    {
      "heading": "Key projections and indicators (Republic of Poland: Selected Economic Indicators, 2020–26)",
      "content": "- Activity and Prices\n  - GDP (change in percent) 1/: 2020: -2.6; 2021: 5.2; 2022: 4.5; 2023: 3.9; 2024: 3.0; 2025: 3.0; 2026: 0.0\n  - Output gap (percent of potential GDP): 2020: -2.9; 2021: -0.8; 2022: 0.3; 2023: 0.7; 2024: 0.2; 2025: 0.1; 2026: 0.0\n  - CPI inflation (percent) — Average: 2020: 3.4; 2021: 5.0; 2022: 5.6; 2023: 2.7; 2024: 2.6; 2025: 2.5\n  - CPI inflation (percent) — End of period: 2020: 2.4; 2021: 7.7; 2022: 3.7\n  - Unemployment rate (average, according to LFS): 2020: 3.2; 2021: 3.5; 2022: 3.3\n- Public Finances (percent of GDP) 2/\n  - General government net lending/borrowing: 2020: -7.1\n  - General government cyclically adjusted overall balance: 2021: -5.6; 2022: -2.5; 2023: -2.8; 2024: -3.0; 2025: -2.7\n  - General government primary balance: 2020: -5.8; 2021: -1.8; 2022: -1.4; 2023: -1.3; 2024: -1.2\n  - General government debt: 2020: 57.4; 2021: 55.9; 2022: 52.4; 2023: 50.4; 2024: 50.2\n- Balance of Payments\n  - Current account balance, percent of GDP: 2020: 2.9; 2021: -0.3; 2022: -0.6; 2023: -0.9; 2024: -1.0\n  - Total external debt, percent of GDP: 2020: 62.9; 2021: 62.5; 2022: 57.3; 2023: 53.5; 2024: 50.6; 2025: 47.8; 2026: 45.2\n- Memorandum item:\n  - Nominal GDP (billion zloty): 2020: 2326.7; 2021: 2585.5; 2022: 2848.6; 2023: 3051.1; 2024: 3229.9; 2025: 3416.3; 2026: 3605.6\n\nSource: Poland: Staff Concluding Statement of the 2021 Article IV Mission (December 14, 2021).\n\n---\n\n\n References\n\n- Republic of Poland and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/12/13/poland-staff-concluding-statement-of-the-2021-article-iv-mission"
    }
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    "Published: December 14, 2021",
    "After contracting 2½ percent in 2020, the economy has already surpassed the pre-recession peak and is projected to grow 5.2 percent in 2021.",
    "Near term risks: the fourth wave of the pandemic may slow growth over the winter months; authorities should consider strategies to increase vaccination coverage to reduce health risks and mitigate potential economic disruptions.",
    "Medium-term outlook: economic growth is projected to average 3¼ percent over 2023-26; minimal scarring from the pandemic is expected.",
    "External sector: the current account is projected to return to deficit at 0.3 percent of GDP in 2021 and is preliminarily assessed to be moderately stronger than the level implied by medium-term fundamentals and desirable policies.",
    "Foreign exchange reserves are assessed as adequate to insulate against external shocks and disorderly market conditions.",
    "Fiscal support was initially broad-based and became more targeted as the pandemic evolved, supporting employment and corporate balance sheets.",
    "The general government fiscal deficit is projected to decline from 7.1 percent of GDP in 2020 to 2.9 percent of GDP in 2021, driven mainly by the reduction in pandemic-related fiscal support.",
    "General government gross debt is projected at 56 percent of GDP in 2021.",
    "The mission advises avoiding an expansionary fiscal stance in 2022 amid overheating risks.",
    "Specific policy notes:",
    "Medium-term fiscal stance:",
    "Inflation developments:",
    "Monetary policy recommendations:",
    "Bank asset quality:",
    "Housing market: returned to pre-pandemic robust conditions; exit from monetary stimulus may discourage excessive new borrowing but could overstretch some households as interest rates rise.",
    "Policy guidance for banks: vigorously test prospective borrowers’ ability to service loans in scenarios of significant interest rate increases.",
    "FX mortgages:",
    "Energy and emissions:",
    "Labor market and ALMPs:",
    "Activity and Prices",
    "Public Finances (percent of GDP) 2/",
    "Balance of Payments",
    "Memorandum item:",
    "[Republic of Poland and the IMF](http://www.imf.org/external/country/POL/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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