Poland: Staff Concluding Statement of the 2023 Article IV Mission
IMF News, March 24, 2023
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- Published: March 24, 2023
Economic outlook and risks
- Growth projections:
- GDP (change in percent): 2022 est. 4.9; 2023 proj. 0.3; 2024 proj. 2.4; 2025 proj. 3.7; 2026 proj. 3.4; 2027 proj. 3.1; 2028 proj. (not shown).
- Short-term: slowdown continued into early 2023 with a gradual recovery beginning in the second half of 2023.
- Medium-term: economic growth projected to exceed 3 percent annually as investment (including Next Generation EU grants) offsets demographic headwinds.
- Inflation projections and dynamics:
- CPI inflation (percent) average: 2022 14.4; 2023 11.9; 2024 6.1; 2025 4.1; 2026 2.9; 2027 2.5.
- CPI inflation (percent) end of period: 2022 16.6; 2023 7.2; 2024 5.0; 2025 3.6; 2026 3.3.
- Headline inflation projected to decline to 3.6 percent at end-2025, reaching the top of the tolerance range of the target by end-2025.
- Core inflation is more domestically driven; the mission projects core inflation averaging nearly 11 percent in 2023 and more than 7 percent in 2024.
- Labor market and output gap:
- Output gap (percent of potential GDP): 2022 1.9; 2023 -0.8; 2024 -1.3; 2025 -0.7; 2026 -0.2; 2027 -0.1; 2028 0.0.
- Unemployment rate (average, according to LFS): 2022 3.2; 2023 3.5.
- External position and reserves:
- Current account balance, percent of GDP: 2022 -2.4.
- Total external debt, percent of GDP: 2022 48.4; 2023 45.7; 2024 43.4; 2025 41.1; 2026 39.6; 2027 38.6; 2028 38.4.
- Central bank foreign exchange reserves described as ample and expected to remain adequate.
Fiscal outlook and recommendations
- Recent fiscal developments and projections:
- General government net lending/borrowing (percent of GDP): 2021 1.9 (referenced earlier); 2022 -3.1; 2023 proj. -4.5; 2024 proj. -3.8; 2025 proj. -4.0; 2026 proj. -4.2; 2027 proj. -3.9; 2028 proj. -3.5.
- General government debt: 2022 49.6; 2023 50.7; 2024 51.7; 2025 52.4; 2026 53.6; 2027 54.1; 2028 54.5.
- General government primary balance and cyclically adjusted balances show weakening (specific cyclically adjusted overall balance and primary balance figures noted in source).
- Fiscal policy guidance:
- Avoid fiscal loosening in 2023; at minimum, further fiscal loosening should be avoided unless major downside risks materialize.
- Future energy support measures should be temporary, more targeted according to household income and energy poverty, and allow a greater role for price signals to promote energy conservation.
- Move expenditures executed through off-budget funds into the budget to improve transparency and permit parliamentary and societal review.
- Create room within the budget to accommodate a planned increase in defense expenditures by finding offsetting savings to prevent debt from increasing over the medium term.
- Consider revenue measures and expenditure reforms to preserve fiscal buffers and put debt on a gradual downward path, including: reforming the property tax to raise additional revenues; enhancing the targeting of social benefits; raising the retirement age.
- End reliance on extra-budgetary funds and require all spending to go through the budgetary approval process.
Monetary policy
- Policy stance and guidance:
- The Monetary Policy Council raised rates during 2021-22 and held the policy rate at 6.75 percent since October 2022.
- The NBP should continue to respond to changing data and conditions and be prepared to raise interest rates further, if necessary, to reduce inflation to the target by end-2025.
- The MPC should consistently communicate that its current focus remains on the maintenance of a tight policy stance and that discussion of rate cuts is premature.
- Resumption of monetary policy tightening would be warranted if core inflation momentum, wage growth, and the economy fail to slow as projected or if there is a new fiscal expansion.
Financial sector issues and recommendations
- Current health and vulnerabilities:
- Banking sector described as stable, well capitalized; non-performing loan rates remain low; sector-wide capital remains strong; higher interest rates have supported earnings.
- Challenges that could limit banks' ability to provide credit include: costs from broadly available mortgage credit holidays; difficulties issuing instruments for MREL requirements; legal risks from foreign exchange (FX) mortgages.
- Policy recommendations:
- Discontinue costly untargeted credit holidays; instead, scale up existing programs targeting truly distressed borrowers.
- Continue voluntary restructurings of FX mortgages, and explore policy options to resolve legal uncertainty that casts risk over the banking sector.
- Monitor banks' ability to meet MREL requirements; absent improved market access, some banks may need to meet requirements with own funds in early 2024.
Energy transition and security
- Strategy and priorities:
- Energy strategy update expected to propose a strong increase in renewable energy and a reduced role for natural gas as a transition fuel.
- Priorities: reduce regulatory barriers, ensure a level playing field to attract private investors, phase out coal in electricity generation and direct household use.
- Meeting decarbonization targets under EU policies will be supported by EU funds; additional policy instruments may be needed, and authorities are encouraged to consider a role for carbon taxation.
- The “Energy Shield” of 2023 introduces block tariffs for electricity allowing greater price increases above a consumption threshold and is a step toward better targeting.
Refugee integration and labor supply
- Current measures and suggestions:
- Poland is hosting 1 million refugees from Ukraine; refugees have full rights to work and direct access to health and education systems.
- The authorities have provided financial support and operational rights to Ukrainian businesses.
- To further integrate refugees, the mission suggests: provide further training opportunities for reskilling and upskilling; offer Polish language training; provide access to affordable childcare; facilitate recognition of Ukrainian professional licenses in Poland.
- A sustained increase in immigration would increase Poland’s competitiveness and raise medium-term growth.
Scenarios and key risks
- Downside risks:
- Escalation of the war in Ukraine or intensification of banking sector turmoil in advanced economies could trigger greater risk aversion and weaker external demand.
- Inflation could remain high for longer than expected, especially if core inflation and wage growth decline more slowly due to structural labor shortages.
- Upside opportunities:
- Increased nearshoring-related investments and sustained immigration could boost competitiveness and medium-term growth.
Selected quantitative indicators (highlights from Republic of Poland: Selected Economic Indicators, 2022–28)
- Activity and prices:
- GDP (change in percent) 2022 4.9; 2023 0.3; 2024 2.4; 2025 3.7.
- Output gap (percent of potential GDP) 2022 1.9; 2023 -0.8; 2024 -1.3; 2025 -0.7.
- CPI inflation (average) 2022 14.4; 2023 11.9; 2024 6.1; 2025 4.1.
- CPI inflation (end of period) 2022 16.6; 2023 7.2; 2024 5.0; 2025 3.6.
- Unemployment rate (average, according to LFS) 2022 3.2; 2023 3.5.
- Public finances (percent of GDP):
- General government net lending/borrowing 2022 -3.1; 2023 -4.5; 2024 -3.8; 2025 -4.0.
- General government debt 2022 49.6; 2023 50.7; 2024 51.7; 2025 52.4; 2026 53.6; 2027 54.1; 2028 54.5.
- Balance of payments and external indicators:
- Current account balance, percent of GDP 2022 -2.4.
- Total external debt, percent of GDP 2022 48.4; 2023 45.7; 2024 43.4; 2025 41.1; 2026 39.6; 2027 38.6; 2028 38.4.
- Memorandum item:
- Nominal GDP (billion zloty): 2022 3067.7; 2023 3440.7; 2024 3745.5; 2025 4053.8; 2026 4343.6; 2027 4616.4; 2028 4891.0.
Source: Poland: Staff Concluding Statement of the 2023 Article IV Mission (March 24, 2023).