(E. Strathmeyer, CC BY-NC-ND)
Daria Zakharova, IMF mission chief for Poland, said: „The Polish economy has grown strongly and steadily even during the crisis: it was the only economy in Europe that did not go into recession then.”
„Steady growth allowed Poland to close more than a quarter of its per capita income gap with the euro area over the last 20 years. Much of this major achievement can be attributed to Poland’s very strong policies and institutions, which helped successfully weather the global financial crisis and several bouts of market turbulence since then.”
„Some recent decisions and announcements have made markets jittery and contributed to the Standard & Poor’s downgrade and Moody’s change of the outlook to negative. We don’t think that the authorities’ recent measures would necessarily have major repercussions for near-term growth, but depending on how they are implemented they could negatively affect longer-term and potential growth, by weakening investor sentiment.”
“Right now we’re not worried about overheating in Poland because inflation has been low for the past two years. The current account is almost in balance, and we don’t see any signs of asset price bubbles. In addition, the authorities are in a good position to handle systemic risks, including from potential overheating, as they have recently introduced a full-fledged macro-prudential framework.”
However, it is true that while the economy is growing at its potential, fiscal policy is becoming expansionary. It is like pouring more fuel into the fire. Under these circumstances, according to the IMF, there is a risk of overheating and asset price bubbles emerging. For these reasons, IMF advises the authorities to begin fiscal consolidation. Given the favorable economic conditions, now is a good time to reduce the deficit.
„Indeed, it is almost like two different economies in one country: there is a mainly small-scale agricultural, poorer eastern region with high unemployment, and a more prosperous, faster-growing western part, plugged into the German supply chain. To reduce these disparities faster, the authorities should strengthen vocational training, aligning it with employer needs, scale up infrastructure to attract investment, and help workers’ transition out of agriculture into higher productivity sectors, such as manufacturing and services,” said Zakharova
Pensions and benefits concerns
„We are most concerned about the possible reversal of the retirement age increases. The current policy is to increase the retirement age for men from 65 to 67 by 2020, and for women from 60 to 67 by 2040. This, we think, is appropriate as Poland has one of the most adverse demographics in Europe: UN projections show that working age population may be reduced by as much as a third by 2060. Lowering the retirement age could thus weaken the social and financial sustainability of the pension system, and would also undermine growth by reducing the working population,” she added.
“Another government measure was an introduction of a tax on bank assets, which could undermine credit expansion and, by doing so, reduce consumption and investment. By our calculations, growth could be reduced by as much as 0.4 percentage points by the end of 2016 because of this distortionary tax. A better alternative would be to replace the tax by a more growth-friendly financial activities tax, similar to that in Iceland, Israel, and Denmark.”
With regard to the child benefits program, it benefits not just poor families, but also those in the upper income brackets. As a consequence, it is quite costly, at around one percent of GDP, thus complicating the much-needed fiscal consolidation. This program also discourages female labor force participation and does not necessarily encourage fertility. IMF recommends instead to redirect some of that budget toward child care, which has already proven to increase female labor force participation without negative implications for fertility.
Swiss franc conversion
„In Poland, about half a million households hold these foreign-exchange-denominated mortgages, which are mainly in Swiss francs. A blanket conversion that covers everyone would be very expensive, and the costs likely pushed onto banks. According to the Financial Supervision Authority in Poland, such a costly proposal as the one presented in January would lead to bankruptcies of several banks.”
“For these reasons, we could not support this particular proposal. The President’s office has recently unveiled several options for addressing the foreign currency mortgages. However, details and total costs of these proposals are not yet available. That said, the revised proposal is expected to take financial stability concerns into consideration.“
„As I mentioned, we think that Poland’s strong institutions have been major contributors to steady growth, helping the country weather external shocks and the global financial crisis well. It is therefore of utmost importance to maintain strong policy frameworks and institutions in the future as well. From our perspective, solid institutions mean first and foremost a credible fiscal policy framework and an independent central bank. However, an independent and effective judiciary system, including the constitutional tribunal, is equally important to ensure accountability of executive and legislative branches,” said Daria Zakharova.