On 24 March 2023 the IMF published a report following discussions with Poland under Article IV of the IMF’s articles of agreement.
The report notes that the Polish economy has been facing difficulties as a result of the Ukraine war. Economic growth was significantly slower in the second half of 2022 with weak demand and high inflation, and the slowdown is to continue in the first half of 2023. Although the IMF expects a gradual recovery in the second half of 2023 economic growth is estimated to fall from 4.9% in 2022 to 0.3% in 2023.
The IMF report considers that the outlook for medium-term economic growth is favourable, with growth projected at 2.4% in 2024 and 3.7% in 2025, and continuing at more than 3% annually over the medium term. The increased investment financed partly by EU Next Generation grants will offset the negative effects of population aging and the IMF report emphasises the importance of keeping to the milestones agreed with the EU.
The economic outlook remains uncertain owing to possible escalation of the Ukraine war or any increase in the problems in the banking sector in advanced economies, which could lead to weaker external demand. Possible benefits to the economy could arise from a sustained increase in immigration or from increases in investments related to near-shoring.
Poland’s fiscal deficit has increased following a personal income tax reform and temporary tax reductions on food and energy. The IMF considers that further fiscal loosening should be avoided unless more of the downside risks to the economy become a reality.
Owing to the international climate Poland needs to find additional defence expenditure, at a time when personal income tax revenue is lower and interest rates are higher. Reduction of the debt would maintain policy space to deal with any future shocks and extra spending required by population aging and the energy transition. To increase government revenue Poland could consider reforming the property tax, better targeting social benefits or increasing the retirement age. A change to the retirement age could support growth by restricting the decline in the labour force.
The expected update of Poland’s energy strategy is likely to propose an increase in renewable energy and a reduction in the role of natural gas as a transition fuel. To promote the growth of renewables Poland should reduce regulatory barriers and create a more level playing field that can attract private investors. Although the decarbonization targets under EU policies can be supported by EU funds, some further policy instruments may be required, and the IMF report urges Poland to consider the possibility of carbon taxation.
The IMF report notes the efforts to promote the integration of Ukrainian refugees and the effective policies to support refugees such as financial support and direct access to the health and education systems. The refugees have been given full rights to work and Ukrainian businesses have the right to operate in Poland. The report suggests that refugees could be given further training opportunities for reskilling and upskilling, language training and access to childcare.
