On 14 December 2021 the IMF published a report following discussions with Poland under Article IV of the IMF’s articles of agreement.

The economic outlook is favourable over the medium term and growth is project to average 3.25% in the period from 2023 to 2026. Government policy has supported employment during the crisis caused by the pandemic. The government should avoid an expansionary fiscal policy as there is a risk of overheating in the economy.

The initiatives known as the “Polish Deal” are projected to cost around 1% of GDP and this cost will only be partly offset by other measures. The personal income tax reform will make the tax system more progressive and this could increase the labour supply for those of working age, although the effect is not so clear for people near retirement age.

The government has announced an “anti-inflation shield” which involves tax and excise reductions on fuel and electricity, and the provision of vouchers for lower income households. Although the tax reductions will offer some relief from inflation, these reductions are inefficient and should only be temporary. Over time the cost of the tax reductions would increase, and they could be regarded as a substitute for broader measures to deal with inflation. The risk of people falling into energy poverty would be better dealt with by targeted instruments such as the provision of vouchers.

The fiscal deficit could be reduced to the medium-term objective of 1% of GDP to create fiscal space to absorb future economic shocks and to prepare for longer term pressures from population aging and the energy transition. Deficit reduction in the medium term could be helped by expenditure policies such as reversing the reduction in pension age and more targeting of benefits.

Poland has adopted an energy policy strategy to significantly reduce coal power by the 2040s and the largest part of its emissions are from the power sector. Poland participates in the European emissions trading system (ETS) and the cost of emissions is likely to make access to clean energy important in decisions on foreign direct investment (FDI).

The energy transition will require substantial investments in power generation, for more than a decade, especially in view of the aging power-generating capacity. Although the transition will be supported by EU financing this is not enough, so a long-term financing strategy is required. The government should consider the use of carbon taxation and rebates to further incentivize the private sector to reduce emissions and to shield vulnerable households from the effects of higher carbon prices.