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 Poland Country Brief 2003
Overview
Poland is an upper middle income country with a Gross National Income (GNI) per capita of US$ 4,570. The country has undergone a remarkable economic transformation over the past decade, and has an impressive record of achievements to its credit. However now, as the country is poised to enter the EU, it is facing serious economic problems. Following a decade of economic growth of around 5 percent per annum, the economy has slowed down in the past two years with growth decreasing to 1 percent in 2001, and 1.4 percent in 2002. Unemployment has risen rapidly to above 17 percent, and is the highest it has been since transition.
In addition, poverty still affects some 7 million or more of Poland's population (about 18 percent) and is more widespread than in other advanced transition economies of Central Europe such as Hungary and the Czech Republic. The low productivity of the agricultural sector, associated with large hidden unemployment, makes poverty largely a rural phenomenon. Moreover, with poverty particularly associated with low levels of human capital and lack of employment, the rise in unemployment as a result of the economic slowdown has increased poverty levels and diluted Poland’s record of poverty reduction in the 1990s.
Nevertheless, in 2003, recovery has resumed and growth is expected to reach about 3 percent per annum. Inflation has been brought under control, though real interest rates remain relatively high (around 5.0% as compared to less than 1% in the Euro area).
Events since transition
Poland began its transition to a market economy in 1990 under exceptionally difficult macroeconomic conditions, which included high inflation, a large legacy of external debt, and a high black market foreign exchange premium. Saddled with an enterprise sector that was considered in large part "value subtracting," Polish policymakers took huge risks by liberalizing prices, making the Zloty convertible, fixing the exchange rate and lowering import barriers. With privatization lagging, many predicted a crisis based on the notion that enterprises would not be able to cope with market conditions, leading to politically unacceptable mass bankruptcy and social upheaval. This did not happen. To the contrary, Poland turned out to be unique among the large front-running European transition countries in having an unbroken growth record once growth resumed after the initial output collapse.
Recent economic performance
Now, the country is facing significant economic challenges. The main bottleneck for robust growth is the public sector, especially the weak public finance system and continuing high fiscal deficits, the inefficient functioning of the administration, insufficient investment in public infrastructure, and non-competitive sectors in which the Government continues to be the main player. Unemployment is of particular concern, with signs that it may increase further if the sub-optimal macroeconomic policy mix continues, with relatively tight monetary policy compensating for expansionary fiscal policy.
Focus of World Bank Assistance
Poland rejoined the World Bank in 1986 after a hiatus of 38 years. Since then, the Bank has supported the economic transformation efforts of successive Polish governments through financing, policy dialogue, and technical assistance.
Non-lending services constitute a significant part of the work program, with most of the World Bank’s institutional development and policy advice provided in the form of informal technical notes and papers, and through workshops and seminars. An example of such activities is the World Bank’s assistance to the Polish government in evaluating and improving public expenditure management, the on-going dialogue on health care reform and the Bank’s work in the area of anticorruption , including assistance to the Anti-corruption High Level Group and other civil society initiatives.
To help Poland return to rapid and sustainable growth and to address the economic and social challenges, the World Bank has provided a program of dialogue and analytic work as described in the Country Assistance Strategy (CAS) for 2003-2005. In addition to promoting a rebalanced macroeconomic framework, analytic work and new lending would be organized around two specific objectives:
- Improving the effectiveness of Government expenditures and programs
- Enhancing private sector-led growth and employment creation
While Poland's per capita income is below the threshold at which discussions on fornal graduation would normally commence, the Polish authorities wish to regard this as a pre-graduation CAS. Based on the view that focused Bank support can help achieve its reform goals, the Government has endorsed continuing World Bank assistance in a limited number of areas.
Impact on the Ground
Health care upgraded. Some 130 long-term care institutions to serve elderly and terminally ill patients have been created under a Bank-financed project. The project has also supported the professional development of nurses and doctors, as well as managers of health institutions. In addition, it has promoted a sustainable system of continuous professional education through the creation of a network of trainers.
 Environment-friendly farming practices promoted. Good farming practices which protect the environment have been promoted through a Bank financed project. Moreover, some 950 small and medium sustainable farms have been equipped with tanks for the proper storage and handling of manure. Nutrient Management Plans have been developed for 17,000 hectares of farmland and some 370 Farm Management Plans have been developed.
Flood-damaged infrastructure reconstructed. Infrastructure damaged by the 1997 floods has been reconstructed with the assistance of the World Bank and the European Investment Bank. Water supply systems, district heating, sewerage and waste water treatment plants, public buildings – including schools and hospitals – and roads have been rebuilt throughout the flood-damaged area under 881 separate municipal infrastructure sub-projects. Flood management plans and forecasting infrastructure are also being developed.
 Road network improved and transport sector strengthened. Two roads projects have helped to improve Poland’s road network, including the longest (1,250 m) bridge in Poland over the Vistula river at Wyszogrod, and several important bypasses. The works have generated about 10,800 job-years and further employment in the material and transport sectors. The World Bank’s assistance has also led to improved institutional structures and management techniques for the transport sector, and has specifically improved the economic, financial and operating performance of the state railways.
Public procurement system more efficient. The public procurement system is now more transparent and efficient and the discretion of public officials has been greatly reduced, following changes made to the Public Procurement Act. The changes have been made in accordance with the recommendations of the Bank's 2000 Country Procurement Assessment Report.
 Rural jobs created. Bank support is helping to create new jobs outside agriculture in the rural areas through the opening of business incubators. It is also improving rural infrastructure. Roads have been rehabilitated, water treatment and sewage plants constructed, and households connected to the water supply and sewage systems. The unemployed in the rural areas have been retrained, some 536 business incubators opened, and 115 primary schools modernized through 573 micro-loans for a total amount of EUR2.3 million, and 203 one – time grants for a total amount of EUR 0.2 million. About 636 local government units (gminas and powiats) with 4,100 officials have participated in capacity building training, while 33 local government units are continuing to participate in Institutional Building Programs. The project has had a huge impact with regard to preparing people and entities, both governmental and NGOs, in the utilization of EU structural funds.
Energy policy strengthened. Bank-financed projects have assisted in strengthening energy policy and have supported sector reforms, including the development of energy laws and regulations, and the establishment of the Energy Regulatory Office and an electricity exchange. In the coal mining sector, the Bank has helped the Government to prepare and implement a sector reform program and has addressed the social consequences of the reform through the financing of retrenchment packages. The Global Environment Facility (GEF) and the Bank are supporting improvements in environmental protection through a Coal-To-Gas Conversion project as well as through geothermal projects.
 Pension system reformed. World Bank assistance has helped Poland to establish a comprehensive, three pillar pension system that should help reduce the state budget deficit in the long term. As a result, Poland's pension system reform has become a model for others in the region.
Anti-corruption program developed. The World Bank’s 1999 report on corruption in Poland initiated public discussion on corruption. Poland has since adopted a package of laws to deal with corruption, including asset disclosure, financing political parties, and public access to information.
Capacity of Polish NGOs improved. The Small Grants Program has assisted in improving the capacity of Polish NGOs, and in addressing issues such as the alleviation of poverty, fighting corruption, supporting the use of volunteers, environmental protection and gender equality. Moreover, NGO's have also been consulted in the development of the Bank's Country Assistance Strategy for Poland.
Challenges Ahead
The main challenge for Poland is fulfilling the rules of convergence after the country's integration into the European Union. In February 2002, the Polish Government adopted an economic program to successfully integrate with the EU in May 2004. The chief objectives of the program are:
- Restoring fiscal equilibrium and hence rebalancing macroeconomic policies
- Restructuring public expenditure
- Strengthening public administration at sub-national levels
- Creating a more encouraging environment for the entry of new enterprises and the growth of jobs
- Developing agriculture and the rural economy
- Completing the decentralization of the public sector
World Bank Partners in Poland
| SECTOR | LEAD NATIONAL AGENCY | PARTNERS |
| Public | Ministry of Interior | EU / EBRD / IMF / OECD |
| Health | Ministry of Health | EIB / EBRD |
| Education | Ministry of Education | OECD |
| Social | Ministry of Labor | EU |
| Anticorruption | Ministry of Interior / Ministry of Justice | EU / OECD / Batory Fund, TI |
| Private | Ministry of Economy | EU / EIB / EBRD / |
| Financial | Ministry of Finance / National Bank of Poland | EU / EBRD / IMF |
| Infrastructure | Ministry of Infrastructure | EU / EIB / EBRD |
| Environment | Ministry of Environment | EU / EIB / EBRD / OECD / Nat'l Environmental Protection Fund |
| Regional & Rural | Ministry of Agriculture | EU / EIB / EBRD |
World Bank Lending to Poland
Total IBRD / IDA Commitments from FY91 to FY03 : US$ 4,604 million
(by fiscal year *,in nearest US$ millions)
 | up to 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | Total |
| Commitments | 3,272 | 67 | 522 | 327 | 161 | 155 | 100 | - | 4,604 |
| Disbursements | 2,262 | 254 | 193 | 140 | 262 | 323 | 314 | 155 | 3,903 |
Total Commitments by Sector since 1991
(in nearest US$ millions)
*Fiscal year from July 1-June 30.
For more information please contact:
In Warsaw: Jacek Wojciechowicz, phone: + (48 - 22) 520 80 00
E-mail: jwojciechowicz@worldbank.org
September 2003
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