Poland strategy overview

Full strategy  (0.6Mb) Approved 25  Apr 2006

Strategia dla Polski  (0.8Mb)

Summary of public comments  (0.1Mb)

Poland continues to meet the conditions specified in Article 1 of the Agreement Establishing the Bank. Over the last 15 years Poland has made considerable progress in the transition process. With about 75 per cent of economic activity generated by the private sector, a large degree of price liberalisation, an open foreign trade regime and fairly liberal foreign investment conditions the country is one of the most advanced transition economies.

Economic growth

The accession of Poland to the EU in May 2004 has positively influenced output growth, trade, agricultural incomes and infrastructure investment. Economic growth reached 5.3 per cent in 2004 and 3.2 per cent in 2005. The growth has been mainly driven by a net increase in exports, though investment and consumption demand picked up in the fourth quarter of 2005. General government deficit according to ESA’95 methodology (with open pension funds classified inside the general government sector) fell to an estimated 2.5 per cent of GDP in 2005, after reaching 3.9 per cent of GDP in 2004. Public debt is just above 50 per cent of GDP according to the Polish methodology (or around 42.5% of GDP according to ESA’95 methodology). At the end of 2005 inflation declined below 1 per cent and as a result the Monetary Policy Council reduced the policy rate to 4 per cent, a historical low. Strong export growth and a significant increase in net transfers helped bring the current account deficit down to around 1.5 per cent of GDP in 2005. However, continued fiscal reforms remain essential to maintain macroeconomic stability and allow adoption of the Euro in the medium term. The highest unemployment in the EU of about 18 per cent and strong regional disparities remain possibly Poland’s greatest challenges. The five poorest regions of the EU are located in the country. Competitiveness, business climate and job creation should therefore be on top of the political and economic agenda.

Structural and institutional reforms

With respect to structural and institutional reforms, some progress has been achieved in privatisation and restructuring of state-owned enterprises. In the last two years the most visible transactions were the sales of minority stakes in PKO BP, the largest Polish bank, LOTOS, the oil group and PGNiG, the gas company. Restructuring of the steel industry has been almost completed, after the sector became profitable in 2004 following years of losses and difficulties. A number of large state-owned companies, including PZU and PKN Orlen, have also initiated major restructuring and labour retrenchment plans to adapt to increasingly competitive economic conditions. Numerous new listings on the Warsaw Stock Exchange contributed to some deepening of financial markets. There has been further improvement in the quality of the banks’ loan portfolio. Consumer regulation and protection have also gained momentum as the Banking Arbiter became fully operational.

Challenges

Looking forward, the country still faces a number of challenges:

• Structural measures need to be implemented to reduce fiscal deficit and public expenditures, including in the healthcare and social benefits, whilst maintaining adequate levels of social protection.
• A reduction in administrative barriers, improvements in the legal framework and efficiency of judiciary are needed to increase the country’s attractiveness to investors, maintain growth momentum and reduce unemployment.
• Privatisation and restructuring of enterprises remaining under state control, particularly in the heavy industry, mining, shipbuilding, energy, petrochemical industry and insurance sectors, is necessary to ensure competitiveness and labour efficiency.
• Consolidation of enterprises in the farming sector and improved access to finance by small and micro-enterprises, particularly in rural areas, is essential to stimulate entrepreneurship and reduce unemployment in the less developed regions.
• Municipalities, regions and their utility companies continue to face challenges for infrastructure improvement in the environmental, public transport and social sectors, as well as improving governance and creditworthiness, and to structure projects suitable for securing and disbursing EU grant funds.
• Development of the non-banking financial sector, particularly through introduction of innovative financial products, and diversification of investment portfolios of insurance companies and pension funds is important for deepening of the financial markets.
• Completion of the railway reform, strengthening of competition in fixed line telecommunication, and infrastructure improvements with the assistance of EU Structural and Cohesion Funds, strong private sector participation and local co-financing are essential to ensure long-term competitiveness of the economy.
• Private investments in energy efficiency and renewable energy need to be promoted to reduce energy intensity and meet environmental targets.

As of 31 January 2006 the Bank had committed EUR 3,446.million to 147 projects which attracted a further EUR 9,173 million from sponsors and co-financiers. The new business volume in 2005 remained robust and in the upcoming strategy period, the Bank can continue to play an important role by focusing selectively on areas where there is transition impact potential and where the Bank’s involvement would be additional.

Operational objectives

Given the above, the Bank’s activities in Poland will be based on the following operational objectives:

• Stimulate development of revenue backed financing and private sector involvement to minimise reliance on sovereign guarantees and increase the supply of long-term finance for the infrastructure and environment projects. Further the scope for financing projects through public-private partnerships, mainly in the municipal and transport sectors, in close concert with the national/local authorities and EU Cohesion and Structural Funds.
• Support restructuring, modernisation and private sector participation in the road sector, railways and airports.
• Support energy saving projects and renewable energy projects designed in accordance with market principles and encouraging private investment.
• Support enterprise restructuring, modernisation and privatisation, by sharing risk with local or foreign investors, particularly in the more challenging sectors such as chemical, energy, heavy industry or mining.
• Provide necessary risk capital (equity and/or structured debt) to local companies to fund their growth and/or expansion in the region; sometimes alongside private equity funds.
• Continue to work with local financial intermediaries and non-banks to provide finance to micro, small and medium sized enterprises, particularly in the rural areas, in conjunction with EU or other donor support.
• Contribute to the broadening of the local capital market through promotion and development of new financial structures such as asset-backed securities, securitisation of assets portfolios, convertible instruments, mortgage bonds, and revenue bonds.

Operational procedures

The Bank will continue to ensure that all EBRD operations in Poland meet sound banking principles, have transition impact, are additional and are subject to the Bank’s Environmental Procedures and incorporate, where appropriate, Environmental Action Plans.