IMF Concludes 2016 Article IV Consultation with Poland
The economy is enjoying a strong economic expansion, but external factors continue to weigh on inflation. Unemployment has come down rapidly, and the economy is operating at close to full capacity. Growth is projected to remain strong in 2016 and accelerate to 3.7 percent in 2017, on the back of strong private consumption supported by the new child benefit scheme, before moderating over the medium term. A positive output gap next year should help gradually nudge inflation toward the central bank’s target by end-2017.
Downside risks have intensified. Externally, a protracted period of slow growth in the euro area, accompanied by financial market volatility, and a marked slowdown in emerging markets could propagate into Poland. Domestically, controversial policy initiatives or fiscal slippages could worsen investor sentiment and hinder economic expansion. Over the longer term, a rapidly aging population poses important challenges to potential growth and fiscal sustainability. At the same time, enduring income disparities between Poland’s prosperous west and the lagging east could undermine the quality of growth.
The government’s declared policy priorities focus on supporting a strong and inclusive growth, but some recent initiatives have weakened market sentiment. Fulfillment of election promises is expected to increase the budget deficit to 2.8 percent of GDP in 2016 and to over 3 percent of GDP in 2017, resulting in a pro-cyclical fiscal stance. The government plans to resume fiscal consolidation at a rate of ? percentage points of GDP a year from 2018. The banking sector remains well capitalized amid weakening profitability, but recent proposals to convert FX mortgages into zloty, if implemented, could undermine financial stability and further dent market confidence.
Executive Directors noted that Poland is enjoying a strong economic expansion, with the economy operating at close to full capacity and unemployment coming down rapidly, reflecting Poland’s progress in building strong fundamentals and policy buffers in recent years. They cautioned, however, that a weakening of institutions and policies or fiscal slippages could worsen investor sentiment and hinder economic expansion. They, therefore, encouraged the authorities to maintain sound institutions and growth-friendly policies, and advance structural reforms to support inclusive growth. Such policies would enhance resilience and, together with the Fund-supported Flexible Credit Line arrangement, provide strong insurance against external shocks.
Directors noted that the current accommodative monetary policy stance is appropriate and has helped support growth and maintain longer-term inflation expectations within the inflation target band. They urged the authorities to remain vigilant, noting that additional monetary easing could be needed if inflation expectations were to disappoint or if growth were to slow down sharply.
Directors observed that the banking sector remains well-capitalized amid weakening profitability. They stressed the importance of safeguarding financial sector stability, and welcomed the strengthened financial sector framework now in place, including the new bank resolution framework, which should now be implemented. However, Directors generally expressed concern that the new bank asset tax could undermine credit expansion and growth. They welcomed the authorities’ willingness to assess the performance of the new tax and adjust its design if necessary, and encouraged them to consider a more growth-friendly tax. They also took note of the proposals to restructure foreign exchange-denominated mortgages and stressed that any decision in this regard should be mindful of the potential impact on banks and financial stability. They noted that a case-by-case approach to restructuring mortgages held by distressed borrowers rather than a blanket mortgage conversion would avoid risks of destabilizing the financial sector.
Комментарии