IMF Report Highlights Economic Challenges for Poland, Recommends Fiscal Adjustments
The International Monetary Fund (IMF) has issued a report outlining several economic challenges facing Poland and offering recommendations to bolster future growth. A key concern identified is a shrinking labor supply, which the IMF believes will negatively impact Poland’s GDP growth. To counteract this demographic trend, the IMF advises a gradual increase in the retirement age and continued efforts towards prosperous integration of immigrants.
The report also stresses the need to increase national income to maintain current levels of social spending, defense budgets, and public sector wages, while also preparing for future financial pressures related to an aging population and climate change. Specifically, the IMF suggests increasing personal income tax (PIT) rates and reducing the number of tax exemptions and preferential VAT rates. Should higher taxes prove politically challenging, the report indicates Poland may need to consider a smaller public sector through targeted social benefits and reduced public sector wage costs.
The IMF economists caution that Poland faces a challenging environment marked by “strong political polarization and high global uncertainty,” leading to an ”unfavorable balance of risks.” Several specific concerns were highlighted:
* EU Funding: Investment may fall short of targets if remaining EU subsidies are not fully utilized before their 2026 expiration.
* Market Sentiment: Large budget deficits and limited fiscal consolidation plans could trigger a negative shift in market sentiment, leading to increased borrowing costs.
* Inflation: Positive economic surprises could reignite inflationary pressures if the economy operates with less slack than currently estimated.
* Exchange Rate: A significant increase in the real effective exchange rate could negatively impact Poland’s competitiveness and worsen external imbalances.
* Geopolitical Risks: Deterioration of regional security and further disruptions to global trade remain significant external threats.
Despite these challenges,the IMF acknowledges Poland’s strengths,including high foreign exchange reserves,a flexible exchange rate,a diversified export base,and a financially stable business sector,households,and banking system. These factors are expected to help mitigate some of the identified risks.
The IMF’s recommendations extend beyond fiscal policy. The report urges the Polish government to prioritize maintaining appropriate inflation levels by slowing the pace of monetary policy easing. It also calls for reducing distortions and legal risks that hinder lending, maintaining financial stability, and implementing structural reforms – both domestically and at the EU level – to foster innovation, deepen capital markets, boost labor productivity, and enhance the competitiveness of the energy sector.
Source: International Monetary Fund.
