This article first appeared in "Contact International Business Voice" 2/07 (78) - Summer issue.
About the Polish economy
“The economy is well balanced, in pretty good shape and
developing with a very strong pace,” stated Zajdel-Kurowska. Last year,
GDP growth exceeded 6%. 2007 is to be even better.
“I strongly believe that this year GDP will be over 6%,” said the
minister. “This is not a record for the CEE – Poland’s neighbours, the
Baltic countries or Czech Republic or Slovakia are growing even faster
– but the costs of very rapid growth of private consumption are higher
inflation pressure and a widening current account deficit. In the
Baltic countries, GDP growth is almost 10% but at the same time, the
current account deficit in the countries is more than 20%. This is
risky situation. In Poland situation is pretty well balanced. We’ve
reached relatively high GDP growth without any additional costs;
inflation remains very low.”
“Poland’s current account deficit is still at a very safe level –
slightly above 2% of GDP and fully financed by foreign direct
investments (FDIs). From that perspective, it can be safely said that
Poland is in better position than other countries of the region,” said
Zajdel-Kurowska.
“Strong inflow of FDI supports economic growth. For the first time
after a long break investment accelerated by around 20% and the share
of investment in total GDP increased from below 16% three years ago up
to 20% last year.
“This is strong proof that economy has entered upward trend and will continue growing in next couple of years.
“Over last months shortfall of skilled labour force has appeared and
become an increasing problem for entrepreneurs operating in the Polish
market. I find it a paradox. Poland is the country which still has the
highest unemployment rate in Europe (over 14%); many people have left
Poland and settled in the UK and other EU countries, but this is not
the major problem. The real problem is the very low activity ratio,
which is also the lowest in EU, estimated at 54%. This means that only
54% of the working age population is working. This is dramatic
information and problem behind it is in very high quasi-labour taxes.
In the country that has five times lower average salary then in
Germany, labour costs are similar. This negatively affects the labour
market. The government sees the problem,” stated Zajdel-Kurowska.
“The government’s answer to the linked problems of unemployment and low
activity ratio are reforms planned by the Ministry of Finance.
“We plan to implement tax wedge reform, namely to cut the disability
pensions contribution rate by three percentage points on the employee’s
side this year, so people will have more money in their pocket, and
starting January 2008, the Ministry plans to cut this contribution by
another two percentage points on the employee’s side and also by two
points on the employer’s side. This should stimulate further
consumption increase, while on the other hand encouraging people back
into employment and stimulate investment from employers.
“From January 2009 it is expected that additional quasi-tax – called
the labour fund fee - will be cut by one percentage points, which is
substantial. Also in January 2009 the government plans to reduce
personal income tax rates to 18 and 32% from the current 19, 30 and 40%
tax regime.
“The total fiscal reform on the labour side is expected to give
something like six percentage points on the average wage; together with
lower burdens this will be a strong stimulant for the Polish economy.
From that perspective, I believe it is safe to say that for the next
five years Poland will grow on average by 5% driven by both private
consumption stimulated by fiscal changes and also by growing economy as
synergy effect,” said Zajdel-Kurowska. She also sees that in the coming
years the most important factor for the growth of economy is the
winning UEFA-Euro2012 bid and the EU structural funds. “This will
definitely stimulate investment”, she said. Poland within seven years
will receive €70 billion on a net basis for investment. “This
additional target, successfully organising Euro2012 – should stimulate
investment process.”
Fiscal indicators – Positive Factors
“Since Poland joined the EU, we observe continuous improvement
on the fiscal side. Every year, the fiscal deficit estimated in
accordance with Eurostat’s methodology, is better then targeted. Every
year, every country belonging to the EU club is obliged to present a
convergence programme, outlining its strategy for the fiscal path for
next year. Last year the deficit was below 4%, which compares with a
forecast of 5% two years earlier. The improvement is driven by the
revenue side, because economic growth and positive forecasts generate
taxes. These savings are also stimulated by lower spending – last year,
half the savings were driven by lower expenditure. So this is not just
growth which generates a lower deficit. Also budget discipline on the
spending side is helpful in achieving the targets. Last year, the total
debt level to GDP reached only 48% while it was expected around 50%.In
the convergence programme updated in November, Poland managed to
deliver much better fiscal numbers, particularly on the debt side.
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What does the future hold?
We expect fiscal consolidation this year – the target for the total
general government deficit is 3.4% vs 3,9% in 2006; for next year it is
3.1%-3.2%, and by 2009, we promise to deliver a deficit below 3%. If we
manage to deliver these indicators, we could start negotiations about
the ERMII entry in 2010, and two years later – adopt the Euro. It is
not however official target of the government but from PR perspective
it could be sold on the double EURO. However, for this to be achieved,
we have to deliver fiscal consolidation, clean up our market – a tough
challenging job. If the economic situation turns out as positive as we
expect this will not be a problem.”
The address was followed by a panel moderated by BPCC chairman, David Thomas.
Jarosław Janecki, chief economist of Societe Generale,
pointed out some problems affecting Poland’s competitiveness and
dynamism of further development. He agreed with Zajdel-Kurowska that
Poland could use the opportunity and set a goal for accessing the
Eurozone in 2012, especially so that this would increase a positive
perception of Poland among visitors to the Euro2012 finals. For the
goal to be realistic, however, deep public finance and structural
reforms are necessary. “Poland’s entry would certainly boost the
internal dynamism of Eurozone,” said Janecki. “For this to happen
Poland needs to meets all the requirements by 2009-2010”. One other
problem Janecki drew the attention to is the Ministry of Finance’s
communication with financial markets. “It is not perfect,” he said.
“Firstly, the Ministry does not present specific calculations
concerning budget profits and loses connected with public finance
reforms, secondly the reports indicate discrepancies between measures
defined in the convergence programme and in announced reforms.” Janecki
would welcome more transparency in the ministry’s public communication
in regards to Poland’s economic situation. According to Janecki Poland
continues to be competitive in terms of geographical location and is
likely to keep the positive advantages, but because of wage growth
inflation will become a challenge, and not just for the Minister of
Finance.
Paul Fox, EU and Commercial Counsellor at the British Embassy
in Warsaw outlined the British government’s perspective. “The Polish
economy is doing well,” he said, “as shown by $14 billion of new
Foreign Direct Investment in 2006. The Japanese have invested more in
the past 12 months then they have in the previous 15 years. Clearly
something is going right. But how much of this is down to the
government’s polices? Could the government do more to create a better
environment for business?” Fox then highlighted areas where the
government could made a difference: cutting bureaucracy (the Kluska
package was a start); addressing the skills gap and investing in
training and development; pushing forward with privatisation. He also
highlighted some of the disparities in economic development. The larger
cities and certain regions had enjoyed growth. But the east, the
smaller towns and sections of the population had lost out during the
changes of the last 15 years. This too needed addressing. However he
stressed that the economy was growing and the future was bright. The
influx of EU funds (around €70 billion) was a once in a lifetime
opportunity. Euro 2012 would act as a spur for development. But the
question remained with more of a lead from the government could Poland
do even better?
Robert Jelly, International Director of CIMA related
to the paradox of shortage of skills and unemployment. He has shared
his experience of solving similar problems in countries such as India
or China. He sees that there is one common global theme: companies
worldwide are keen to attract the same talents. “Wherever I travel, I
find confirmation for the notion that in the global economy, people are
the most important asset. Only people can be source of success.
Developing qualifications is crucial. Identifying challenges that exist
in individual businesses and in the global economy is the key issue,
which must be tackled to achieve long-lasting success of economy. The
key to success is to transform young talent into a valuable member of
staff.”
Zajdel-Kurowska agreed with the panellists that the economic situation
could be better, and there are many areas especially those concerning
the labour market that must be improved. The first job is usually not
well paid, while living costs are growing. Privatisation and EU
structural funds are also issues which must be looked at closely. “I do
agree that politicians seem to be spending a lot of time talking about
other issues instead of focusing on the economy,” she admitted. “But
this is typical, not just for Poland – from my meetings with other
finance ministers in Brussels I can see that this is a common problem
for all EU countries. When I talk to finance ministers of Portugal or
Spain, I can see that they have similar problems on labour and social
funds contributions,” she said. Moving to more optimistic conclusions,
she said: “Despite the fact that Brussels is criticising Poland for
promising to deliver fiscal consolidation faster, or that we have a
higher-than-targeted fiscal deficit – Poland has the lowest fiscal risk
in the long perspective, due to the fact that we have managed to
introduce pension reforms. Currently we are covering the costs of this
reform, but in the future we will be in a much better position than
other new member countries.”
Concluding the meeting David Thomas said: “we have truly demonstrated
from various perspectives the potential that the Polish economy is
providing business and will provide business. This theme is what the
Chamber is all about.”
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