OECD: Economic Survey of Poland 2006: Executive Summary

Poland’s growth performance since 2004 suggests that the process of catch-up with higher-income countries has been renewed. But an improved balance of macroeconomic policies and further efforts to improve structural policies are needed to sustain and accelerate convergence.

Monetary policy may have temporarily been somewhat too cautious, but it would be easier for the central bank to relax if fiscal policy were put on a sustainable footing, with consolidation focused on social transfers, which have many adverse work incentive effects.

Links between the education system and the labour market are still insufficient, and the financing of tertiary education is leading to both inequity and inefficiency.

Weak performance on adult training, reliance on passive income support and too little attention to job-search or mobility requirements contribute to the high level of structural unemployment.

Growth has been held back by poor framework conditions for entrepreneurship and innovation.

Seek a better balance of monetary and fiscal policies

The National Bank of Poland has acquired a reputation for inflation aversion. It may no longer need to be quite so cautious and could afford to do more in the future to test the limits of available capacity. Although the budget deficit improved in 2005, this was partly due to one-off factors. Clear expenditure priorities need to be defined and enforced, preferably within a multi-year planning framework. Social transfer payments absorb too large a share of public spending and GDP and should be better controlled.

Consolidate and extend the education reforms

Reforms of compulsory education have decentralised education management to local governments. Further steps are needed to align financial and management responsibility with accountability for performance and to ensure flexibility in allocating resources as needs change. Expansion of tertiary education has increased human capital formation, but it is inefficient to prevent public institutions charging fees; a concomitant reform of student grants and loans could increase equity and overall resources.

Boost employment with active labour market policies and by making work pay

Poland’s very poor labour market performance is partly due to the costs of structural change, but many social transfer payments and the large tax wedge act to reduce employment. They need to be changed to strengthen incentives to work. The public employment service must increase its emphasis on job-activation, making more use of adult training as well as job-search requirements for benefit recipients.

Raise investment and growth by reducing regulation and improving conditions for entrepreneurs

Sluggish investment and low innovation activity are related to Poland’s high degree of regulation; this is due mainly to high public ownership, perceptions of an ambivalent attitude to foreign investment and a considerable burden of bureaucracy, though progress has been made in recent years. Without improvements in all these areas, measures to improve flows of finance and information to small companies and innovators will be less effective.
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