In its latest annual report on the Polish economy, the International Monetary Fund (IMF) said Poland’s government deficit would come in at 2.9 percent this year, while GDP growth will reach 3.6 percent. At the same time, IMF is urging Poland to cut spending and raise tax revenues if it is to avoid falling foul of the EU’s budget rules. The Brussels limit on the deficit is set at 3 percent.
“The focus in 2017 should be on avoiding any slippages that could lead to breaching the excessive deficit procedure (EDP) limit and on saving any revenue over-performance,” said the IMF. This could affect EU funds allocation. Warsaw only exited the EDP after six years in 2015.
Moreover, the IMF said, that Poland will likely have to raise interest rates, as the country’s inflation will hit its target at the beginning of 2018. “According to the IMF, tightening of monetary policy will probably be needed in 2018 to stabilize inflation around the target. The underlying assumption is that wage growth will gradually accelerate due to tight labor market conditions and a relatively fast transition to core inflation. We expect inflation to reach the NBP target at the beginning of 2018. The impetus arising from the recent sharp rise in food and fuel prices is likely to weaken in the second half of 2017. Core inflation, on the other hand, should accelerate due to an increasingly positive output gap and rising wage pressures on the tight The labor market, including an 8 percent wage increase, which entered into force in early 2017.” the IMF said.