IMF: Poland not out of woods yet
A WBJ News round-up
The International Monetary Fund (IMF) poured cold water on boastful claims among domestic politicians that Poland's economy is recovering from its three-year-long stretch of stagnation. In a seasonal report released last week, the IMF said that "turning the nascent economic recovery into durable growth will be a major challenge" for the country.
The IMF said that Poland's economy remains uncertain due to shrinking foreign direct investment and poor monetary and fiscal policy. The report went on to say that Poland's government needs to limit spending, and the National Bank of Poland (NBP) needs to seriously evaluate the option of more base interest rate cuts without jeopardizing the recent success of the central bank's campaign to limit inflation.
"The fiscal-monetary policy mix remains a problem - even as monetary policy has eased, the risk of a tightening, if the fiscal adjustment is delayed, creates market uncertainty," the IMF said.
The IMF pointed to "undue" appreciation of the złoty as a potential side effect of poorly managed fiscal and monetary policy, an effect that could hurt Poland's competitiveness in the open markets of the European Union.
Looking at the current economic indicators, the IMF said that the NBP has room to ease monetary policy.
"With a still widening output gap, high unemployment and continued wage discipline in the corporate sector, (the IMF) saw scope for further interest rate cuts without jeopardizing the inflation target," the report said.
The IMF's critical stance towards the fiscal policies of the government of Prime Minister Leszek Miller comes at an unwelcome time for the prime minister, as he heads into the ruling party's annual congress at the end of this month. The most recent estimates foresaw economic growth in Poland hitting an annualized rate of 3.5 percent by the end of the year, a fact that Miller's ministers exploited before and after the parliamentary vote of confidence held a few weeks ago.
Miller will have to answer serious questions as he heads into his third year as prime minister, among them how he plans to tackle a budget deficit that is forecast to grow to 4.6 percent next year - well above the 3-percent threshold that Poland will have to meet in order to enter into the European monetary union.
