IMF warns of public debt cycle
The IMF now predicts Poland will experience average yearly economic growth of 5.5 percent for 2004 and 4.75 percent for 2005. "The projections do not reflect slower economic growth at the turn of 2004 and 2005," IMF European department deputy director Susan Schadler said. "The lower projection for 2005 is the result of uneven bunching of economic growth impulses in early 2004," she added.
The vision takes into account factors such as price shocks, fiscal reform and further privatization, spearheaded by the forthcoming sale of PKO BP shares next month.
In April, the IMF expected Poland's full-year 2004 GDP growth to hit 4.5-5.0 percent if political and fiscal instability did not scare off corporate investors.
Now the IMF is warning Poland "to make a forceful fiscal adjustment in the current cyclical upturn in the country's economy." IMF economists want to pre-empt a situation of increased public debt when economic growth slows down, as witnessed between 2001 and 2003 after rapid growth in the late 1990s.
Schadler said the government's belt-tightening program, dubbed the Hausner plan, is a welcome start to the country's fiscal reform process. However, Poland still has a long way to go in implementing all the necessary reforms.
Lower borrowing needs within the Hausner plan require a mixture of social and administrative spending cuts and revenue increases. Earlier this month, the government scaled back its projected savings from fiscal reforms to a cumulative zł.50.8 billion between 2004 and 2007, from the originally planned zł.54.5 billion.
The IMF says Poland's social transfers are still poorly directed and the health service has not been prepared to face the additional demands of an aging population. The organization suggests a large tax wedge is preventing the creation of new jobs, when high unemployment continues to be a huge weak spot in Poland's economic progress.
"Poland's labor market needs critical reform and the government needs to take urgent action to increase the flexibility of the workforce, improve its mobility and reduce that tax wedge," Schadler said.
The vision takes into account factors such as price shocks, fiscal reform and further privatization, spearheaded by the forthcoming sale of PKO BP shares next month.
In April, the IMF expected Poland's full-year 2004 GDP growth to hit 4.5-5.0 percent if political and fiscal instability did not scare off corporate investors.
Now the IMF is warning Poland "to make a forceful fiscal adjustment in the current cyclical upturn in the country's economy." IMF economists want to pre-empt a situation of increased public debt when economic growth slows down, as witnessed between 2001 and 2003 after rapid growth in the late 1990s.
Schadler said the government's belt-tightening program, dubbed the Hausner plan, is a welcome start to the country's fiscal reform process. However, Poland still has a long way to go in implementing all the necessary reforms.
Lower borrowing needs within the Hausner plan require a mixture of social and administrative spending cuts and revenue increases. Earlier this month, the government scaled back its projected savings from fiscal reforms to a cumulative zł.50.8 billion between 2004 and 2007, from the originally planned zł.54.5 billion.
The IMF says Poland's social transfers are still poorly directed and the health service has not been prepared to face the additional demands of an aging population. The organization suggests a large tax wedge is preventing the creation of new jobs, when high unemployment continues to be a huge weak spot in Poland's economic progress.
"Poland's labor market needs critical reform and the government needs to take urgent action to increase the flexibility of the workforce, improve its mobility and reduce that tax wedge," Schadler said.
