WBJ: This year Poland celebrates its 15th anniversary of joining the EU. A lot has changed over those past 15 years. How much of the development the country has experienced would you say can be attributed to its EU membership?
Carlos Piñerúa: Poland is an economic and development success story, as the country achieved high-income status in record time. Worldwide, only South Korea did it faster. Such a success would not have been possible without the EU. We highlight this in our report “Lessons from Poland. Insights for Poland.” We stated there that opening the foreign markets to Polish entrepreneurs was one of the pillars of Poland’s success, as it led to the creation of many jobs and contributed to a significant reduction in unemployment that currently stands at record low levels. It would not have been possible without the single European market. Moreover, Poland is the largest beneficiary of EU funds. Those funds were used in an efficient and effective manner. They helped upgrade infrastructure and improve people’s skills and competencies. Additionally, Poland’s membership in the EU means better perception of Poland in other countries, which resulted in a number of foreign direct investments.

Poland has enjoyed uninterrupted economic growth for over a quarter of a century. Last year it was 5.1 percent. Yet, the World Bank expects the growth rate to slow down this year to 4 percent and even more so over the next two years, to 3.3 percent in 2021. Why is it so?
For the past few quarters Poland has been the fastest growing economy among the large economies in the EU. To a large extent, consumption and public investments (fueled by European funds) have been drivers of this growth. We expect, however, that the slowdown expected in Europe and worldwide will have a negative impact on growth in Poland as well. In our latest Global Economic Prospects report, we have downgraded our global growth forecast in 2019 to 2.6 percent, 0.3 percentage point below previous forecasts, reflecting weaker-than-expected international trade and investment at the start of the year. However, it is unclear to what degree that will impact Poland. Moreover, the space for further dynamic growth of consumption in Poland is limited, as the positive impact of budget transfers like Family 500+ will fade out. Finally, private companies are complaining about a shortage of qualified employees. Given all that, we expect that growth in Poland will slow down, but remain on a robust level, exceeding 3 percent in the next couple of years.

How do the global trade conflicts impact Europe and Poland in particular? What might be the transmission channels of a global downturn to the Polish economy? Do you already see the signs that a slowdown is coming?
Global economic activity continued to soften at the start of 2019, with trade and manufacturing showing signs of marked weakness. Heightened policy uncertainty, including a recent re-escalation of trade tensions between major economies, has been accompanied by a deceleration in global investment and a decline in confidence. A weakening of the world’s largest economies may lead to reduced demand for European products, for example German cars. As a result, it might have an impact on Poland, which has very strong ties with Germany. Although Poland’s economy is still developing at a fast pace, we have already noted a slight slowdown in the fourth quarter of 2018.

Poland was quite resilient to the last major economic downturn in 2008. Do you think the country is still in a position to come out of another global crisis similarly unscathed?
For the time being Poland’s economic situation is stable, without any major domestic risks. There are some concerns regarding Poland’s fiscal position, especially in light of expanding social programs and slowing economic growth, which may only exacerbate budgetary pressures. The profitability of the banking sector is also declining. However, Poland has a relatively low level of public debt compared to many other EU countries and is still anchored on a well-capitalized and liquid banking sector with a moderate level of non-performing loans, which bodes well in terms of resilience to a potential economic crisis. Finally, the stock of foreign currency mortgage loans is declining, lowering households’ exposure to exchange rate risk. Nevertheless, if other EU economies enter recession, Poland could experience falling exports, which would negatively affect its domestic production, employment and GDP growth. In the short term strong domestic consumption backed with social transfers could compensate for falling external demand, however, at a price of higher deficit and increased debt.

How do you see the impact of the current government’s fiscal policy: the expansion of the 500+ program for families, extra pensions etc. In the short term these programs have proven quite beneficial to the economy, haven’t they? What about in the long term?
So far, the government’s social programs have supported Poland’s economic expansion by fueling domestic consumption, which is one of main drivers of GDP growth. The 13th pension payment and the broadening of the Family 500+ program are expected to boost consumption even further. These programs also have the benefit of providing financial relief to many people who have not benefited from Poland’s dynamic growth in recent years. However, removing the income criteria from the Family 500+ means that substantial funds will be transferred to people who are already enjoying a good financial situation. In these cases, it is unlikely that the additional money will translate into extra consumption, but it will rather be saved. Therefore, new welfare programs may not be as effective as the original family benefit. Furthermore, conducting procyclical policy and increasing government deficit in good times lowers the ability of government to stimulate the economy once it needs fiscal stimulus. That is especially relevant in the case of Poland, where public debt is relatively close to the EU ceiling defined in the Maastricht Treaty.

How much more can the government increase the efficiency of tax collection?
The government has made significant strides in improving tax collections, particularly VAT collections. Tis improved performance has allowed it to so far finance additional social outlays without resorting to new debt. Nevertheless, there is some space to increase efficiency of CIT collection.
The World Bank is now starting a series of advisory activities to support Poland in its tax administration efforts. For example, we will estimate the CIT and Excise Tax gaps and analyze the impact of different tax incentives on the Polish economy. We hope that our studies will help increase the effectiveness of the Polish tax system and improve budget revenues.

Some claim that the generous social program has lowered incentives for people, particularly women, to stay in the labor market. Do you think that is the case?
Establishing social transfers inevitably leads to some people withdrawing from the labor force as their incentive to work decreases. After the Family 500+ program was introduced, some families faced a situation that with two working adults the family was excluded from the program due to income criteria. That was providing a strong incentive for one of the parents to withdraw from the labor force. However, the upcoming removal of income criteria is likely to reduce this disincentive to work. When it comes to female participation in labor force, it has been on an upward path over the last decade. It does not mean that social transfers did not affect their incentive to work, but is rather a result of relatively low participation in the past which is now gradually corrected. Some independent studies show that indeed, the labor force participation of mothers, especially those with lower levels of education, dropped because of the 500+ benefit.

Just like many other developed countries, Poland has been struggling with a labor shortage. How much can migration from Ukraine, Nepal and other eastern countries alleviate the problem and how will the labor market evolve?
In last five years Poland has experienced intensified migration of workers from Ukraine, but recently more and more people from some southeast Asian countries, such as Nepal or Bangladesh, have come to Poland to work and live. Economic migrations to Poland are inevitably affecting the labor market; however, the labor market – with its numerous opportunities available for foreigners – was already prepared for the inflow of migrants. As the Polish economy expands and many international companies such as big international corporations enlarge their presence in Poland, it should be expected that more people will be attracted to move here. But even with a growing number of foreign citizens entering the labor force, the labor shortage is becoming one of the main issues for employers and entrepreneurs. For instance, the job vacancy rate in Poland has tripled since 2013 and is still on the rise. That is a major challenge for Poland’s economy.

Where is Poland compared to other countries in Europe and elsewhere in terms of gender equality and the pay gap?
In recent years, Poland has taken important steps with regards to its legal and institutional framework, as well as policy programs on gender equality. Policies like the electoral gender quota system, the extended duration of the basic maternity leave, the introduction of paternity leave and the increase in the accessibility of pre-school education have helped reduce existing gaps.
However, despite these commendable advances, women still show systematically poorer outcomes than men. For example, Poland has one of the lowest female labor force participation rates in the EU. While 62 percent of women are economically active, the share is 76 percent for men. Among the employed, there is a 20 percent gender wage gap, which cannotbe explained by differences in characteristics and occupations of men and women. Accentuated by the rollback in retirement ages, women are projected to experience a dramatic decline in their replacement rate, becoming dependent on voluntary saving schemes, which is unrealistic in the context of high inactivity.
Women’s agency remains comparatively weak. In comparison to other EU countries, gender stereotypes and a conservative view of the family seem to prevail. As much as 77 percent of Poles agree with the statement that the most important role of a woman is to take care of the home and the family. And, despite an electoral gender quota system, women represented only a quarter of all seats in the Parliament as of 2016.

What about income equality in general – how do you see Poland compared to other developed and developing economies? How would you say the life of an average middle-class professional in Poland compares to that of an average professional in Latin America for instance?
One of the main statistics that is used to evaluate income equality is the Gini coefficient. In recent years Poland has performed in that statistic belter that the EU average and many western countries such as Italy or the UK . However, a recently published article by World Inequality Lab indicates that Poland is the least egalitarian country in the EU and the income share of the wealthiest 10 percent has almost doubled since 1980. These results seem to be in line with Poland’s development path. A number of well-paid jobs are being created in cities such as Warsaw, Kraków or Wrocław but in many regions and sectors wages were not catching up. The average salary in 2018 grew by 5.3 percent, but many people do not feel that they fully participate in Poland’s economic success. Based on the calculations of the statistics for Poland for October 2016, two-thirds of workers earned less than the average salary. Globally, including in Latin America, these inter-regional disparities in wage incomes are becoming an urgent challenge for policymakers. Focusing on improving economic opportunities and mobility will be at the top of the agenda of many governments facing political pressures from constituencies with higher economic aspirations.

You were born in Venezuela, you studied in the US, and you’ve worked all over the world, including Croatia, Turkey and the Middle East. You’ve been in Poland for two years now. How would you characterize the quality of life in Poland for someone who has lived and worked in so many other countries?
I have had the privileged of visiting close to 60 countries and lived in seven of them. In no uncertain terms, Poland offers a high level of quality of life. For a Venezuelan, at the top of factors affecting my day-to-day life is public safety. Just being able to walk around in the evening without concern is a luxury to us. When you add to that the quality of public services, the abundance and richness of cultural life, and the whole variety of culinary offers, it would be hard to improve on this experience for me in the future.

There are concerns that Poland is lagging behind in its Industry 4.0. transformation, that companies here have not been as eager to adopt automation. Do you see it as a threat to the country’s competitiveness?
The approach by companies varies and indeed some companies are still lagging behind in terms of adoption of automation, often relying on a cheaper labor force. However, given the increasing wages in Poland and a tightening labor market, the Industry 4.0 transformation will become a necessity, and it is important to use the support from the EU funds well to increase investment rates and facilitate the upgrade. But to prepare society for the Industry 4.0 transformation, certain policies are needed. We know that over the last 15 years, manual jobs across the whole EU have declined by more than 15 percent, while creative and analytical jobs have gone up by the same amount. This trend is accelerating. Therefore, we recommend policymakers boost skills for workers, readying them for new jobs in a rapidly evolving labor market. Cognitive skills, soft skills, vocational education and lifelong learning are key to supporting Polish growth in years to come.
Poland has dropped in the Doing Business ranking in 2019 to 33rd spot. Do you see it as a sign of the country losing its appeal to investors?
In the latest edition of the Doing Business report in October 2018 Poland was still among the top-performing countries in the world, with a strong pro-business environment. Its stable score in the report reflected the many reforms implemented in the last decade. The year-on-year decline was primarily due to the longer window needed for enterprises to pay taxes. In addition to this, some countries were relatively more active in introducing specific reforms covered by the Doing Business methodology. Comparing the Doing Business ranking to a marathon, we could say that Poland achieved a decent result; however, other countries ran even faster, and that is why Poland’s position has dropped slightly. Like in previous years, Poland was still doing well in the areas of international trade, access to credit and resolving insolvency.