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COUNCIL OPINION

of 5 July 2004

on the Convergence Programme of Poland, 2004-2007

(2004/C 320/08)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 9(2) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS ADOPTED THIS OPINION:

On 5 July 2004, the Council examined the convergence programme of Poland, which covers the period 2004 to 2007. The programme only partly complies with the data requirements of the revised ‘code of conduct on the content and format of stability and convergence programmes’ and with ESA 95 standards.

The budgetary strategy underlying the programme aims at reducing the general government deficit to below 3 % of GDP by 2007 (with the following intermediary annual targets: 5,7 % of GDP in 2004, 4,2 % of GDP in 2005, 3,3 % in 2006 and 1,5 % in 2007) and maintaining the debt ratio below 60 % of GDP. To this end, the programme incorporates a comprehensive set of measures (the so-called Hausner plan) endorsed by the government in January 2004, which, if fully implemented, would result in a cumulative correction of the deficit by 5,3 % of GDP of additional revenues and expenditure savings over the period 2005-2007 (3,3 % of GDP in the social area and 2,0 % of GDP in public administration and state-owned enterprises). The achievement of the deficit target is also conditional on projected high growth throughout the programme period.

On the basis of currently available information, the macro-economic scenario underlying the programme seems to reflect rather favourable growth assumptions. If the growth forecast of 5,0 % for 2004 and 2005 appears plausible and could even be exceeded in 2004, the evolution of growth in the medium term projected in the programme, i.e. an acceleration of GDP growth to 5,6 % in 2006 and 2007, reflects rather favourable assumptions about both private consumption and investment. In this regard, the full implementation of the Hausner plan and the ensuing dissipation of fiscal uncertainties are crucial to achieve the projected strengthening of growth. The projection for inflation appears broadly realistic.

The programme projects the deficit to be reduced to below the 3 % of GDP reference value in 2007. Several risks surround the programme targets. Besides the downside macroeconomic risks mentioned above, there is uncertainty over the implementation of the envisaged measures, with the planned adjustment not only being heavily back-loaded but also not fully consistent with the Hausner plan. Finally, as the effect of a recent Eurostat decision on the classification of the funded pension scheme, the planned figures for the deficit may have to be revised upwards by 1,6 percentage points of GDP. Therefore, the budgetary stance in the programme may not be sufficient to reduce the deficit to below 3 % of GDP during the programme period.

In the programme, the debt ratio is projected to increase by 7 percentage points of GDP over the period 2003-2007, with the increase coming to a halt only in the final year of the programme. The evolution of the debt ratio is likely to be less favourable than projected given the risks to the deficit outcomes mentioned above and significant uncertainties about the realisation of planned privatisation proceeds.

Regarding long-term sustainability Poland faces a risk of budgetary imbalances in meeting the projected costs of an ageing population. While the pension reform dating back to 1999 and establishing a progressive three-tier pension system — including parametric changes to the pay-as-you-go pillar, e.g. limiting the possibility of early retirement — has mitigated the risks of long-term budgetary imbalances, it has not entirely removed them. Securing an adequate primary surplus in the medium term together with the implementation of measures to stem the pension system deficit, to limit the assumption of liabilities of the state-enterprises and the health care system and structural reforms to enhance labour participation is essential to place public finances on a sustainable footing.

On 5 July 2004, on the basis of recommendations from the Commission, the Council decided that an excessive deficit existed in Poland in accordance with Article 104(6) of the Treaty and made recommendations under Article 104(7) to Poland with a view to bringing that situation to an end, in which the Council expresses its policy advice.

Key projections from the convergence programme of Poland

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(1)OJ L 209, 2.8.1997, p. 1. The documents referred to in this text can be found at the following website

http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm

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