Council Opinion of 5 July 2004 on the Convergence Programme of Poland, 2004-2007
Date: 2004-07-05
Institutions: Council of the European Union
Subjects: Poland, budget policy, economic convergence, economic policy, stability programme

24.12.2004

EN

Official Journal of the European Union

C 320/15

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 surveil-
lance of budgetary positions and the surveillance and coordination of economic policies (1), and in particu-
lar 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 implemen-
tation 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 adjust-
ment 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.

(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

C 320/16

EN

Official Journal of the European Union

24.12.2004

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 progres-
sive 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 imple-
mentation 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 recommenda-
tions 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

Real GDP growth (%)

Employment growth (%)

HICP inflation (%)

General government balance (% of GDP)

Government gross debt (% of GDP)

2003

2004

2005

2006

2007

3,7

– 2,3

0,8

– 4,1

45,3

5,0

– 0,2

2,2

– 5,7

49,0

5,0

1,0

2,8

– 4,2

51,9

5,6

1,8

< 3

– 3,3

52,7

5,6

2,5

< 3

– 1,5

52,3