Recommendation for a Council opinion on the updated convergence programme of Poland, 2007-2010
Date: 2008-06-11
Institutions: European Commission
Subjects: Poland, budget estimate, budget policy, economic convergence, economic forecasting, public finance, stability programme

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 11.6.2008 
SEC(2008) 2012 final 

Recommendation for a 

COUNCIL OPINION 

On the updated convergence programme of Poland, 2007-2010 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. 

GENERAL BACKGROUND 

The Stability and Growth Pact is based on the objective of sound government finances as a 
means  of  strengthening  the  conditions  for  price  stability  and  for  strong  sustainable  growth 
conducive to employment creation. The 2005 reform of the Pact acknowledged its usefulness 
in  anchoring  fiscal  discipline  but  sought  to  strengthen  its  effectiveness  and  economic 
underpinnings as well as to safeguard the sustainability of the public finances in the long run. 

Council  Regulation  (EC)  No  1466/97  on  the  strengthening  of  the  surveillance  of  budgetary 
positions  and  the  surveillance  and  coordination  of  economic  policies1,  which  is  part  of  the 
Stability  and  Growth  Pact,  stipulates  that  each  Member  State  has  to  submit,  to  the  Council 
and  the  Commission,  a  stability  or  convergence  programme  and  annual  updates  thereof. 
Member  States  that  have  already  adopted  the  single  currency  submit  (updated)  stability 
programmes  and  Member  States  that  have  not  yet  adopted  it  submit  (updated)  convergence 
programmes.  The  first  convergence  programme  of  Poland  was  submitted  in  May  2004.  In 
accordance with the Regulation, the Council delivered an opinion on it on 5 July 2004 on the 
basis  of  a  recommendation  from  the  Commission  and  after  having  consulted  the  Economic 
and  Financial  Committee.  As  regards  updated  stability  and  convergence  programmes,  the 
regulation  foresees  that  these  are  assessed  by  the  Commission  and  examined  by  the 
Committee and if necessary and following the same procedure as set out above, the updated 
programmes may be examined by the Council. 

2. 

BACKGROUND FOR THE ASSESSMENT OF THE UPDATED PROGRAMME 

The  Commission  has  examined  the  most  recent  update  of  the  convergence  programme  of 
Poland, submitted on 26 March 2008, and is recommending a Council opinion on it (see box 
for the main points covered by the assessment). 

In  order  to  set  the  scene  against  which  the  budgetary  strategy  in  the  updated  convergence 
programme is assessed, the following paragraphs summarise: 

(1) 

(2) 

(3) 

(4) 

1 

the  country’s  position  under  the  corrective  arm  of  the  Stability  and  Growth  Pact 
(excessive deficit procedure); 

the most recent assessment of the country’s position under the preventive arm of the 
Stability and Growth Pact (summary of the Council opinion on the previous update of 
the convergence programme); 

the May 2008 update of the country-specific broad economic policy guidelines in the 
area of budgetary policies; 

the  Commission’s  assessment  of  the  October  2007  implementation  report  of  the 
national reform programme. 

OJ  L  209,  2.8.1997,  p.  1.  Regulation  as  amended  by  Regulation  (EC)  No  1055/2005  (OJ  L  174, 
7.7.2005, p. 1). The documents referred to in this text are available at: 
http://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm. 

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2.1. 

The excessive deficit procedure for Poland 

On 5 July 2004 the Council adopted a decision stating, in accordance with Article 104(6), that 
Poland  had  an  excessive  deficit,  based  on  a  general  government  deficit  of  4.1%  of  GDP  in 
2003. At the same time, the Council issued recommendations, under Article 104(7), to correct 
the excessive deficit. In particular, Poland was recommended to take action in a medium-term 
framework  in  order  to  bring  the  deficit  below  3%  of  GDP  by  2007  in  a  credible  and 
sustainable  manner,  in  line  with  the  Council  opinion  on  the  May  2004  convergence 
programme. In November 2006, the Council decided that action taken until then by the Polish 
authorities  was  inadequate.  In  February  2007,  the  Council  issued  new  recommendations 
confirming the 2007 deadline for the correction. The Polish authorities were recommended to 
ensure  an  improvement  of  the  structural  balance  by  at  least  0.5  percentage  point  of  GDP 
between 2006 and 2007. In November 2007, the Commission issued a communication to the 
Council, in which the action taken by Poland in response to the Council recommendation was 
found  consistent  with  the  recommendation.  However,  as  far  as  2008  and  2009  were 
concerned,  the  Commission  expressed  concern  about  the  durability  of  the  correction  of  the 
excessive deficit without which the excessive deficit procedure cannot be abrogated. Both the 
Commission and  the Council invited  the Polish authorities to submit as soon as possible an 
updated  convergence  programme  describing  their  medium-term  strategy  for  the  whole 
legislature, consistent with a durable correction of the excessive deficit and further progress 
towards the medium-term objective. 

Together with this recommendation for a Council opinion, the Commission recommends the 
Council  to  decide  to  abrogate  the  excessive  deficit  procedure  for  Poland  because,  from  an 
overall assessment, it follows that the excessive deficit situation in Poland has been corrected. 
The  2007  general  government  deficit  outturn  is  2.0%  of  GDP,  below  the  3%  of  GDP 
reference  value.  The  Commission  services’  spring  2008  forecast  indicates  that  the  deficit 
should remain below the 3% of GDP reference value in 2008 and 2009. 

2.2. 

The assessment in the Council opinion on the previous update 

In  its  opinion  of  27  February  2007,  the  Council  summarised  its  assessment  of  the  previous 
update  of  the  convergence  programme,  covering  the  period  2006-2009,  as  follows.  “The 
programme envisages a correction of the excessive deficit by 2007, referring to the provision 
of Article 2(7) of Council Regulation (EC) No 1467/97, but the Council recalls that the action 
taken so far does not appear adequate and the planned measures appear insufficient to achieve 
that result. While in subsequent years the programme envisages to make appropriate progress 
towards  the  MTO  in  a  context  of  strong  growth  prospects,  there  are  important  risks  to  the 
achievement of the budgetary targets and the durability of the adjustment.”  

Taking  into  account  a  new  recommendation  addressed  to  Poland  to  correct  the  excessive 
deficit adopted by the Council  on 27 February 2007 under Article 104(7) of the Treaty, the 
Council  invited  Poland  to  “(i)  ensure  the  correction  of  the  excessive  deficit  by  2007  in  line 
with  the  new  recommendation  under  Article  104(7);  (ii)  taking  advantage  of  the  good 
economic  times,  using  any  extra  revenue  for  deficit  reduction,  strengthen  the  pace  of 
adjustment  towards  the  MTO  after  the  planned  correction  of  the  excessive  deficit,  by 
specifying and implementing the additional measures, especially on the expenditure side, that 
are  necessary  to  achieve  the  envisaged  adjustment;  (iii)  safeguard  the results of the pension 
reform”. 

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2.3.  May 2008 update of the country-specific broad economic policy guidelines in the 

area of budgetary policies 

On  14  May  2008,  the  Council  adopted  a  recommendation  on  the  2008  update  of  the  broad 
guidelines  for  the  economic  policies  of  the  Member  States  and  the  Community  and  on  the 
implementation  of  Member  States'  employment  policies2.  In  the  area  of  budgetary  policies, 
Poland was recommended to “strengthen the fiscal consolidation and supplement the nominal 
state budget deficit ‘anchor’ (deficit ceiling) with further mechanisms to enhance control over 
expenditure”. 

2.4. 

The Commission assessment of the October 2007 implementation report of the 
national reform programme 

On 11 December 2007, the Commission adopted its Strategic Report on the renewed Lisbon 
strategy  for  growth  and  jobs,  which  includes  an  assessment  of  the  October  2007 
implementation report of Poland’s national reform programme3 and is summarised as follows. 

Poland’s national reform programme identified as key challenges the consolidation and better 
management  of  public  finances,  development  of  entrepreneurship,  increased  innovation  by 
companies;  upgrading  and  developing  infrastructure,  ensuring  a  competitive  environment  in 
networks  sectors,  creating  and  sustaining  jobs  and  reducing  unemployment;  and  improving 
the adaptability of workers and enterprises. 

The Commission’s assessment was that Poland has made limited progress in implementing its 
National Reform Programme over the 2005-2007 period. 

Against  the  background  of  strengths  and  weaknesses  identified  and  the  background  of 
progress made, the Commission recommended that Poland was recommended to take action 
in  the  areas  of:  fiscal  consolidation  (mechanisms  of  expenditure  control);  competition  in 
network industries; public research and support to private R&D; flexicurity, including active 
labour market policy, social benefits, lifelong learning and education. 

In  addition,  Poland  is  encouraged  to  also  focus  on  the  areas  of:  transport  infrastructure; 
business registration process; e-government; transposition of internal market legislation; and 
childcare facilities. 

Based  on  the  Commission  Strategic  Report,  the  Council  adopted  recommendations  on  the 
2008  update  of  the  broad  guidelines  for  the  economic  policies  for  the  Member  States, 
including Poland, on 14 May 2008. 

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3 

OJ L 139, 29.5.2008, p. 57. 
Communication  from  the  Commission  to  the  European  Council,  “Strategic  report  on  the  renewed 
Lisbon  strategy  for  growth  and  jobs:  launching  the  new  cycle  (2008-2010)”  -  COM(2007)  803, 
11.12.2007. 

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Box: Main points covered by the assessment 

As required by Article 5(1) (for stability programmes) and Article 9(1) (for convergence programmes) 
of Council Regulation (EC) No 1466/97, the assessment covers the following points: 
•  whether the economic assumptions on which the programme is based are plausible; 
•  the  medium-term  budgetary  objective  (MTO)  presented  by  the  Member  State  and  whether  the 

adjustment path towards it is appropriate; 

•  whether  measures  being  taken  and/or  proposed  to  respect  that  adjustment  path  are  sufficient  to 

achieve the MTO over the cycle; 

•  when assessing the adjustment path towards the MTO, whether a higher adjustment effort is made 
in economic good times, whereas the effort may be more limited in economic bad times, and, for 
euro-area and ERM II Member States, whether the Member State pursues an annual improvement 
of the cyclically-adjusted balance, net of one-off and other temporary measures, of 0.5% of GDP as 
a benchmark to meet its MTO; 

•  when defining the adjustment path to the MTO (for Member States that have not yet reached it) or 
allowing a temporary deviation from the MTO (for Member States that have), the implementation 
of  major  structural  reforms  which  have  direct  long-term  cost-saving  effects  (including  by  raising 
potential  growth)  and  therefore  a  verifiable  impact  on  the  long-term  sustainability  of  public 
finances (subject to the condition that an appropriate safety margin with respect to the 3% of GDP 
reference  value  is  preserved  and  that  the  budgetary  position  is  expected  to  return  to  the  MTO 
within the programme period), with special attention for pension reforms introducing a multi-pillar 
system that includes a mandatory, fully-funded pillar; 

•  whether the economic policies of the Member State are consistent with the broad economic policy 

guidelines. 

The  plausibility  of  the  programme’s  macroeconomic  assumptions  is  assessed  by  reference  to  the 
Commission  services’  spring  2008  forecast,  using  also  the  commonly  agreed  methodology  for  the 
estimation of potential output and cyclically-adjusted balances. 

The assessment also examines: 
•  the  evolution  of  the  debt  ratio  and  the  outlook  for  the  long-term  sustainability  of  the  public 
finances,  which  should  be  given  “sufficient  attention  in  the  surveillance  of  budgetary  positions” 
according  to  the  Council  report  of  20  March  2005  on  “Improving  the  implementation  of  the 
Stability  and  Growth  Pact”.  A  Commission  Communication  of  12  October  2006  sets  out  the 
approach to the assessment of long-term sustainability4; 

•  the degree of consistency with the national reform programme, submitted by Member States in the 
context of the Lisbon strategy for growth and jobs, and its October 2007 implementation report. In 
its cover note of 7 June 2005 to the European Council on the broad economic policy guidelines for 
the period 2005-2008, the ECOFIN Council stated that the national reform programmes should be 
consistent with the stability and convergence programmes; 

•  compliance  with the code of conduct5, which inter  alia prescribes a common  structure and set of 

data tables for the stability and convergence programmes. 

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Communication  from  the  Commission  to  the  Council  and  the  European  Parliament,  “The  long-term 
sustainability of public finances in the EU” - COM(2006) 574, 12.10.2006 - and European Commission, 
Directorate-General for Economic and Financial Affairs (2006), “The long-term sustainability of public 
finances in the European Union”, European Economy No 4/2006. 
“Specifications  on  the  implementation  of  the  Stability  and  Growth  Pact  and  guidelines  on  the  format 
and  content  of  stability  and  convergence  programmes”,  endorsed  by  the  ECOFIN  Council  of  11 
October 2005. 

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Recommendation for a 

COUNCIL OPINION 

On the updated convergence programme of Poland, 2007-2010 

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 
policies6, and in particular Article 9(3) thereof, 

Having regard to the recommendation of the Commission, 

After consulting the Economic and Financial Committee, 

HAS DELIVERED THIS OPINION: 

(1) 

(2) 

On  [8  July  2008]  the  Council  examined  the  updated  convergence  programme  of 
Poland, which covers the period 2007 to 20107. 

Poland  made  recently  progress  in  closing  the  gap  with  average  EU  income  levels  as 
real GDP growth picked up from around 4½% on average in 2003-2005 to above 6% 
in 2006-2007. The labour-intensive output growth improved considerably the situation 
in the labour market as unemployment dropped from nearly 20% in 2003 to 9½% in 
2007.  However,  the  fall  in  unemployment  reflects,  in  addition  to  an  extraordinary 
growth  in  employment,  a  shrinking  labour  force  due  to  migration.  Moreover, 
distortions  of  incentives  to  work  enhanced  by  significant  emigration  increase  the 
shortage  of  labour  in  some  sectors.  The  tightening  labour  market  puts  pressure  on 
wages  impacting  negatively  on  HICP  inflation  which,  after  a  period  of  successful 
moderation from 2005 to the first half of  2007, picked up significantly at the end of 
2007. Since peaking at 6¼% of GDP in 2003, the general government deficit declined 
on average by more than 1 percentage point annually to reach 2% of GDP in 2007. In 
recent years, outturns were generally better than the targets thanks to positive growth 
surprises  resulting  in  windfall  revenues  as  well  as  the  incomplete  execution  of 
expenditure plans. Further budgetary consolidation will hinge crucially on the reform 

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OJ  L  209,  2.8.1997,  p.  1.  Regulation  as  amended  by  Regulation  (EC)  No  1055/2005  (OJ  L  174, 
7.7.2005, p. 1). The documents referred to in this text can be found at the following website: 
http://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm. 
The update was submitted 16 weeks beyond the 1 December deadline set in the code of conduct in view 
of the formation of a new government in November following the October general elections. 

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(3) 

(4) 

(5) 

of  the  social  transfer  system  (mainly  early  pensions  and  disability  benefits)  and  the 
increase of labour participation. 

The  macroeconomic  scenario  underlying  the  programme  envisages  that  real  GDP 
growth will gradually decrease from 6.5% in 2007 to 5.2% on average over the rest of 
the programme period. Assessed against currently available information8, this scenario 
appears  to  be  based  on  plausible  growth  assumptions.  The  programme’s  projections 
for inflation appear to be on the low side reflecting slightly favourable assumptions on 
import prices and a relatively low increase in nominal compensation per employee. 

The  2007  general  government  deficit  outturn  was  2.0%  of  GDP,  compared  to  3.4% 
projected  in  the  November  2006  convergence  programme.  Much  higher  real  and 
nominal  GDP  growth  than  assumed  in  November  2006  was  the  main  reason,  but 
expenditure was also restrained. In particular, high profitability of companies allowed 
for growth in subsidies to be contained, while the rapid fall in unemployment and the 
absence  of  indexation  imposed  by  the  Hausner  plan9  also  curtailed  growth  in  social 
transfers.  In  addition,  compensation  of  public  sector  employees  was  lower  than 
planned. Finally, government investment was lower than projected because of a slower 
absorption  of  EU  funds  than  planned.  Overall,  the expenditure-to-GDP ratio was  1.5 
percentage  point  lower  than  projected  in  November  2006.  On  the  revenue  side, 
revenue from indirect taxes and social contributions turned out better than envisaged 
in  November  2006,  mainly  thanks  to  a  much  higher  employment  and  wage  growth. 
These  positive  surprises  were  offset  by  a  lower  performance  of  other  revenue  items 
(direct  taxes  due  to  an  increase  in  tax  brackets).  Overall,  this  led  to  a  revenue  ratio 
slightly below the planned one. With an improvement in the structural balance ratio by 
about  1½  percentage  point,  budgetary  implementation  in  the  year  2007  more  than 
fulfilled  the  invitation  in  the  Council  opinion  of  27  February  2007  on  the  previous 
update of the convergence programme10. 

The main goal of the budgetary strategy is a durable reduction of the structural general 
government  deficit  (cyclically-adjusted  deficit  net  of  one-off  and  other  temporary 
measures)  aimed  at  achieving  the  medium-term  objective  (MTO)  for  the  budgetary 
position,  which  is  a  structural  deficit  of  1%  of  GDP,  in  2011,  i.e.  one  year  after  the 
programme  period.  This  is  consistent  with  the  previous  convergence  programme, 
which  envisaged  achieving  the  MTO  “after  2010”.  After  deteriorating  by  0.5 
percentage point to 2.5% of GDP in 2008, the headline deficit is planned to improve to 
1.5% by 2010. The primary balance follows a similar path and is projected to increase 
from  −0.2%  of  GDP  in  2008  to  0.8%  in  2010.  Against  the  backdrop  of  moderating 
output  growth,  the  changes  in  the  structural  balance  calculated  according  to  the 
commonly  agreed  methodology  are  foreseen  to  be  larger,  with  the  structural  deficit 
narrowing  from  about  2¾%  of  GDP  in  2008  to  slightly  above  1%  in  2010.  The 
budgetary  adjustment  is  expenditure-based  and  back-loaded  to  2009  and  2010.  In 
2008, the deficit deterioration is mainly driven by a sharp increase in the investment 

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The  assessment  takes  notably  into  account  the  Commission  services  spring  2008  forecast  and  the 
Commission assessment of the October 2007 implementation report of the national reform programme. 
The most comprehensive and specific attempt at expenditure reform so far, proposed in 2003 and aimed 
at reducing public expenditure on social protection, public administration and state aids. Among other 
things,  the  Hausner  plan  replaced  annual  indexation  with  an  indexation  after  cumulated  inflation 
exceeds 5% or every three years (whatever comes first). 
OJ C 72, 29.3.2007, p. 13. 

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transfers  and 

in  compensation  of  employees,  social 

ratio as well as a large cut in social contributions (partly compensated by an increase 
in other revenues). In 2009-2010, the consolidation is to be achieved mainly through 
restraint 
intermediate 
consumption.  The planned rate of deficit reduction between 2007 and 2009 is lower 
than  in  the  previous  update,  however  the  starting  point  (2007)  and  each  of  the  new 
deficit targets of the March 2008 update of the convergence programme are better than 
the targets in the November 2006 update.The risks to the budgetary projections in the 
programme  appear  broadly  balanced  in  2008,  but  the  outcomes  could  be  worse  than 
projected  in  the  programme  afterwards.  The  2008  deficit  target  in  the  programme  is 
the  same  as  in  the  spring  2008  forecast  (2.5%  of  GDP).  The  2008Q1  cash  data  for 
central budget point to a revenue performance above the budgetary projections, but the 
programme  assumes  slightly  higher  growth  in  2008  than  in  the  spring  2008 
commission forecast and still mounting wage pressure in the public sector poses a risk 
for  public  finances.  On  the  other  hand,  higher  inflation  than  assumed  in  the 
programme will reduce the expenditure ratio in 2008, as expenditure is predominantly 
fixed  in  nominal  terms.  However,  in  2009,  the  higher  2008  inflation  could  stimulate 
wage growth in the public sector and lead to higher pensions and social benefits than 
assumed  in  the  programme,  further  exacerbated  by  a  reform  of  the  indexation 
mechanism which links, as from 2008, social benefits not only to consumer prices but 
also partially to wages. While deficit-increasing measures have already been adopted 
by parliament (personal income tax rate reductions), offsetting measures are vague and 
their  budgetary  impact  is  uncertain  (except  for  excise  duty  hikes  related  to  EU 
harmonisation,  which  will  not  completely  offset  the  personal  income  tax  cut).  If 
further  high  employment  growth  assumed  by  the  government  is  not  maintained,  the 
continuation  of  the  2006-2007  job-rich-growth-based  budgetary  consolidation  after 
2008 may be difficult. On the other hand, the track record for the development of the 
general government balance is good: revenues have turned out frequently higher than 
projected while expenditure plans have been under-executed. 

(6) 

(7) 

In  view  of  this  risk  assessment,  the  budgetary  stance  in  the  programme  seems 
consistent with a durable correction of the excessive deficit by 2007 as recommended 
by the Council. However, the safety margin against breaching the 3% of GDP deficit 
limit  could  not  be  ensured  within  the  programme  period.  In  addition,  the  budgetary 
stance in the programme may not be sufficient to ensure that the MTO is achieved by 
2011,  as  envisaged  in  the  programme.  As  the  economy  enjoys  favourable  growth 
conditions,  the  pace  of  adjustment  towards  the  MTO  implied  by  the  programme  is 
insufficient and needs to be strengthened in 2008 to be in line with the Stability and 
Growth  Pact.  Thereafter,  it  should  be  backed  up  with  measures.  In  addition,  should 
inflationary and wage pressures materialise, a tighter fiscal stance than foreseen in the 
programme would be required to avoid overheating. 

Poland  appears  to  be  at  low  risk  as  regards  the  sustainability  of  public  finances. 
According  to  the  projections  made  in  2005  and  based  on  the  common  methodology, 
the long-term budgetary impact of ageing is among the lowest in the EU. However, as 
from  2008,  social  benefits  will  be  indexed  not  only  to  consumer  prices  but  also 
partially  to  wages,  which  will  raise  expenditure  in  the  long-term.  The  budgetary 
position in 2007 with a small structural primary deficit, despite being better than the 
starting  position  of  the  previous  programme,  constitutes  a  risk  to  sustainable  public 
finances before considering the long-term budgetary impact of an ageing population. 
Further consolidation of public finances, including the reform of the early retirement 

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(introduction  of  “bridge  pensions”  which  limit  early  retirement  to  certain  difficult 
professions) as intended in the convergence programme, would therefore contribute to 
both  stimulating 
the 
sustainability of public finances. 

labour  activity  and  employment  and 

limiting  risks 

to 

(8) 

the  farmers’  social  fund, 

The  convergence  programme  seems  to  be  consistent  with  the  October  2007 
implementation  report  of  the  national  reform  programme.  In  particular,  both 
programmes envisage the reform of early retirement and disability benefits, the reform 
the  reorganisation  and 
of 
decentralisation of public finances, the multiannual task budgeting. The convergence 
programme does, however, not contain a qualitative assessment of the overall impact 
of the October 2007 implementation report of the national reform programme within 
the medium-term fiscal strategy (discussing, e.g., the impact on potential growth and 
employment).  Though,  the  programme  provides  systematic  information  on  the  direct 
budgetary costs of the main reforms envisaged in the national reform programme. 

the  healthcare  reform, 

(9) 

The  budgetary  strategy  in  the  convergence  programme  is  partly  consistent  with  the 
country-specific  broad  economic  policy  guidelines,  included  in  the  integrated 
guidelines,  in  the  area  of  budgetary  policies  issued  in  the  context  of  the  Lisbon 
strategy.  While  the  programme  envisages  continued  fiscal  consolidation,  further 
mechanisms to enhance control expenditure are not mentioned. 

(10)  As  regards  the  data  requirements  specified  in  the  code  of  conduct  for  stability  and 
convergence programmes, the programme has some gaps in the optional data. 

The overall conclusion is that, following the correction of the general government deficit in 
2007 and while the deficit and the debt will remain below the reference values of respectively 
3%  and  60%  of  GDP,  the  programme  envisages  a  deterioration  of  the  general  government 
balance  by  0.5  percentage  point  of  GDP  in  2008  and  a  back-loaded  progress  towards  the 
MTO  in  the  following  years  in  a  context  of  favourable  growth  prospects.  In  2008,  the 
projected structural deterioration by almost ½ percentage point of GDP is not in line with the 
Stability and Growth Pact. Given the risks to the budgetary targets from 2009, mainly due to a 
lack  of  specified  measures,  the  MTO  may  not  be  achieved  by  2011  as  planned  in  the 
programme.  Moreover,  should  inflationary  pressures  emerge,  a  tighter  fiscal  stance  than 
foreseen  in  the  programme  would  be  required.  As  regards  the  long-term  sustainability  of 
public finances, Poland appears to be at low risk, but the early retirement system is in need of 
reform. 

In view of the above assessment and the need to ensure sustainable public finances, Poland is 
invited  to  exploit  the  favourable  growth  conditions  to  strengthen  the  pace  of  structural 
adjustment towards the MTO, in particular in order to contain possible inflationary pressures, 
by  using  any  extra  revenue  and  unspent  resources  for  deficit  reduction  in  2008  and  by 
specifying  and  implementing  measures,  especially  on  the  expenditure  side,  in  the  following 
years.  

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Comparison of key macroeconomic and budgetary projections 

2006 

2007 

2008 

2009 

2010 

Real GDP 
(% change) 

HICP inflation 
(%) 

Output gap1 
(% of potential GDP) 

Net lending/borrowing vis-à-
vis the rest of the world 
(% of GDP) 

General government balance 
(% of GDP) 

Primary balance 
(% of GDP) 

Cyclically-adjusted balance1 
(% of GDP) 

Structural balance3 
(% of GDP) 

Government gross debt 
(% of GDP) 

CP Mar 2008 
COM Apr 2008 
CP Nov 2006 
CP Mar 2008 
COM Apr 2008 
CP Nov 2006 
CP Mar 2008 
COM Apr 20082 
CP Nov 2006 
CP Mar 2008 
COM Apr 2008 
CP Nov 2006 
CP Mar 2008 
COM Apr 2008 
CP Nov 2006 
CP Mar 2008 
COM Apr 2008 
CP Nov 2006 
CP Mar 2008 
COM Apr 2008 
CP Nov 2006 
CP Mar 2008 
COM Apr 2008 
CP Nov 2006 
CP Mar 2008 
COM Apr 2008 
CP Nov 2006 

6.2 
6.2 
5.4 
1.3 
1.3 
1.4 
0.5 
0.6 
0.5 
−2.6 
−2.5 
−1.6 
−3.8 
−3.8 
−3.9 
−1.1 
−1.1 
−1.5 
−4.0 
−4.0 
−4.1 
−4.0 
−4.0 
−4.1 
47.6 
47.6 
48.9 

6.5 
6.5 
5.1 
2.6 
2.6 
2.1 
1.1 
1.2 
0.5 
−2.6 
−2.6 
−1.8 
−2.0 
−2.0 
−3.4 
0.2 
0.6 
−1.0 
−2.4 
−2.5 
−3.6 
−2.4 
−2.5 
−3.6 
44.9 
45.2 
50.0 

5.5 
5.3 
5.1 
3.5 
4.3 
2.5 
0.7 
0.5 
0.3 
−3.5 
−2.3 
−2.2 
−2.5 
−2.5 
−3.1 
−0.2 
0.2 
−0.7 
−2.8 
−2.7 
−3.2 
−2.8 
−2.7 
−3.2 
44.2 
44.5 
50.3 

5.0 
5.0 
5.6 
2.9 
3.4 
2.5 
−0.2 
−0.7 
0.4 
−4.2 
−3.6 
−2.7 
−2.0 
−2.6 
−2.9 
0.3 
0.1 
−0.6 
−1.9 
−2.3 
−3.0 
−1.9 
−2.3 
−3.0 
43.3 
44.1 
50.2 

5.0 
n.a. 
n.a. 
2.5 
n.a. 
n.a. 
−0.9 
n.a. 
n.a. 
−4.6 
n.a. 
n.a. 
−1.5 
n.a. 
n.a. 
0.8 
n.a. 
n.a. 
−1.1 
n.a. 
n.a. 
−1.1 
n.a. 
n.a. 
42.3 
n.a. 
n.a. 

Notes: 
1 Output gaps and cyclically-adjusted balances according to the programmes as recalculated by Commission 
services on the basis of the information in the programmes. 
2 Based on estimated potential growth of 5.2%, 5.9%, 6.0% and 6.2% respectively in the period 2006-2009. 
3 Cyclically-adjusted balance excluding one-off and other temporary measures. There are no one-off and other 
temporary measures in the most recent programme and Commission services’ autumn forecast. 

Source: 
Convergence programme (CP); Commission services’ spring 2008 economic forecasts (COM); Commission 
services’ calculations. 

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