COMMISSION STAFF WORKING DOCUMENT Country Report Poland 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}
Date: 2017-02-22
Institutions: European Commission, Secretariat-General
Subjects: EU employment policy, EU investment, Poland, economic development, economic recovery, euro area, fiscal policy, macroeconomics, multilateral surveillance, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 22.2.2017  SWD(2017) 86 final   COMMISSION STAFF WORKING DOCUMENT  Country Report Poland 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011  {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}  
 
 
CONTENTS 

Executive summary 

1. 

Economic situation and outlook 

2. 

Progress with country-specific recommendations 

3. 

Reform priorities 

3.1.  Public finances and taxation 

3.2. 

Financial sector 

3.3. 

Labour market, education and social policies 

3.4. 

Investment 

3.5. 

Sectoral policies 

3.6.  Public administration 

A.  Overview Table 

B.  MIP Scoreboard 

C. 

Standard Tables 

References 

LIST OF TABLES 

1.1. 

2.1. 

Key economic, financial and social indicators 

Assessment of country-specific recommendations for 2016 

3.2.1.  Financial soundness indicators, all banks in Poland 

B.1. 

The MIP scoreboard for Poland 

C.1. 

Financial market indicators 

C.2. 

Labour market and social indicators - part 1 

C.3. 

Labour market and social indicators - part 2 

C.4. 

Product market performance and policy indicators 

C.5.  Green growth 

LIST OF GRAPHS 

1.1. 

1.2. 

Contributions to real GDP growth, 2006-2018 

Estimated composition of potential GDP growth, 2006-2016 

1.3.  Working age (15-74) population, 2015-2080 

1 

4 

13 

16 

16 

20 

22 

27 

30 

34 

37 

40 

41 

46 

12 

14 

20 

40 

41 

42 

43 

44 

45 

4 

5 

5 

 
 
 
 
1.4. 

1.5. 

1.6. 

1.7. 

1.8. 

Selected stock market indices, 2012-2016 

Employment, wages and unemployment rate, 2012-2016 

Current account balance by components, 2006-2016 

Net international investment position by components, 2006-2016 

Average quality rank in the 5 biggest exporting manufacturing sectors to the EU28, 2010 

and 2015 

1.9. 

GDP growth and fiscal balances (% of GDP) 

1.10. 

Yields of 10 year government bonds, 2015-2017 

3.1.1.  VAT gap in Poland and in EU-27 

3.1.2.  Medium-term public debt scenarios 

3.2.1.  Annual credit growth rates 

3.3.1.  Projected size of student cohort starting the 1st grade of general upper secondary schools 

3.3.2.  Projected pension replacement rates – the impact of lowering of the retirement age 

3.4.1.  Public and private investment, 2006-2018 

3.4.2. 

Investment by components as a % of GDP, 2006-2016 

3.4.3.  Gross investment in intangible assets as a % share of total investment (2013-2015 average) 

3.4.4. 

Local government investment 

3.5.1.  Highly-cited publications vs public R&D intensity 

3.5.2.  Annual average concentrations of benzo[a]pirene (BaP) in 2014 in ng/m³ 

3.6.1. 

Legislative practice: number of laws passed in the first year of subsequent governments by 

the promoter of the draft 

LIST OF BOXES 

1.1. 

2.1. 

State-owned enterprises (SOEs) 

Contribution of the EU budget to structural change in Poland 

3.4.1. 

Investment challenges and reforms in Poland 

3.5.1.  Selected highlights in Poland 

6 

6 

7 

8 

8 

9 

9 

17 

18 

21 

24 

26 

27 

27 

28 

28 

30 

33 

34 

10 

15 

29 

33 

 
 
 
 
EXECUTIVE SUMMARY 

This  report  assesses  Poland's  economy  in  light  of 
the  European  Commission’s  Annual  Growth 
Survey  published  on  16  November  2016.  In  the 
survey  the  Commission  calls  on  EU  Member 
States  to  redouble  their  efforts  on  the  three 
elements  of  the  virtuous  triangle  of  economic 
policy  –  boosting  investment,  pursuing  structural 
reforms and ensuring responsible fiscal policies. In 
so  doing,  Member  States  should  put  the  focus  on 
enhancing  social  fairness  in  order  to  deliver  more 
inclusive growth. 

Poland has benefitted from a very fast catch up 
process.  In  2015,  Poland's  GDP  per  capita 
expressed  in  purchasing  power  standards  reached 
69 %  of  the  EU  average,  up  from  53 %  in  2007. 
Rising  incomes  and  living  standards  have  been 
accompanied  by  gains  in  employment,  which 
reached  an  all-time  high  reducing  unemployment 
to a record low. 

The  economy  is  experiencing  strong  growth 
despite  some  weakness  in  investment.  Driven 
predominantly  by  domestic  demand,  especially 
private consumption, real GDP is expected to grow 
at  robust  rates  between  3.1 %  and  3.2 %  per  year 
in  2017  and  2018,  well  above  the  EU  average. 
These  growth  rates  add  to  a  long  period  of 
uninterrupted  economic  expansion,  since  1992  — 
with  Poland  being  the  only  EU  country  that 
weathered  the  post-2007  global  financial  and 
economic crises without undergoing a recession. 

The  overall  economic  outlook  is  positive,  with 
risks mainly related to domestic policies. Private 
consumption  is  set  to  remain  the  main  growth 
driver  in  2017,  given  rising  wages,  employment 
and fiscal transfers. Private investment is expected 
to gradually recover from its 2016 weakness due to 
strong  domestic  demand  and  a  high  degree  of 
capacity  utilisation.  The  impact  of  policy  and 
regulatory  uncertainty  is  a  key  risk  and  may  dent 
investment.  Public 
business  confidence  and 
investment 
recover  strongly 
following a decline in 2016, predominantly due to 
implementation  of  projects 
progress 
financed from the EU structural funds. Inflation is 
projected  to  pick  up  moderately,  driven  by  global 
commodity  prices  and  subdued  domestic  price 
pressures.  Export  performance  is  expected  to 
remain  robust.  However,  with  strong  domestic 
demand  fuelling  imports,  the  overall  contribution 

is  expected 

the 

to 

in 

of net exports to growth is projected to be close to 
zero. 

There  are  significant  structural  challenges  to 
the  long term  growth  outlook.  A  continued 
improvement  in  living  standards  is  more  difficult 
when the population of working age is falling and 
when  productivity  growth,  initially  facilitated  by 
transition and integration processes, becomes more 
increases 
challenging 
the 
labour  force 
importance  of  further  gains 
participation 
environment 
creating 
conducive  to  investment  and  further  productivity 
gains. Progress on these fronts depends on a range 
of policies that are discussed in this report. 

to  achieve.  This 

in 
an 

and 

the 

Overall,  Poland  has  made  limited  progress  in 
addressing 
country-specific 
2016 
recommendations (1).  No  progress  was  made  in 
addressing the extensive use of reduced VAT rates 
and  in  establishing  an  independent  fiscal  council, 
although some progress was achieved in improving 
tax  compliance.  No  progress  was  made  on 
ensuring  the  sustainability  and  adequacy  of  the 
pension  system,  including  for  special  pension 
regimes, and in fact a key recent measure goes in 
the  opposite  direction.  No  progress  was  made  on 
increasing  labour  market  participation  and  recent 
measures  may  also  go  in  the  opposite  direction. 
Limited  progress  was  reached  on  removing 
obstacles  to  investment  in  infrastructure  and  on 
spatial planning coverage. 

Regarding  progress  on  reaching 
the  national 
targets  under  the  Europe  2020  strategy,  Poland  is 
performing  well  in  the  following  areas:  emissions 
of  greenhouse  gases,  poverty,  energy  efficiency, 
tertiary  education,  reducing  early  school  leaving 
and  the  employment  rate.  Progress  is  limited  in 
R&D investment and renewable energy. 

The main findings of the analysis in this report and 
the related policy challenges are as follows: 

and 

addressing 

  Returning to fiscal consolidation in the short 
long-term 
term 
sustainability  are  key  fiscal  challenges. 
Although 
the  2016  general  government 
headline deficit is estimated to have reached its 
lowest  level  since  2007,  it  is  set  to  rebound 

(1)  This overall assessment does not include an assessment of 

compliance with the Stability and Growth Pact. 

1 

 
 
                                                           
Executive summary 

systemic  threat  to  the  rule of  law  creates legal 
uncertainty.  With  the  government  aiming  to 
increase  its  role  in  the  economy,  ensuring  the 
economic viability of investment decisions will 
be important.  

  Securing  robust  productivity  growth 

increasingly 

is 
challenging. 
becoming 
Efficiency  gains  are  harder  to  achieve  as 
Poland  gradually  catches  up  with  the  more 
developed  EU  Members  States.  Long-term 
economic  prospects  will  depend  on 
the 
country's capacity to move from the production 
of  relatively  low-technology  goods  to  more 
advanced  products  and  services.  This  will 
emphasise 
inclusive 
education  that  provides  people  with  adequate 
skills  and  competences,  and  of  improving  the 
quality  of  higher  education  and  applied 
scientific research. 

importance  of 

the 

as 

faces 

constraints 
skills 

  Despite  its  strong  performance,  the  labour 
regards 
market 
participation, 
and  mobility. 
Employment  rates  have  continued  to  increase, 
but  several  recent  policy  measures  may  act 
towards  reducing  labour  force  participation 
going forward. These disincentives are likely to 
be  concentrated  on  groups  that  are  currently 
characterised  by  employment  rates  lower  than 
the  EU  average:  women,  low-skilled  people 
and older people. Labour market segmentation 
continues  to  be  high  with  negative  effects  on 
productivity  and  the  accumulation  of  human 
capital in the longer term. With unemployment 
at a record low, lifelong learning becomes even 
more  crucial.  Geographical  and  occupational 
labour mobility is hampered by factors such as 
housing  policies, 
infrastructure, 
access  to  childcare,  skills  mismatches  and 
security 
preferential 
the  highly 
arrangements  — 
subsidised pension systems for farmers. 

sector-specific 

in  particular 

transport 

social 

the 

structural  balance 

and,  without  corrective  measures,  is  expected 
to  reach  3 %  of  GDP  by  2018.  This  would 
happen  in  the  context  of  strong  GDP  growth. 
is 
Consequently, 
expected  to  widen  significantly  in  2017-2018. 
Poland faces no major fiscal sustainability risks 
in the short term. However, risks become more 
pronounced  in  the  long  term  due  to  the 
unfavourable  initial  budgetary  position  and 
age-related  spending,  recently  aggravated  by 
the decision to significantly lower the statutory 
retirement age. 

  Despite  significant  steps  taken,  there  is  still 
scope  to 
improve  budget  revenue.  Tax 
compliance,  in  particular  as  regards  VAT,  is 
the  EU  average.  Budget 
markedly  below 
revenue  could  benefit  from  more  efficient  tax 
administration.  Many  reforms  to  address  some 
of these issues have recently been put in place. 
Their  impact  on  the  costs  of  tax  compliance 
and  revenue  collection  remains  to  be  felt. 
Poland  continues  to  use  reduced  VAT  rates 
extensively.  The  government  has  plans  to 
create  mechanisms  to  improve  the  efficiency 
and  effectiveness  of  public  spending.  The 
public finance framework lacks an independent 
fiscal council.  

support 

institutions 

  The  banking  sector  remains  solid,  and  the 
capital  market  is  the  largest  in  the  region. 
Credit 
the  country's 
economic  performance  through  balanced  loan 
growth  and  the  capital  market  is  an  important 
source  of  funding  for  companies.  The  impact 
on  bank  profitability  of  the  new  tax  on 
financial 
remained  contained. 
Moreover, proposals concerning the mandatory 
conversion  of 
foreign-currency  mortgages, 
which could affect the stability of the financial 
sector,  have  not  materialised. 
turn, 
ownership changes have led to the state having 
an increasing role in the banking sector.  

institutions 

In 

  Investment seems to be dampened by policy 
uncertainty  and  other  barriers.  Legal 
certainty, trust in the quality and predictability 
of  regulatory,  tax  and  other  policies  and 
institutions  are  important  factors  that  could 
allow  an  increase  in  the  investment  rate.  The 
rule  of  law  and  an  independent  judiciary  are 
also  essential  in  this  context.  The  current 

2 

  The efficiency of the social protection system 
income 
merits  monitoring.  Poverty  and 
inequality  were  declining  in  recent  years  and 
the  new  child  benefit  is  expected  to  further 
improve  both  indicators.  However,  there  are 
still  questions  about  the  social  protection 
incentives  for 
system's  overall  efficiency, 
the 
social 

through  work,  and 

integration 

 
 
Executive summary 

availability  of  resources 
to  support  other 
important social policy areas, such as long-term 
care. 

  Research  and  innovation  are  increasingly 
regarded  as  engines  of  long-term  growth  in 
Poland, but challenges remain. The quality of 
science  and  innovation'  outputs  are  still  far 
below EU standards. R&D investment has been 
gradually 
increasing  supported  by  public 
financing with a large role of the EU structural 
funds. 

  Poland  has  been  rapidly 

in 

but 

key 

improving 

bottlenecks 
Despite 

its 
infrastructure, 
structural 
bottlenecks persist. EU funding has facilitated 
the  fast  development  of  the  road  network,  but 
the  road fatality rate is still  among  the  highest 
in the EU. The railway sector continues to face 
challenges 
project 
and 
gradual 
implementation. 
improvement,  the  Polish  economy  remains 
the  power 
energy-  and  carbon-intensive; 
generation 
is  ageing,  power 
generation  is  heavily  reliant  on  coal  and  may 
be  insufficient  to  match  projected  growing 
electricity  demand.  Recent  policy  initiatives 
may  limit  the  potential  for  the  renewable 
energy  generation.  Improving  Poland's  air 
quality,  currently  among  the  worst  in  the  EU, 
remains a major challenge.  

infrastructure 

a 

  Poland 

is 

in 

gradually 

improving 

environment 

in 
international  'doing  business'  rankings,  but 
the  regulatory  framework  weighs  on  the 
business 
some  areas. 
Frequent  changes  in  regulations  often  passed 
with  limited  public  consultations  impact  on 
business  confidence.  The  weakness  of  spatial 
planning 
administrative  burden 
related  to  construction  permits.  The  business 
environment  is  also  affected  by  shortcomings 
in  the  justice  system  which  contribute  to 
lengthy 
contract 
enforcement.  In  its  Strategy  for  Responsible 
Development  the  government  has  proposed  a 
number  of  measures  to  make  it  easier  to  do 
business. 

legal  proceedings 

increases 

and 

3 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth 

Poland is experiencing strong economic growth. 
Domestic  demand  has  been  the  dominant  growth 
driver since 2014. In 2016, following a contraction 
in  investment  activity,  GDP  growth  supported  by 
private consumption was 2.8 %, well above the EU 
average.  Private  consumption  expenditure  has 
benefited  from  very  favourable  labour  market 
conditions, a significant increase of social transfers 
and low lending rates. 

Graph 1.1:  Contributions to real GDP growth, 2006-2018 

3.1 %  in  2018,  just  above  potential.  Private 
consumption  is  set  to  rise  strongly  in  2017,  and 
moderate 
in  2018  as  employment  growth 
decelerates and the temporary effects of new social 
transfers fade out. Public investment is expected to 
rebound strongly in 2017 and 2018 on the back of 
a  higher  utilisation  of  EU 
funds.  Private 
investment  is  projected  to  recover  gradually, 
helped  by  solid  domestic  demand  and  an  outlook 
for further export gains. This will also be driven by 
relatively  high  capacity  utilisation,  still  solid 
corporate  profits  and  low  interest  rates.  However, 
investment  decisions  are  likely  to  be  affected  by 
uncertainty about the future direction of economic 
policies.  The  main  risks  in  this  scenario  are  the 
prolongation  of  uncertainty,  which  may  start 
affecting  not  only  business  but  also  household 
spending  decisions,  and  the  very  limited  fiscal 
space  available  to  react  to  possible  negative 
shocks. 

Potential growth 

Poland  has  experienced  fast  per-capita  income 
convergence  with  the  EU  in  recent  years.  GDP 
per capita in purchasing power standards increased 
from 53 % of the EU-28 average in 2007 to 69 % 
in  2015 (2).  Poland  (alongside  Lithuania  and 
Romania)  was  thus  the  country  with  the  fastest 
catch-up  process.  Estimated  potential  growth  has 
stabilised at around 3 % since 2013. Together with 
stable capital accumulation and solid gains in total 
slowdown 
factor  productivity 
observed  since  2012),  labour  has  also  contributed 
positively to potential growth (see Graph 1.2). This 
falling  natural 
was  mainly  driven  by  a 
force 
unemployment 
participation  that  more  than  compensated  for  a 
decrease in the working age population. 

rate  and 

(despite 

labour 

rising 

the 

limit  growth  potential 

A  decrease  in  the  working  age  population  is 
expected  to 
in  the 
decades to come. Fewer people aged 15-45 means 
that even if fertility rates were at the highest level 
currently observed in the EU (2 instead of 1.32, as 
in  2014),  this  would  not  change  the  negative 
outlook for the working age population (see Graph 
1.3).  With  the  natural  unemployment  rate  already 
low, labour force participation is a key factor in at 

(2)  Purchasing  power  standards  is  the  artificial  common 
level 

that  eliminates  price 

reference  currency  unit 
differences between countries. 

Source: Eurostat, European Commission 

2016, 

strong 

activity 

contraction 

investment 

In 
declined 
significantly  due  to  a  low  utilisation  of  the  EU 
structural  funds  and  increased  uncertainty. 
in  2016,  with  a 
Investment  fell  by  5.5 % 
particularly 
public 
of 
investment  (estimated  at  around  -15 %).  This  was 
mainly related to the slow start of projects financed 
by  the  EU  structural  funds  in  the  2014-2020 
investment  also 
programming  period.  Private 
to 
weakened 
decreased  activity  by  state-owned  and  state-
influenced  enterprises.  The  slowdown  of  private 
investment  appears  to  be  related  to  increased 
uncertainty  about  the  future  course  of  economic 
policies 
taxation,  strategic 
decisions  on  energy  policy  and  the  role  of  state-
owned enterprises). 

(e.g.  changes 

substantially, 

especially 

due 

to 

The 
short-term  growth  outlook  remains 
favourable,  with  some  risks  to  the  downside. 
GDP  growth  is  projected  at  3.2 %  in  2017  and 

4 

-4-2024681006070809101112131415161718%, ppsInventories investmentInvestment (GFCF)ConsumptionNet exportsReal GDP growthforecast 
 
 
                                                           
1. Economic situation and outlook 

least  partly  mitigating  the  effects  of  a  decreasing 
working  age  population.  Immigration  can  be 
another factor improving the employment outlook.  

Graph 1.2: 

Estimated composition of potential GDP 
growth, 2006-2016 

from  low-productive  agriculture  to  other  sectors. 
This  emphasises  the  importance  of  addressing 
mobility barriers caused by e.g. very limited skills 
upgrades and some features of the special pension 
regime  for  farmers.  Other 
important  factors 
include improvements in the quality of human and 
physical capital and business’ ability to adopt new 
technologies and to innovate. 

Graph 1.3:  Working age (15-74) population, 2015-2080 

Source: European Commission 

the  end  of 

The  medium-  to  long-term  investment  outlook 
hinges  on  a  number  of  policy-related  factors. 
Significant  contributions  from  EU  funds  should 
help  support  public  investments  in  coming  years, 
but fiscal space will be needed to maintain public 
investments  after 
the  2014-2020 
programming  period  for  EU  funding.  A  stable 
development  of  the  banking  sector,  but  also  of 
capital  markets,  would  secure  sources  of  funding 
and  create  conditions  conducive  for  household 
savings  increase.  Legal  certainty,  trust  in  the 
quality  and  predictability  of  regulatory,  tax  and 
other  policies  and  institutions  are  an  important 
factor  in  the  assessment  of  risks  related  to 
investment  decisions.  All  these  factors,  alongside 
the  macroeconomic  outlook  and  stability,  will 
ultimately  determine  investment  decisions.  There 
are  also  strong  links  between  investment  and  the 
availability  of  skilled  labour  and  productivity 
growth (see Section 3.4.). 

After several years of fast productivity growth, 
further  increases  will  be  more  difficult  to 
achieve.  The  slowdown  in  productivity  in  recent 
years is a phenomenon observed in many advanced 
economies.  Continued  productivity  gains  depend, 
inter alia, on the inter-sectoral  mobility of factors 
of production, including the reallocation of labour 

5 

(1) Zero-migration variant of the Eurostat's 2013 population 
projection. (2) High fertility scenario assumes fertility rate 
rising from current levels to reach 2 by 2020 and staying at 2 
throughout the projection period. 
Source: Eurostat, European Commission 

and 

and 

reforms 

stability 

structural 

Macroeconomic 
the 
implementation  of  structural  reforms  are 
crucial  for  keeping  potential  growth  high.  As 
reiterated  in  the  2017  Annual  Growth  Survey, 
pursuing 
ensuring 
responsible  fiscal  policies  are  important  elements 
of  economic  policy.  Whether  Poland’s  economy 
will  be  able  to  continue  the  catching-up  process 
will  depend  on 
the 
the  extent 
sustainability  of  public  finances  can  be  ensured, 
taking into account expected future costs related to 
an  ageing  population  and  the  adequacy  of  future 
pensions. This will also depend on maintaining the 
soundness  of  the  financial  sector,  ensuring  social 
fairness, including by stronger promotion of labour 
market  participation 
the  social  protection 
in 
system,  and  success  in  implementing  a  range  of 
other structural reforms. Key reform areas include 
the 
addressing  challenges  related 
the  public 
adequacy  of 

skills,  quality  of 

to  ageing, 

to  which 

00.511.522.533.544.550607080910111213141516TFPCapitalLabourPPS15171921232527292015202520352045205520652075zero-migration variantzero-migration with fertilityrate equalling 2-19%by 2050-12%by 2050millions  
 
 
1. Economic situation and outlook 

Labour market 

to 

the 

low 

labour 

continued 

conditions 

Labour  market 
to 
improve  in  2016.  Employment  increased  by  an 
estimated  0.9 %,  which  marked  the  third  year  of 
strong  job  growth  (Graph  1.5).  Employment  rates 
reached record highs, while still staying below the 
EU  average  due 
force 
participation of certain groups. The unemployment 
rate  continued  to  decline  in  2016,  reaching  5.9 % 
in the third quarter, a record low since comparable 
data are available. This was accompanied by rather 
modest  nominal  wage  growth  of  around  3 % 
throughout  2015  and  into  early  2016.  From  the 
second  quarter  of  2016  onwards,  wage  growth  in 
the  whole  economy  increased  to  above  4 %  in 
terms.  However,  since  wages  have 
nominal 
increased  broadly  in  line  with  productivity  over 
recent  years,  Poland  has  experienced  only 
moderate  growth  in  unit  labour  costs  with  little 
effect on cost competitiveness. 

Graph 1.5: 

Employment, wages and unemployment rate, 
2012-2016 

Source: Eurostat and Central Statistical Office 

Several  recently 
introduced  or  announced 
measures  are  expected  to  limit  labour  force 
participation.  A  lowering  of  the  retirement  age, 
an  increase  of  the  school  starting  age,  a  new 
the 
universal  child  benefit, 
preschool  obligation  for  five-year-olds  and  a 
significant  increase  of  the  minimum  wage  are  all 
expected  to  limit  labour  force  participation.  The 
relative  importance  and  time  horizon  of  these 
effects will differ. Work disincentives are expected 
that  already  have 
in  particular 

the  abolition  of 

for  groups 

administration,  and  functioning  of  state-owned 
enterprises (see Section 3 and Box 1.1). 

Price developments 

The  period  of  consumer  price  deflation  has 
come  to  an  end,  but  price  pressures  are  set  to 
remain  subdued.  The  deflation  that  started  in 
mid-2014  came  to  an  end  in  late  2016,  with 
inflation  standing  at  0.9 %  in  December  2016. 
Recent  price  developments  were  to  a  significant 
extent driven by swings in global prices of energy 
commodities.  In  2017  and  2018,  consumer  prices 
are expected to pick up only moderately remaining 
below  2.5 %,  which  reflects  very  limited  demand 
pressure,  low  foreign  inflation,  and  a  gradual  rise 
of wages. 

Graph 1.4: 

Selected stock market indices, 2012-2016 

(1) Rebased, average 2010 level = 100 
Source: IHS DataInsight 

Asset  prices  remained  stable  in  2016.  House 
prices have remained broadly flat throughout 2016, 
with  both  demand  and  supply  at  historically  high 
levels. Mortgage lending increased modestly, with 
a  substantial  proportion  of  transactions  financed 
without  the  use  of  bank  loans.  In  2016,  the  stock 
market  did  not  recover  from  heavy  losses  in  the 
second half of 2015 (Graph 1.4). The weakness of 
the  Warsaw  Stock  Exchange  was  related  to  a 
combination  of  factors,  including  low  commodity 
prices, uncertainty regarding government influence 
on  listed  companies  with  a  substantial  share  of 
state  ownership  (see  Box  1.1),  uncertainty  about 
future fate of the open pension funds, and on future 
government  regulation  of  the  financial  sector,  in 
particular concerning foreign currency mortgages. 

6 

406080100120140160Feb-12May-12Aug-12Nov-12Feb-13May-13Aug-13Nov-13Feb-14May-14Aug-14Nov-14Feb-15May-15Aug-15Nov-15Feb-16May-16Aug-16Nov-16PolandCzech RepublicHungaryEurozone-2024681012employment growth y-o-ynominal wage growth y-o-yunemployment rate% 
 
 
1. Economic situation and outlook 

Poland up to 2015 may be linked to the substantial 
growth of employment and some wage growth in a 
deflationary  environment.  Changes  in  the  benefit 
system  (mainly  a  new  child  benefit)  introduced 
since  2016  are  likely  to  have  further  lowered 
inequality,  but  relevant  data  are  not  yet  available 
(see  Section  3.3).  Inequality  in  net  wealth (5)  was 
within  the  range  observed  in  several  other  EU 
countries  for  which  data  were  collected  in  2013-
2014 (ECB 2016). 

External position 

Poland’s  external  position  improved  with  a 
current  account  close  to  balance  in  2015  and 
stable  thereafter.  This  was  mainly  driven  by  a 
gradual  increase  in  the  services  trade  surplus 
(Graph 
of 
telecommunications,  computer,  information  and 
business  services  has  been  particularly  strong  in 
2015-2016. Strong merchandise exports and a fall 
in  energy  commodity  prices  translated  into  a 
positive balance of trade in goods in 2015. 

performance 

1.6). 

The 

Graph 1.6:  Current account balance by components, 

2006-2016 

* For the year 2016 - data till Q3-2016 
Source: Eurostat 

employment  rates  below  the  EU  average.  This 
includes 
the  population  aged  55  and  over, 
low-skilled people, and women including those of 
child-bearing age (see Section 3.3). 

age 

Labour market tightening is expected to lead to 
faster  wage  increases  and  the  possibility  of 
labour  shortages.  The  combination  of  a  falling 
low 
working 
record 
population, 
unemployment,  measures  discouraging 
labour 
force  participation  and  skill  shortages  among 
people  who  are  currently  economically  inactive 
leads to projected employment growth decelerating 
further  in  2017  and  stagnating  in  2018.  This  is 
expected  to  be  accompanied  by  faster  wage 
growth,  as  employers  find  it  increasingly  difficult 
to  fill  vacancies  with  workers  who  have  the 
necessary  skills  and  competencies.  In  subsequent 
years, 
to  be 
determined  by  migration  flows,  both  outward  and 
inward,  and  the  mobility  of  labour  both  across 
sectors and geographically (see Section 3.3). Other 
important factors are encouraging the employment 
of  older  people  and  equipping  people  with  better 
skills  and  competencies,  ranging  from  basic  skills 
in  numeracy  and  literacy  to  entrepreneurial  and 
digital skills. 

trends  are  set 

labour  market 

Inequality 

Inequality  has  fallen  below  the  EU  average, 
following  several  years  of  robust 
income 
growth.  Income  inequality  has  steadily  decreased 
since the mid-2000s to stand slightly below the EU 
average in 2015 (3). This accompanied fast growth 
of  median  income  and  the  income  of  the  lowest 
10 % income group (1st income decile), even if in 
real  terms  median  income  growth  was  minimally 
slower than the growth of GDP per capita. The gap 
between  incomes  in  the  1st  income  decile  and  the 
median  was  below  the  EU  average.  The  upward 
income mobility for people in the 1st income decile 
2015 (4).  The 
improved 
improvement  in  various  inequality  indicators  for 

substantially 

in 

(3)  As measured by the Gini coefficient of income, as well as 
by  the  ratio  of  income  of  high  earners  to  low  earners 
(S80/S20). In 2015, the latter ratio equalled 4.9, below the 
EU  average  of  5.2.  S80/S20  is  the  ratio  of  total  income 
received  by  the  20 %  of  the  population  with  the  highest 
income to that received by the 20 % of the population with 
the lowest income. 

(4)  An  upward  income  mobility  is  measured  by  the  share  of 
population  who  were  in  the  1st  income  decile  but  moved 
upwards over the three year period (up to 2015). 

Poland’s  negative  net  international  investment 
position  (NIIP)  narrowed  visibly  in  2015-2016. 
The  private  sector’s  large  contribution  decreased 
during  this  period.  An  accumulated  stock  of 
foreign  direct  investments  constitutes  the  major 

(5)  Difference between total assets and total liabilities. 

7 

-10-8-6-4-202468Trade balance - goodsTrade balance - servicesPrimary income balanceSecondary income balanceCapital account (KA)Trade balance (G&S)Current accountNet lending/borrowing (CA+KA)% of GDP 
                                                           
 
 
                                                           
1. Economic situation and outlook 

products.  The 

computer,  electronic  and  optical  products  and 
furniture 
and 
intensification  of  this  trend  will  be  an  important 
driving factor for the export outlook, given that the 
expected  acceleration  of  wage  growth  is  likely  to 
put pressure on cost competitiveness. 

continuation 

Graph 1.8:  Average quality rank in the 5 biggest 

exporting manufacturing sectors to the EU28, 
2010 and 2015 

Source: European Commission calculations based on 
Comext and Orbis databases 

Public finances 

gradual 

growth-friendly 

The 
fiscal 
consolidation has come to an end. Between 2012 
and  2015,  Poland  succeeded 
in  significantly 
reducing  its  structural  fiscal  deficit,  while  at  the 
same  time  ensuring  a  rebound  and  subsequent 
strengthening of economic growth with a gradually 
closing  output  gap.  This  appears  to  have  come  to 
an  end  in  2016  and  the  winter  2017  Commission 
forecast  suggests  a  strong  widening  of 
the 
structural  deficit  despite  a  stabilisation  of  GDP 
growth  rates  close  to  Poland’s  potential  growth 
rate (Graph 1.9). 

part  of  the  NIIP,  amounting  to  close  to  36 %  of 
GDP and more than half of the NIIP (Graph  1.7). 
This  limits  the  potential  risks  associated  with  a 
highly negative position, as rapid and large swings 
in  international  capital  flows  that  can  destabilise 
markets  are  less  likely  in  the  case  of  direct 
investments.  The  NIIP  is  expected  to  further 
decline in coming years. 

Poland’s  export  market  share  has continued to 
rise. Poland’s share of world exports increased by 
close to 40 % between 2005 and 2015, which was 
one  of  the  fastest  improvements  in  the  EU.  Cost 
competitiveness  was  supported  by  the  contained 
growth  of  unit  labour  costs  and  the  relative 
stability of the euro-zloty exchange rate, with some 
weakening in 2015-2016. Export growth gradually 
decelerated during 2016. 

Graph 1.7:  Net international investment position by 
components, 2006-2016 

Source: NBP, Eurostat, European Commission's calculations 

that  export  gains  were 

Some  sectors  are  moving  towards  high-tech, 
high-quality exports, but overall exports remain 
concentrated  in  low-  and  medium-technology 
products.  Relatively  low  production  costs  in 
Poland  due  to  low  labour  and  other  input  costs 
imply 
in  general 
concentrated  on  low-  and  medium-technology 
products. The average quality of Polish exports in 
the  five  sectors  with  the  most  exports  to  the  EU 
market  was  below 
for  EU 
the 
imports (Graph  1.8)  (6).  Nevertheless,  there  was  a 
gradual  move  towards  higher  value  added,  higher 
in  some  sectors,  such  as 
quality  products 

average 

(6)  The  quality  is  proxied  by  an  index  estimated  using  the 

methodology of Vandenbussche (2014). 

8 

-120-100-80-60-40-2000607080910111213141516-Q3% of GDPNet portfolio investment, equity and investment fund shares/unitsNet portfolio investment, debt securitiesOther investment and derivatives (net)Net direct investmentNet portfolio investment, debt securitiesNet int'l investment positionMarketable debt (portfolio debt instr., other invest. and res. assets, net)15.4%10.8%9.9%7.9%6.7%0%5%10%15%20%0.00.51.0MotorVehicles,Trailers AndSemi-TrailersFoodProductsComputer,Electronic AndOpticalProductsElectricalEquipmentMachineryAndEquipmentN.E.C.Average Quality Rank (1 = highest)201020152015 share in total  manufacturing exports to EU 28 (rhs) 
 
                                                           
 
1. Economic situation and outlook 

Graph 1.9:  GDP growth and fiscal balances (% of GDP) 

to reach around 56 % of GDP in 2018, mainly as a 
result of the increasing deficits. 

Graph 1.10:  Yields of 10 year government bonds, 2015-

2017 

Source: AMECO 

(1) monthly averages 
Source: Eurostat 

Interest  rates  on  government  debt  increased 
relative  to  other  EU  countries  with  negative 
implications  for  future  debt  service  costs. 
Interest  rates  on  Polish  debt  rose  substantially 
relative  to  regional  peers  during  the  period  2015-
2016  (Graph  1.10).  In  late  2016,  interest  rates  on 
Polish  debt  were  among  the  highest  in  the  EU. 
This appears to be partly driven by internal factors, 
notably the worsening fiscal outlook. 

drop 

public 

significant 

The  pursuit  of  an  expansionary  fiscal  policy  in 
2017-2018  comes  with  certain  risks.  Poland’s 
headline  general  government  deficit  has  been 
gradually  decreasing  for  the  last  five  years,  to 
stand  at  an  estimated  2.3 %  of  GDP  in  2016,  its 
lowest  level  since  2007.  The  2016  decrease 
resulted mainly from one-off revenue from the sale 
of mobile internet frequencies (0.5 % of GDP) and 
a 
investment 
in 
the 
expenditure.  Looking  forward,  based  on 
Commission  winter  2017  forecast,  the  deficit  is 
projected  to  widen  to  2.9 %  of  GDP  in  2017  and 
3.0 %  of  GDP  in  2018.  This  development  is 
expected  to  be  driven  mainly  by  increased  social 
spending  (a  lowering  of  the  retirement  age  and  a 
universal  child  benefit).  Simultaneously, 
the 
outcome  of  Poland’s  continued  efforts  to  further 
improve  tax  collection  remains  uncertain.  The 
current  expansionary  fiscal  stance  risks  leaving 
very  limited  fiscal  space  to  absorb  potential 
negative shocks. 

The  general  government  debt-to-GDP  ratio 
continued  its  upward  trend  but  remains  below 
60 %.  Since  a  drop  to  50.2 %  of  GDP  in  2014, 
which  was  mainly  due  to  a  one-off  transfer  of 
funds  from  the  private  pension  system (7),  the 
general  government  debt  level  has  continued  to 
rise.  It  reached  more  than 51 %  of  GDP  in  2015 
and  according  to  Commission  estimates  exceeded 
53 % of GDP in 2016. The public debt is expected 

(7)  Under ESA 2010 rules this statistically counted as a public 

debt reducing measure.  

9 

0.01.02.03.04.05.06.07.08.020092011201320152017structural fiscal deficitGDP growthheadline fiscal deficitforecast00.511.522.533.544.5BGHRCZHUROPLSK% 
 
                                                           
 
1. Economic situation and outlook 

(Continued on the next page) 

10 

 Box 1.1: State-owned enterprises (SOEs)SOEs form a large part of the Polish economy, are dominating certain sectors and their role might increase even further. Poland is among the group of EU Member States where SOEs play an important role (1). During its economic transformation Poland underwent extensive privatisation. However, this process slowed down during the 2010s and stalled in 2014. The list of companies of ‘strategic importance’ under Ministry of Treasury special surveillance includes 30 SOEs. In total there are several hundreds of companies in public ownership. SOEs are widespread across sectors and their market value relative to GDP is amongst the highest in the EU. Their share in total employment is sizeable but not outstanding compared to other Member States. 18 SOEs are listed at the Warsaw Stock Exchange (WSE) and have a share of around 57% in the WIG20 index (see Graph 1a). Some of them are among the largest firms not only in Poland but also in Central and Eastern Europe, and are dominant players in sectors such as energy, rail and forestry (2). The government intends to increase the role of SOEs even further. In the financial sector, state-controlled institutions have been taking over banks from private investors, increasing the share of government-controlled banks in bank assets from around 16% in 2010 to 36 % after acquiring Pekao S.A. by PZU S.A. in 2016. Graph 1: The role of SOEs in the Polish economy by main stock market indices and sectoral performance  1) Data on return on equity come only from entities which employ more than 49 persons  2) SOE on stock exchanges- companies, in which state has at least 10% share (directly or indirectly); companies which belong to foreign SOE's are not perceived as SOEs Source: European Commission calculations based of ORBIS database  for share of SOE in the main stock market indices; the Ministry of Development for return on equity in private and public sector While profitable overall, SOEs tend to perform slightly worse compared with their private competitors. Although the scope of possible conclusions is limited by comparability of circumstances, private firms tend to somewhat outperform SOEs (see Graph 1b). Efficiency indicators suggest lower profitability of Polish SOEs relative to their private counterparts, especially in certain sectors such as mining, transport and manufacturing. In the banking and insurance sectors, performance of state-owned and private entities used to be on par e.g. concerning return-on-equity (ROE) and return-on-assets (ROA) as well as regulatory capital ratios and the shares of non-performing loans (NPLs).                                                             _1) SOEs feature prominently in some new Member States such as Poland, Croatia, Romania, Slovenia but also in France, Italy and Sweden, whereas their role is very limited in other MSs such as the Netherlands, Estonia or the UK (European Commission, 2016f). (2) In terms of yearly turnover 17 out of the biggest 25 at the 2015 Wprost list (Wprost, 2015) and 13 out of 25 at the 2014 Forbes list (Forbes, 2014) are SOEs. -10-50510152025OTHER SERVICE ACTIVITIESARTS, ENTERTAINMENT AND…ADMINISTRATIVE AND SUPPORT…PROFESSIONAL, SCIENTIFIC AND…REAL ESTATE ACTIVITIESINFORMATION AND…ACCOMMODATION AND FOOD…TRANSPORTATION AND STORAGEWHOLESALE AND RETAIL TRADE;…CONSTRUCTIONWATER SUPPLY; SEWERAGE,…ELECTRICITY, GAS, STEAM AND…MANUFACTURINGMINING AND QUARRYINGAGRICULTURE, FORESTRY AND…1b Return on equity, 2014PrivatePublic12*08142432566901020304050607080SKFRDECZITHUPL*1a Share of SOEs in the main stock market indices* with takeover by gov.-contr. PZU of Pekao S.A. 
 
 
 
 
 
1. Economic situation and outlook 

Box (continued) 

11 

 The quality of SOE governance, which ultimately determines the companies’ performance and the scope for fiscal and financial risks, has so far been perceived as relatively good with potential for improvement in some areas. Although mainly driven by the capital market development and a mean of privatisation, the SOEs listing has also contributed to improved performance and governance (e.g. better qualified management teams being able to introduce operational efficiencies, increased disclosure and reporting requirements). Until recently, oversight was organised with a fairly centralised role of the Ministry of Treasury, which issued and improved guidance on corporate governance (management priorities, board composition, etc.). It monitored annual reports, albeit at an aggregate level. However, despite positive governance developments, access to information was perceived as low, the accountability and transparency of non-listed companies lagged behind that of those listed, and the application of guidelines on board member nominations (e.g. professional merits) was questioned in several cases (OECD, 2016a). Stock market analysts give various examples of government policy objectives appearing to have prevailed over the economic interests of SOEs and their non-state shareholders, including pension funds, and hence most of the population. These examples include the introduction of a tax on copper and silver extraction in 2012, an increase in the share capital of one energy company in 2016, and the involvement of the energy sector SOEs in the restructuring of coal mining companies facing economic difficulties in 2015-2016 (Wise-Europa, 2016). The subsequent lessons for market participants include: i) fair competition in sectors with strong SOE presence can be difficult, ii) political interests can prevail over companies’ economic interests, and iii) private investment in SOEs is associated with high risk of loss of value with implications for SOEs valuations. The SOE governance in Poland is to be overhauled from 2017 onwards, which paves the way for the government’s intention to increase the role of SOEs in the economy. The January 2017 reform contains two key elements: i) the transfer of final oversight rights from the dissolved Ministry of Treasury to the Prime Minister’s Office and ii) the transfer of the supervision of SOEs to sectoral ministries (3). The latter does not necessarily follow the OECD guidelines (4) and comes with the risk of mixing political and economic objectives, potentially weighing on performance. The SOE Council, to be appointed by the Prime Minister, will have a decisive vote on management and supervisory appointments and will issue opinions on governance policies. The law also explicitly puts an end to the privatisation process, assigning to the SOEs certain responsibility for carrying out certain tasks stemming from state's economic policies. In addition, some uncertainty remains regarding the future fate of Open Pension Funds (OFEs) and their assets. In recent years, market participants were concerned with the potential nationalisation of part of OFEs assets, with the state effectively taking over control of several companies. Given the importance of SOEs in the stock market, its recent underperformance compared with other regional indices may reflect market uncertainty about the state's plans concerning ownership policy (Berenberg Bank, 2016). Finally, the reported intention to investigate former privatisation cases has casted doubt on the duration and certainty of government decisions and existing contracts (5).                                                            (3) In the energy sector, the reallocation of the SOE governance from Treasury to the Ministry of Energy already took place in the first half of 2016. (4) According to the OECD guidelines on SOE governance, centralisation of ownership rights helps its more consistent implementation, is beneficial for financial reporting, and is an effective way to clearly separate the exercise of the ownership function from other potentially conflicting activities performed by the state, particularly market regulation. (5) Examples are PKP Energetyka S.A., Ciech S.A. and KGHM Polska Miedź SA.  
 
 
 
 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic, financial and social indicators 

(1) Sum of portfolio debt instruments, other investment and reserve assets 
(2,3) domestic banking groups and stand-alone banks. 
(4) domestic banking groups and stand alone banks, foreign (EU and non-EU) controlled subsidiaries and foreign (EU and 
non-EU) controlled branches. 
(*) Indicates BPM5 and/or ESA95 
Source: European Commission,  ECB 

12 

2004-20082009201020112012201320142015201620172018Real GDP (y-o-y)5.22.83.65.01.61.43.33.92.83.23.1Private consumption (y-o-y)5.53.62.73.10.70.32.43.23.63.92.9Public consumption (y-o-y)4.03.53.1-1.8-0.32.54.12.33.72.42.5Gross fixed capital formation (y-o-y)11.7-2.70.08.8-1.8-1.110.06.1-5.52.75.3Exports of goods and services (y-o-y)9.5-5.913.17.94.66.16.77.77.36.06.4Imports of goods and services (y-o-y) 11.6-12.414.35.8-0.31.710.06.67.96.46.9Output gap0.01.51.22.10.2-1.3-1.1-0.2-0.20.20.4Potential growth (y-o-y)3.74.03.94.23.53.03.03.02.72.82.9Contribution to GDP growth:Domestic demand (y-o-y)5.92.22.33.40.00.44.13.51.73.23.2Inventories (y-o-y)0.3-2.51.90.9-0.5-1.00.5-0.21.10.00.0Net exports (y-o-y)-1.03.1-0.60.72.11.9-1.30.6-0.10.00.0Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.20.30.40.60.60.60.60.50.40.30.3Capital accumulation (y-o-y)1.41.91.82.01.71.41.61.71.31.31.3Total factor productivity (y-o-y)2.11.81.81.61.20.90.80.91.01.21.3Current account balance (% of GDP), balance of payments-5.0-4.0-5.4-5.2-3.7-1.3-2.1-0.6...Trade balance (% of GDP), balance of payments-2.9-0.8-2.1-2.2-0.61.91.43.1...Terms of trade of goods and services (y-o-y)0.93.2-1.5-1.5-1.21.11.92.41.5-0.8-0.1Capital account balance (% of GDP)0.71.61.82.02.22.32.42.4...Net international investment position (% of GDP)-46.5-57.3-65.1-62.4-65.3-68.9-69.1-62.5...Net marketable external debt (% of GDP) (1)-12.4-22.3-24.4-25.2-25.9-26.2-25.6-23.9...Gross marketable external debt (% of GDP) (1)38.347.050.854.454.353.355.154.2...Export performance vs. advanced countries (% change over 5 years)68.945.834.925.713.69.413.212.07...Export market share, goods and services (y-o-y)8.70.3-1.7-1.4-2.35.85.12.5...Net FDI flows (% of GDP)-3.2-1.8-1.8-2.6-1.2-0.8-2.4-2.1...Savings rate of households (net saving as percentage of net disposable income)1.92.82.4-1.1-1.1-0.1-0.5-1.0...Private credit flow, consolidated (% of GDP)8.04.44.36.64.93.24.63.4...Private sector debt, consolidated (% of GDP)50.567.169.773.973.475.578.178.8...of which household debt, consolidated (% of GDP)19.931.634.235.134.135.135.636.1...of which non-financial corporate debt, consolidated (% of GDP)30.735.535.538.839.340.442.542.7...Corporations, net lending (+) or net borrowing (-) (% of GDP)0.65.56.05.86.48.16.88.16.97.67.7Corporations, gross operating surplus (% of GDP)22.023.924.024.624.625.025.325.825.125.125.3Households, net lending (+) or net borrowing (-) (% of GDP)-1.4-0.3-1.7-3.7-4.0-2.5-3.1-3.0-2.5-2.7-2.6Deflated house price index (y-o-y).-5.3-6.1-4.6-6.6-4.81.12.9...Residential investment (% of GDP)3.53.43.23.03.23.03.03.1...GDP deflator (y-o-y)3.43.81.73.22.30.30.50.60.71.62.1Harmonised index of consumer prices (HICP, y-o-y)2.84.02.63.93.70.80.1-0.7-0.22.02.1Nominal compensation per employee (y-o-y)4.13.48.95.33.61.72.21.13.94.75.3Labour productivity (real, person employed, y-o-y)2.22.46.44.41.51.51.52.4...Unit labour costs (ULC, whole economy, y-o-y)1.90.92.40.82.00.20.6-1.22.01.82.1Real unit labour costs (y-o-y)-1.4-2.80.7-2.3-0.3-0.10.1-1.81.30.20.0Real effective exchange rate (ULC, y-o-y)5.2-20.59.3-2.9-3.20.20.4-3.8-2.70.80.3Real effective exchange rate (HICP, y-o-y)4.8-14.76.0-2.2-2.40.21.0-2.1-3.5-1.2.Tax rate for a single person earning the average wage (%)27.624.424.624.624.723.723.823.9...Tax rate for a single person earning 50% of the average wage (%)25.0*22.222.422.522.720.821.021.2...Total Financial sector liabilities, non-consolidated (y-o-y)16.78.713.04.97.67.10.53.7...Tier 1 ratio (%) (2).12.611.511.212.013.413.214.0...Return on equity (%) (3).9.112.513.811.79.78.66.4...Gross non-performing debt (% of total debt instruments and total loans and advances) (4).6.46.46.06.46.05.45.0...Unemployment rate13.58.19.79.710.110.39.07.56.35.64.7Long-term unemployment rate (% of active population)7.32.63.03.64.14.43.83.0...Youth unemployment rate (% of active population in the same age group)29.020.623.725.826.527.323.920.818.2..Activity rate (15-64 year-olds)63.764.765.365.766.567.067.968.1...People at risk of poverty or social exclusion (% total population)37.427.827.827.226.725.824.723.4...Persons living in households with very low work intensity (% of total population aged below 60)11.26.97.36.96.97.27.36.9...General government balance (% of GDP)-3.6-7.3-7.3-4.8-3.7-4.1-3.4-2.6-2.3-2.9-3.0Tax-to-GDP ratio (%)34.332.032.332.732.932.832.933.334.034.334.3Structural budget balance (% of GDP)..-8.0-5.9-3.9-3.3-2.7-2.4-2.6-3.1-3.3General government gross debt (% of GDP)45.849.453.354.453.755.750.251.153.654.555.8forecast 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

Overall, Poland has made limited progress (9) in 
addressing  the  2016  CSRs.  Except  for  some 
progress achieved in improving tax compliance, no 
progress was made in addressing recommendations 
related  to  public  finance.  Additionally,  a  new 
challenge  to  the  long-term  sustainability  of  the 
pension  system  due  to  lowering  of  the  retirement 
age is in striking contrast to the CSR. At the same 
time,  no  progress  was  made  on 
increased 
participation  in  the  labour  market.  What  is  more, 
several  measures  in  this  area  go  in  the  opposite 
direction. There was limited progress on removing 
obstacles  to  investment  in  infrastructure  and  on 
spatial planning coverage. 

(9)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the Overview Table in the Annex. This 
overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact. 

with 

to  Poland 

implementing 

the 
Progress 
recommendations  addressed 
in 
2016 (8)  has  to  be  seen  as  part  of  a  process 
which  started  with  the  introduction  of  the 
European Semester in 2011. Poland corrected its 
excessive  fiscal  deficit  and  the  corresponding 
excessive  deficit  procedure  was  closed  in  2015. 
The country also strengthened its fiscal framework 
by enacting a permanent expenditure rule in 2013. 
It  didn't,  however,  establish  an  independent  fiscal 
council.  Although  efforts were  made  to  tackle  the 
long-term  sustainability  of  public  finances  with  a 
gradual increase of the statutory retirement age to 
67  years  (reversed  in  2016,  see  below),  only 
limited action was taken to reform special pension 
regimes,  but  not  for  miners  and  farmers.  No 
measures  were  put  in  place  to  limit  the  extensive 
use of reduced VAT rates.  

included 

those  working  under  civil 

Poland  took  action  to  tackle  labour  market 
Its  measures 
segmentation. 
an 
amendment 
to  reduce 
the  Labour  Code 
to 
flexibility in the take-up of temporary contracts, an 
increase of social security contributions connected 
to certain civil law contracts and most recently the 
introduction  of  a  minimum  hourly  remuneration 
for 
law  mandate 
contracts.  Poland  increased  the  availability  of 
childcare  to  foster  the  labour  market  participation 
of  women,  although  recent  measures  (see  Section 
3.3) may have the opposite effect. Some steps were 
taken  to  address  the  recommendations  related  to 
vocational  education  and  training.  The  lifelong 
learning strategy was adopted in September 2013, 
but subsequently there has been limited progress in 
increasing  participation.  Finally,  in  recent  years 
Poland  was  successful  in  liberalising  several 
professional services.  

Progress was made on infrastructure. Thanks to 
massive  EU  investments  over  the  past  decade, 
Poland  has  significantly  upgraded  its  transport 
networks,  while  progress  was  more  limited  in 
railway projects. Progress was also observed in the 
transmission  and  distribution 
development  of 
networks. 

(8)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular section 3. 

13 

 
 
                                                           
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Assessment of country-specific recommendations for 2016 

Source: European Commission 

14 

 
 
 
 
 
2. Progress with country-specific recommendations 

15 

 Box 2.1: Contribution of the EU budget to structural change in PolandPoland is the largest beneficiary of the European Structural and Investment Funds (ESI Funds) with an allocation of EUR 86.1 billion until 2020. This is equivalent to around 2.7 % of GDP annually (over 2014-2017) and 54% of public investment (1). Out of the EU financing EUR 3.4 billion is planned to be delivered via financial instruments, which is a three-fold increase compared to the 2007-2013 period.  By 31 December 2016, an estimated EUR 18.9 billion, which represents about 22 % of the total allocation for ESI Funds, have already been allocated to concrete projects. The contribution of the ESI Funds to the development of public investment is discussed in Section 3.3. Financing under the European Fund for Strategic Investments (EFSI), Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is additional to the ESI Funds. By end 2016, Poland has signed agreements for EUR 3.8 billion for projects under the Connecting Europe Facility. The EIB's Group approved financing under EFSI amounts to EUR 1.4 billion (infrastructure and innovation windows), which is expected to trigger nearly EUR 4.9 billion in total investments (as of end 2016). As regards SME financing under EFSI, the European Investment Fund approved 5 agreements with financial intermediaries (e.g banks and funds) in Poland. The financing totals EUR 44 million and is expected to trigger EUR 707 million in investments. ESI Funds helped progress on a number of structural reforms in 2015 and 2016 via ex-ante conditionalities (2) and targeted investment. Examples include the transposition of the public procurement directive, preparation of the maps of healthcare needs which has laid down the basis for improved efficiency of healthcare investments and the development of the transport plan which has facilitated the development of mature road and railway projects. These reforms have prepared the ground for better implementation of public investment projects in general, including those financed from national sources and from the other EU instruments mentioned above. The fulfilment of ex-ante conditionalities is on track, except in the areas of waste and water. Administrative reforms support is also available through targeted financing under the European Social Fund, advice from the Structural Reform Support Service and, indirectly, through technical assistance.  The relevant CSRs focusing on structural issues were taken into account when designing the 2014-2020 programmes. These included improving the business environment for SMEs via improving investment conditions and easing registering business (see section 3.6), reducing obstacles to railway investment by improving the administrative and technical capacities in the sector, and improving labour market access and promoting social inclusion. The latter is done by enhancing education and training to improve the employability of vulnerable groups. Poland has also received support from the Youth Employment Initiative to combat youth unemployment. To date 79 000 young people have benefited from it and 70 000 young people are in employment, education or training after the support from this initiative has ended. Details on implementation progress in those fields in chapter 3.3. In addition to challenges identified in the past CSRs, ESI Funds address wider structural obstacles to growth and competitiveness. The funds support infrastructure investments increasing the coverage of fast broadband internet (target of 100 % of households in 2023); they will improve transport accessibility through almost 3 900 km of roads and 2 450 km of railway lines expected to be built, reconstructed or modernised; 36 500 enterprises are foreseen to carry out investments using financial instruments created through ESI Funds. ESI Funds are expected to generate 25 % of investments to reach the 2020 target of R&D expenditure increasing to 1.7 % of GDP, to increase the participation of children aged 3-4 in pre-school education (target of 81 % in 2020) and to increase adult participation in lifelong learning.                                                            (1) National public investment is defined as gross capital formation + investment grants + national expenditure on agriculture and fisheries. (2) Before programmes are adopted, Member States are required to comply with a number of ex-ante conditionalities, which aim at improving framework and conditions for the majority of public investments areas. For Members States that did not fulfil all the ex-ante conditionalities by the end 2016, the Commission has the possibility to propose the temporary suspension of all or part of interim payments.  
 
 
 
 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

Tax system 

The Polish tax system underwent many changes 
in  2016.  Two  new  sectoral  taxes,  on  assets  of 
certain  financial  institutions  and  on  retail  sales, 
were introduced with the aim of increasing budget 
revenues. The application of the higher VAT rates 
(previously  legislated  to  expire  at  end-2016)  has 
been  extended  for  2017-2018  to  limit  the  fiscal 
deficit.  The  tax  on  assets  of  certain  financial 
institutions  entered  into  force  in  February  2016 
and  is  levied  on  assets  of  mainly  banks  and 
insurance companies whose assets value exceeds a 
certain  threshold.  The  tax  on  retail  sales  was 
suspended  before  it  was  actually  levied  (see 
below).  Simultaneously,  Poland  implemented  and 
legislated  several  changes  to  the  value  added  tax 
(VAT)  and  corporate  income  tax  (CIT).  They 
aimed  at  reducing  tax  fraud  and  at  improving  tax 
collection.  Additionally,  Poland  reduced  to  15% 
from 19% CIT rates for the smallest taxpayers and 
the  taxpayers  in  the  first  year  of  their  activity. 
Finally, tax free allowance in personal income tax 
(PIT)  was  amended  and  works  to  reform  PIT  and 
social contributions were launched. 

The  high  number  and  rapid  pace  of  these 
changes  may  lead  to  increased  uncertainty  for 
businesses.  Some  business  stakeholders  point  to 
the  stability  and 
increased  uncertainty  about 
credibility  of  the  Polish  tax  system,  given  that 
changes  are  often  introduced  quickly  and  without 
broad  consultations  (see  Section  3.6).  Data  from 
the National Bank of Poland show that since 2015 
in  enterprises'  assessment,  taxes  and  regulations 
have  advanced  from  fifth  to  second  place  on  the 
list  of  barriers  to  their  development  (NBP,  2015; 
NBP,  2016a).  At  the  same  time,  according  to  the 
tax 
Global  Competitiveness  Report  2016-17, 
regulations  were  the  most  problematic  factor  for 
doing business in Poland in 2015 and 2016 (World 
Economic  Forum,  2016).  The  number  of  changes 
introduced  to  the  tax  laws  (including  VAT,  CIT, 
excise  duties  and  others)  and  the  pace  of  their 
implementation are the most likely reasons for the 
increased  uncertainty  and  are  ultimately  likely  to 
indirectly  influence  also  the  propensity  to  invest. 
They  may  also  impact  on  the  quality  of  the 
corresponding laws and of their effective outcome. 

For example, in the case of the retail sales tax, the 
legislative  process  from  its  submission  to  the 
parliament to its signing into law by the President 
lasted  1.5  months.  However,  the  tax  featured  a 
progressive rate structure based on turnover with a 
tax-free  threshold  and  two  different  brackets  and 
rates.  Therefore 
the  EU 
competition  rules  as  it  favoured  companies  with 
the  European 
low 
Commission opened an in-depth investigation and 
Poland  suspended  the  tax  before  it  was  actually 
levied. 

turnover.  Consequently, 

it  might  breach 

Foregone revenues resulted from the continued 
application  of  reduced  VAT  rates  on  an 
extensive  number  of  goods  and  services. 
Reduced  VAT  rates  limit  the  efficiency  of  the 
VAT  system  and,  as  pointed  out  in  the  2016 
Commission Country Report for Poland, are not an 
efficient social policy instrument. According to an 
EU wide study, in Poland 15.9% of potential VAT 
to  an 
revenue  was  foregone 
application  of  reduced  rates  (CASE/IAS,  2016). 
This  was  the  second highest loss  in  the  EU,  three 
times  higher  than  the  EU  average.  Nonetheless, 
specific 
despite 
recommendations  in  this area,  at  the  current  stage 
Poland  has  announced  no  intention  to  change  the 
system of reduced VAT rates.  

in  2014  due 

repeated 

country 

the 

Fighting  tax  fraud  remains  a  challenge.  The 
VAT  gap  results  from  a  combination  of  many 
factors that require a systemic response. Part is due 
to 
to  organised  criminal  activity  and  part 
undeclared 
revenues,  overstatement  of  VAT 
invoices, tax optimisation, bankruptcies and errors. 
There  was  a  very  slight  decrease  of  the  VAT 
compliance  gap  in  2014  compared  to  2013. 
However, the 2014 VAT compliance gap of 24 % 
of 
remained 
significantly above the EU average of 14 % (Graph 
3.1.1). Authorities' own estimations do not suggest 
a decrease of the VAT gap in 2015. However, the 
authorities  expect  a  significant  decrease  of  the 
VAT gap as from 2016, due to the introduction of 
a  number  of  measures  focused  on  fighting  VAT 

theoretical  VAT 

liability 

the 

16 

 
 
3.1. Public finances and taxation 

fraud  (10).  Poland  also  faces  significant  fraud 
related  to  excise  products.  Ernst  and  Young 
estimated  the  size  of  the  shadow  economy  at 
18.6 % of the total use of gas oil in 2013 and 24 % 
of  tobacco  consumption  in  2015 (EY,  2016). 
CASE/IAS  (2016)  assessed  that  the  smuggling  of 
excise goods accounted for 6 % of the VAT gap in 
2014. 

Graph 3.1.1:  VAT gap in Poland and in EU-27 

introduction  of  fines  in  cases  of  lowering  the 
payment of VAT. To fight excise duties and VAT 
fraud, additional reforms are being prepared: a so-
called  alcohol  package  focusing  on  trade  in 
denatured  alcohol  as  well  as  a  so-called  tobacco 
package.  Criminal  sanctions  are  expected  to  be 
introduced  for  VAT  fraud  and  the  relevant  draft 
law  is  at  final  stages  of  the  legislative  process. 
Simultaneously,  the  implementation  in  2016  of  a 
general tax anti-avoidance rule aims at limiting tax 
avoidance. 

Recent  reforms  may  increase  tax  compliance 
costs. Poland has made strong efforts to strengthen 
its  legal  framework  to  curb  tax  evasion  and 
avoidance.  However,  patterns  of  tax  fraud  are 
constantly  changing  as  fraudsters  adapt  to  new 
rules,  exploit  loopholes  and  move  to  new  sectors. 
Stricter  rules  and  numerous changes  to  legislation 
can  disproportionately  affect  compliant  and 
smaller  businesses.  This  is  particularly  important 
in the context where Polish businesses already face 
high costs of compliance with their tax obligations 
(World  Bank, 
and 
2016a). 
strengthening voluntary compliance, also by means 
of  a  more  efficient  and  customer-oriented 
administration, 
to 
complement actions on tackling tax fraud.  In late 
2016,  the  authorities  presented  a  number  of 
proposals  under  the  Strategy  for  Responsible 
Development  with  a  number  of  tax  simplification 
measures  and  an  exemption  from  social  security 
contributions for new entrepreneurs. 

important  element 

Simplifying 

is  an 

this 

tackle 

is  ongoing 

the  area  of 

Work 
tax 
in 
administration  reform  to  increase  flexibility 
and  efficiency.  The  European  Commission 
assessment  highlighted  structural  weaknesses  in 
the  Polish  tax  administration  which  limited  its 
efficiency and effectiveness (for instance European 
Commission,  2016a).  To 
issue, 
regulations  establishing  the  National  Revenue 
Administration were passed in late 2016. They will 
enter  into  force  in  March  2017.  The  objective  of 
the  changes  is  to  improve  tax  collection  and 
taxpayers  via 
simplify 
consolidation  of  tax  and  customs  administrations. 
The 
the 
functioning  of  the  tax  administration  and  requires 
to  avoid  uncertainty  and 
careful 
instability. It is crucial for the modernisation of the 
Polish 
that 
authorities' actions are coordinated and ii) focus on 

implies  a  profound  change  to 

tax  administration 

tax  obligations 

i)  ensure 

transition 

law 

for 

to 

(1) percent of theoretical VAT liability 
(2) EU-27 excl. Cyprus, data for Croatia available only for 
2014 
Source: CASE/IAS (2016) 

A  number  of  reforms  aimed  at  tightening  the 
tax  system  with  a  view  to  tackling  tax  fraud 
were undertaken in 2016. Amendments to several 
laws, called the "fuel package", which entered into 
force  in  August  2016,  changed  the  rules  on  VAT 
chargeability for intra-EU acquisitions of fuels and 
is supposed to fight tax fraud in the fuel sector. It 
was  accompanied  by  changes  in  the  energy  law 
regarding  fuel  licences.  It  is  expected  to  be 
complemented  by  a  so-called  transit  package 
which  has  been  approved  by  the  government  in 
early  2017.  This  package  would  require  the 
registration  of  excise  products  transiting  through 
Polish  territory.  Furthermore,  many  changes  to 
VAT  legislation  entered  into  force  as  from  1 
January  2017.  They  include  a  number  of  tools  to 
tackle VAT fraud, for instance an extension of the 
reverse  charge  mechanism,  the  extension  of  joint 
liability,  limitation  of  quarterly  VAT  returns  and 

(10)  PwC  in  its  recent  analysis  (PwC,  2016)  expects  the  2016 
VAT  gap  in  Poland  to  decrease  to  2.5%  of  GDP,  as 
compared to 2.8% of GDP in 2015. 

17 

05101520253020102011201220132014EU-27Poland 
 
                                                           
3.1. Public finances and taxation 

country  report  for  Poland,  the  key  challenge  for 
improving  fiscal  sustainability  is  to  contain  the 
projected  increases  of  age-related  expenditure. 
This  issue  has  gained  further  importance  with  the 
recent law to lower the statutory retirement age as 
from  late  2017.  This  change  (lowering  the  legal 
retirement age to 60 years for women and 65 years 
for  men  from  a  gradual  increase  to  67  years  for 
both  sexes)  will  increase  age-related  expenditure 
and  have  negative  consequences  for  the  labour 
market (see Section 3.3). The direct impact of the 
bill  will  require  additional  fiscal  means  for 
to 
supporting 
around 0.4 % – 0.9 % of GDP per year up to 2050. 
Hence,  unless  effective  measures  are  taken  to 
encourage people to extend their careers above the 
statutory  retirement  age,  the  recent  change  will 
worsen  the  sustainability  of  public  finances.  The 
law  lowering  the  statutory  retirement  age  did  not 
include any measures going in this direction. 

the  pension  system  equivalent 

Graph 3.1.2:  Medium-term public debt scenarios 

fraudsters  while  facilitating  tax  compliance  for 
honest taxpayers.   

is 

limited 

income 

personal 

in  Poland 

Labour  taxation  remained  broadly  unchanged 
in  2016.  The  degree  of  progressivity  of  labour 
taxation 
(European 
Commission,  2016b).  Poland  was  considering  a 
major reform of its labour taxation that would have 
seen  an  introduction  of  a  single  progressive  tax 
tax, 
combining 
social 
insurance  premium. 
contributions  and  health 
Ultimately, 
to 
implement the reform. In parallel, a reform of the 
tax-free  allowance  in  PIT  was  voted  on  in  late 
2016  and  entered  into  force  in  2017.  It  followed 
the 2015 judgement of the Constitutional Tribunal. 
The  reform  increased  the  tax-free  allowance  for 
the  lowest  income  earners  (with  annual  earnings 
equivalent to below 50 % of the  minimum wage). 
For  the  small  group  of  taxpayers  with  the  highest 
revenue, the allowance was removed. 

the  government  decided  not 

Long-term sustainability  

No major risks to fiscal sustainability have been 
identified  in  the  short  term;  risks  are  more 
pronounced  over  a  longer-term  perspective. 
According  to  the  recent  Commission  analysis, 
Poland  does  not  face  significant  short-term  fiscal 
sustainability risks (European Commission, 2017). 
However,  the  debt  sustainability  analysis  in  line 
with  the  Commission  framework  indicates  high 
risks  over  the  medium  term.  This  reflects  the  still 
increasing  debt  ratio  at  the  end  of  the  projections 
under  the  various  scenarios  considered  (Graph 
3.1.2). The S1 sustainability gap indicator points to 
medium  risks,  reflecting  mainly  the  unfavourable 
initial  budget  position  but  also  age-related 
expenditure.  Long-term  fiscal  sustainability  risks 
are  also  identified,  according  to  the  Commission 
framework  (the  S2  sustainability  gap  indicator 
points  to  medium  risks,  also  driven  by  the 
unfavourable  initial  budgetary  position  and  age-
related expenditure (11)). 

The  lowering  of  the  statutory  retirement  age 
will have a negative impact on the sustainability 
of  public  finances.  As  discussed  in  the  2016 

(11)  Based on European Commission projections which do not 
take  into  account  the  lowering  of  the  statutory  retirement 
age  entering  into  force  in  2017  (European  Commission, 
2015). 

(1) The no-policy change scenario assumes that during 2019-
2027 the level of the structural primary balance remains at 
the level forecast for 2018 in the Commission winter 2017 
forecast adjusted by the costs of ageing that are taken from 
European Commission (2015). For more details see European 
Commission (2017). 
Source: European Commission 

Fiscal  sustainability  risks  are  exacerbated  by  a 
projected  fall  in  pension  adequacy  ratios.  The 
projected pension replacement rate in the long run 
is  very  low.  The  amount  of  the  projected  pension 
in  2050  does  not  exceed  one  fourth  of  a  person's 
last  salary  (see  Section  3.3).  Transposing  these 
assumptions into today's framework, suggests that 
the  pension  benefit  of  those  earning  the  average 
salary (around  PLN  4,600  gross  in  December 
2016)  would  be  close  to  the  minimum  pension  of 

18 

404550556065707580Standardized (permanent) negative shock (-1p.p.) to the short- and long-term interest rates on newly issued and rolled over debtBaseline no-policy change scenarioStandardized (permanent) positive shock (+1p.p.) to the short- and long-term interest rates on newly issued and rolled over debt% of GDP  
                                                           
 
3.1. Public finances and taxation 

The  credibility  of  fiscal  rules  has  been  affected 
by their frequent past changes. The most recent 
modification  of  the  expenditure  rule  (December 
2015)  adjusted  the  expenditure  ceiling  to  the 
medium-term  inflation  target  of  the  central  bank 
and allowed for increased expenditure in the event 
of one-off and temporary revenue measures. These 
changes significantly raised the expenditure ceiling 
given  current 
levels.  This  created 
additional space for higher expenditure in the 2016 
budget, as also underlined by the National Bank of 
Poland (NBP, 2016b). 

inflation 

The  Polish  fiscal  framework  lacks  a  fully-
fledged,  independent  fiscal  council.  Currently 
Poland  remains  the  only  EU  country  (14)  that  has 
not  adopted  a  legal  basis  establishing  a  dedicated 
fiscal council or assigned such a role to an existing 
body.  Some  of  the  typical  tasks  of  fiscal  councils 
are  being  carried  out  by  various  institutions,  but 
they are scattered and some are not covered. As a 
result,  amendments  to  the  fiscal  framework  or 
fiscal implications of important policy measures go 
largely  unnoticed  even 
they  have 
significant consequences for public finances (15). 

though 

the 

role  of 

redefining 

In 2016, Poland announced plans to strengthen 
its  budgetary  process.  These  plans  aim  at 
improving  medium-term  budgetary  planning  by 
reforming the medium-term budgetary framework, 
more closely linking annual budgeting to medium-
term  planning, 
the 
government  and  ministries,  reforming  the  budget 
classification  of  expenditure  and  incorporating 
spending  reviews  in  the  budgetary  process.  Given 
the  current  situation  in  which  an  effective  and 
efficient  management  and  reallocation  of  funds 
poses  challenges,  the  reform  has  a  potential  to 
substantially improve public finance management. 
In  particular,  it  may  allow  a  better  control  of  the 
identification  of 
budget, 
the 
facilitating 
inefficient 
reallocation of funds. 

including  an  earlier 

spending 

and 

(14)  In the Czech Republic the parliament works on the relevant 

legislation. 

(15)  This  is  even  more  important  in  the  context  of  the  limited 
parliamentary and public debate on the key fiscal measures, 
as  illustrated  by  the  process  of  adopting  the  2017  budget 
law and the law lowering the statutory retirement age.  

PLN 1,000. Simultaneously, according to the latest 
official  data  (GUS,  2016),  66 %  of  employees 
earned  salaries  lower  or  equal  to  the  national 
average (12).  This  suggests  that  the  government 
may have to support the pension system for about 
half of beneficiaries in order to avoid their pension 
benefits  falling  below  the  minimum  level.  This 
would result in additional fiscal costs. Moreover, it 
cannot  be  ruled  out  that  such  a  low  replacement 
rate may be perceived as unsustainable – requiring 
either  the  statutory  retirement  age  to  be  increased 
sharply  or  the  pension  system  to  be  supported  by 
significant additional fiscal means.  

No  material  changes  were  made  to  special 
pension  regimes  in  2016.  The  special  pension 
regime  for  farmers  (KRUS)  continues  to  benefit 
compared  to  the  general  pension  regime  (ZUS). 
This not only constitutes a fiscal burden (currently, 
the  KRUS  subsidy  amounts  to  around  1 %  of 
GDP),  but  may  also  hamper  labour  mobility  (see 
Section 3.3). Similarly, Poland has not yet tackled 
the issue of the special pension regime for miners. 

Fiscal framework  

its  stability (13).  The  rule 

Numerical  fiscal  rules  are  robust,  while  the 
medium-term  planning  plays  a  limited  role. 
Fiscal rules (debt and expenditure rules for almost 
the entire general government as well as individual 
spending  limits  for  local  governments)  are  the 
strongest  part  of  the  fiscal  framework  in  Poland. 
One of the fiscal rules – limiting government debt 
to 60 % of GDP – is embedded in the Constitution 
which  ensures 
is 
supplemented  by  so  called  prudential  thresholds 
specified  in  the  Public  Finance  Act,  defining 
specific  actions  to  be  undertaken  when  the  public 
debt  exceeds  the  thresholds  of  55 %  of  GDP  and 
60 %  of  GDP.  There  exists  also  a  medium-term 
budgetary framework (called the Multiannual State 
Financial  Plan,  MSFP).  However  its  effectiveness 
as an instrument for long-term planning is limited, 
for  example  the  budget  for  a  given  year  can 
include  a  deficit  higher  than  the  one  specified  in 
the most recent MSFP. 

(12)  Data  covering  companies  with  more  than  nine  employees, 
with microenterprises generally paying lower salaries. 
(13)  National  definition,  lower  by  around  3pps  than  ESA 

definition. 

19 

 
                                                           
                                                           
3.2.  FINANCIAL SECTOR 

The  banking  sector  remains  stable,  liquid  and 
profitable. Over the past 18 months, system wide 
capital  continued  to  rise.  The  regulatory  Core 
Equity  Tier  1  capital  –  a  ratio  that  shows  banks' 
readiness  to  face  shocks  –  reached  15.8 %  at  the 
end  of  the  first  half  of  2016,  up  by  over  2 
percentage  points  from  end-2014.  The  loan-to-
deposit  ratio  of  Polish  banks  continued  to  decline 
and  stood  at  98.5 %  at  the  end  of  June  2016 
(3.2.1).  Polish  banks  are  funded  mostly  through 
domestic  deposits  and  benefit  from  a  balanced 
funding mix of retail and corporate deposits, which 
made  up  over  58 %  of  the  balance  sheet  total. 
Longer-term  wholesale  funding  reliance  through 
senior and subordinated bonds is low, at about 5 % 
of  the  banks'  aggregated  balance  sheet.  The 
profitability  of  the  sector  declined  in  2015  but 
broadly  stabilised  thereafter.  Looking  forward, 
challenges to profitability include low interest rates 
environment, the possible revision of the bank tax 
and  a  proposal  to  deal  with  foreign  currency 
mortgages (currently under discussion).  

The  new  tax  on  financial  institutions  has  not 
tax  on 
affected  sector  stability.  The  asset 
financial  institutions  was  introduced  in  February 
2016 and is one of the highest bank sector levies in 
Europe. To date, the tax is calculated on the basis 
of an end-month value of taxable assets, which, in 
the  case  of banks,  excludes own funds and Polish 
sovereign  bond  holdings.  Although  receipts  from 
the  tax  are  not  meeting  budgeted  revenue,  the 
feared  economic  and  financial  stability  effects  of 
the levy are so far limited. Nevertheless, at the turn 
of  2015  and  2016  banks  have  substantially 
increased their holdings of Polish sovereign bonds, 
a  by-product  of  the  bank  levy.  As  a  result,  local 
lenders  have  overtaken  foreign  investors  as  the 
biggest holders of PLN denominated bonds, for the 
first time since 2010.  

The  ongoing  discussion  on  foreign  currency 
mortgages  is  nearing  a  conclusion.  Foreign 
currency mortgages do not generate systemic risks 
for the banking sector in Poland. At system level, 
these  loans  represent  about 8 % of  the  aggregated 
balance sheet and account for less than 40 % of the 
mortgage  loan  book.  However,  some  banks  still 
have  a  sizeable  mortgage  loan  book  denominated 
in foreign currency, which has dual consequences. 
On  the  one  hand,  some  banks  are  exposed  to 
valuation  and  compensation  losses  should  their 
loan book be converted into the domestic currency, 

either  through  legislation  or  court  judgement.  On 
the  other  hand,  a  sizeable  foreign  currency-
denominated  position  forces  lenders  to  rely  either 
on  a  foreign  parent  bank,  foreign  currency  bonds 
or  the  derivative  market  for funding.  The  absence 
of  foreign  currency  deposit  funding  is  apparent 
from the loan-to-deposit ratio in foreign currency, 
which reached a level of 250 % at the end of June 
2016,  more  than  twice  the  same  ratio  for  the 
domestic currency. 

Table 3.2.1: 

Financial soundness indicators, all banks in 
Poland 

Source: ECB 

Ownership changes see an increasing role of the 
State in the shareholding of domestic banks. As 
in all four Visegrad countries, the development of 
the Polish economy over the past two decades was 
based on attracting foreign direct investment (FDI) 
to  support  economic  growth  and  the  development 
of  various  industries.  Foreign  investors  brought 
capital,  increased  access  to  funds  and  financial 
intermediation in an economy that is still catching 
up  with  the  core  EU  economies.  In  Poland,  the 
ratio  of  foreign-owned  banks  amounted  to  about 
65 %  between  1998  and  2008.  After  the  outbreak 
of the crisis in 2008, this share gradually decreased 
and reached 49 % in 2016, taking into account the 
acquisition of Pekao SA shares by PZU SA. On the 
one  hand,  this  trend  is  a  natural  result  of  the 
importance  of  domestic  enterprises 
growing 
increasingly  able  to  compete  on  international 
markets.  On  the  other  hand,  the  government  has 
signalled  its  readiness  to  purchase  foreign-owned 
credit institutions. As a result a growing proportion 
of  lenders  is  controlled  by  the  Polish  State.  With 
the acquisition of Pekao SA by PZU SA, the share 
of  direct  and  indirect  state-controlled  banks  has 
increased  to  36 %  of  the  sector's  total  assets.  In 
addition, the two largest banks will be under direct 
or indirect state control. It remains to be seen how 
the  state  ownership  will  influence  the  sector  (see 
Box 1.1 in Section 1). 

Credit 
the  country's 
economic  performance  through  balanced  loan 

institutions 

support 

20 

(%)201420152016Q2Non-performing loans5.45.05.0Coverage ratio64.161.662.0Loan to deposit ratio98.397.296.8Tier 1 ratio13.714.515.1Return on equity9.47.7-Return on assets1.00.9- 
 
 
 
 
3.2. Financial sector 

Graph 3.2.1:  Annual credit growth rates 

(1) Index of notional stocks, only transactions are taken into 
account, the results of revaluations, reclassifications are 
excluded 
Source: ECB 

Poland  is  a  large  insurance  market  in  the 
region. With over EUR 13 billion in underwritten 
premiums  and  close  to  EUR  1.3  billion  in  profits 
the Polish insurance sector represents nearly 40 % 
of  the  Central  and  Eastern  European  market.  The 
top  five  insurers  represent  about  58 %  of  the  life 
insurance  market,  dominated  by  the  publically-
owned  PZU  Zycie  SA.  The  concentration  ratio  of 
the  top  five  insurers  in  the  non-life  segment  is 
slightly  higher  at  70 %,  with  PZU  SA  occupying 
34 %  of  the  market.  Competition  in  the  market  is 
high and profitability levels are forecast to be low 
in  2016-2017.  The  sector  performed  well  in  the 
recent stress test carried by the European Insurance 
and Occupational Pensions Authority and remains 
stable and profitable.  

Bank  supervision  and  macro-supervision  may 
be merged. Over the crisis years Poland's financial 
supervision  proved  to  be  prudent  and  forward 
looking,  ensuring  a  stable  banking  sector  (see 
above).  Discussions  continue  on  some  form  of 
merging  financial  supervision  with  the  NBP.  The 
reasons  given  for  this  are  synergies  between  the 
micro-supervision of banks and macro-supervision 
of  the  banking  sector.  A  continuous,  efficient  and 
independent  supervision  function  is  key,  also  in 
light  of  the  ongoing  restructuring  process  in  the 
financial sector. 

growth.  The  pace  of  loan  growth  to  the  private 
sector has been broadly in line with nominal GDP 
growth.  The  increase  in  loans  to  non-financial 
corporations has decelerated during 2016 possibly 
reflecting  investment  slowdown  (see  Graph  3.2.1 
and  Section  1).  The  ratio  of  non-financial 
corporation loans to GDP remained stable at about 
51 %.  Many  firms  finance  working  capital  needs 
and smaller operations either through own funds or 
the  use  of  some  alternative  means  of  funding 
business (intercompany loans, leasing, factoring).  

for 

Poland’s capital market is the largest and most 
developed 
in  central  Europe.  Total  market 
capitalisation amounts to EUR 150 billion, about a 
quarter  of  Poland's  GDP.  The  Warsaw  Stock 
foreign 
Exchange  has  become  a  hub 
institutional investors targeting equity investments 
in  the  region.  In  addition  to  the  equity  market, 
Poland has a special wholesale market dedicated to 
the  trading of treasury  bills  and bonds  –  Treasury 
BondSpot  Poland.  This  treasury  market  is  an 
integral  part  of  the  Primary  Dealers  System 
organised by the Finance Ministry and part of the 
pan-European  bond  platform.  All  wholesale 
treasury  bonds  and  bills  denominated  in  PLN  and 
some securities denominated in EUR are traded on 
the  Treasury  BondSpot  market,  while  most  non-
government  bonds,  now  worth  about  EUR  18 
billion,  are  traded  on  Catalyst,  a  Warsaw  Stock 
Exchange managed platform.  

The  capital  market  is  an  important  source  of 
funding  for  Polish  companies.  Companies  raise 
slightly  more  funds  on  the  stock  market  (17 %  of 
GDP) than they receive from bank loans (16 % of 
GDP). The role of corporate bond issuance is also 
relatively  high  compared  to  other  countries  in  the 
region,  with  the  total  value  of  outstanding  bonds 
corresponding  to  5 %  of  GDP.  Yet,  Polish  non-
financial corporations are in general less leveraged 
than all companies on average in the EU. Also, the 
venture capital market is lagging behind, with total 
investment  of  this  type  reaching  only  one  fifth  of 
the  EU  average  level.  Besides  financial  market 
funding,  the  annual  gross  operating  surplus  of 
Polish  firms  (26 %  of  GDP)  is  higher  than  on 
average in the EU, suggesting that companies have 
the  capacity  to  finance  investment  from  retained 
profits. 

21 

-20246810121416Jan-11May-11Sep-11Jan-12May-12Sep-12Jan-13May-13Sep-13Jan-14May-14Sep-14Jan-15May-15Sep-15Jan-16May-16Sep-16Jan-17Loans private sectorLoans to NFCLoans to households% 
 
 
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

Labour market 

improved 
Labour  market  conditions  have 
significantly  but 
labour  force  participation 
remains  low  for  some  groups.  Following  a 
substantial  and  steady  improvement  over  the  last 
decade the employment rate stood at 69.7 % in Q3-
2016 (for the 20-64 age group) slightly below the 
EU  average  of  71.5 %.  The  gap  is  mainly  due  to 
the  significantly 
lower  participation  rates  of 
specific groups (see Section 1). As outlined in the 
previous  country  report  for  Poland,  the  lower 
labour  market  participation  of  older  workers  is 
linked  to  low  skills  and  educational  attainment 
levels 
(European  Commission,  2016a).  The 
employment  rate  of  disabled  people  has  hardly 
changed  in  recent  years,  further  widening  the  gap 
with  the  gradually  increasing  employment  rate  of 
people  without  disabilities.  Barriers  to  geographic 
mobility also reduce employment and activity. 

formal  education  and  earlier 

A gender gap in employment is related to early 
retirement, limited access to care facilities, and 
disincentives  in  the  tax  and  benefit  systems. 
Female  participation  and  employment 
rates 
continued to rise in 2015 and 2016, and for the 55-
64  age  group  both  increased  faster  than  they  did 
for  men.  Still, 
the  gender  employment  gap 
widened and, at 14.5 pps. for the 15-74 age group 
in  Q3-2016,  was  3.5  pps.  above  the  EU  average. 
This  was  driven  by  women’s  longer  participation 
in 
retirement. 
However,  the  gender  gap  also  widened  and  was 
particularly  high  in  the  25-29  age  group,  a 
situation  that  is  likely  to  be  linked  to  young 
mothers’  prolonged  periods  of  labour  market 
withdrawal.  The  low  participation  of  women  and 
notably mothers may be related to insufficient use 
of childcare (see education subsection) and a fully 
transferable  parental 
leave,  which  encourages 
women, as second earners, to stay out of the labour 
market.  Another  important  factor  is  the  design  of 
financial  support 
that  provide 
long-term  care  to  family  members;  in  practice,  it 
discourages the taking up of any paid employment. 

families 

for 

the  Polish 

Migration  plays  an increasingly  important  role 
in 
labour  market.  Following 
significant emigration, especially in the years after 
EU  accession,  the  number  of  Polish  citizens 
high 
residing 
(estimated at around 2.4 million at the end of 2015 

temporarily 

remains 

abroad 

(16)). There is little evidence of emigrants returning 
in  significant  numbers.  At 
time, 
temporary immigration, mostly from Ukraine, and 
to a lesser extent from Belarus and other countries, 
is an increasingly important phenomenon (17). 

the  same 

The special pension regime for farmers has had 
an  impact  on  labour  mobility  and  undeclared 
work.  The  special  social  insurance  system  for 
farmers  (KRUS)  is  among  the  reasons  for  low 
labour  mobility  and  hidden  unemployment  in 
agriculture.  Some  KRUS  design  features,  e.g.  the 
conditions  of  transitioning  from  KRUS  to  the 
general  pension  system,  discourages 
farmers 
working  on  low-productivity  farms  to  take  up 
registered  employment  in  other  sectors.  Average 
old-age  and  disability  benefits  from  KRUS  are 
close to the poverty threshold and often constitute 
the  main  source  of  income,  especially  for  single 
beneficiaries. This limits the anti-poverty function 
the  geographical 
explains 
of  KRUS 
concentration  of  at-risk-of-poverty  households  in 
rural areas. At the same time, no durable systemic 
solutions  are  in  place  to  exclude  high-income 
farmers  from  the  scheme  (European  Commission, 
2016a). 

and 

force  participation.  Lowering 

Several  recent  measures  may  further  reduce 
the 
labour 
statutory retirement age in late 2017 is expected to 
lead  to  some  older  workers  withdrawing  from  the 
labour  force.  The  new  child  benefit  may  have  a 
negative  effect  on  the  labour  market  participation 
of  parents,  mostly  women.  This 
applies 
particularly  to  the  low-skilled  because  of  two 
factors:  first,  the  means-testing  applicable  to  the 
benefit  for 
the  first  child  may  make  some 
households  choose  to  reduce  working  hours  to 
lower 
the 
increase  in  household  income  may  tilt  some 
parents’ 
time. 
Microsimulation  modelling  results  suggest  the 
incentives  to  work  can  decrease  the  strongest  for 
parents  of  two  or  more  children  and  single 

income  and,  second, 

preference 

leisure 

labour 

their 

for 

(16)  An indicative measure: the number of people who retained 
their registration in Poland but reside abroad for more than 
3 months. 

(17)  The  majority  of  immigrants  work  on  the  basis  of  the  so-
called simplified procedure, which requires them to return 
to their country of origin after 6 months, making the exact 
assessment  of  the  number  difficult.  Indirectly,  the  number 
of  issued  visas  could  be  used  as  an  indicator.  In  2015, 
925 000  visas  type  D  with  working  permit  were  issued, 
while 2016 saw another sharp increase in this number. 

22 

 
 
                                                           
3.3. Labour market, education and social policies 

ex-ante 

government’s 

mothers (18).  Surveys  on  intentions  to  work  also 
confirm  the  risk  of  inactivity  (Work  Service, 
2016).  The 
impact 
assessment of the programme did not address this. 
From  September  2016 
for 
five-year-olds  to  attend  preschool  was  removed. 
This  could  induce  some  parents  to  stay  at  home 
with their children for one more year; in particular 
in  families  with  low  incomes  (see  also  European 
Commission, 2016a). 

the  obligation 

A  significant  increase  of  the  minimum  wage 
may  reduce  in-work  poverty  and  have  a  small 
negative  effect  on  employment.  The  minimum 
wage  increased  by  8 %  in  nominal  terms  in 
January  2017,  up  to  PLN  2000  per  month.  For 
recent  graduates  taking  up  their  first  job,  the 
increase was as high as 35 %. The minimum wage 
rise was higher than what was originally proposed 
by  social  partners.  The  ratio  of  minimum  to 
average wage is now at around 47-48 % and some 
10-15 % of employees earn close to the minimum 
wage. Its increase may have a small negative effect 
on  employment  for  vulnerable  groups  and  could 
trigger  shifts  to  non-standard  labour  contracts 
(Kaminska and Lewandowski, 2015). On the other 
hand,  it  could  contribute  to  poverty  reduction,  in 
particular in-work poverty. 

Job creation in 2015-2016 was driven by hiring 
on  permanent  contracts,  but  the  proportion  of 
temporary employment remains high. At 27.3 % 
in the third quarter of 2016 (for the age group 15-
64)  Poland  continues 
to  have  a  very  high 
proportion  of  fixed-term  employment (19).  This  is 
particularly  true  for  young  people  aged  15-24.  A 
significant  proportion  of  all  temporary  workers 
have  civil  law  contracts,  rather  than  usual  labour 
code  contracts.  As  highlighted  in  the  previous 
country  reports  for  Poland,  high  levels  of  labour 
market segmentation can hamper productivity and 
(see  European 
human  capital  accumulation 
Commission,  2016a).  However,  since  early  2015 
permanent employment has been rising strongly. 

(18)  Tax-benefit  microsimulations  conducted  by  the  European 
Commission  Joint  Research  Centre  using  the  Euromod 
model. See also Myck (2016). 

(19)  The temporary employment category covers a broad range 
of  agreements,  from  fixed-term  regular 
labour  code 
contracts,  to  various  civil  law  contracts,  to  informal  work 
without a written contract. 

to 

the 

and 

taken 

dispute 

uncertain 

reduce 
Measures  have  been 
segmentation,  but 
the  use  of  open-ended 
contracts  remains  discouraged.  Obstacles  to 
wider  use  of  permanent  contracts  include  in 
particular  high  implicit  costs  associated  with 
lengthy 
resolution 
mechanisms, 
special  protection  against 
dismissal for certain categories of workers (20), the 
heavy  reinstatement  obligations  in  case  of  unfair 
dismissal  and 
in 
protection  against  dismissal  in  large  and  small 
firms. Two codification committees, which include 
representatives  of  the  government,  experts  and 
social  partners,  were  set  up  to  prepare  new  draft 
individual  and  collective  labour  codes  by  early 
2018(21). 

lack  of  differentiation 

the 

Some  features  limit  the  overall  high  flexibility 
of  the  labour  market.  Non-EU  nationals  can  be 
employed  on  a  temporary  basis  with  very  limited 
formalities.  The  ease  of  arranging  atypical  work 
contracts,  i.e.  other  than  open-ended  contracts 
based  on  the  labour  code,  also  contributes  to 
flexibility.  On  average,  Poland  also  appears  to 
have  not  very  strict  employment  protection 
legislation  (Box  2.2.1  in  European  Commission, 
2016a). However, the use of part-time employment 
limited  (only  6.9 %  of  all 
arrangements 
the  EU 
in  2016-Q3,  one-third  of 
employed 
average).  This  limited  flexibility  in  terms  of 
working  time  arrangements  may  be  particularly 
problematic for older workers or people with care 
obligations (often women). 

is 

Education 

Educational  performance  has  remained  strong 
over  recent  years.  Poland  is  one  of  the  best  EU 
performers on reducing the number of early school 
leavers  at  5.3 %  in  2015,  compared  to  the  EU 
average  of  11 %.  Overall  performance  in  basic 
skills  remains  strong  in  comparison  to  other  EU 
countries (OECD, 2016b). Following a substantial 
improvement in average results of the Programme 
for 
International  Student  Assessment  (PISA) 
between  2000  and  2002  and  then  again  between 

(20)  Including  older  workers  with  less  than  four  years  until 
retirement  age,  but  also  e.g.  workers  during  their  absence 
(leave  or  sick  leave,  pregnancy  and  maternity/paternity 
leave), trade union activists and other particular categories. 
(21)  In addition, the Social Dialogue Council has been operating 
since October 2015 and can create an opportunity for social 
partners to play a bigger role in shaping the labour code. 

23 

 
                                                           
                                                           
3.3. Labour market, education and social policies 

Graph 3.3.1:  Projected size of student cohort starting the 1st  

grade of general upper secondary schools 

(1) Simulations based on the assumption that the share of 
students choosing this type of school (liceum) remains at the 
average level observed during the period 2015-2016. 
Source: European Commission's calculations based on 
Education Information System (SIO) data 

labour  market  relevance.  The 

The government  has  launched  consultations on 
the higher education reform to improve quality 
and 
tertiary 
education  attainment  rate  has  increased  rapidly 
over the last 15 years. In 2015, it stood at 43 % in 
the  30-34  age  group,  above  the  EU  average  of 
39 %.  A  new  algorithm  for  financing  higher 
education  institutions  will  be  implemented  from 
the  academic  year  2017/2018,  with  an  aim  to 
strengthen  the  incentives  for  teaching  quality. 
Wide-ranging consultations on the planned broader 
reforms have started including with academics and 
researchers  (see  Section  3.5).  The  new  law  on 
higher education is expected to enter into force in 
the 2018/2019 academic year.  

The average level of older adults’ basic skills is 
low,  hampering  their  employability.  In  the 
OECD  Survey  of  Adult  Skills  (PIAAC),  scores 
testing  the  numeracy  of  Polish  adults  were  on 
average  lower  than  for  their  OECD  peers  (OECD 
2016c).  In  terms  of  basic  digital  skills,  Poland 
ranks  only  26th  among  EU-28  Member  States, 
though  slightly  better 
for  advanced  digital 
skills (European  Commission,  2016c).  Various 
employers' surveys indicate increasing difficulty to 
fill  in  vacancies  (e.g.  Manpower,  2016;  NBP, 
2016a).  Migration  also  affects  skill distribution  in 
the labour force, given that Polish emigrants are on 

2009 and 2012, in 2015 the performance of Poland 
in  PISA  worsened  somewhat  in  all  fields,  and 
especially  in  science.  However,  the  country  still 
scored above both the EU and OECD averages in 
all  areas  tested.  The  impact  of  socioeconomic 
status  on  performance  was  rather  limited  and  has 
continued to fall since 2006 (OECD, 2016b). 

students 

The  school  system  overhaul  from  September 
2017  onwards  raises  a  number  of  concerns 
among  stakeholders.  The  key  change  phases  out 
lower  secondary  schools,  practically  returning  to 
the  pre-1999  structure.  This  policy  change  has 
raised  concerns  among  many 
stakeholders, 
including 
local  governments,  and 
teachers, 
educational researchers. Two main risks have been 
indicated.  First,  earlier  tracking  into  either  the 
general  or  the  vocational  stream  could  negatively 
affect the basic literacy and numeracy skills of the 
most  disadvantages 
(IBE,  2014). 
Evidence suggests that extending common general 
education  in  1999  played  a  role  in  improving  the 
performance  of  the  weakest  students  in  the  PISA 
survey  between  2000  and  2012 (Sitek,  2016; 
Jakubowski  et  al.  2016).  Second,  significant 
changes  in  the  organisation  of  the  schools  are 
likely  to  have  disruptive  and  long-lasting  effects 
on  the  organisation  of  education  provision.  In 
particular,  a  strong  variation  in  the  size  of  school 
cohorts  is  projected,  especially  at  the  upper 
secondary level (Graph 3.3.1). There is also a risk 
of  suboptimal  use  of  certain  past  investments  in 
lower-secondary  schools.  Changing  the  school 
system  does  not  appear  to  address  the  underlying 
weaknesses  of  Poland’s  education  system  and  its 
rationale  does  not  seem 
to  be  based  on 
recommendations stemming from existing research 
and comprehensive evaluation.  

Participation  in  early  childhood  education  and 
care  has  increased  but  challenges  remain  in 
quality  and  inequalities  of  access.  Since  2008, 
the number of pre-schools has increased by around 
40 %.  At  present,  all  four-  and  five-year-olds  are 
entitled  to  a  preschool  place  and  from  September 
2017 this right will also be extended to three-year-
olds. Abolishing the preschool obligation for five-
year-olds  may  weaken  the  educational  chances  of 
children from socially disadvantaged backgrounds. 
Formal childcare enrolment for children under the 
age of three remained among the lowest in the EU. 

24 

050100150200250300350400201620172018201920202021202220232024thousand 
 
3.3. Labour market, education and social policies 

average  better  educated  than  the  rest  of  the 
population. At the same time, many immigrants to 
Poland work below their qualifications.  

poverty  is  concentrated  on  those  with  fixed-term 
employment contracts.  

Adults  rarely  engage  in  job  relevant  learning 
and every third adult does not see the need for 
further  education  or  training.  In  2015,  only 
3.5 % of those aged 25-64 reported participation in 
education  and  training  in  a  month  before  the 
survey, down from 4 % in 2014. The percentage of 
adults  (aged  25-59/64)  who  in  2014  reported 
having learned to improve their competences in the 
previous  12  months  was  at  31 %,  only  minimally 
increased  from  2012  (PARP,  2016).  Participation 
is  lowest  among  people  who  could  benefit  the 
most,  i.e.  those  with  basic  levels  of  education, 
those aged over 50 and those who are inactive. The 
results of the recent initiatives such as the National 
Qualifications  Register  and 
the  Database  of 
Development Services remain to be seen. 

The  labour  market  relevance  of  vocational 
education  is  still  limited.  Vocational  education 
and training (VET) often does not provide students 
with basic skills and key competencies. The OECD 
PIAAC  survey  revealed  that  graduates  of  basic 
vocational  schools  have  insufficient  literacy  and 
numeracy  skills.  At  the  same  time,  the  results  for 
technical secondary schools are considerably better 
than  for  basic  vocational  schools.  Employment 
rates  of  recent  vocational  school  graduates  were 
still slightly below the EU average in 2015. Local 
governments  are  often  unsuccessful  in  putting  in 
place  strategies  linking  VET  with  sectors  of 
strategic  importance  for  regional  development 
(Brandt,  2016).  The  organisation  of  vocational 
schools will  change  as  part of  the overhaul  of  the 
school system in September 2017. The potential of 
this  change  to  address  shortcomings  of  the  VET 
system remains unknown.  

Poverty and social assistance 

Poverty  is  declining  fast  but  making  work  pay 
remains  a  challenge  in  Poland.  The  rate  of 
people  at  risk  of  poverty  or  social  exclusion  has 
decreased  significantly  in  recent  years.  At  23.4 % 
in  2015  it  was  slightly  below  the  EU  average  of 
23.7 %.  At  the  same  time  in-work  poverty  for 
those above 18 stayed at 11.2 % in 2015 (1.7 pps. 
above the EU average). This is true mostly for self-
employed  people  and  in  the  agriculture  sector. 
Among  employees,  the  incidence  of  in-work 

Social  benefits  provide  little  incentives  to  take 
up  work.  The  social  protection  system,  due  to  its 
limited  resources,  used  to  have  little  impact  on 
poverty reduction (European Commission, 2016a). 
It  also  did  not  sufficiently  promote  social 
integration  through  take-up  of  economic  activity, 
although the extension of child tax credits in 2015 
and the tapered withdrawal of family benefits from 
January 2016 (‘zloty for the zloty’ rule) improved 
the  situation  to  some  extent.  Still,  the  system 
provides few incentives to take up work, especially 
for second earners (Kurowska et al, 2015). 

that 

the  benefit  could 

is 
The  universal  child  benefit  programme 
expected  to  reduce  poverty  and  inequality  but 
raises questions in terms of cost-effectiveness. It 
is  estimated 
reduce 
inequality  as  measured  by  the  Gini  coefficient  by 
0.02  and 
the  at-risk-of-poverty  rate  by  5.2 
percentage  points.  In  particular,  the  reform  is 
expected  to  considerably  reduce  poverty  among 
households with three or more children and among 
single  parents  (22).  The  cost  of  the  programme  is 
substantial,  at  around  1.2 %  of  GDP  in  2017.  Its 
size  and  limited  means-testing  leads  to  overlaps 
with  other  social  benefits  offsetting  limited  work 
incentives built into these programmes, and raises 
questions  of  cost-effectiveness.  The  government 
has  announced  an  impact  assessment  of  the 
programme in 2017. 

Pensions 
currently  provide  an  adequate 
protection  against  poverty,  but  the  change  in 
statutory retirement age will further cut future 
benefit  levels.  The  relationship  between  pensions 
and  average  wages  was  projected  to  fall  steeply 
even  if  the  statutory retirement  age  was  increased 
to  67  years  (Graph  3.3.2).  The  legislated  reversal 
of  the  retirement  age  increase  will  further  erode 
future pensions. Women would be most affected if 
they  choose  to  retire  close  to  the  new  retirement 
age  of  60,  which  seems 
light  of 
international  evidence.  For  women  retiring  from 
2040 onwards, the statutory retirement age will be 
reduced  by  seven  years  compared  to  the  current 
situation.  This  will  have  major  implications  on 

likely 

in 

(22)  The  analysis  is  based  on  the  tax-benefit  microsimulations 
conducted  by  the  European  Commission  Joint  Research 
Centre using the Euromod model. 

25 

 
                                                           
3.3. Labour market, education and social policies 

Healthcare 

Health  outcomes  stand  below  the  EU  average 
with  a  potential  impact  on  labour  market 
participation  and  poverty.  Life  expectancy  for 
men and women and healthy life years for men are 
below  the  EU  average  while  infant  mortality  and 
both amenable and preventable mortality are above 
the EU average. Poland faces challenges to further 
improving  the  cost-effectiveness  of  healthcare 
spending.  These  challenges  include  strengthening 
primary care, further development of co-ordinated 
care,  curbing  the  excessive  use  of  specialist  care, 
improving cost-efficiency within the over-supplied 
hospital  care,  improving  governance  including  by 
developing  health-technology  assessment 
for 
and  developing  more 
medical 
comprehensive  public  health  policies  (European 
Commission/Economic Policy Committee, 2016). 

equipment, 

Access  to  healthcare  services  remains  an  issue. 
The  system 
low  public 
is  characterised  by 
spending and few medical staff. In 2015, 7.8 % of 
the  population  self-reported  unmet  healthcare 
needs  due  to  cost  and  distance,  compared  to  the 
EU average of 3.6 %. The authorities are trying to 
improve access, for example by fast-track waiting 
lists  for  cancer  patients  introduced  in  2015  (24). 
Staff shortages are particularly perceptible in some 
regions  and  for  some  specialisations,  hence 
regional  and  sub-sectoral  differences 
in  care 
availability are significant. The Ministry of Health 
intends to increase public health expenditure up to 
6 % of GDP by 2025. 

Efforts  are  being  made  to  tackle  some  existing 
challenges.  The  Ministry  of  Health  has  started  a 
mapping exercise of healthcare needs with an aim 
to  improve  the  efficiency  of  resource  allocation. 
Other plans such as the liquidation of the National 
Health  Fund,  if  implemented,  could  facilitate 
governance  but  could  lead  to  conflicts  of  interest 
between  different  roles  (regulator,  payer  and 
provider)  fulfilled  by  the  same  institution.  It 
remains  to  be  seen  whether  changes  in  hospital 
financing  rules  do  not  slow  down  the  process  of 
hospital 
the  needed 
consolidation of the sector.  

restructuring, 

impeding 

pension  levels  given  that  retiring  just  two  years 
below 67 is projected to result in pensions that are 
lower  by  around  10  % (23).  A  significant 
proportion  of  women  would  then  receive  only  a 
minimum  pension 
its 
indexation  over  the  years  -  is  likely  to  fall  below 
the poverty threshold. The government announced 
into 
to 
also  plan 
occupational pension schemes. 

introduce  auto-enrolment 

-  depending  on 

that 

Graph 3.3.2:  Projected pension replacement rates – the 

impact of lowering of the retirement age 

(1) The replacement rate is a ratio between a first pension of 
those retiring and an economy-wide average wage at the 
retirement age. 
Source: Based on AWG (2013). 

The  system  of  long-term  care  has  a  number  of 
weaknesses.  Long-term  care  is  predominantly 
provided  by  family  members  who  receive  limited 
institutional  support  and  who  are  effectively 
discouraged  from  reconciling  employment  and 
care responsibilities. Formal care provision is very 
low,  reaching  only  4.6 %  of 
the  dependent 
population for home care and 3.4 % for residential 
care. At 0.8 % of GDP, funding for formal care is 
half the EU average (1.6 %). There is no efficient 
integration  between  healthcare  and  social  care 
systems  with  regard  to  long-term  care.  With  an 
old-age dependency ratio expected to double from 
22 % in 2015 to 45 % in 2045, long-care needs are 
bound 
increase  substantially  and  securing 
sufficient institutional support will be a challenge. 

to 

(23)  Calculations  based  on  scenarios  developed  in  European 
Commission and Social Protection Committee (2015). 

(24)  Diagnostics  and  treatment  within  specified  times  is  now 
guaranteed, with no financing limits. Healthcare providers, 
who  ensure  the  timeliness  and  comprehensiveness  of 
healthcare services, face no financing ceilings. 

26 

05101520253035404550201020202030204020502060statutory retirement age gradually increasing to 67reform reversal - return to 60/65 retirement age% 
 
                                                           
                                                           
3.4. INVESTMENT 

In 2016, the investment-to-GDP ratio fell below 
the EU average. This was driven by a significant 
contraction  of  public  investment  activity  (see 
Section  1).  However,  private  investment-to-GDP 
ratio also declined in 2016, widening the gap to the 
EU  average.  The  outlook  for  only  a  gradual 
investment  recovery  (see  Section  1)  implies  a 
projected widening of this gap (Graph 3.4.1). 

Graph 3.4.1:  Public and private investment, 2006-2018 

private investment activity appears to be related to 
increased  uncertainty  (see  Section  1),  but  this 
factor could be transitory. Finally, there are several 
structural barriers to investment (see Box 3.4.1). 

Graph 3.4.2:  Investment by components as a % of GDP, 

2006-2016 

Source: European Commission 

in 

Key  determinants  of  future  investment  are 
identified 
the  government's  responsible 
development  strategy.  The  government  has 
outlined its objective to raise the investment rate to 
above  25 %  of  GDP  by  2030,  yet  its  sources 
remain to be determined. The key enabling factors 
include improving the investment climate, also for 
foreign  investors,  a  stable  macroeconomic  and 
regulatory  environment,  high-quality  corporate 
governance,  including  in  state-owned  enterprises. 
The  government  also  explicitly  acknowledges  the 
important  role  of  the  capital  market.  However,  as 
highlighted  in  various  parts  of  this  report  Poland 
faces significant challenges in many of these areas 
and  some  policy  measures  taken  in  2016  may 
worsen  the  investment  climate.  These  include  the 
threat  to  the  rule  of  law  (see  Section  3.6), 
instability  of  the  regulatory  environment,  e.g.  for 
the renewable energy sector (see Section 3.5), risks 
from  fiscal  sustainability  and  the  governance  of 
SOEs (see Section 1). 

Local  governments  play  an  important  role  in 
public  investment  and  their  capacity  matters 
for  effectiveness  and  efficiency  of  spending. 
Around half of gross fixed capital formation by the 
local 
public 

undertaken 

sector 

by 

is 

Source: European Commission 

current 

concerning 

Several  factors  can  explain  the  relatively  low 
private investment-to-GDP ratio. In terms of the 
composition  of  investment  expenditure,  Poland 
differs  markedly  from  the  EU  average  (Graph 
3.4.2).  Housing  investment  is  significantly  lower 
than  the  EU  average,  possibly  reflecting  different 
preferences 
consumption 
versus housing investment and existing barriers to 
the  development  of  the  private  rental  market.  In 
addition,  as  compared  with  other  EU  countries, 
labour  costs  encourage  a  predominantly 
low 
labour-intensive  development  model 
the 
business sector, limiting investment. However, this 
factor  seems  to  be  more  than  compensated by  the 
still low capital stock in Poland compared with the 
EU  average,  which  encourages 
investment. 
Equipment  investment  is  well  above  the  EU 
average  reflecting  the  high  share  of  industry  in 
gross  value  added  and  on-going  technological 
catching-up. 
intangible  assets 
(software, intellectual property rights and R&D) is 
particularly  low  in  comparison  to  the  EU  average 
and  to  some  other  Member  States  that  are  in  the 
catching-up process (Graph 3.4.3). A recent fall in 

Investment 

for 

in 

27 

0510152025PL public investmentEU28 public investmentPL private investmentEU28 private investment% of GDPforecast012345678910200620082010201220142016PL dwellingsEU28 dwellingsPL other constructionEU28 other constructionPL equipmentEU28 equipmentPL otherEU28 other% of GDP 
 
 
 
governments (25) and investment expenditure stood 
at around 20 % of their total expenditure in the five 
years  preceding  2016.  In  terms  of  share  of  GDP, 
Polish  local  governments  manage  much  higher 
funds  than  the  EU  average  (Graph  3.4.4).  They 
carry  out  large,  infrastructure  projects,  which 
requires  relevant  coordination,  processing  and 
governments' 
oversight. 
administrative,  operational 
and  management 
capacity  largely  determines  efficiency  and  value 
added by investment projects. 

Hence, 

local 

Graph 3.4.3:  Gross investment in intangible assets as a % 

share of total investment (2013-2015 average) 

3.4. Investment 

in 

innovation 

much  more  private  investment  and  focus  on 
smart  specialisation  strategies.  This  change  of 
approach  is  expected  to  strengthen  impact  on 
the 
productivity  growth  and 
economy.  It  is  expected  that  support  will  reach 
nearly one third of Polish SMEs (excluding micro-
firms), cumulatively responsible for the creation of 
one  third  of  added-value  and  jobs  in  the  Polish 
economy.  Poland 
further 
started 
investment  through  a  complementary  use  of  the 
ESIF  and 
the  European  Fund  for  Strategic 
Investments (EFSI). The capacity of authorities, in 
particular at regional level, to identify more value-
added projects and to embrace higher risks will be 
important  for  this  to  maximise  possible  positive 
effects.  Generally,  the  administrative  capacity  of 
managers  handling  infrastructure  projects  will  be 
critical to their successful implementation.  

inducing 

Graph 3.4.4:  Local government investment 

(1) EU* is a simple average for 21 countries for which data 
are available. For some countries a shorter period is taken 
for calculations 
Source: European Commission calculations 

funds 

Structural 
strongly  affect  overall 
investment  performance.  Poland  has  fully  used 
the  available  funding  for  2007-2013.  At  EUR  68 
billion,  EU  transfers  to  Poland  were  among  the 
largest in Europe as a share of GDP (22 % of 2007 
GDP).  These  funds  significantly  accelerated  the 
convergence  processes  by  stimulating  domestic 
demand,  boosting  technological  absorption  and 
improving  connectivity.  It  is  estimated  that,  in 
2015,  investment  supported  by  Cohesion  Policy 
have  increased  the  GDP  level  by  around  4.3 % 
compared  to  the  counterfactual  scenario  of  the 
absence of the funding (Altus Consortium, 2016).  

The  2014-2020  European  Structural  and 
Investment  Funds  (ESIF)  envisage  mobilising 

(25)  In  recent  years,  this  ratio  fluctuated  between  45 %  and 

52 %. 

Source: European Commission (Eurostat) 

The  preparations  for  launching  projects  in  the 
2014-20  programming  period  are  progressing 
quickly. By the end of January 2017 the value of 
contracts  signed  amounted  to  EUR  18.8  billion 
(EU  share)  representing  about  22 %  of  the  total 
ESIF  allocation  for  Poland.  Poland’s  Action  Plan 
for increasing effectiveness of EU funds envisages 
higher  volumes  of  certification  in  the  coming 
years.  This  creates  the  basis  for  future  growth  of 
investment (see Section 1). 

28 

0%1%2%3%4%5%6%7%8%9%LVLTHUPLSKEECZEU*00.511.522.533.5European Union (28 countries)Poland% of  GDP 
 
                                                           
 
 
 
3.4. Investment 

29 

 Box 3.4.1: Investment challenges and reforms in PolandMacroeconomic perspective The length of investment cycles in Poland appears to have shortened in recent years. After falling in 2012-2013, investment activity rebounded strongly in 2014-2015 before falling again in 2016. These swings were driven by a combination of factors, including changing overall macroeconomic conditions and outlook, a changing perception of uncertainty and risks, and peaks and troughs of using EU structural funds. A recovery in investment is expected from 2017 onwards, but its pace remains uncertain. Public investment is expected to rebound more strongly as the calendar of the EU funds programming perspective puts pressure on Poland to accelerate spending. In contrast, the rebound of private investment will hinge on the development of expectations concerning macroeconomic stability and the policy and regulatory environment. For more information on the investment trends in Poland, please see Section 3.4. Assessment of barriers to investment and ongoing reforms   In addition to macroeconomic conditions, Poland's investment climate is also affected by a number of barriers in various policy areas. Some reforms were adopted in the areas of regulated professions, public e-services for companies and skills mismatch. However, some barriers remain and reform measures to address them are still to be taken. These are: 1. Inefficiencies and low stability in the regulatory environment. These include changes in the field of taxation (e.g. fast-track introduction of sectoral taxes, on-going discussions on and implementation of measures related to VAT, corporate and personal income taxes), lack of an updated, long-term strategy for the energy sector, and regulatory changes (legal amendments significantly changing the conditions for the renewable energy sector) or lack of spatial development plans in many areas. Some of these obstacles may be addressed by ongoing legislative work (see Sections 3.5 and 3.6). 2. Deficiencies in the quality of existing infrastructure, such as railway, roads and energy networks diminish potential investment gains. The last few years witnessed a rapid improvement in the quality of roads, and to a lesser extent also railways, but bottlenecks in the implementation of investment projects persist. The strong support of EU funds, however, offers an opportunity to speed up the development of infrastructure to match investment needs (see Section 3.5). 3. Weak links between academia and the business sector and the quality of science are crucial barriers to e.g. the development of in-house R&D activities and for investment in knowledge-intensive areas. The government has launched a revision of the legislative R&D framework (see Section 3.5). Regulatory/ administrative burdenTaxationPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&IInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionCSRWages & wage settingDigital Economy / TelecomEducation CSREnergyCSRLegend:TransportNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
 
 
 
 
3.5. SECTORAL POLICIES 

R&D and innovation 

Poland’s  research  and  innovation  performance 
has  marginally  improved  over  the  last  decade. 
R&D  intensity  increased  from  0.6 %  of  GDP  in 
2007 to 1 % of GDP in 2015, which is still below 
half  of  the  EU  average.  The  government  is 
committed  to  reaching  the  EU2020 national  R&D 
intensity target by 2020 (1.7 % of GDP). Poland´s 
performance  in  all  dimensions  of  the  European 
Innovation  Scoreboard  remains  below  the  EU 
average  (EIS,  2016).  R&D  investment  in  Poland 
currently relies predominantly on public financing, 
with  important  support  provided  by  the  European 
Structural and Investment Funds (ESIF).  

introduce  a  new  legal  framework  to  better  adapt 
academia  to  market  needs  (see  Section  3.3.  on 
education). 

Graph 3.5.1:  Highly-cited publications vs public R&D 

intensity 

Boosting  innovation  in  the  business  sector 
remains  a  key  challenge  for  Poland.  Despite 
recent  increases,  business  enterprise  expenditure 
on R&D (BERD) remains one of the lowest in the 
EU, although non-R&D expenditures significantly 
exceed  the  EU  average.  R&D  outlays  of  foreign 
firms  accounted  for  a  large  part  of  the  rise  in  the 
overall  BERD  in  Poland.  BERD  dynamics  in 
recent  years  does  not  match  the  increases  in 
availability of public co-funding, as distributed by 
NCBiR. (26).  The  2016 
‘White  Paper  on 
Innovation’  sets  out  legislative  and  organisational 
proposals to improve the business environment for 
innovation  (MNiSW,  2016).  Two  new  laws  on 
innovation will be entering into force in 2017 and 
2018. As from 2016, companies benefit from new 
R&D  tax  incentives.  Although  it  is  too  early  to 
their 
assess 
availability and size have been already extended in 
2017, when the first Act on Innovativeness entered 
into force (see Box 3.6.1 on Selected highlights).  

the  uptake  of 

incentives, 

these 

links 

A limited commercialisation of research results 
and  weak  science-business 
limit  the 
innovative  capacity  of  the  economy.  Recent 
joint  patent  applications  and  co-
counts  of 
publications  are  insignificant,  as  is  the  number  of 
enterprises  declaring  cooperation  with  scientific 
organisations.  The  share  of  R&D  expenditures  in 
higher  education  and  research  institutions  funded 
by business enterprises is also subdued (EIS 2016). 
Poland  is  catching  up  in  numbers  of  business 
to 
enterprise  researchers.  Work 

is  on-going 

(26)  Given  the  recognised  issue  of  the  BERD  underreporting, 
the  data  do  not  allow  for  full  analysis  of  the  public  R&D 
support  effectiveness;  for  more  details  see:  Klincewicz  et 
al. (forthcoming). 

(1) Values of public R&D intensity for Ireland and Sweden 
are estimated or provisional; 
(2) Scientific publications within the 10 % most cited scientific 
publications worldwide as % of total scientific publications of 
the country; 
(3) Fractional counting method; 
Source: European Commission (European Innovation Survey) 

Despite  measures  taken,  strengthening  the 
quality  of  science  and  its  internationalisation 
remains a key challenge. The quality of scientific 
activities in Poland is still far below EU standards. 
With  only  5.0  %  of  Polish  scientific  publications 
among  the  10  %  most-cited  worldwide  Poland 
ranks  24th  in  the  EU  (Graph  3.5.1).  Only  two 
Polish  universities  were  included  in  the  2016 
Academic  Ranking  of  World  Universities  (and 
both  were  in  the  last  five  hundred).  Poland  ranks 
26th and 27th in the EU in terms of the number of 
PhD  graduates  and  non-EU  PhD  students, 
for 
respectively.  Recent 
Horizon 
the 
internationalisation  by  e.g.  moving  the  evaluation 
focus  from 
the  quality  of 
publications.  Moreover,  The  Strategy  for  Science 
and  Higher  Education  comprises  three  key  pillars 
of  reforms,  focusing  on  higher  education  and 
science  system  (‘Law  2.0’),  science's  links  with 
business and its societal impact. The first elements 
of  the  reforms  came  into  force  in  October  2016. 
Reform  of  the  Higher  Education  Sector  is  being 

initiatives (e.g.  Pact 

the  quantity 

support 

2020) 

are 

to 

to 

30 

EUBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUK2468101214160.20.40.60.81.01.2Highly-cited publications , 2013 (2;3)Public R&D intensity, 2013(1) 
 
                                                           
 
3.5. Sectoral policies 

transport  in  cities  is  characterised  by  a  very  high 
share  of  vulnerable  users  like  pedestrians  and 
cyclists  among  all  fatal  victims  of  road  accidents. 
In  2015,  pedestrians  and  cyclists  accounted  for 
42 % of all people killed in road accidents, both in 
and outside cities, much above of the EU average 
of 29 %.  

in 

Despite the significant availability of EU funds, 
the  railway  sector  continues  to  face  major 
bottlenecks 
implementation. 
project 
Significant  agglomeration  railway  lines  are  still 
awaiting  modernisation  to  allow  more  passenger 
traffic.  Rail  freight  remains  uncompetitive,  with  a 
daily average speed as slow as 27 km/h, and main 
modernisation  projects  are  being  further  delayed. 
remain 
Infrastructure 
relatively  high  and  cover  the  entirety  of  the  rail 
network,  while  only  a  fraction  of  road  network  is 
subject  to  them.  Cumbersome  legal,  financial  and 
administrative  procedures  linked  with  bottlenecks 
within  the  railway  infrastructure  manager  (PKP 
PLK  S.A.)  still  persist  and  lead  to  project  delays 
and insufficient investment. 

(track  access)  charges 

railway 

infrastructure  manager 

Structural  challenges  in  the  rail  sector  remain.  
Compared  to  the  road  sector,  problems  with 
national  co-funding  for  EU  railway  projects  seem 
to  remain  systemic.  Equally,  the  effectiveness  of 
the 
remains 
subdued  despite  numerous  restructuring  attempts. 
All  this  contributes  to  a  very  slow  progress  on 
using  the  2014-2020  EU  funds  in  the  railway 
sector, with key contracts still to be concluded. In 
light  of  these  deficiencies,  the  timely  spending  of 
earmarked  budget  and  avoiding 
investment 
bottlenecks  at  the  end  of  the  programming  period 
might  be  challenging.  In  addition,  ensuring  the 
long-term  effects  of  the  current  investment  is 
uncertain  due  to  a  lack  of  clarity  if  the  long-
awaited  multi-annual 
infrastructure 
maintenance programme is introduced. 

railway 

Energy 

in 

improvements 

Poland  is  among  the  most  energy-intensive  EU 
economies,  but 
energy 
efficiency  have  also  been  among  the  fastest. 
Strong  economic  growth  over  the  last  decade 
implied  that,  despite  reduction  of  primary  energy 
intensity,  Poland  was  among  few  Member  States 
that did not reduce their final energy consumption 
since  2005.  The  energy  intensity  remains  high  in 

prepared  with  the  Horizon  2020  Policy  Support 
Facility (27). 

Although  R&D  is  increasingly  regarded  as  an 
engine  of 
long-term  economic  growth,  the 
effective  design  and  implementation  of  policies 
remains  challenging.  The  government  has 
launched  a  comprehensive  revision  of  the  whole 
strategic  and  legislative  R&D  framework,  as 
presented  in  the  Responsible  Development  Plan. 
The Plan identifies the economy’s limited capacity 
to innovate as one of five major growth barriers in 
Poland  and  includes  a  number  of  measures  to 
overcome  barriers  to  innovation.  It  proposes  a 
stronger  thematic  focus  of  R&D  investment  by 
prioritising 
smart 
specialisations.  The  delivery  of  this  complex 
revision  of  the  whole  R&D  framework,  will  be 
challenging  in  terms  of  avoiding  discrepancies 
between 
their 
implementation (28) and limiting overlaps between 
numerous support measures. 

concepts 

regional 

national 

policy 

and 

and 

Infrastructure and network industries  

The road network continues to develop with the 
strong support of EU investments. In 2015-2016, 
115.8  km  of  new  or  modernised  motorways  and 
expressways  were  built.  The  EU  funds  allocation 
for  Polish  roads  in  2014-2020  is  EUR  15  billion. 
Moving  further  from  public  funding  towards  new 
financial schemes remains challenging. Mobilising 
additional  private  financing  would  enable  Poland 
to  concentrate  public  funding  on  the  parts  of  the 
network 
territorial 
to  ensuring 
cohesion and cross-border connections. 

that  are  key 

Poland’s  road  fatality  rate  remains  well  above 
the  EU  average  and  is  of  a  particular  concern 
for  vulnerable  users  in  urban  areas.  Currently, 
with 77 deaths per million inhabitants against 51.5 
on average in the EU as a whole, addressing road 
fatalities  is  a  pressing  challenge  in  Poland.  At 
municipal level, the high rate of road accidents and 
fatalities is accompanied by increasing congestion, 
which  is  due  to  the  development  of  individual 
motorised  transport.  The  preference  for  such 
transport also generates negative safety loopbacks; 

(27)  Policy 

Support 

Facility 

website, 

https://rio.jrc.ec.europa.eu/en/policy-support-facility 
(28)  For example the recent amendments in the Act on Research 
Institutes  withdraws,  among  others,  the  requirement  of 
open procedures for the directors' post. 

31 

 
                                                           
3.5. Sectoral policies 

launch  of 

interconnectivity  remains 
Securing  energy 
crucial.  Following 
the  LNG 
the 
terminal,  Poland  has  significantly  improved  its 
security of gas supply. The country also developed 
its  national  gas  transmission  and  distribution 
network. However, work on gas interconnectors of 
regional importance has not advanced according to 
the timetable (30). For the electricity sector, in 2016 
the interconnection level was 4 % — the lowest in 
the  EU,  exposing  Poland  to  a  risk  of  supply 
shortages.  The  LitPolink  electricity  connection 
with  Lithuania  became  operational  in  2016  and 
improved  the  situation,  but  reaching  the  goal  of 
10 %  of  production  capacity  by  2020  seems 
challenging. The current national arrangements for 
congestion  management 
zone 
definition  in  central  Europe  do  not  necessarily 
reflect actual congestion accurately. This is leading 
to  increasing  limitations  on  cross-border  flows  of 
electricity  and  there  is  no  joint  regional  solution 
agreed by all affected neighbouring countries. 

and  bidding 

Polish  energy  markets  are  becoming  more 
competitive,  although  progress  is  uneven.  In 
recent  years,  the  Polish  electricity  wholesale 
market  has  become  increasingly  competitive,  but 
the  gas  wholesale  market  remains  relatively 
closed.  Wholesale  electricity  prices  are  slightly 
higher than in most neighbouring central European 
countries.  In  2015,  wholesale  gas  prices  were 
comparable 
those  of  neighbouring  central 
European  countries,  but  higher  than  in  Germany 
the  retail  markets,  Poland 
and  Austria.  On 
continues to regulate electricity and gas prices for 
households and gas prices for companies. The gas 
retail  market  is  dominated  by  the  incumbent 
company.  On  the  retail  electricity  market,  the 
supply  is  dominated  by  regional  power  suppliers 
with  low  competition  pressures  between  and 
within the regions. 

to 

Climate and environmental issues 

Poland is well on track to deliver on the target 
for  greenhouse  gas  (GHG)  emissions  in  sectors 
outside the Emissions Trading System. In 2014, 
Poland’s  non-ETS  emissions  increased  by  2 % 
the  country  already 
compared 

to  2005  and 

all final energy consumption sectors. Potential for 
significant  energy  efficiency  gains  exists 
in 
residential  buildings  (some  70 %  of  houses  are 
poorly insulated) as well as in the transport sector, 
with  Poland  having  one  of  the  oldest  passenger 
cars fleets in Europe. 

implying 

than  30  years 

Polish  power  generation  is  heavily  coal-reliant, 
ageing, and risks being insufficient to match the 
projected  growth  of  electricity  demand.    Still, 
around 60 % of the installed fossil fuels capacity is 
older 
significant 
investment for modernisation and extension of the 
power  infrastructure  in  coming  years.  Around, 
80 %  of  power  generation  is  still  coal-fired.  The 
use  of  domestic  coal  has  benefits  for  the  security 
of  supply  but  ensuring  economic  sustainability 
remains 
currently 
restructuring  its  mining  sector  but  a  number  of 
mines may prove to be unprofitable in the context 
of low global coal prices. Several Polish generators 
have plans for new coal-fired generation units (up 
to  over  3GW  of  capacity).  In  the  long  term,  this 
may  expose  the  sector  to  volatility  of  allowances 
prices  under  the  EU  Emissions  Trading  System 
(ETS).  An  update  of  the  long-term  vision  for  the 
Polish energy system is missing. 

challenging.  Poland 

is 

In  2016, 

framework. 

Achievement of the binding national 2020 target 
for  renewable  energy  is  at  risk.  According  to 
government plans, 4 GW of additional capacity (as 
compared  to  2014  data)  are  to  be  installed  in  the 
electricity  sector  by  2020 (29).The 
remaining 
investment  demands  legal  certainty  and  a  stable 
investment 
framework 
conditions have, however, worsened as a result of 
a  long  delayed  revision  of  the  Renewable  Energy 
Law  introducing  first  auctions  for  new  capacity 
and  a  new  law  on  investment  in  on-shore  wind. 
The 
latter  creates  prohibitive  conditions  for 
establishing new wind farms, new burdensome and 
costly  administrative  requirements  for  existing 
installations, and a high degree of legal uncertainty 
concerning  several  new  provisions 
(notably 
taxation). Consequently, the law entails significant 
losses for generators engaging in new projects and 
the banks underwriting them. 

(29)  2015  update  of  the  Polish  National  Renewable  Energy 
Action  Plan.  In  2010-2014,  2.7  GW  wind  capacity  was 
installed, but this dynamic development has now come to a 
halt. 

(30)  Notably the gas interconnector Poland  – Lithuania (GIPL) 
and the gas interconnectors Poland – Czechia (Stork II) that 
are  critical  for  the  establishment  of  the  North-South  gas 
corridor, are delayed. 

32 

 
                                                           
                                                           
3.5. Sectoral policies 

Graph 3.5.2:  Annual average concentrations of 

benzo[a]pirene (BaP) in 2014 in ng/m³ 

performed  better  than  the  interim  target  for  2014 
(+10 %). According to national projections, Poland 
will  reach  its  2020  target  by  a  wide  margin, 
achieving  only  a  6.5 %  increase  against  a  +14 % 
target. Transport emissions in Poland still remain a 
source of major concern, as emissions and energy 
consumption  from  transport  have  increased  in 
recent years. 

in  Poland.  There 

Poland does not yet use environmental taxes to 
stimulate  a  more  efficient  energy  usage  and  a 
reduction  of  GHG  emissions.  The  implicit  tax 
rate  on  energy  and  fuels  remains  comparatively 
low 
tax 
exemptions  (e.g.  agriculture  and  energy-intensive 
taxes  are  not 
industries)  and  environmental 
in 
taxation 
indexed.  Vehicles' 
automatically 
Poland is not linked to environmental performance 
(CO2 emissions). 

is  a  number  of 

Air  quality  continues  to  be  a  major  concern, 
with  air  quality  standards  among the  lowest  in 
the  EU-28.  Poland  has  not  yet  taken  sufficient 
measures  to  limit  the  emission  of  pollutants  from 
include  heating  of 
its  main  sources,  which 
individual  houses  by  obsolete  boilers  and  low- 
quality coal. In 2014, the EU air quality standards 
were often severely breached by pollutants mostly 
the  combustion  of  solid  fuels, 
emitted  via 
including, e.g. emissions of particulate matter and 
benzo[a]pirene  limits  (Graph  3.5.2).  The  recent 
evidence  confirms  a  further  deterioration,  with  an 
increasing  number  of  premature  deaths  per  year 
associated  with  bad  air  quality  in  Poland  (EEA, 
2016). 

Source: European Environment Agency 

system 

Waste management has improved, although the 
separate  waste  collection 
for  all 
municipalities  is  not  yet  launched.  In  2014,  at 
16 %  the  incineration  rate  almost  doubled  in 
comparison  with  the  previous  year.  Also  the 
recycling  rate  increased  to  21 %  (from  16 %  in 
2013)  though  still  remains  well  below  the  EU 
average of 28 %. The recently adopted Ministry for 
regulation  setting  out  common 
Environment 
requirements  for  the  collection  of  five  waste 
streams (paper, glass, metal, plastic and biowaste) 
for  all  municipalities  is  expected  to  significantly 
improve  the  quality  of  recyclables  and  their 
economic value. 

33 

1≤0.120.12-0.40.4-0.60.6-11-1.5>1.5no data Box 3.5.1: Selected highlights in PolandIn the years 2012- 2014, the country-specific recommendations for Poland recommended increasing the intensity of private research and development (R&D) expenditures via the introduction of R&D tax incentives. The Polish government addressed this challenge in a series of legislative measures. As from January 2016 a new system of R&D tax incentives operates in Poland which has increased the deduction rates for labour cost and other R&D costs. As of 1 January 2017, a further significant change to the design of R&D tax credits was made, which increased their availability and size, (according to the first Act on Innovativeness), expanded the deduction period, proposed new eligible cost categories and proposed additional incentives for start-ups like cash refunds for start-ups conducting R&D activities. Currently, a second innovation law is being prepared on the basis of the White Paper of innovation (published in September 2016). This was developed by representatives of science, business and public administration, in view of proposing more attractive tax incentives as from 1 January 2018. To date, the more R&D-friendly tax regulations have been already been appreciated by the business sector and are expected to trigger proportional increases in BERD.  
 
 
 
 
 
 
3.6. PUBLIC ADMINISTRATION 

Regulatory business environment 

The  ease  of  doing  business  in  Poland  has  been 
gradually  improving.  The  country  ranked 24th  in 
the 2017 World Bank ‘Doing Business’ report, an 
improvement  of  one  position  compared  to  2016. 
This  is  mainly  due  to  the  introduction  of  the  new 
insolvency  law,  faster  procedures  for  property 
registration,  and  amendments  to  the  construction 
law.  Poland  fell  in  the  2017  World  Bank  report 
rankings  on  setting-up  firms  (from  84th  to  107th 
place)  and  protection  of  minority  shareholders 
rights  (World  Bank,  2016a).  The  government  has 
plans 
simplify  certain  business 
procedures  with  a  range  of  proposals  put  forward 
within the Strategy for Responsible Development.  

further 

to 

The  quality  of  the  regulatory  framework 
continues to be a weak element in the otherwise 
generally  favourable  business  environment. 
This  positive  environment  has  been  supporting 
strong  economic  growth  over  the  last  years. 
International 
the  Global 
rankings,  such  as 
Entrepreneurship  Index  identify  key  strengths 
including  export  performance,  human  capital 
development,  delivering  innovative  products  and 
the 
(Global 
Entrepreneurship Development Institute, 2016). In 
contrast,  the  quality  of  various  regulations  and 
institutions  brings  Poland's  ranking  down.  For 
instance, the top five most problematic factors for 
doing  business  as 
the  Global 
Competitiveness Report are all regulatory in nature 
(World Economic Forum, 2016). 

capital  market 

identified 

size  of 

the 

in 

to 

related 
is 

regulatory 
the 
Uncertainty 
environment 
increasingly  weighing  on 
business  confidence.  In  2016,  policy  instability 
became the third most problematic factor for doing 
business,  from  a  previous  ranking  of  10th  (World 
Economic Forum, 2016). Business confidence may 
be  affected  by  the  limited  public  consultation  on 
several new laws. In contrast to the situation in the 
two previous terms of Parliament, since November 
2015 almost half of all laws passed were formally 
initiated by parliamentarians from the ruling party 
and not the government and hence were not subject 
to  the  typical  consultation  process  (Graph  3.6.1). 
In  addition,  changes  to  the  government’s  rules  of 
procedure,  introduced  in  June  2016,  reduced  the 
requirements concerning preparations for an initial 
outline of new legislation and regulatory tests. This 

in  fact  limits  the  extent  of  consultation  on  legal 
changes initiated by the government. 

Graph 3.6.1:  Legislative practice: number of laws passed in 

the first year of subsequent governments by 
the promoter of the draft 

(1) data for the first year since formation of the government 
in subsequent parliaments 
Source: Obywatelskie Forum Legislacji - Fundacja Batorego 
(2017). 

to 

inspections  add 

the 
Multiple  business 
administrative  burden 
for  businesses.  The 
mandates of numerous non-tax inspection services 
are not always clearly delineated, which may lead 
to  an  unnecessary  number  of  controls.  For 
example,  Polish  food  retailers,  caterers  and 
restaurants  are  inspected  more  often  than  in  some 
other  EU 
are 
available (31).  A  relatively  weak  point  of  the 
inspection  system  is  the  limited  availability  of 
guidance  on  how  to  comply  with  the  existing 
regulations, which  particularly  impacts  small-  and 
medium-sized enterprises (SMEs).  

for  which  data 

countries 

in 

spatial  planning 

Weaknesses 
increase 
administrative  burden  related  to  the  need  for 
construction  permits.  Land-use  plans  cover 
limited  part  of  Poland’s  territory  and  are  often  of 
low  quality.  In  areas  without  them,  construction 
permits  are  granted  on  the  basis  of  one-off 
administrative  decisions  on  land  development 
conditions.  The  extensive  use  of  these  acts, 

(31)  In  2014/2015 

the 

(number  of 
inspections 
inspections/number  of  firms)  in  Poland  amounted  to  0.82, 
compared  to  0.45  in  the  Netherlands  and  0.64  in  the  UK. 
The  differences  may  be  partly  explained  by  differences  in 
market structures (World Bank, 2016b). 

ratio 

34 

020406080100120140160180two previous parliaments -averagecurrent parliamentgovernmentgroup of MPs from the ruling party / coalition 
 
 
                                                           
3.6. Public administration 

combined  with  limitations  on  local  authorities’ 
capacity to handle the necessary procedures within 
regulatory  deadlines,  creates  uncertainty  and 
financial burden for investors obliged to document 
their  land  rights  (NIK,  2016).  Poland  recently 
initiated a reform of its spatial planning legislation. 
The  draft  construction  code,  currently  under 
revision,  entails  fundamental  changes  aimed  at 
consolidating  spatial  planning  processes  and 
easing the burden for investors. While this reform 
offers  the  chance  for  significant  improvement,  its 
benefits  depend  on 
the  code's  final  details. 
Furthermore, the implementation may take several 
years  due  to  the  complexity  of  revising  some  120 
legal acts and introducing transitional rules. 

There  continues  to  be  a  systemic  threat  to  the 
rule  of  law  in  Poland  and  the  Polish  justice 
system  suffers  from  lengthy  proceedings  and 
contract  enforcement.  The  recent  events 
in 
Poland  have  led  the  European  Commission  to 
adopt two Rule of Law Recommendations in order 
to  ensure  that  Poland's  Constitutional  Tribunal  is 
able to fully carry out its responsibilities under the 
Constitution. This ongoing crisis undermines trust 
in  the  Polish  legal  system.  In  addition,  the  length 
of  proceedings  remains  a  challenge.  In  first 
instance  courts, 
length  of  civil 
the  average 
is  10  months,  while 
litigation  proceedings 
commercial  cases  take  over  13  months.  The 
clearance  rate of  civil  cases  is  below  93 %,  while 
the EU average is over 103 % (MS, 2016) (32). The 
time  needed  to  deal  with  insolvency  cases  is 
among the highest in the EU — Poland ranks 32nd 
in  a  worldwide  comparison,  with  insolvency 
proceedings  taking  up  to  36  months  on  average. 
The length of contract enforcement also remains a 
challenge,  with  685  days  needed  to  enforce  a 
contract. 

Despite recent progress in public procurement, 
the  limited  administrative  capacity  of  local 
governments remains a source of concern. Local 
governments  undertake  a  large  share  of  public 
infrastructure  projects  (see  Section  3.3),  yet  they 
often  lack  the  relevant  administrative  capacity  to 
ensure  efficiency  (OECD,  2016d).  The  central 
authorities  do  not  support  local  governments  with 
structured  technical  assistance  to  carry  out  and 
implement  large  procurement  projects.  The  July 

(32)  100% clearance rate is when the number of incoming cases 

equals the number of cases closed. 

of 

the 

improve 

efficiency 

2016  amendment  of  the  public  procurement  law 
could 
public 
procurement,  transposing  two  EU  procurement-
related  directives  and  implementing  a  number  of 
measures  aimed  at  facilitating  the  procurement 
process and cutting red tape. The changes include, 
inter  alia,  authorities’  obligation 
to  consider 
splitting  of  works  and  non-price  criteria  to  gain 
more  importance.  The  law  is  set  to  trigger  public 
procurement  procedures  that  were  put  on  hold 
before its entry into force. 

in 

achieved 

progress  was 

in 
Significant 
deregulation of professions, but some restrictive 
barriers remain. Poland has undertaken ambitious 
reforms  of 
recent 
regulated  professions 
years (European  Commission,  2016a)  and  some 
positive  results  can  already  be  seen  in  terms  of 
employment  and  entrepreneurship  for  certain 
professions  (Rojek  and  Masior,  2017).  However, 
the  recent  Commission  study  covering  seven 
that  differences  between 
professions 
shows 
professions  exist.  For  example, 
the  level  of 
restrictiveness is higher in Poland compared to the 
EU weighted average for lawyers and tax advisers, 
while it is significantly lower for tourist guides and 
real estate agents (European Commission, 2016e). 
In  turn,  for  nearly  all  the  reviewed  sectors, 
business  churn  rates  in  Poland  are  similar  to  the 
EU average (33). This may indicate relatively high 
dynamism  and  competitive  pressure  within 
regulated professions in these sectors in Poland. 

Digitalisation of public administration 

Online  interaction  between  public  authorities 
and  citizens  remains  one  of  the  lowest  in  the 
EU.  With  26.6%  of  citizens  using  e-government 
services, Poland ranks among the worst performers 
in the EU. In contrast, e-services for business were 
used  by  92%  of  enterprises 
in  2015.  The 
fragmentation,  complexity  and  at  times  unstable 
operation  of  e-government  services  are  still  the 
main  obstacles  to  their  effective  use  by  citizens. 
The  updated  Programme  of 
Integrated 
Digitalisation  of  the  State  aims  to  enhance  policy 
coordination  and  strategic  planning  and  addresses 
a  number  of  challenges,  including  fragmentation, 
user-friendliness and public visibility of e-services 

the 

(33)  Business churn rate is calculated as the ratio of the sum of 
newly  founded  and  closed  enterprises  to  the  total  number 
of enterprises in a given year. 

35 

 
 
                                                           
                                                           
3.6. Public administration 

(Ministerstwo  Cyfryzacji,  2016).  It  is  currently  at 
the initial state of implementation. 

36 

 
 
ANNEX A 

Overview Table 

Commitments 

2016 Country-specific recommendations (CSRs) 

Summary assessment(34) 

CSR 1: Achieve an annual fiscal adjustment of 0.5 
%  of  GDP  towards  the  medium-term  budgetary 
objective in 2016 and in 2017. Strengthen the fiscal 
framework, 
an 
independent  fiscal  council.  Improve  tax  collection 
by  ensuring  better  VAT  compliance,  and  limit  the 
extensive use of reduced VAT rates. 

establishing 

including 

by 

Achieve  an  annual  fiscal  adjustment  of  0.5  %  of 
GDP towards the medium-term budgetary objective 
in 2016 and in 2017. 

Strengthen  the  fiscal  framework,  including  by 
establishing an independent fiscal council. 

Improve  tax  collection  by  ensuring  better  VAT 
compliance, and limit the extensive use of reduced 
VAT rates. 

CSR  2:  Ensure  the  sustainability  and  adequacy  of 
the pension system and increase participation in the 
labour market, by starting to reform the preferential 
pension  arrangements,  removing  obstacles  to  more 
permanent types of employment and improving the 
labour market-relevance of education and training 

Poland  has  made  limited  progress  in  addressing 
CSR1  (this  overall  assessment  of  CSR  1  does  not 
include an assessment of compliance with the Stability 
and Growth Pact): 

The  compliance  assessment  with  the  Stability  and 
Growth Pact will be included in spring when final data 
for 2016 will be available. 

No  progress  has  been  made  on  establishing  a  fiscal 
council. The authorities do not envisage implementing 
one. 

Some progress was made in improving tax collection. 
Several  measures  aimed  at  fighting  tax  fraud  in  the 
fuel  sector  entered  into  force  in  2016.  They  are 
followed  by  a  large  amendment  of  the  VAT  law  that 
entered  into  force  in  2017.  A  new  National  Revenue 
Administration  will  become  operational  in  March 
2017.  In  contrast,  no  progress  was  made  on  limiting 
the extensive use of reduced VAT rates. 

Poland has made no progress in addressing CSR2. 

Ensure  the  sustainability  and  adequacy  of  the 
pension  system  and  increase  participation  in  the 

No  progress  in  ensuring  the  sustainability  and 

(34)  The following categories are used to assess progress in implementing the 2016 country-specific recommendations: 
No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. Below a number of non-
exhaustive  typical  situations    that  could  be  covered  under  this,  to  be  interpreted  on  a  case  by  case  basis  taking  into  account 
country-specific conditions: 

•  no  legal,  administrative,  or  budgetary  measures  have  been  announced  in  the  National  Reform  Programme  or  in  other  official 
communication  to  the  national  Parliament  /  relevant  parliamentary  committees,  the  European  Commission,  or  announced  in 
public (e.g. in a press statement, information on government's website);  
• no non-legislative acts have been presented by the governing or legislator body;   
•  the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study  group  to 
analyse possible measures that would need to be taken (unless the CSR explicitly asks for orientations or exploratory actions), 
while clearly-specified measure(s) to address the CSR has not been proposed. 

Limited progress: The Member State has: 
• announced certain measures  but these only address the CSR to a limited extent;    
and/or 
• presented legislative acts in the governing or legislator body but these have not been adopted yet and substantial non-legislative 

further work is needed before the CSR will be implemented;  

• presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the CSR. 
Some  progress:  The  Member  State  has  adopted  measures  that  partly  address  the  CSR    and/or    the  Member  State  has  adopted 
measures that address the CSR, but a fair amount of work is still needed to fully address the CSR as only a few of the adopted 
measures have been implemented. For instance: adopted by national parliament; by ministerial decision; but no implementing 
decisions are in place. 

Substantial progress: The Member State has adopted measures that go a long way in addressing the CSR and most of which have 

been implemented. 

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

37 

 
 
 
 
 
                                                           
A. Overview Table 

labour market, by starting to reform the preferential 
pension arrangements 

Ensure  the  sustainability  and  adequacy  of  the 
pension  system  and  increase  participation  in  the 
labour  market  […]  by  removing  obstacles  to  more 
permanent types of employment and improving the 
labour market-relevance of education and training. 

adequacy of the pension system. Contrary to the CSR, 
a  lowering  of  the  statutory  retirement  age  has  been 
voted in and will enter into force as of October 2017. 
In  the  longer  term,  it  will  worsen  sustainability  and 
adequacy  of  the  pension  system.  No  progress  in 
reforming 
the  preferential  pension  arrangements, 
although there are plans to review them with a view to 
reform them (including those for farmers and miners). 

No  progress  in  increased  participation  in  the  labour 
market. Some measures undertaken so far seem to go 
in  the  opposite  direction.  In  particular,  lowering  the 
statutory  retirement  age  and  the  new  child  benefit 
could  have  adverse  effects  on  the  labour  market 
participation.  Limited  progress  in  removing  obstacles 
to  more  permanent  types  of  employment.  Despite 
measures  taken  to  reduce  segmentation,  the  use  of 
open-ended contracts is still discouraged by a number 
this, 
of  obstacles.  To  address 
two  codification 
committees  were  set  up 
to  prepare  new  draft 
individual and collective Labour Codes by early 2018. 
Limited  progress  in  improving  the  labour  market-
relevance  of  education  and  training.  The  reforms  of 
the  higher  education  system  seem  to  be  going  in  the 
right  direction,  but  the  changes  in  general  education 
could go in the opposite direction. 

Poland  has  made  limited  progress  in  addressing 
CSR3. 

in 

in 

removing  obstacles 

infrastructure.  Despite 

to 
Limited  progress 
investment 
the  2016 
amendment to the rail transport law simplifying some 
investments  procedures  and  enabling  their  faster 
implementation,  its  scope  is  rather  limited  and  the 
observed  progress  with  investments  on  the  ground 
throughout the year has been very slow. In renewable 
situation 
power  generation 
worsened  in  2016,  as  a  result  of  the  new  law  on 
investment  in  on-shore  wind  installations  and  long-
delayed revision of the Renewable Energy Law. 

infrastructure, 

the 

CSR  3:  Take  measures  to  remove  obstacles  to 
investment in transport, communication and energy 
infrastructure,  and  increase  the  coverage  of  spatial 
planning at local level 

Take measures to remove obstacles to investment in 
transport, communication and energy infrastructure 

increase  the  coverage  of  spatial  planning  at  local 
level 

in 

Limited  progress 
simplifying  construction 
permitting  and  rationalising  spatial  planning  at  the 
local  level.  Construction  permits  were  practically 
abolished  for  constructing  private  houses  and  other 
smaller  structures,  though  they  are  still  required  for 
other  construction  projects.  The  newly  drafted 
Construction Code contains elements related to spatial 
planning  and  aimed  at  improving  the  current  system, 
like:  consolidating  old  legislation  on  spatial  planning 
and  construction  permitting,  streamlining  procedures 

38 

 
A. Overview Table 

into a single investment decision, reinforcing the role 
of  municipal  studies  on  territorial  development  and 
making  more  stringent  the  conditions,  under  which 
new developments could take place in the absence of 
the spatial development plan.  

Europe 2020 (national targets and progress) 

Employment rate target: 71 % 

69.1 % (Q1-Q3 2016) 

R&D  target  set  in  the  2013  NRP:  R&D  intensity 
target is 1.7 % for 2020 

1 % (2015) 

Greenhouse gas (GHG) emissions target:  

- National greenhouse gas (GHG) emissions target: 
+14 %  in  2020  compared  to  2005  (in  non-ETS 
sectors) 

2020 Renewable energy target: 15% 

Share  of  renewable  energy 
transport: 10% 

in  all  modes  of 

Energy 
consumption  

efficiency: 

reduction 

of 

energy 

Poland  has  set  an 
indicative  national  energy 
efficiency  target  of  13.6  Mtoe  primary  energy 
savings in 2020 reaching a 2020 level of 96.4 Mtoe 
primary  consumption  and  70.4  Mtoe  final  energy 
consumption. 

According to the latest projections, the 2020 target is 
expected to be achieved: 6.5 % growth is projected in 
2020 as compared to 2005 (a margin of 7.5 percentage 
points). 

The  GHG  emissions  increased  between  2005  and 
2014 in the sectors not covered by the EU ETS by 2 % 
against an interim target of +10 % for 2014. 

With  a  renewable  energy  share  of  11.4 %  in  2014, 
Poland is currently on track to meet its target for 2020, 
but  the  new  law  would  imply  close  monitoring  of 
progress. 

Poland  increased  its  primary  energy  consumption  by 
0.9 %  from  89.17  Mtoe  in  2014  to  90  Mtoe  in  2015. 
Final energy consumption increased by 1 % from 61.6 
Mtoe in 2014 to 62.25 Mtoe in 2015. Even if levels of 
primary  and  final  energy  consumption  are  currently 
below the indicative national 2020 targets (96.4 Mtoe 
in primary energy consumption and 71.6 Mtoe in final 
energy  consumption)  keeping  these  levels  until  2020 
is challenging. 

Early school leaving target: 4.5 % 

5.2 % (2016 – provisional data) 

Tertiary education target: 45 % 

44.3 % (2016 – provisional data) 

Risk of poverty or social exclusion target: Target 
on the reduction of population at risk of poverty or 
social exclusion in number of persons: 1 500 000 

Since 2012, the EU 2020 target has been achieved. By 
2015  the  reduction  by  2.7  million  persons  has  been 
achieved. 

39 

 
ANNEX B 

MIP Scoreboard 

Table B.1: 

The MIP scoreboard for Poland 

Flags: b: break in time series. e: estimated. i: see metadata. p: provisional. na: not available. 
(1) Nominal unit labour cost: 2010 break in time series. Since the indicator is a three year % change the break affects all the 
following years. 
(2) House price index: e = NSI estimates. 
(3) Unemployment rate: for 2009 i = Eurostat back-calculation to include 2011 Population Census results. 
(4) Youth unemployment rate: for 2009 i = Eurostat back-calculation to include 2011 Population Census results. 
Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective 
Exchange Rate), and International Monetary Fund" 

40 

Thresholds201020112012201320142015Current account balance, (% of GDP) 3 year average-4%/6%-5.3-4.8-4.8-3.4-2.4-1.3-35%-65.1-62.4-65.4-69.0-69.1-62.8Real effective exchange rate - 42 trading partners, HICP deflator3 years % change±5% & ±11% -1.4-11.51.2-4.3-1.3-1.0Export market share - % of world exports5 years % change-6%25.115.72.10.55.39.7Nominal unit labour cost index (2010=100)3 years % change9% & 12% 11.3b4.25.33.12.9-0.4p6%-6.1e-4.6-6.6-4.71.12.814%4.36.74.83.34.63.2133%69.773.973.575.478.179.060%53.154.153.755.750.251.1Unemployment rate3 year average10%8.39.29.810.09.88.916.5%13.54.910.67.40.72.4-0.2%2.1b1.91.81.72.21.60.5%-2.11.11.51.40.2-1.12%2.18.65.93.6-1.9-5.7Activity rate - % of total population aged 15-64 (3 years change in p.p)Long-term unemployment rate - % of active population aged 15-74 (3 years change in p.p)Youth unemployment rate - % of active population aged 15-24 (3 years change in p.p)External imbalances and competitivenessNew employment indicatorsNet international investment position (% of GDP)Deflated house prices (% y-o-y change)Total financial sector liabilities (% y-o-y change)Private sector credit flow as % of GDP, consolidatedPrivate sector debt as % of GDP, consolidatedGeneral government sector debt as % of GDPInternal imbalances 
 
 
 
 
 
ANNEX C 

Standard Tables 

Table C.1: 

Financial market indicators 

1) Latest data Q2 2016. 
2) Quarterly values are not annualised 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

41 

201120122013201420152016Total assets of the banking sector (% of GDP)81.490.991.592.491.794.6Share of assets of the five largest banks (% of total assets)43.744.445.248.348.6-Foreign ownership of banking system (% of total assets)65.362.865.365.861.7-Financial soundness indicators:1)              - non-performing loans (% of total loans)6.06.46.05.45.05.0              - capital adequacy ratio (%)13.314.915.614.915.816.7              - return on equity (%)2)12.010.810.09.47.74.2Bank loans to the private sector (year-on-year % change)5.97.34.05.45.83.7Lending for house purchase (year-on-year % change)8.86.83.03.54.52.8Loan to deposit ratio105.4101.799.598.397.295.9Central Bank liquidity as % of liabilities0.00.00.00.00.00.0Private debt (% of GDP)73.973.475.478.178.6-Gross external debt (% of GDP)1) - public23.629.628.329.329.228.1    - private27.628.728.529.028.629.3Long-term interest rate spread versus Bund (basis points)*334.8350.5246.3235.3220.6291.5Credit default swap spreads for sovereign securities (5-year)*172.0154.177.460.861.175.9 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Labour market and social indicators - part 1 

1) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin working 
immediately or within two weeks.       
2) Long-term unemployed are peoples who have been unemployed for at least 12 months.       
3) Not in education employment or training.       
4) Average of first three quarters of 2016. Data for total unemployment and youth unemployment rates are seasonally 
adjusted.       
Source: European Commission (EU Labour Force Survey). 

42 

Table II. Labour market and social indicators201120122013201420152016 4Employment rate(% of population aged 20-64)64.564.764.966.567.869.1Employment growth (% change from previous year)0.60.1-0.11.71.50.8Employment rate of women(% of female population aged 20-64)57.257.557.659.460.962.1Employment rate of men (% of male population aged 20-64)71.972.072.173.674.776.1Employment rate of older workers (% of population aged 55-64)36.938.740.642.544.345.6Part-time employment (% of total employment, aged 15-64)7.37.27.17.16.86.4Fixed-term employment (% of employees with a fixed term contract, aged 15-64)26.826.826.828.328.027.7Transitions from temporary to permanent employment19.520.416.418.321.8:Unemployment rate1 (% active population, age group 15-74)9.710.110.39.07.56.3Long-term unemployment rate2 (% of labour force)3.64.14.43.83.02.2Youth unemployment rate (% active population aged 15-24)25.826.527.323.920.818.3Youth NEET3 rate (% of population aged 15-24)11.511.812.212.011.0:Early leavers from education and training (% of pop. aged 18-24 with at most lower sec. educ. and not in further education or training)5.65.75.65.45.3:Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)36.539.140.542.143.4:Formal childcare (30 hours or over; % of population aged less than 3 years)3.05.04.05.0:: 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and social indicators - part 2 

1) People at risk of poverty or social exclusion: individuals who are at risk of poverty and/or suffering from severe material 
deprivation and/or living in households with zero or very low work intensity.       
2) At-risk-of-poverty rate: proportion of people with an equivalised disposable income below 60 % of the national equivalised 
median income.        
3) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.       
4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
5) For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices = 100 in 2006 (2007 
survey refers to 2006 incomes)       
Source: For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC. 

43 

Expenditure on social protection benefits (% of GDP)201020112012201320142015Sickness/healthcare4.44.24.14.24.0:Disability1.71.61.61.61.5:Old age and survivors11.110.610.911.311.2:Family/children1.31.31.31.41.4:Unemployment0.40.30.30.30.2:Housing0.10.10.10.10.1:Social exclusion n.e.c.0.20.20.10.10.1:Total19.218.218.419.018.5:of which: means-tested benefits0.70.60.70.80.7:Social inclusion indicators201020112012201320142015People at risk of poverty or social exclusion1 (% of total population)27.827.226.725.824.723.4Children at risk of poverty or social exclusion  (% of people aged 0-17)30.829.829.329.828.226.6At-risk-of-poverty  rate2 (% of total population)17.617.717.117.317.017.6Severe material deprivation rate3  (% of total population)14.213.013.511.910.48.1Proportion of people living in low work intensity households4 (% of people aged 0-59)7.36.96.97.27.36.9In-work at-risk-of-poverty rate (% of persons employed)11.411.110.410.710.611.2Impact of social transfers (excluding pensions) on reducing poverty27.926.625.324.826.423.1Poverty thresholds, expressed in national currency at constant prices5102861055110548105491084711247Gross disposable income (households; growth %)4.75.34.41.82.52.1Inequality of income distribution (S80/S20 income quintile share ratio)5.05.04.94.94.94.9GINI coefficient before taxes and transfers48.047.947.747.747.8:GINI coefficient after taxes and transfers31.131.130.930.730.8: 
 
 
 
 
C. Standard Tables 

Table C.4: 

Product market performance and policy indicators 

1) The methodologies, including the assumptions, for this indicator are shown in detail at: 
http://www.doingbusiness.org/methodology.        
2) Average of the answer to question Q7B_a. '[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past six months, what was the outcome?'. Answers were scored as follows: zero if received everything, one if received 
most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the application is 
still pending or if the outcome is not known.       
3) Percentage population aged 15-64 having completed tertiary education.       
4) Percentage population aged 20-24 having attained at least upper secondary education.       
5) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail at:  http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

44 

Performance indicators201020112012201320142015Labour productivity (real, per person employed, year-on-year % change)Labour productivity in industry13.566.803.57-1.501.995.21Labour productivity in construction10.4711.05-0.661.178.933.21Labour productivity in market services3.423.102.184.75-1.482.58Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in industry-3.17-1.422.350.161.11-4.85ULC in construction2.92-1.091.821.47-7.05-1.70ULC in market services4.282.333.69-0.133.280.44Business environment201020112012201320142015Time needed to enforce contracts1 (days)830.0830.0685.0685.0685.0685.0Time needed to start a business1 (days)39.039.039.037.037.037.0Outcome of applications by SMEs for bank loans2na0.52na0.590.750.46Research and innovation201020112012201320142015R&D intensity0.720.750.880.870.941.00Total public expenditure on education as % of GDP, for all levels of education combined5.174.944.915.00nanaNumber of science & technology people employed as % of total employment373739404142Population having completed tertiary education3192022232424Young people with upper secondary education4919090909091Trade balance of high technology products as % of GDP-2.30-2.21-1.97-1.68-1.44-1.59Product and service markets and competition200320082013OECD product market regulation (PMR)5, overallna2.041.65OECD PMR5, retail2.522.432.55OECD PMR5, professional services3.293.333.24OECD PMR5, network industries63.202.702.34 
 
 
 
 
C. Standard Tables 

Table C.5:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2005 prices)  
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)  
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)  
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)  
          Waste intensity: waste (in kg) divided by GDP (in EUR)  
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP    
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP  
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change)  
Real unit energy cost: real energy costs as a percentage of total value added for the economy  
Environmental taxes over labour taxes and GDP: from European Commission's database, ‘Taxation trends in the European 
Union’  
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR)   
Real unit energy costs for manufacturing industry excluding refining : real costs as a percentage of value added for  
manufacturing sectors  
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP  
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. VAT.  
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste  
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP  
Proportion of GHG emissions covered by EU Emissions Trading System (ETS) (excluding aviation): based on greenhouse gas 
emissions  
(excl land use, land use change and forestry) as reported by Member States to the European Environment Agency.  
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2005 EUR)  
Transport carbon intensity: GHG emissions in transport activity divided by gross value added of the transport sector  
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels  
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk.  
Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies 
and solid fuels  
* European Commission and European Environment Agency 
Source: European Commission (Eurostat) unless indicated otherwise 

45 

Green growth performance201020112012201320142015MacroeconomicEnergy intensity kgoe / €0.280.270.250.250.230.23Carbon intensity kg / €1.301.241.201.171.09-Resource intensity (reciprocal of resource productivity)kg / €2.082.442.101.951.881.81Waste intensity kg / €0.51-0.49-0.52-Energy balance of trade % GDP-2.6-3.3-3.4-2.7-2.6-Weighting of energy in HICP%13.0513.9415.4115.6714.9315.65Difference between energy price change and inflation %1.53.42.9-1.3-0.10.6Real unit of energy cost% of value added19.521.020.919.918.9-Ratio of environmental taxes to labour taxesratio0.220.210.190.180.19-Environmental taxes% GDP2.62.52.52.42.5-Sectoral Industry energy intensity kgoe / € 0.180.180.170.170.170.16Real unit energy cost for manufacturing industry excl. refining% of value added22.223.922.822.420.3-Share of energy-intensive industries in the economy% GDP14.0914.7614.7814.4814.62-Electricity prices for medium-sized industrial users€ / kWh0.100.100.090.090.080.09Gas prices for medium-sized industrial users€ / kWh0.030.030.040.040.040.04Public R&D for energy % GDP--0.010.010.010.01Public R&D for environmental protection% GDP--0.020.020.030.02Municipal waste recycling rate%21.417.519.624.232.342.5Share of GHG emissions covered by ETS*%51.752.551.752.451.952.1Transport energy intensitykgoe / €1.431.251.121.031.041.13Transport carbon intensitykg / €3.873.393.052.792.81-Security of energy supplyEnergy import dependency%31.333.430.625.628.629.3Aggregated supplier concentration indexHHI29.528.929.827.027.4-Diversification of energy mixHHI0.380.380.360.370.36- 
 
 
 
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