REPORT FROM THE COMMISSION Poland Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Poland, budget deficit, budget policy, budgetary control, epidemic, gross domestic product, infectious disease, macroeconomics, public debt, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 554 final  REPORT FROM THE COMMISSION Poland  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Poland 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of  the 
general  escape  clause  of  the  Stability  and  Growth  Pact.   The  clause,  as  set  out  in  Articles 
5(1),  6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles  3(5)  and  5(2)  of 
Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe 
economic downturn. In its Communication, the Commission shared with the Council its view 
that, given the expected severe economic downturn resulting from the COVID-19 outbreak, 
the  current  conditions  permit  activation  of  the  clause.  On  23  March  2020,  the  Ministers  of 
Finance of the Member States agreed with the assessment of the Commission. The activation 
of  the  general  escape  clause  allows  for  a  temporary  departure  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. For the corrective arm, the Council may also decide, on a 
recommendation  from  the  Commission,  to  adopt  a  revised  fiscal  trajectory.  The  general 
escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth  Pact.  It  allows 
Member States to depart from the budgetary requirements that would normally apply while 
enabling  the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact.  

Data  notified  by  the  Polish  authorities  on  31  March  2020  and  subsequently  validated  by 
Eurostat1 show that the general government deficit in Poland reached 0.7% of GDP in 2019, 
while  general  government  gross  debt  stood  at  46.0%  of  GDP.  According  to  the  2020 
Convergence  Programme,  Poland  plans  a  deficit  of  8.4%  of  GDP  in  2020,  while  debt  is 
planned at 55.2% of GDP. 

The planned deficit for 2020 provides prima facie evidence of the existence of an excessive 
deficit as defined by the Stability and Growth Pact. 

Against this background, the Commission has therefore prepared this report, which analyses 
Poland’s  compliance  with  the  deficit  criterion  of  the  Treaty.  The  debt  criterion  can  be 
considered to be met as the debt ratio is below the Treaty reference value of 60% of GDP. It 
takes  into  account  all  relevant  factors  and  gives  due  consideration  to  the  major  economic 
shock linked to the COVID-19 pandemic.  

1 

https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f 

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Table 1. General government deficit and debt (% of GDP)  

2016 

2017 

2018 

2019 

-2.4 

-1.5 

-0.2 

-0.7 

2020 
COM 

-9.5 

2021 
COM 

-3.8 

54.3 

50.6 

48.8 

46.0 

58.5 

58.3 

Deficit 
criterion 

Debt 
criterion 

General 
government 
balance 
General 
government 
gross debt 

Source: Eurostat, Commission 2020 spring forecast 

2. 

DEFICIT CRITERION  

Based on the 2020 Convergence Programme, Poland’s general government deficit in 2020 is 
planned to reach 8.4% of GDP, above and not close to the Treaty reference value of 3% of 
GDP. 

The planned excess over the Treaty reference value in 2020 is exceptional, as it results from a 
severe  economic downturn. Taking into account  the impact  of the COVID-19 pandemic on 
Poland’s  economy,  the  Commission  spring  forecast  projects  a  contraction  of  real  GDP  in 
2020 by 4.3%. 

The  planned  excess  over  the  Treaty  reference  value  is  not  temporary  based  on  the 
Commission 2020 spring forecast, which projects the deficit to remain above 3% of GDP in 
2021.  

In  sum,  the  planned  deficit  for  2020  is  above  and  not  close  to  the  3%  of  GDP  Treaty 
reference  value.  The  planned  excess  is  considered  to  be  exceptional  but  not  temporary  as 
defined  by  the  Treaty  and  the  Stability  and  Growth  Pact.  Hence,  the  analysis  suggests  that 
prima facie the deficit criterion as defined by the Treaty and Regulation (EC) No 1467/97 is 
not fulfilled. 

3. 

RELEVANT FACTORS 

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”.  

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  that  “any  other  factors  which,  in  the  opinion  of  the  Member  State  concerned,  are 
relevant in order to comprehensively assess compliance with the deficit and debt criteria and 
which the Member State has put forward to the Council and to the Commission” need to be 
given due consideration. 

In the current  situation,  a key  additional factor to  take into consideration regarding 2020 is 
the economic impact of the COVID-19 pandemic, which has a very substantial impact on the 
budgetary situation and  results in  a highly  uncertain outlook. The pandemic has also  led to 
the activation of the general escape clause. 

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3.1. 

 COVID-19 pandemic 

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and  support  aggregate  demand.  Member  States  have  already  adopted  or  are  adopting 
budgetary  measures  to  increase  the  capacity  of  health  systems  and  provide  relief  to  those 
individuals and sectors that are particularly impacted. Significant liquidity support measures 
and  other  guarantees  have  also  been  adopted.  Subject  to  more  detailed  information,  the 
competent statistical authorities are to examine whether those measures entail an immediate 
impact on the general government balance or not. Together with the fall in economic activity, 
these measures will contribute to substantially higher government deficit and debt positions. 

3.2 

Medium-term economic position  

Economic growth  exceeded 4% in  2019, mainly due to  robust domestic demand. However, 
due  to  the  COVID-19  pandemic,  the  Commission  2020  spring  forecast  projects  GDP  to 
decline  by  4.3%  in  2020,  reflecting  the  disruption  in  economic  activity  caused  by  the 
lockdown  measures  and  an  unprecedented  fall  in  external  demand.  Private  consumption  is 
projected  to  be  hard-hit  due  to  an  increase  in  unemployment,  a  sharp  drop  in  wage  growth 
and weak consumer confidence. Investment is also set to fall strongly in 2020. Output is set 
to  drop  strongly  in  the  first  half  of  the  year  and  recover  gradually  from  the  third  quarter 
onwards. This outlook is marked by an exceptional degree of uncertainty on the duration of 
the pandemic and its economic impact. This a mitigating factor in the assessment of Poland’s 
compliance with the deficit criterion in 2020. 

3.3 

 Medium-term budgetary position 

On  13  July  2018,  Poland  was  recommended  to  ensure  that  the  nominal  growth  rate  of  net 
primary  government  expenditure  does  not  exceed  4.2%  in  2019  (‘the  expenditure 
benchmark’),  corresponding  to  a  structural  adjustment  of  0.6%  of  GDP.2  The  overall 
assessment points to a significant deviation from the recommended adjustment path towards 
the MTO in 2019 and over 2018-2019 taken together. 

The  Convergence  Programme  provides  information  on  substantial  new  spending  (fiscal 
impact of 3.2% of GDP in 2020) to contain the pandemic and to support the economy. The 
highest  expenditure  is  planned  for  allowances  for  self-employed  and  employed  on  non-
standard  labour  contracts,  exempting  companies  from  social  contributions,  and  subsidies  to 
wages for certain companies3. The Convergence Programme also takes into account a strong 
decrease in public revenue triggered by the crisis and cyclical effects. In 2021, according to 
the Convergence Programme, revenue is set to rise driven by a rebounding of the economy 

2 Council Recommendation of 13 July 2018 “on the 2018 National Reform Programme of Poland and delivering 

a Council opinion on the 2018 Stability Programme of Poland”, OJ C 320, 10.9.2018, p. 88 

3 The Convergence Programme mentions also loans to be paid by the Polish Development Fund of a total value 
of PLN 100 billion, of which around PLN 60 billion are planned to be converted into grants, without 
recording  them  as  expenditure  in  2020.  The  2020  Spring  Commission  forecast  assumes  that  the 
expected  unpaid  amount  is  recorded  as  capital  transfers  when  loans  are  paid  to  companies  (i.e.  in 
2020).  

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and cyclical factors. The Convergence Programme does not mention new high expenditure to 
support  the  economy.  The  Convergence  Programme  underlines  the  high  uncertainty 
surrounding  that  projection,  driven  by  the  evolution  of  the  pandemic,  the  length  and 
stringency of the sanitary measures, the strength of the economic recovery, the policy of the 
central bank and the external situation. 

3.4 

Other factors put forward by Poland 

On  11  May  2020,  the  Polish  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous  sections  already  broadly  covers  the  key  factors  put  forward  by  the  authorities. 
Additional factor not yet mentioned above is the determination of the government to reduce 
the  excessive  deficit  as  soon  as  possbile.  Thanks  to  the  stabilising  expenditure  rule,  the 
authorities plan to bring the deficit to close to 3% of GDP in 2021, in the case the economic 
situation does not require any additional fiscal impulse.  

4. 

CONCLUSIONS 

According  to  the  plans  in  the  Convergence  Programme  Poland’s  headline  general 
government deficit in 2020 is planned to reach 8.4% of GDP, above and not close to the 3% 
of GDP Treaty reference value. The planned excess over the reference value is considered to 
be exceptional but not temporary.  

In line with the Treaty and the Stability and Growth Pact, this report also examined relevant 
factors.  Overall,  since  the  planned  deficit  is  well  above  3%  of  GDP  and  the  excess  not 
temporary, and taking into account all relevant factors, the analysis suggests that the deficit 
criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is not fulfilled.  

4