Business lessons from Poland’s amazing economic recovery
COVID-19 has been a crisis for the economies of most countries. Poland’s leadership has stated that the country will recover from this crisis quickly. If it works, the Polish government’s multi-pronged approach to getting over the crisis could be a role model for others. Here is a look at what it entails and how it’s going.
In March 2020 inflation in Poland was rising fast. Reports from the Central Statistical Office (CSO) showed that the prices of consumer goods and services had increased by as much as 4.6% compared to early 2019. Employment declined while public debt spiked sharply. The crisis combined pre-existing problems such as the inadequate provision of healthcare, issues with inadequate housing, and low labor productivity. The IMF reported in 2020 that the general fiscal deficit had increased to 8.4% of GDP. Tax revenues decreased and expenses surged due to essential spending on containing coronavirus. In 2020 the GDP had declined by 2.7%, the first contraction in over 20 years.
In February 2021 Poland’s Prime Minister Mateusz Morawiecki said that he expected the country’s economy to recover quickly from the damage caused by the coronavirus crisis. The IMF predicted that the economic growth in 2021 will be limited by ongoing restrictions, and would hover at about 2.7%. It could rebound later in the year, as vaccine access improves. Further acceleration of growth is expected in 2022. Poland is home to vast numbers of migrant workers. These expats regularly send remittances back to their home countries via the Ria Money Transfer App and other trusted channels. Economic recovery in Poland is the key to restoring these remittances.
Reversing the crisis
In April 2021 EBRD’s chief economist Beata Javorcik said that the National Bank of Poland has implemented a policy of swift and strong monetary easing. An asset purchase program is underway. These policies will mitigate the negative impact of the crisis on the Polish economy. In March 2021 Morawiecki presented the country’s National Recovery Plan (KPO). The budget allocations are based on Poland’s share of the EU’s PLN 3.4 trillion (EUR 750 billion) post-pandemic recovery fund. Of this fund PLN 260 billion (EUR 57 billion) is available to Poland for recovery efforts. By the end of 2026 Poland is set to receive PLN 108 billion (EUR 24 billion) in non-repayable grants and EUR 34.2 billion in potential loans.
Pillars of Poland’s recovery plan
The government provided a breakup of the plan to spend PLN 108 billion (EUR 24 billion), which is almost 5% of the GDP.
- Resilience and competitiveness: PLN 18.7 billion (EUR 4 billion)
- Healthcare: PLN 19.2 billion (EUR 4 billion)
- Sustainable transport: PLN 28.6 billion (EUR 6.24 billion)
- Green energy: PLN 27.4 billion (EUR 6 billion) and;
- Digital transformation: PLN 13.7 billion (EUR 3 billion)
In April 2021 the World Bank said that over the medium term a key challenge to sustained growth is tightening labor supply. The workforce shortage has been exacerbated because of the ageing population. 25% of the population of Poland was 60 years old or older in 2019. Achieving decarbonization commitments is another challenge. Strengthening the environmental protection and agricultural institutions at the national and sub-national levels is necessary. It is the way to ensure sustained and inclusive growth, and reducing regional disparities. In January 2021 Minister of Finance, Funds and Regional Policy, Tadeusz Kościński declared that Poland will prioritize sustainability and digitization when allocating the EU’s post-pandemic recovery funds. Poland plans to setup a COVID-19 vaccine factory as part of the EU-funded 5-point National Recovery Plan.
The way forward
There are diverse views on whether the Polish recovery will be as swift as is being advertised. Forum Energii is a think tank focused on clean, innovative, safe and efficient energy. A Forum Energii publication said that, “the National Recovery Plan will not solve all of Poland’s economic and energy problems, but it can help greatly”. There are 3 things primarily that must be resolved, namely monitoring, governance, and reform. The National Recovery Plan must ensure transparency and smoothness of the process. The IMF stated that as soon as the recovery is firmly underway, a gradual reduction of the fiscal deficit would be needed. Over the medium term this would replenish fiscal buffers, including improved revenue administration and expenditure efficiency.
In January 2021 the Obserwator Finansowy publication reported that the success of economic recovery in Poland depends on implementing a wide range of reforms. A comprehensive policy effort is needed to rekindle robust, sustainable, and equitable growth. The package of reforms must increase investment in human and physical capital. It should raise labor force participation, including female labor participation. This could help avert the potential adverse impact of the crisis on Poland’s economy over the next decade. Poland should also use this opportunity to invest in green infrastructure. The widespread adoption of environmentally sustainable technologies can support faster growth in the long run while contributing to climate change mitigation.
About the author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.