IMF Executive Board Concludes 2024 Article IV Consultation with the Republic of Poland

IMF News, January 21, 2025

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Economic growth is estimated to have accelerated in 2024 to 2.8 percent, driven by a rebound in domestic demand, mainly from private consumption rising due to strong nominal wage growth and lower inflation.
Net exports became a drag on growth in 2024 as higher imports from increased consumption outpace exports hindered by weak Euro Area demand.
Growth is projected at around 3.5 percent in 2025 and 2026, supported by expected absorption of Next Generation EU (NGEU) funds.
Over the medium-term, as the impact of NGEU funds absorption unwinds, growth is expected to moderate to slightly below 3 percent largely due to population ageing.

Inflation has declined considerably from 2023 but remains well above the central bank inflation target despite the tight policy stance.
Core inflation remains elevated in the context of strong wages growth amid a still-tight labor market.
Absent surprises, both core and headline inflation should peak before mid-2025, then moderate to around the upper end of the target range of 2.5±1 percent by end-2025.
Directors emphasized the importance of maintaining a tight monetary policy stance to ensure inflation converges to target.
Directors agreed that interest rate cuts should commence only when wage growth is decelerating, and inflation is firmly declining towards the target.

The fiscal deficit is estimated to have widened to 5.9 percent of GDP in 2024 amidst a moderately expansionary fiscal stance (0.3 percent of GDP).
The 2024 deficit widened as permanent increases in public sector wages and social benefits outweighed savings from the lower cost of energy support measures.
The deficit is expected to remain elevated in 2025 at 5.6 percent of GDP, in part due to high defense spending.
The authorities have announced fiscal consolidation over the medium-term aiming for a deficit of 2.9 percent of GDP by 2028; some consolidation measures remain to be identified.
IMF staff projects, based on measures identified so far, that the deficit will decline to 3.5 percent of GDP over the medium-term with public debt stabilizing around 65 percent of GDP.
Directors recommended:
- Rebalancing fiscal policy to rebuild buffers and support disinflation as the recovery becomes more entrenched.
- Identifying necessary fiscal measures upfront to strengthen the Medium-Term Fiscal Structural Plan’s credibility.
- Mobilizing revenues, improving targeting of social benefits, and reforming the pension system.
- Frontloading more of the planned medium-term deficit reduction to 2025 to help reduce debt and enhance resilience.
- Enhancing fiscal transparency and governance and establishing a fiscal council.

The financial system remains resilient and private credit is recovering slowly.
Capital and liquidity buffers remain well above regulatory requirements, while asset quality has improved.
Bank profits increased due to wider net interest margins with high liquidity keeping deposit rates subdued.
Private sector credit has recovered somewhat since bottoming out in mid-2023, partly due to a subsidized mortgage scheme.
Directors noted that further regulatory policy tightening should consider the impact on the nascent credit recovery.
Directors called for efforts to proactively reduce legal risks to financial sector stability and remove distortions affecting private credit.
Directors welcomed the elimination of the mortgage credit holidays.

Directors underscored the importance of comprehensive structural reforms to foster sustainable growth.
Policy priorities highlighted by Directors:
- Capital deepening and facilitating resource reallocation.
- Nurturing innovation capacity.
- Decarbonizing the economy to meet EU targets for 2030.
- Ensuring adequate labor supply by supporting the integration of women, old age adults, and refugees into the labor market.
Directors recognized progress on reducing emissions and encouraged further actions to meet climate goals and safeguard competitiveness.

Executive Directors agreed with the thrust of the staff appraisal.
Directors commended the Polish authorities’ prudent policies that have resulted in impressive economic and social gains and accelerated absorption of New Generation EU funds.
While welcoming the ongoing recovery and the positive near-term outlook, Directors noted that risks are tilted to the downside and inflation remains elevated, given a tight labor market and strong wage growth.
Directors highlighted the need to rebalance the policy mix to help rebuild buffers, strengthen resilience, and support private investment-led growth.
Structural reforms to boost productivity and tackle longer-term challenges from ageing and the climate transition are important.

GDP (change in percent) 1/: 2022: 5.3; 2023: 0.1; 2024: 2.8; 2025: 3.5; 2026: 3.3; 2027: 3.1; 2028: 2.7; 2029: [not listed]
Output gap (percent of potential GDP): 2022: 2.3; 2023: -0.9; 2024: -1.0; 2025: -0.4; 2026: -0.2; 2027: 0.0
Headline CPI inflation (percent) Average: 2022: 14.4; 2023: 11.4; 2024: 3.8; 2025: 4.6; 2026: 2.9; 2027: 2.5
Headline CPI inflation (percent) End of period: 2022: 16.6; 2023: 6.2; 2024: 5.1; 2025: 3.7
Unemployment rate (average, according to LFS): 2022: 3.2; 2023: 3.4
Public finances (percent of GDP) 2/ General government net lending/borrowing: 2022: -3.4; 2023: -5.3; 2024: -5.9; 2025: -5.6; 2026: -4.9; 2027: -4.1; 2028: -3.6; 2029: -3.5
General government cyclically-adjusted balance: 2022: -4.6; 2023: -4.8; 2024: -5.4; 2025: -3.7
General government primary balance: 2022: -3.1; 2023: -2.7; 2024: -3.0; 2025: -2.9; 2026: -2.2; 2027: -1.5; 2028: -1.1
General government debt: 2022: 48.8; 2023: 49.7; 2024: 54.1; 2025: 57.8; 2026: 61.3; 2027: 62.5; 2028: 63.2; 2029: 63.8
Balance of payments Current account balance (percent of GDP): 2022: -2.3; 2023: 1.8; 2024: 0.3; 2025: -0.3; 2026: -0.7; 2027: -1.2
Total external debt (percent of GDP): 2022: 53.2; 2023: 45.1; 2024: 43.9; 2025: 42.9; 2026: 41.9; 2027: 41.0; 2028: 40.1
Memorandum item: Nominal GDP (billion zloty): 2022: 3100.8; 2023: 3401.6; 2024: 3601.6; 2025: 3898.7; 2026: 4169.8; 2027: 4409.6; 2028: 4646.5; 2029: 4889.1

IMF Executive Board Concludes 2024 Article IV Consultation with the Republic of Poland, January 21, 2025.