Poland: An Island of Growth in an Ocean of Recession

In addition to being the only EU member state to achieve economic growth last year, Poland also recorded the highest GDP growth among OECD members in 2009, according to a report by the Organization presented in Paris.

According to Eurostat data, Poland’s GDP grew by 2.8 percent last year, and it is projected to grow by 3 percent this year. Poland emerged from the latest crisis more grazed than hit, thanks to a combination of various short-term and long-term measures taken by the government: significant depreciation of the national currency, tax cuts made before the crisis that fueled domestic demand, stronger fiscal discipline, good absorption of European funds, and a solid financial system in which foreign banks supported their Polish subsidiaries, primarily due to the consistent and well-tailored concept of the Polish government. In short, after the battle, it turned out that the Polish government was exceptionally smart and knew what it was doing.

Finance Minister Jacek Rostowski, one of the key figures responsible for Poland’s success, explained why Poland navigated the crisis so successfully, among other things, by rejecting the recommendations and advice of the International Monetary Fund regarding increasing demand through credit. Rostowski, who was named European Finance Minister of the Year by the British magazine The Banker in March, stated that by following such instructions, many European governments increased public debt to unsustainable levels and thus fell into difficulties. ‘I believe that the right policy was the one we implemented, which was to allow stabilizing factors to do their job, and then for the government to take balancing measures.’

Post facto analyses show that in Poland, the reduction of the tax burden before the crisis was such a factor that opened up space for domestic demand, which helped maintain growth. But that’s not all. Poland made strong cuts in public spending last year, limiting the growth of discretionary expenditures, which account for a quarter of the budget, to one percent plus inflation. Additionally, it undertook pension system reforms and limited military spending.

Although its fiscal situation is better than that of most countries that have adopted the euro, the issue of fiscal discipline and reducing debt and deficits remains crucial for the Polish government, among other things, in light of the inevitable introduction of the euro. However, the government does not burden itself with deadlines for joining the eurozone, but has set a goal to reduce the public deficit to 3 percent by 2012 or 2013 (this year it will be 7 percent of GDP and public debt around 55 percent). The goal is for Poland to become one of the five least indebted countries in the EU. ‘We believe that in the future, a low level of debt will be one of the key competitive advantages,’ said Minister Rostowski. (Davorka Zmijarević)