Summary
The Convergence Programme updated in March 2008 has been submitted to the European Commission for approval (we wrote more extensively about the convergence programme in the previous issue of “Polish Market”). At the same time, the Convergence Programme is subject to public discussion in Poland. It is discussed by parliamentary committees and other groups made up of politicians, businesspeople and employees.
European Commission to abrogate excessive deficit procedure against Poland.
European Commissioner for Economic and Monetary Affairs Joaquin Almunia said in late April that the Commission would abrogate the excessive deficit procedure against Poland. The procedure had been initiated in 2004. According to the European Commission’s economic projections, the ratio of general government deficit to GDP has decreased in Poland below 3%, the maximum level allowed under the Maastricht convergence criteria. On June 11 the European Commission is to issue a recommendation on the Polish convergence programme. According to the European Commission’s estimates, the general government deficit will rise this year to 2.5% of GDP versus 2.0% of GDP last year. In 2009 it is expected to rise to 2.6% of GDP. At the same time, Almunia cautioned that in order to achieve long-term fiscal stability Poland would have to reduce the deficit markedly (to 1.0% of GDP as planned by the government). According to the European Commission, the most important task for Poland is to prevent the relaxation of the budget spending discipline or a delay in reforming public finances.
PKO BP is not surprised.
PKO BP: The announcement to drop the excessive deficit procedure against Poland comes as no surprise. We believe that the date of the decision is a result of the EU’s fiscal projections, which in the past used to be much more pessimistic than government projections included in successive Convergence Programme updates and more pessimistic than our projections. This time, the European Commission’s projections coincide with the government’s projections for 2008. (PKO BP’s macroeconomic commentary, April 29, 2008)
Work on the 2009 budget bill will be crucial for the convergence process. Under the recent update on the Convergence Programme, conditions will be created for a fast, long-term and balanced growth through an economic policy oriented at sustaining a high growth rate, coupled with structural and institutional reforms designed to improve the business environment and the functioning of the state.
Under the Convergence Programme, conditions will be created to sustain a rapid and long-term economic growth.
Convergence Programme: Apart from a reduction in tax rates, fiscal measures will be designed to simplify VAT regulations and reform the tax law. These measures will be an important factor supporting the liberalisation of the economy (...) The government has started work on preparing a complex reform of public spending. But time and coordination with measures taken to pursue the government’s other priorities are needed to work out an effective and coherent action strategy. Measures to be taken on the expenditure side of the general government sector will be designed to make spending more flexible and effective. Investment spending on infrastructure will rise significantly. Another important factor will be a steady increase in spending on science and education coupled with higher expenditures on research and development, including private spending. These measures will be helping Poland to catch up with other EU member states. In the medium term, the most important infrastructure investments will be associated with the construction and modernisation of roads. Under the road-building strategy, around PLN121 billion will be spent on this purpose. In the years 2008-2012 the national budget and EU structural funds will be the main source of funding for the investment projects. Euro 2012 related investment in infrastructure will include the construction of roads, airports, railway lines, stadiums and accommodation centres. In the 2nd quarter of 2008 a list of projects to be implemented as part of Euro 2012 preparations is to be made through amending a government order. This will make it possible to determine the structure of funding for the planned projects and the associated costs within a multi-annual programme. The cost of building, expanding or converting existing stadiums is estimated at PLN3.4 billion. Road projects connected with Euro 2012 will be implemented as part of the National Road Building Programme for the Years 2008-2012. (Convergence Programme updated in March 2008, p. 17, www.mf.pl)
The Convergence Programme promises structural and institutional reforms designed to improve the business environment and the functioning of the state.
Convergence programme: Work has started on the National Reform Programme 2008-2011. Due to the early stage of the work, it is difficult now to estimate detailed consequences for the fiscal path of all new priorities of the reform programme. But they should not have any major impact on the planned deficit reduction path. Measures designed to support innovation, build a knowledge-based economy and improve the business environment will remain important spheres of intervention. The crucial areas are: ● freedom of business activity: the initiatives to be taken will be aimed to create a friendly regulatory and institutional environment for business operations (including the use of ICT) ● support for innovation and research and development activities, especially in sectors of high value added and competitiveness. Measures to be taken as part of the reform programme will also be aimed to ensure access to competitive services and infrastructure in network sectors. Emphasis will be placed on synchronising activities in the area of labour market, social policy and education. The activities will be supported by changes in public finances. (Convergence Programme updated in March 2008, p. 17, www.mf.pl)
Zofia Bolkowska, Marek Misiak
