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Poland has been the best growth performer within the OECD through the global economic crisis. However, with its planned fiscal retrenchment and the European economy grinding to a halt, real GDP growth is projected to slow to 2¾ 3 per cent in 2012 and 2013. That should be sufficient to ease inflation pressures, even though inflation risks are currently tilted to the upside. Yet, Poland is not immune to contagion risks from its European trading partners. Under a scenario of a sharper than projected slowdown, Poland would have policy space to cushion the shock by easing monetary conditions, provided that the zloty does not weaken substantially. On the other hand, automatic fiscal stabilisers should be allowed to work within the constraints imposed by the constitutional debt rule.
Fiscal consolidation is the best way to reduce vulnerabilities in the economy. The government looks capable of meeting its deficit target of 2.9% of GDP in 2012. Detailed measures to reduce the deficit to about 2% of GDP in 2013 should be announced quickly, focusing on: cutting tax expenditures, reforming the farmers’ social security system, removing pension privileges for selected occupations and continued tightening of eligibility criteria for disability support. Worthy changes that would help in the longer term include: enhancing public sector efficiency, opting for less distortive taxes and raising and equalising retirement ages for men and women.
Health care reform could ease the substantial limitations in access to care and reduce persistent inequalities in health outcomes. The health status of the population remains relatively poor, though in line with Poland’s level of economic development. Widening the health care contribution base would help secure an adequate level of financing to limit heavy out of pocket payments, shorten waiting times and address growing health care needs. Private health insurance might allow expanded resources and make the system more responsive, but it should be designed carefully so as not to exclude low income households. Current resources should be re allocated from the hospital sector into both primary care and long term care. Improving health care efficiency and equity can also be achieved by: providing hospitals with clear incentives to rationalise the use of financial resources; streamlining responsibilities between the National Health Fund and central and local governments; and better regulating doctors working in both public and private facilities.
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Poland’s potential for cutting greenhouse gas emissions is substantial and should be realised in a least cost fashion. An economy wide single carbon price is key to minimising abatement costs, but present carbon prices vary widely across sectors. It is important to further pursue electricity market liberalisation in line with EU Directives. Public ownership in electricity generation and the lack of effective separation between producers and distributors may curb new entry and limit the role of the organised wholesale electricity market. Integrating the Polish electricity market with its neighbours’ would help to spread climate change efforts more efficiently across the continent. Finally, government policies to increase the production of nuclear power and natural gas from shale formations should take fully into account tail risks and the short and long term environmental costs of the use of the former and fully consider environmental risks related to extraction of the latter.
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