Republic of Poland: Review under the Flexible Credit Line Arrangement

KEY ISSUESBackground: After its resilience during the global financial crisis, the Polish economy slowed substantially in 2012–13 as headwinds from the euro area and waning confidence added to the drag from fiscal consolidation. But economic activity is starting to recover, helped by strong fundamentals, able policy management, and the insurance provided by the Flexible Credit Line (FCL) arrangement.Outlook: Economic growth is expected to recover gradually on the back of improving domestic demand and higher growth in core euro countries. But the economy is still subject to substantial external risks as Poland is highly integrated with Europe through trade and financial channels, as well as with global financial markets.Policies: In response to the economic downturn, policy interest rates were cut substantially, while automatic fiscal stabilizers were allowed to operate to support the economy. Going forward, the fiscal deficit is expected to decline in 2014 and a new, permanent, fiscal rule should help anchor public finances. The authorities have continued to take steps to strengthen the financial sector, including through work to establish macroprudential and bank resolution frameworks.Flexible Credit Line (FCL): On January 18, 2013, the Executive Board approved a 24-month arrangement with Poland under the FCL in the amount of SDR 22 billion (equivalent to 1303 percent of quota). The authorities continue to treat the arrangement as precautionary.Qualification: In staff's view, Poland continues to meet the qualification criteria for access to FCL resources specified under the Board decision on FCL arrangements (Decision No. 14283-(09/29), adopted on March 24, 2009). Staff therefore recommends completion of the review under this FCL arrangement.