Poland - Toward a Fiscal Framework for Growth : A Public Expenditure and Institutional Review

Abstract

The objective of this report is to
 assess the status of public expenditures, and develop
 recommendations to promote fiscal stability and growth in
 Poland, towards the consolidation and restructuring of its
 public finances, strengthening its budget management, and
 better leverage in EU financing. This report examines those
 social and structural reform issues that affect, or are
 affected by the stance of public finance. First, it reviews
 Poland's economic performance with a focus on its
 macroeconomic policy mix, public debt sustainability issues,
 and developments in public finance, and expenditure
 composition. It highlights the need to tighten fiscal policy
 as a means to further rebalance the macroeconomic policy
 mix, and to reverse unfavorable debt dynamics. It also
 points out that Poland's public sector is relatively
 large for its income level, and that social protection and
 assistance related expenditures have been a major source of
 this situation. In particular, investment in physical
 infrastructure has been relatively neglected during the last
 decade in favor of expenditures on social programs and
 consumption. Fiscal consolidation has also been hampered by
 over-indexation of social expenditures. Second, the report
 examines the extent to which the current budgetary outcomes
 are the result of weaknesses in the incentive arrangements
 for good budgeting. The report suggests significant reforms
 in budget processes for sustainable improvements in public
 finances, in particular, priority areas include measures to
 consolidate the budget, to ensure a comprehensive picture of
 public finances, and effective cash management; to
 strengthen budgetary processes by exercising a Medium-Term
 Expenditure Framework, and incentives for improved public
 service delivery; and, to strengthen ex-post internal and
 external audit systems. Third, the report examines options
 for expenditure cuts and restructuring, necessary for fiscal
 sustainability, in particular, it discusses those sectoral
 programs that could potentially: (i) provide significant
 savings to the budget (social protection); (ii) contribute
 to Poland's human and physical capital; (iii) unlock
 the growth potential of underutilized factors of production
 in agriculture and Poland's rural areas; and, (iv)
 improve the country's living conditions, by upgrading
 its environmental standards as agreed with the EU.