Document of The World Bank FOR OFFICIAL USE ONLY Report No. 61315 - PL INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT FOR THE REPUBLIC OF POLAND FOR THE PERIOD 2009-13 May 9, 2011 Poland Country Management Unit Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. REPUBLIC OF POLAND COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT CURRENCY EQUIVALENTS (Exchange Rate Effective as of February 2011) Currency Unit US$1.00 2.8 PLN EUR 1.0 3.97 PLN FISCAL YEAR July 1 - June 30 ACRONYMS AND ABBREVIATIONS AAA Analytical and Advisory Activities IFC International Finance Corporation BGK State Development Bank IFIs International Financial Institutions CPS Country Partnership Strategy IMF International Monetary Fund CPSPR Country Partnership Strategy MIC Middle Income Countries Progress Report OPFs Open Pension Funds CEB Council of Europe Development PARSP Post Accession Rural Support Bank Project CEM Country Economic Memorandum PCF Prototype Carbon Fund DPL Development Policy Loan PER Public Expenditure Review EC European Commission PISA Programme for International EIB European Investment Bank Student Assessment EU European Union PPPs Public Private Partnerships FBS Fee-based Services SCAP Subnational Cooperation Action Plan FDI Foreign Direct Investment SCHD Strategy for Human Capital FSAP Financial Sector Advisory Program Development GDP Gross Domestic Product SME Small and Medium Enterprises GEF Global Environment Facility TA Technical Assistance GNI Gross National Income VAT Value-added Tax IBRD International Bank for Reconstruction and Development Vice President Philippe Le Houérou Country Director Peter Harrold Task Team Leader Thomas Blatt Laursen The CPS Progress Report was produced by a core team led by Thomas Laursen under the overall guidance of Peter Harrold. The preparation of the CPS Progress Report has been a team effort, which included involvement of Kaspar Richter, Ewa Korczyc, Janet Dooley, Emilia Skrok, Anna Bokina, Elisabetta Capannelli, Radoslaw Czapski, Gary Stuggins, Charles Griffin, John Pollner, Iwona Warzecha, Alberto Rodriguez, Nina Arnhold, Leszek Kasek, Kirsten Propst, Natasha Kapil, Jan Rutkowski, Valentina Martinovic, Katarzyna Popielarska, and Cathy Summers, as well as other Poland Country Team members. The team is grateful for the cooperation on this with Government officials. Table of Contents 1 Introduction .....................................................................................................................1 2 Recent Political and Economic Developments.................................................................2 2.1 Political Developments................................................................................................2 2.2 Economic Developments..............................................................................................2 3 Program Implementation and Progress Towards Results ..............................................3 3.1 Program Implementation .............................................................................................3 3.2 Progress towards Results ............................................................................................6 Pillar 1: Social and Spatial Inclusion ......................................................................................6 Pillar 2: Public Sector Reform ...............................................................................................7 Pillar 3: Growth and Competitiveness ....................................................................................7 Pillar 4: Regional and Global Public Goods ...........................................................................7 4. Modifications to the CPS and Critical Partnership Issues ..............................................8 4.1 New Themes ................................................................................................................8 4.2 The General Program .................................................................................................8 4.3 Subnational Engagement .............................................................................................9 4.4 FBS Business Development .........................................................................................9 4.5 Graduation ............................................................................................................... 10 5. Risks............................................................................................................................... 10 Annex 1: Poland: 2009-13 CPS Results Matrix .................................................................... 11 Annex 2: CPS PR Pillars and Themes FY11-13 ................................................................... 20 Annex 2b: CPS PR: Tentative Program FY11-13 ................................................................. 21 Annex 3: Subnational Cooperation Action Plan (SCAP) 2010-2012 ..................................... 22 Annex 4: Summary of Recent Key Strategic Analytical Work .............................................. 24 Annex 4a: Transition to Low-Emissions Economy in Poland ................................................ 24 Annex 4b: Poland Transport Policy Note—Toward a Sustainable Land Transport Sector ...... 25 Annex 4c: Poland Public Expenditure Review Analysis of Social and Public Wages ............. 26 Annex 4d: Europe 2020 Poland--Fueling Growth and Competitiveness through Employment, Skills, and Innovation. ......................................................................................................... 27 Annex 5: Poland at a Glance ................................................................................................ 28 Annex 6: Selected Indicators of Bank Portfolio Performance and Management ..................... 31 Annex 7: IBRD/IDA Program Summary .............................................................................. 32 Annex 8: IFC Investment Operations Program ..................................................................... 32 Annex 9: Summary of Analytical and Advisory Assistance .................................................. 33 Annex 10: Poland Social Indicators ..................................................................................... 34 Annex 11: Key Economic Indicators .................................................................................... 35 Annex 12: Key Exposure Indicators ..................................................................................... 37 Annex 13: IFC Committed and Disbursed Outstanding Investment Portfolio ........................ 38 Annex 14: Portfolio (IBRD/IDA/Grants).............................................................................. 39 Tables and Boxes Table 1. CPS PR 2011: Planned Versus Actual Program (FY09 June-FY11) ..............................5 Box 1. Subnational Engagement in Poland: Strategy and Experience …….……………………..4 MAP (IBRD 33467R) POLAND CPS PROGRESS REPORT This CPS Progress Report (CPSPR) comes at a critical juncture for Poland, as it is about to assume the Presidency of the European Union (EU). Central to the Bank’s program for the next two years is achieving convergence with European living standards, particularly at the subnational level. As such, this CPSPR maintains a strong focus on helping Poland make the most of its EU membership. It aims to assist Poland in strengthening national and subnational institutions and capacity. The CPSPR proposes a substantial program of knowledge and advisory service to be delivered in part through fee-based service (FBS), complemented by a lending program at around US$1 billion per year, expected to gradually decline. The International Finance Corporation (IFC) will selectively seek opportunities to invest in renewable energy and climate-friendly projects. This CPSPR also places a greater emphasis on bolstering Poland as a global partner, not necessarily for just financing but for the knowledge Poland can share with the region and the rest of the world. In this respect, the Bank will also support Poland in its emerging role as a donor, and during its EU Presidency. 1 INTRODUCTION 1. This CPSPR assesses implementation of the Bank’s 2009-13 CPS at mid-term. The CPS was presented to the Bank’s Board in July 2009. The CPS comprises four pillars: (i) Social and Spatial Inclusion; (ii) Public Sector Reform; (iii) Growth and Competitiveness; and (iv) Regional and Global Public Goods. The CPS was foreseen as a flexible tool to support the Bank’s work in Poland, in line with the strategy for middle income countries (MIC). The CPS noted that while the Bank was a secondary partner to the EU, the Bank could continue to add significant value to Poland’s development and convergence agenda for the years to come, while the active policy dialogue and technical cooperation would also add value to the Bank through enhancing its knowledge to the benefit of other client countries in the region and beyond. It was thus a clear win-win partnership. 2. The CPSPR finds that implementation of the Partnership so far has been broadly successful though in some areas progress has been slower than hoped for. Notably, the EUR3 billion Development Policy Lending (DPL) lending program, supporting policy reforms in the areas of public finance, social sectors, and private sector development, was completed as envisaged in June 2010, and the first operation supporting climate change mitigation —an Energy Efficiency and Renewable Energy DPL—is being delivered as planned (though in a higher amount) along with this Strategy update. Further, the envisaged Analytical and Advisory Activities (AAA) program for FY10-11 has been fully delivered, including core strategic and innovative studies on Poland’s transition to a low-emissions economy, employment, skills, and innovation (Europe2020), transport policy, and public expenditures. There has also been significant progress in developing subnational and FBS business, though the planned loan to Warsaw City (as well as the other non-sovereign operation—a credit line for small and medium- term enterprises (SMEs) through the Polish Development Bank (PKO) could not be delivered and important obstacles remain to developing these new lines of business (see Box 1). The possibility for scaling up FBS remain constrained by the Polish procurement law for competitive tendering of advisory services, and the tight fiscal situation, unless mechanisms are further developed to utilize the EU Structural Funds to engage the Bank for technical assistance. 1 2 R ECENT P OLITICAL AND E CONOMIC D EVELOPMENTS 2.1 Political Developments 3. On April 10, 2010, a tragic plane crash near Smolensk in Russia changed the political landscape in Poland. The disaster took the lives of 96 people: political, military and religious leaders, including the President of Poland, Mr. Lech Kaczynski and the First Lady, the President of the National Bank of Poland, as well as several Presidential officials, parliamentarians, the heads of all the Armed Forces and the head of the General Staff, a number of heads of other central institutions, as well as a number of respected Poles such as the former head of the Polish Government in Exile. Following presidential elections in 2010, Mr. Bronislaw Komorowski, the former Speaker of Parliament, became the new President of Poland. Prime Minister Donald Tusk leads a stable and popular majority government. 4. In the second half of 2011, general elections will take place and Poland will take on the Presidency of the EU. General elections are scheduled for October 2011. In July 2010, Poland’s Council of Ministers adopted a document provisionally outlining the plans of the Polish Presidency. These will evolve in line with consultations and the final priorities will be announced in June 2011. General priorities include Internal Market, Relations with the East, External Energy Policy, Common Security and Defense policy, the EU 2014-19 Financial Perspectives, and Intellectual Capital. 2.2 Economic Developments 5. Poland has shown remarkable resilience to the global financial crisis and in 2009 it was the only EU country to avoid a decline in economic activity. Poland grew by 1.7 percent, while the EU declined by 4.2 percent. Poland’s economic slowdown was muted for a number of reasons: (i) the relatively large domestic economy and limited exposure to the decline in world trade; (ii) the flexible exchange rate regime; (iii) limited vulnerabilities in Poland’s banking system due to slower credit growth than in other Central and Eastern Europe countries; and (iv) the Government’s appropriate policy responses during the crisis. In 2009, Poland became a high- income country with a Gross National Income (GNI) of US$12,260.1 6. Poland remained one of the fastest growing EU countries in 2010. Real Gross Domestic Product (GDP) expanded by 3.8 percent in 2010. While growth in 2009 was mainly due to the positive contribution from net exports, growth in 2010 was driven by domestic factors. The decline in private investment was largely compensated by a double-digit expansion in public investment, stimulated in particular by use of EU funds. Inflation marginally exceeded the target range of 1.5-3.5 percent in the first three months of 2011 for the first time since September 2009, but is expected to drop below the 3.5 percent upper threshold towards the end of the year. 7. Growth is expected to stabilize at around 4 percent over the next few years. The recovery is expected to be driven by improving global conditions and revived credit growth, with investment also supported by EU funds and improved corporate profitability and consumption supported by declining unemployment. These factors are set to compensate for the impact of fiscal consolidation, the end of the restocking cycle, and a declining contribution from net exports. With domestic demand gaining strength, inflation is expected to increase from 2.6 1 (2009) Atlas Method (upper middle income US$3,946 – US$12,195; high income, US$12,196 or more). The EU average is US$35,351. 2 percent in 2010 to 3.5 percent in 2011 and decline to 2.8 percent in 2012. The external current account deficit is expected to remain at less than 4 percent of GDP, adequately financed by Foreign Direct Investment (FDI) inflows and EU funding. The main upside risk to economic prospects is a stronger-than-expected recovery in the EU, aided by buoyant growth in emerging markets. Downside risks include a larger-than-expected growth reduction from fiscal consolidation, and a reversal in global capital flows in view of the large purchases of government securities from nonresidents during the last year. 8. Fiscal consolidation is among Poland’s main economic policy challenges. The general government deficit doubled to 7.2 percent of GDP in 2009 from 3.6 percent of GDP in 2008, in part due to fiscal relaxation measures of about 2 percent of GDP. In 2010, fiscal policy continued to support recovery and the general government deficit increased to 7.9 percent of GDP. The Government aims to reduce the fiscal deficit to 5.6 percent of GDP in 2011 and to 2.9 percent of GDP in 2012. This would bring Poland’s general government deficit in line with the reference value of 3 percent of GDP referred to in the Treaty.2 The reduction in the general government deficit is influenced by three factors: limits on discretionary expenditure growth to one percent over inflation (now reflected in legislation); a 1 percentage point value-added tax (VAT) increase; and a planned reduction in the contribution rate to private Open Pension Funds (OPFs) from 7.3 percent to 2.3 percent of gross wages which would reduce the fiscal deficit by about 1.2 percent of GDP by 2012. The cyclical rebound is expected to reduce social expenditures, including on unemployment benefits, and improve tax collection. 9. Public debt is projected to remain at sustainable levels. Strong economic recovery, steady exchange rate appreciation, fiscal consolidation, better public sector cash management, stepped-up privatization and strengthened public debt thresholds at local level s are projected to be sufficient to maintain public debt below national and EU thresholds. 10. In January 2011, Poland renewed and increased to US$30 billion a Flexible Credit Line Arrangement with the International Monetary Fund (IMF). This was a further important signal of confidence in the Polish economy. 3 PROGRAM I MPLEMENTATION AND PROGRESS T OWARDS R ESULTS 3.1 Program Implementation 11. The 2009 Country Partnership Strategy (CPS) provided a good framework for cooperation during FY09-11, and the Bank’s support during the crisis and for Poland’s longer term development agenda was highly valued. The strategic pillars of engagement remained relevant, and the macro-oriented and flexible partnership proved well-suited to help Poland mitigate the impact of the crisis while promoting reforms to support longer-term growth. The partnership between Poland and the Bank has continued to strengthen, as it has become clear to the clients that the Bank is not only an important potential source of financing, but also a critical source of global knowledge and expertise. Poland’s pragmatic attitude towards the Bank and other International Financial Institutions (IFIs) served it well during the crisis, with Poland 2 The EU is set to decide in June 2011 on a more flexible approach, under the excessive deficit procedure, to Member States which have implemented systemic pension reforms. As a result, reducing the general government deficit to 3.5 percent of GDP would be sufficient in the future to consider the abrogation of the excessive deficit procedure for Poland in light of Poland’s second pillar pension reforms from the late 1990s. 3 becoming one of the largest borrowers from the Bank and gaining outside support for critical policy reforms, while paving the way for a lasting, mutually beneficial knowledge partnership. 12. The CPS envisaged an increasing emphasis on subnational engagement and FBS delivery, but despite some progress, important obstacles remain to developing these lines of business. In particular, hurdles were encountered in responding to interest in borrowing by subnational governments, and development of FBS was constrained by the Polish Procurement Law which generally requires competitive tendering for advisory services (see Box 1). These challenges are further discussed in Section 4. 13. The envisaged lending program was partially delivered. The cornerstone of the lending program, the EUR3 billion DPL program which cut across most of the strategic pillars of engagement, was delivered in a full and timely manner. However, the planned non-sovereign projects (Warsaw City Sustainable Transport and PKO BP Small and Medium Enterprise (SME) Credit Line) did not materialize despite strong client interest. Notably, the Bank’s sovereign guarantee requirement was met by demands for similar treatment from other key financing partners, notably the European Investment Bank (EIB) and the Council of Europe Development Bank (CEB), which would increase central government debt levels and raise borrowing costs. BOX 1. S UBNATIONAL ENGAGEMENT IN POLAND: S TRATEGY AND E XPERIENCE World Bank cooperation with subnational entities in Poland is guided by the Subnational Cooperation Action Plan (SCAP) developed by the Bank with local experts and partners in 2010 (see Annex 2 for further details). The document proposes a strategic approach to subnational engagement and constitutes the basis for Bank activities in this field. The main objective of the SCAP is to support sustainable socio- economic development of Polish regions and cities, in particular those with low levels of income, through knowledge-based services and financial cooperation. Based on the past and current efforts to engage with subnational governments, the Bank has identified four priority strategic areas: (i) transport sector; (ii) regional development; (iii) public finance; and (iv) social sectors. World Bank assistance is to be provided primarily through analytic and advisory services, where possible on a fee-for-service or cost-sharing basis. Selective financial support to individual self- governments or through a financial intermediary is also being pursued to help lesser-developed subnational governments cofinance EU programs and gain access to market financing. Warsaw and the capital region of Mazowieckie, where the Bank has good contacts and technical and administrative capacity is high, were targeted during FY10-11 in an initial pilot phase. While the planned loan to Warsaw City did not materialize, the Bank carried out TAs, through a FBS arrangement, for Mazowieckie and is currently implementing another with the Lubelskie region. Contacts have also been established with some other subnational partners. FBS business development has been limited by the Polish procurement law which does not provide explicit possibility for sole-sourcing of Bank or other IFI advisory services. Currently the Bank’s own resources have been combined with client funding. In other cases, the Bank has been engaged based on the uniqueness of the services it provided. As discussions with the European Commission proceed to clarify that its members can sole-source Bank advisory services there will be greater possibilities for this line of business going forward as the Government has stated its clear intention to increase use of FBS. Subnational lending has to date been affected by the Bank’s guarantee requirements and associated fiscal and borrowing cost implications as well as pari-passu requirements—in the case of Warsaw City—from other IFIs, notably the EIB and CEB. Efforts are ongoing to explore lending through the state development bank (BGK) or to individual cities where the EIB and CEB are not main financial partners. 4 Table 1. CPS PR 2011: Planned Versus Actual Program (June 09-June 11) FY09 FY10 FY11 Plan Status Plan Status Plan Status LENDING DPL 2 1.25 √ 1.3 Warsaw City 0.5 Dropped City 2 0.25 N/A 0.5 Dropped 0.3 √ EE and 1.1 PKO BP Credit Line Climate Change 1 Renewable Energy DPL DPL 3 1.25 √ 1.3 Total 1.25 1.3 2.25 1.3 0.55 1.1 ANAYTICAL AND ADVISORY ASSISTANCE PBB TA √ √ Lubelskie/Lubin AAA DPL Education TA (FBS/ongoing) Poznan √ √ Energy ESW Mazowieckie PER CC (ongoing) Housing √ Postponed Mazowieckie Transport Transport/railways Fin TA FBS ESW (FBS) 1/ CC CEM √(FY11) Financial Reporting Low Emissions Study TA (FBS/ongoing) 1/ Ministry of Economy FBS √(FY11) Europe 2020 ESW 1, 2/ √ Ministry of Regional Dropped 1,3/ √ Financial Sector TA Development FBS Min of Infrastructure FBS Dropped Public Finance TA 1,4/ √ PER √ ROSC (BCP/IAIS) 1/ √ DPL Health/SP TA √(FY11) Warsaw City Policy Notes √ Transport Policy Note √ Regional Devel TA 1/ Amounts in US$ billions; √ Completed. 1/ Not planned in CPS; 2/ Case-study related to regional work; 3/ Regulation of savings cooperatives; 4/ Tax expenditures; micro-modeling 14. The planned AAA program was fully delivered and very well received by the client despite some delays owing inter alia to the complexity of the work. The core strategic diagnostic work delivered during the first half of the CPS included an update of the Public Expenditure Review (PER), a Country Economic Memorandum (CEM) on Transition to a Low- Emission Economy, a Policy Note on Sustainable Land Transport, and a study on Employment, Skills, and Innovation (see Annex 4 for a summary of these studies). Moreover, the Bank undertook additional strategic work and responded ―just-in-time‖ to a number of unforeseen client demands. Since 2009, several AAA that were not planned as part of the CPS were delivered (see Table 1). Several of these additional activities were fee-based (using Polish budget funds, EU funds, and bilateral funds) marking some progress in this area both at central and subnational government levels. FBS activities included areas such as transport planning, housing finance regulation, business regulatory reform, and innovation systems. The ongoing Financial Reporting Technical Assistance (TA) Program for 2010-2015 in the amount of US$10 million (among the largest in the Bank; funded through the Swiss Contribution to the enlarged EU) is enhancing institutional and regulatory capacity building for corporate sector financial reporting and auditing in Poland. The AAA program was well-received by the government, both in terms of adding important value to the analysis and discussion of key current policy issues and in terms of timely and effective response to evolving client demands. 15. The current portfolio is not at risk and performance has been broadly satisfactory despite some delays in implementation. The active portfolio consists of seven operations amounting to US$471 million, of which US$183 million remain undisbursed. Of these projects, three are investment loans, one is a Global Environment Facility (GEF) project and three are Prototype Carbon Fund (PCF) renewable energy projects. A EUR750 million Energy Efficiency 5 and Renewable Energy DPL is being presented to the Board along with this CPSPR. The Odra River Flood Protection Project has experienced some delays due to the technical complexity of the preparatory work but procurement for major construction works is now underway. The Post- Accession Rural Support Project also experienced delays due to constraints on counterpart funds, but the Social Inclusion component is complete and the small KRUS modernization component is due for completion this year. The third Road Maintenance and Rehabilitation Project has been largely successful though the small component on institutional strengthening has been difficult to implement. In the energy sector, the GEF Energy Efficiency Project was partly delivered to plan albeit a component is being restructured, and two of the three PCF alternative energy projects have been successful. 3.2 Progress towards Results 16. Progress at mid-term towards achieving the results targeted in the CPS has generally been good, especially in areas where the program has been fully delivered . However, it is challenging to identify results that could be uniquely linked to the Bank’s program given the macro-oriented nature of the program and because the Bank is a relatively small partner compared with EU institutions. Some of the results are thus higher order. Poland’s most notable achievement during the CPS period was that it weathered the international crisis well and was the only country in the EU that avoided recession. The main reasons for this were discussed in the macro section, but the Bank played an important role in helping preserve confidence in Poland through its relatively positive (and in retrospect correct) assessment of Poland’s macroeconomic situation compared to other IFIs, rating agencies, and investment banks, through advocating the differences between Poland and the other more vulnerable countries in the region, and through its timely approval of the EUR3 billion DPL program which was an important financial contribution but even more important signal of confidence in Poland. Pillar 1: Social and Spatial Inclusion 17. Poland made good progress on labor market and social sector issues supported by the DPL program. Despite the crisis and slowdown in growth, labor force participation and employment rates increased from 2008 to 2010, especially for older workers. This was stimulated by tightening of early retirement privileges, a new program (50+) to raise employment of older workers, less generous unemployment benefits, and more flexible working arrangements during the crisis. In education, outcomes continue to be commendable with the Program for International Student Assessment (PISA) scores stabilizing on a comparatively high level while government approved important further reforms in higher education.3 In health, there was progress in implementing a voluntary program converting public hospitals to corporate entities under the Commercial Code. In pensions, progress is being made through reducing early retirement privileges and bringing uniform pensions more in line with the main pension system, while harmonizing and raising retirement ages, linking indexation purely to inflation, and removing privileges for farmers and disabled remain important (as highlighted in the PER) but controversial. Poland also moved forward on its regional development agenda. While regional income disparities have been increasing since EU accession, EU funds absorption has been strong in the last couple of years at both national and subnational levels. The Post Accession 3 PISA reading scores slightly decreased from 2006 to 2009 though Poland is still the regional leader in CEE. The math score continues to be slightly below OECD average, while the science score is now above OECD average. 6 Rural Support Project (PARSP) project contributed importantly to strengthening social inclusion in poor communes and raising awareness among key stakeholders. Pillar 2: Public Sector Reform 18. Public sector reform was affected by the international crisis and sharp slowdown in growth but important measures were taken with support from the DPL and associated AAA program. The fiscal deficit and debt increased substantially thus delaying euro adopti on, though this policy response was broadly appropriate. Fiscal consolidation is starting in 2011, supported by strengthened fiscal institutions. The Government has amended the Public Finance Act to introduce medium-term and performance-based budgeting and limit the growth of discretionary budgetary spending, including on wages as recommended in the PER. The Government is working on legislation to introduce multi-year binding expenditure ceilings, tighten fiscal rules for local governments, and integrate uniformed services into main pension system. Accompanied by increased infrastructure spending, social and public finance management reforms are helping improve the quality and efficiency of public finances. Pillar 3: Growth and Competitiveness 19. Poland has continued to make progress towards strengthening the environment for private sector growth, including through enhancing transport infrastructure—one of the key bottlenecks to growth—though important challenges remain. Poland has stepped up its road infrastructure investment program, but as noted in the Bank’s Transport Policy Note, it will be important to ensure continued financial sustainability in the roads sector. Also, Poland needs to upgrade its rail infrastructure and make this a more competitive transport alternative, as well as making better use of inland waterways, including, reducing greenhouse gas emissions. The private sector will need to play a greater role in infrastructure, and the legal and regulatory framework for Public Private Partnerships (PPPs) has been strengthened in this regard. Measures have also been taken to improve the general business environment through further deregulation, for example the Law on Delivery of Services in the context of the EU Services Directive. The cost of SME start ups has been reduced by about 20 percent in the last couple of years and red tape has been cut through streamlining of business legislation. Outstanding challenges include starting a business, property registration, paying taxes, enforcing contracts, and protecting investors. Complementing reforms in basic and higher education, Poland has taken steps to improve its innovation systems and is continuing to work with the Bank on this and its human capital development strategy. Pillar 4: Regional and Global Public Goods 20. Progress in improving energy efficiency and mitigating climate change is by nature difficult to measure over the short term, but some important measures have been taken. Poland adopted a new energy efficiency law to improve efficiency by 1 percent per year in private buildings in the next decade. This action is a cornerstone in the Energy Efficiency and Renewable Energy DPL that is being considered by the Board in conjunction with this CPSPR. Poland’s Thermo Modernization Fund will play a key role in funding the needed investments . Work is also under way to increase co-generation in energy production. Poland is now participating in international emissions trading under the Kyoto protocol . The Bank’s recent technical and macro-modeling work in this area has been well received and will form a good basis for further analysis. Poland’s transition to low-emissions economy is technically and financially feasible over the longer run to 2030, with energy efficiency offering the highest returns in this area over the next decade. 7 21. Recent severe floods have demonstrated that Poland needs to strengthen water management and flood protection. Priority so far has been the Odra River, supported by a Bank project, and works are expected to start this year following some delays. Attention is now shifting to the Vistula River, and catastrophe risk insurance is being studied based on a recent Bank report assessing mechanisms for financial and fiscal management of such risks. 22. Poland has been successful in preserving financial sector stability during the financial crisis. Going forward, there will be a Financial Sector Advisory Program (FSAP) in 2012, and the Bank has stated its readiness to provide support in the context of Poland’s upcoming EU Presidency on the new EU post-crisis regulatory and supervisory architecture. 4. MODIFICATIONS TO THE CPS AND C RITICAL P ARTNERSHIP I SSUES 23. The CPS remains valid and only minor modifications are called for in the remainder of the period. The Government is interested in a continued and broad-based engagement with the Bank.4 The partnership will remain centered around the existing strategic pillars but will increasingly be coordinated around Poland’s EU role. Focus will also remain on engaging subnational governments and expanding provision of advisory services on a fee basis in core areas of Bank expertise. Further attention will be given to helping Poland continue developing its increasingly important regional and global role, including through sharing its development experience and expanding its donor functions. Poland’s upcoming EU Presidency offers an important opportunity in this regard, including because of the importance Poland attaches to the Eastern Partnership, given the Bank’s long experience in these countries. 4.1 New Themes 24. Given that Poland is an EU Member State and that the EU is Poland’s key external partner, the Bank’s approach will increasingly be EU oriented. New themes include Making Europe work for Poland; Policy Reforms for Europe2020 and Convergence; and Complementing the EU Agenda (see Annex 2 for how the existing pillars map to these themes). While there is no change in strategy, the idea is to place Bank engagement and work more clearly within the broader framework of complementarity and support of the European Commission’s (EC) program in Poland, and to use these themes as filters to select AAA and lending operations. Already, major Bank activities and reports are being discussed with the EC and other IFIs. 4.2 The General Program 25. The program for the remaining two years envisages delivery of the range of Bank services while strengthening the knowledge partnership and supporting Poland’s emerging donor role.5 The indicative lending amount is intended to be maintained at the current level of around US$1 billion per year in FY12-13, of which about 40 percent is presently expected to be in the form of DPLs in support of the Government’s ongoing policy reform agenda. However, overall lending amounts will depend on how government demand and performance evolves over the remainder of the CPS period, and on IBRD's lending capacity and demand from other borrowers. The DPLs are expected to support Poland’s fiscal consolidation agenda, including through strengthening fiscal rules at both central and subnational government levels, improving the efficiency of public administration, and rationalizing social spending while maintaining 4 See paragraph 30 for a discussion of graduation issues for Poland. 5 The flexible 2009 CPS specified lending through FY12 and AAA through FY11, to be updated at progress report. 8 strong social service delivery. In addition, the program includes as a key strategic priority lending to targeted subnationals (see below), and aims to introduce the new Results-Based Lending instrument—most likely in the energy or transport sectors. The Bank is also ready to provide support through a variety of instruments to the Government as it seeks to extend its flood prevention work beyond the Odra River to the Vistula River. This diversified lending strategy allows for sufficient flexibility to respond to client demand, though we would not envisage major substitutability between the DPLs and subnational lending. 26. Building on recent core diagnostic work, analytic and advisory services to the central government would focus on follow-up TA and other forms of implementation support. In the public sector reform area, the public finance work is expected to be extended to public administration reform. The Bank’s work on land transport and skills/innovation would also be continued, including through technical assistance in support of the development of the Strategy for Human Capital Development (SHCD) for Poland. In the energy sector, the Bank will follow up on the low-emissions modeling work and could support further development of alternative energy. The IFC will selectively seek opportunities to invest in renewable energy and climate- friendly projects in Poland where its participation brings significant additionality. Recent financial sector work might be expanded to support Poland’s alignment with the new EU financial regulatory and supervisory framework. Finally, but importantly, the Bank will support Poland’s emerging donor role, including in the context of its EU Presidency in the second half of 2011. 4.3 Subnational Engagement 27. Going forward, the Bank’s subnational engagement will target lesser-developed regions especially in Eastern Poland. This work will be guided by the Subnational Cooperation Action Plan (see Box 1 and Annex 2). In line with the Bank’s poverty mandate, focus will be shifted to lesser-developed regions and cities, notably in Eastern Poland, where technical, administrative, and financial constraints are more severe and the Bank can add significant value in support of their convergence process while complementing the work of EU financial institutions. Based on the Bank’s work with the Mazowieckie region and ongoing collaboration with the Lubelskie region and City of Lublin, as well as consultations with other potential subnational partners, it appears that the Bank can play a useful role in areas such as public finance and debt management, land and property asset management, transport planning, hospital restructuring, development of PPPs, and regional development strategies. 28. Bank support could be provided through lending and AAA. The program foresees a two-stage process, with the first stage lending aimed at providing fungible resources to help finance subnational programs and projects and helping clients prepare for accessing capital markets, and the second stage aimed at supporting clients in going to the market (including potentially with the use of Partial Credit Guarantees). The precise modalities for providing Bank financial support have not yet been finalized but could take the form of a credit line administered or guaranteed by the State Development Bank BGK. 4.4 FBS Business Development 29. Given the Bank’s declining administrative budget in Poland, continued strong demand for Bank analytic and advisory services at both central and subnational government levels, and the mutual desire to strengthen the knowledge partnership, Bank AAA will increasingly have to rely on cost-sharing and FBS. Some progress has been made in 9 developing this line of business, with FBS projects concluded or in the pipeline with both levels of government. While these activities will likely continue to be opportunistic, they are confined to areas of the Bank’s broader strategic engagement and focused mainly on institution building where the Bank’s expertise can add most value to the benefit of all partners. Other requests for FBS would be contingent on the need for critical Bank expertise. However, there are two key constraints to expanding FBS. The Polish procurement law generally requires competitive tendering for advisory services, although there are exceptions if only one provider exists for a given service or if there is a grant element involved. Second, the current fiscal constraints means that clients have limited resources of their own to pay for Bank services and will have to rely mainly on the very large amount of technical assistance resources available under EU funds. Under these circumstances, and also because FBS need to have a critical size in order to be efficient, FBS is unlikely to become the dominant business line in the next few years, but its growth and increased frequency is important as we prepare for the next phase of the Partnership. 4.5 Graduation 30. Formal consideration of graduation will be taken up in the next CPS. Poland remains interested in access to a range of Bank services, including lending. While Poland has now crossed the high-income country threshold and has access to international capital markets (though spreads remain elevated), institutions require further strengthening, not least at the subnational level. However, Poland expects that access to lending should be gradually reduced and that AAA services should increasingly be provided by FBS rather than fully on the Bank’s budget. The next CPS would therefore see lending further reduced or phased out and a new knowledge partnership phased in. This would be reviewed in particular at the time of the future euro adoption, which may provide good indications of the maturity of Poland’s institutions given the prominent role Poland would play in the euro-zone. Poland does not wish to see ―graduation‖ in terms of an end to the much valued knowledge partnership. 31. Support to Poland as an International Partner. The Bank is helping Poland share its successful development experience with other countries, and will deepen this work with Poland in the next few years to develop its aid infrastructure and strategy to support its emerging donor role (e.g., participation in international aid conferences, policy dialogue on aid agenda, and knowledge sharing of Polish officials and experts in development aid). As Poland continues to grow, it accepts its obligation to increase its responsibilities in this area, including with the Bank. 5. R ISKS 32. The FY09 13 CAS identified several risks which remain relevant. First, the reform momentum has in some important areas been less than hoped for, and this is likely to continue until elections in October 2011. The EU Presidency will also place a heavy burden on administrative capacity. Further, policy-making remains fragmented, though the period from 2012 offers an excellent window of opportunity for accelerating outstanding reforms. Second, while Poland has weathered recent international and regional financial and economic turbulence well, it remains vulnerable to further deterioration in the international environment, euro-area banking and debt problems, and potential reversal of recent sizeable portfolio inflows. Adhering to its ambitious fiscal consolidation strategy will be important in this uncertain environment. In addition to these risks, the CPSPR proposes to build future business using approaches that have only partially worked due to procurement and sovereign guarantee issues. This can be high risk - high reward, but the risk is contained through the diversified lending and AAA program. 10 Annex 1: Poland: 2009-13 CPS Results Matrix CPS Pillar 1: Social and Spatial Inclusion 1: Social Sector Reform Government objectives:  Implement EU Lisbon agenda to make Poland a competitive knowledge-based economy with more and better jobs and greater social cohesion. (Implement Europe 2020 strategy to make Poland a competitive knowledge-based economy with more and better jobs and greater social cohesion)  Modernize the social security system (including through reforming some of the incomplete components of the pension design, increasing the efficiency of public spending on social assistance for the poorest households)  Strengthen educational outcomes and improve the responsiveness of the educational system to the changes in the job market, and achieve efficient and accountable educational system.  Introduce additional voluntary health insurance, improve the management of healthcare establishments and exercise control over the medical services quality (eliminate hospital debt for ongoing operations, improve resource allocation in the health sector and among hospitals, encourage cost-saving technical change in hospitals and improved response to payment incentives)  Improve the condition of social infrastructure CPS objectives: to help improve labor supply incentives and enhance labor market competitiveness, achieve efficient and accountable education system, improve efficiency in allocation and use of resources in the health sector. Original Revised WB program (Italics indicate not Expected Outcomes/Outputs Expected Outcomes/Outputs Progress To Date planned in CPS) Labor Market, Social Assistance Labor Market, Social Labor Market, Social Assistance and Labor Market, Social Assistance and Pensions: Assistance and Pensions: Pensions: and Pensions: •Increase in employment/working • Help Govt achieve its objective Employment rate for population 15-64 Lending: age population ratio to 60% by to increase employment rate remained stable at around 59.3% from •DPL1-DPL3 (FY9-10) 2012 and in labor force from 60% (2010) and labor 2008 to 2010 despite the increase in AAA: participation rate of population force participation rate of unemployment due to the crisis. aged 55-64 to 33% by 2010 and in population aged 55-64 from the Employment rate for population 55-64 • Public expenditure review on proportion of unemployed who current level of 37% in 2010. increased from 31.6% in 2008 to 34% in PFM, public wages and social receive job search assistance and 2010. sector (ESW) (FY10) vocational counseling to 30% by •LFP rate increased from 63.8% (15-64) •Fueling Growth and 2010. and 33.3% (55-64) in 2008 to 65.6% and Competitiveness in Poland 36.7% respectively in 2010. Through Employment, Skills, and Innovation (ESW) (FY11) •Qualitative field research on Measures taken: coverage and leakage in social •Implementation of the government assistance (TA) (FY10) program to enable increasing labor force •Assessment of plans to encourage participation of older workers, known as and regulate child care facilities for “50+” (PL2 prior action) children under 3 years of age to •Parliament adoption of the law on 11 •Policy options for the •Policy options for bringing employment promotion and labor market improve incentives for women to restructuring of farmers’ pension special-scheme pensions in line institutions, pursuant to which the level of participate in the labor market (TA) system. with the main pension system unemployment benefit is reduced after •Training for government officials identified and implementation three months in order to encourage the on World Bank simulation tool for started. Increase in minimum unemployed to seek a job immediately after pension reform (PROST) (TA) years of service to qualify for their registration. (FY10) pension for police/military from •Adoption of regulation of Temporary 15 years to 20 years, and the Work Agencies to enable more employers introduction of the minimum to use TWA services retirement age of 50. •Parliament adoption of law on childcare to improve incentives for women to participate in the labor market and enable more flexible forms of child care facilities, •Government resolution to increase amount of means-tested child benefits by average forty percent (PL3 prior action) • Adoption of law on foster care to move from institutional to household-based care. •Enactment of the law on bridging pensions reducing the number of people eligible for early retirement from 1.7 million to 300,000 (PL2 prior action) •Enactment of law on reducing contribution fees charged by PTE to OPF members from 7 to 3.5 percent (PL3 prior action) •Preparation of draft legislation on uniform pensions to bring pensions for uniform services more in line with the main pension system. Education: Education: Education: Education: •Successful implementation of •Successful implementation of •Completed legislative work on Act: Higher Lending: higher education reform; better labor higher education reform, in Education Law, which envisages, among •DPL1-DPL3 (FY09-11) market outcomes for the young. particular: implementation of other solutions: implementation of pro- AAA: pro-quality financing system, quality financing system, including financial including financial support for support for entities which obtain the status of •Regional conferences on higher entities which obtain the status of National Leading Scientific Center (Krajowy education reform (TA) (FY10) National Leading Scientific Naukowy Osrodek Wiodacy, KNOW); free •Policy advice on linkages between Center (Krajowy Naukowy of charge education on second and more science curricular and development Osrodek Wiodacy, KNOW); free faculty in a public university for students, of human capital for research, 12 •Improved student learning of charge education on second who receive Rector’s scholarship for best science and technology (TA) (FY10) outcomes in Math, Science and and more faculty in a public students; precise definition of the catalog of •Policy notes on enhancing teacher Reading in PISA 2009 and increased university for students, who free of charge education services provided to performance and assessing the participation rates in pre-primary receive Rector’s scholarship for students by tertiary schools. quality of educational services at and upper-secondary education. best students; precise definition higher education institutions (ESW) of the catalogue of free of charge (FY10) •Average PISA score increased marginally educational services provided to from 500 points in 2006 to 501 in 2009 •Fueling Growth and students by tertiary schools. (math performance unchanged at 495, Competitiveness in Poland Through reading score declined from 508 points to Employment, Skills, and Innovation •Increased pre-school 500, and science increased from 498 to 508). (ESW) (FY11) participation rates among children aged 5 years from the •Enactment of law to initiate compulsory 2008/09 level of 74.8%. pre-primary program for 5 yr-olds (Grade 0) starting from 2011/12 and begin implementing on a voluntary basis in 2009/10. The same law initiates a compulsory school program for 6 yr-olds from 2012/13 (PL2 prior action). Enrollment rate of 5-yr olds increased from 57.8% in 2007 to 74.8% in 2008/09. Health: Health: Health: Health: •Improved efficiency of hospitals •Improved efficiency of hospitals •DRGs fully implemented in 2010. Lending: and rationalized service delivery and rationalized service delivery •DPL1-DPL3 (FY09-10) network to allow reallocation of network through implementation AAA/ TA: resources towards primary and of DRG system. By end-2010, preventive care. 90% of hospitals to be covered by •Paper on fiscal implications of DRG system. •Data not yet available but planned central demographic change on long-term •Debt of corporatized hospitals government transfers to support restructuring care (ESW) reduced to 7.5% of total annual •60 hospitals corporatized under revenues by December 2010. Commercial Code by end- 2010. of hospitals on track. •Workshop on PPP in health sector for Mazowieckie voivodship (TA) 2: Regional Development Government objectives:  Improve the condition of technical infrastructure (National Development Strategy 2007-2015 – Priority 2)  Support to regional convergence of Eastern Poland as defined in NSRF 2007-13  Regional development and raising of territorial cohesion (National Development Strategy 2007-2015 – Priority 6)  New National Strategy for Regional Development 2010-2020; Regions, Cities, Rural sets following objectives: 1. increase competitiveness of regions ( through reducing persistent underutilization of growth potential) 2. reduce development disparities between and within regions. 3. strengthen governance (multi-level governance). 13 CPS objectives: to provide advisory, technical and financial assistance in supporting internal convergence, including financial assistance in the context of Eastern Poland Operational Program. Revised WB program (realized/Italics indicate Expected Outcomes/Outputs Expected Outcomes/Outputs Progress To Date not planned in CPS) •Improved capital investment •Improve planning and debt and asset •Significant progress with the adoption Lending: planning and debt management in management, as reflected by Bank of various laws streamlining the •Planned subnational credit line major cities (support for alleviation staff assessments of medium-term investment process on public roads, through BGK or loans to selected of urban infrastructure bottlenecks, debt management strategies for improving public-procurement lesser-developed subnationals including climate change agenda) selected bigger cities. procedures and aligning Polish (FY12/13)6 legislation on environmental protection • More strategic allocation of EU •Increase technical capacity of rules with EU. Cost-benefit analysis of AAA: funds selected regional governments to projects has been strengthened, •WDR 2009 discussions and follow-up design and improve strategy design, including in transport infrastructure activities (TA) (FY09/10) planning and implementation, and making it easier to prioritize projects. • Subnational Cooperation Action Plan reduce development obstacles in key 2010-2012 (internal document) •Improved utilization of EU funds economic sectors at regional level •Poland absorbed all EU funds (FY09/10) through capacity building and co- reflected in a positive assessment of available for 2004-06 (by the end of •Public Expenditure Review of financing the European Commission on 2009 as allowed) and advanced Mazowieckie Voivodship on capital Regional Operational Programs absorption of funds for 2007-13 (about investment planning, spending and • Improving understanding of derived from regional development 60 percent of funds available have been debt management; also provides tradeoffs in regional policy strategies. already contracted). assessment of the broad policy mix for regional development within the •Development of new national strategy region (ESW). (FY10) for Regional development in line with •Strategic planning of development, new EU approach. rehabilitation and maintenance of regional roads in Mazowieckie Voivodship (TA; FBS) (FY10) •Warsaw City policy notes on Public Transport Financial Sustainability, Metropolitan Institutions, and Public Land and Property Asset Management (ESW; part of loan preparation) (FY09/10) •Support for Regional Development Strategy (FY12/13) •TA for Land and Property Asset Management for 1-2 major cities, of which one is Lubelskie (FY13) 6 Warsaw City Project planned in CPS was cancelled. 14 CPS Pillar 2: Public Sector Reform 1: Public Finance Government objectives:  Implement task-budgeting, in particular 3-year task-based planning (and continue other institutional reforms to make the budget more transparent, predictable, and performance-oriented over the medium term)  Improve public finance sector efficiency and public funds management; reduce fiscal deficit to enable a secure and sustainable fulfillment of the convergence criterion and euro adoption in Poland by 2012. (Implement fiscal consolidation strategy to enable a secure and sustainable fulfillment of the convergence criteria by 2012/13 for euro adoption in Poland) CPS objectives: To assist the Government in improving Public Financial Management systems Original Revised WB program (realized/Italics Expected Outcomes/Outputs Expected Outcomes/Outputs Progress To Date indicate not planned in CPS) •Increased effectiveness and •No change •Enactment of new Public Finance Act Lending: efficiency of public spending in 2009 to strengthen transparency, •DPL1-DPL3 (FY09-10) through introduction of efficiency and quality of budget process AAA: performance-based budgeting through medium-term fiscal framework • Improved prioritization between and performance-based-budgeting, •PER on PFM, public wages and •Improved prioritization between various types of expenditures and enhanced debt safety procedures, social sector (ESW) (FY10) various types of expenditures and greater control of public finances in strengthened control and internal •EU10 fiscal study on performance- greater control of public finances in the context of fiscal constraints budget audit, and increased budget based, medium-term budgeting the context of fiscal constraints imposed by euro adoption plans, as transparency through consolidation of (ESW) imposed by euro adoption plans. assessed by the EU of Poland’s some budgetary units and separate •Public Expenditure Review of convergence programs. budgeting of EU funds. Mazowieckie voivodship (ESW) (FY10) In addition, government has made progress in public finance through: •Tax expenditure workshop (TA) •Amendment to Public Finance Act to •Social spending incidence analysis improve liquidity management, (TA) introduce a fiscal rule on discretionary expenditures, make fiscal impact assessment of new legal initiatives compulsory and introduce a VAT increase if debt-to-GDP exceeds 55%. •2011 state budget incorporates fiscal consolidation measures, including a freeze in the central govt wage bill and a 1 percentage point increase in VAT. •Parliament approval of law to rationalize employment in state budget units and other public entities in 2011– •Help Government to achieve its 13 to reduce employment by 10% 15 fiscal deficit target of “close to” 3 relative to Q2 2010. percent of GDP in 2012 through strengthening its fiscal responsibility •Fiscal deficit increased to 7.9% of framework (indicator: introduction of GDP in 2010 but is targeted to decline permanent fiscal rule for the Central to 5.6% of GDP in 2011 and 2.9% of Government). GDP in 2012. CPS Pillar 3: Growth and Competitiveness 1: Transport Infrastructure Development Government objectives:  Provide transport and other infrastructure appropriate for the needs of modern economy  Create favorable regulatory and institutional environment for entrepreneurship, innovation and investment in transport  Improve financial sustainability of the transport sector  Improve the condition of technical infrastructure CPS Objectives: To provide support in developing and rehabilitating infrastructure to enhance private investment and productivity growth. Revised WB program (realized/Italics Expected Outcomes/Outputs Expected Outcomes/Outputs Progress To Date indicate not planned in CPS) •Contribution to the strategy for •Contribution to the strategy for •Transport Sector Strategy is under Lending: transport sector development (incl. transport sector development preparation by Min of Infrastructure as • Two road rehabilitation loans climate change agenda). (including climate change agenda and part of the Natl Development Strategy. completed in 2009 and a third one •Improved transport infrastructure medium long-term financing). •Natl Motorway and Expressway under implementation (closing in and road safety. program progressing resulting in over FY12) •% of roads in good condition •Increased efficiency of transport improved from 49% (2005) to 60% 750 km of motorways in operation and AAA: and reduced negative impact on the and adequately maintained (2013) further 500 km under construction • Land Transport Policy Note (ESW) environment. Percentage of national roads in good (FY11) condition increased from 52 to 58% • Mazowieckie region strategic •A system of strategic and from 2008-2010). transport planning (ESW/TA; FBS) operational planning and Decline in road fatalities from 5500 (FY10) management program for the •Improved system of strategic and (2008) to 3900 (2010). • Warsaw City sustainable transport development and preservation of operational planning at central and •Special govt program of financial policy notes (ESW) (FY10) roads infrastructure; improved legal framework and institutional subnational levels and programs for support to subnational roads since 2009 capacity for preparation, development/ rehabilitation of land (PLN 1 billion/ year). Progress in implementation and monitoring of transport infrastructure. adoption of sustainable urban transport transport infrastructure projects. strategies in a number of big cities •Improved legal framework and (including Warsaw & Poznan). •Contribution to development of institutional capacity for preparation, system of high speed passenger implementation and monitoring of •Railway sector reform aimed at railways in Poland, including infrastructure projects. improving competitiveness and technical, environmental, financial sustainability of railway sector economic/ financial aspects and delayed. Feasibility study analyzing potential involvement of private high speed railway potential in Poland sector partners. is underway (financed by EU). 16 •Increased involvement of private sector partners in maintenance and •Improved legal framework for private development of infrastructure and sector involvement in infrastructure provision of public sector services. adopted in 2009 (law on concessions in construction and services; PPP law). 2: Private Sector Development Government objectives:  To provide favorable regulatory and institutional environment for entrepreneurship, innovation and investment. CPS objectives: to assist in improving business regulations in Poland and provide Government with global best practice in this area. Revised WB program (realized/Italics Expected Outcomes/Outputs Expected Outcomes/Outputs Progress To Date indicate not planned in CPS) •New business regulations • Regulatory reforms facilitating •Enactment of Law on Delivery of Lending: developed in line with global best business start-up, operations and Services enhancing international •DPL1-DPL3 (FY09-10) practices. licensing, and other business-to-govt competition in services in line with AAA: requirements (taxes, closures, trade), global best practice (EU Services have been made showing a reduction Directive). • Improving the business regulatory in time, cost and transactional steps. environment in five Doing Business Indicators: cost of obtaining business areas, where Poland lags behind the • Govt approval of bill on Reduction of most: starting a business, property licenses reduced by at least 20% from Administrative Barriers for Citizens and registration, paying taxes, enforcing current levels (currently 122% of per Entrepreneurs, which cuts red tape in contracts, and protecting investors capita income), and time to register almost 90 different pieces of legislation, (TA; FBS) (FY11) property and close a business reduced reduces number of licenses and permits, by 20% to ≈120 days and below 2.5 • Innovation TA (FY11-12) lowers administrative fees, and years, respectively, by 2012. eliminates need for formal certificates • Programs to promote business of evidence in favor of voluntary •The cost of SME registration and innovation made more effective via declarations in contacts with public start-up and of obtaining licenses is further R&D resource allocations to administration. Reduction in the SME reduced by 20% to below PLN such programs as measured by an start-up cost to about PLN 8,000 10,000 by 2010. increase in public R&D to GDP ratio (including paid-in capital). from 0.68%; R&D for business/GDP: 0.19%7 (2009); and orienting these towards commercialization of products in several sectors (indicator: patent applications submitted to US patent office increased from 8.91 per million inhabitants (2009)), as well as increasing R&D institute linkages with the business community. 7 As reported by Eurostat 17 CPS Pillar 4: Regional and Global Public Goods 1: Energy and Climate Change Government objectives:  Comply with international and EU long-term policies on climate change mitigation and preserve energy security to households and enterprises (Ensure adequate energy supplies while meeting environmental targets, including climate protection; and comply with international climate policies and targets of the EU energy and climate change package 20-20-20)  Seek, elaborate and implement environment-friendly solutions (e.g. low-emission, energy-efficient material-saving production (National Reform Program for 2008-2011 – Innovative Economy Priority Measure 6)  Using innovation in terms of environmental protection (National Reform Program for 2008-2011 – Innovative Economy Priority Measure 6)  Improvement of the condition of the technical infrastructure, incl. protection against natural disasters, in particular against floods and their effects, incl. activities of a legal and organizational character (National Development Strategy 2007-2015 – Priority 2e)  Reduce the energy intensity of the Polish economy to the EU-15 level by 2030 CPS objective: to assist the Government in the area of mitigation and adaptation of the Polish economy to the challenges of climate change. Revised WB program (realized/Italics Expected Outcomes/Outputs Expected Outcomes/Outputs Progress To Date indicate not planned in CPS) •Integrated climate change strategy •Improved energy efficiency (9% •Parliament adoption of energy Lending: to minimize costs and maximize saving in final energy consumption in efficiency law. (EE DPL action) •GEF Energy Efficiency project potential benefits, given various 2008-2016)8. Progress in 2013 (restructured). carbon mitigation scenarios. measured by issuance of tradeable •Three ―greening‖ PCF projects in white certificates and their associated Stargard, Walbrzych and Puck. •Increased public and private sector energy efficiency obligations. •Energy Efficiency/Renewable investments in energy efficiency in Energy DPL (FY11) buildings. • Help Govt meet its target of 11% of •Govt submitted National Renewable •Odra River Basin Project final energy from renewable energy Energy Plan to the EC through a •Poland participates in the system sources by 2013 from 8% in 2009. Council decision of December 7, 2010, AAA: of international emissions trading thereby detailing its commitment of at •Transition to a low-emissions under the Kyoto Protocol; least 15.5% of renewable energy use by economy (ESW) (FY11) implementation of ―greening‖ 2020. The Govt increased use of programs supported by the biomass and windpower 7-fold from revenues from the sale of assigned 2004-2009. amount units (AAUs). • Increased use of cogeneration to decrease total energy use. Indicator: •Govt provided incentives to increase Cogeneration 17% of total electricity share of cogeneration through issuance supply by 2013 from 16% (2009). of Ordinance on Heat Tariffs of September 17, 2010 (EE DPL action). • Install 200,000 Smart Meters. •Govt issued draft Regulatory Statement covering all key areas of 8 Government committing only to the 2016 target, which is beyond the CPS period. 18 implementation of Smart Meters and •Systems for flood/natural disaster •No change through the SOE Energa has initiated insurance, preparedness and implementation (EE DPL action) mitigation; spatial planning in flood plains. Protection of people and •Too early to assess property in Odra River Basin against floods of 1997 magnitude by 2013. 2: Financial sector stability and development Government objectives:  To safeguard the stability of the financial sector, including through strengthened domestic and pan-European regulations, improve access to financing, reduce financial exclusion, and promote capital markets development CPS objective: To support the Government in safeguarding the stability and promoting the development of the financial sector Revised WB program (realized)/Italics Expected Outcomes/Outputs Expected Outcomes/Outputs Progress To Date indicate not planned in CPS • Implementation of EU and G20 • PFSA approved a new AAA/ TA: mandated regulatory initiatives recommendation to tighten criteria for • Credit union supervision resulting in increases of bank core local and foreign currency consumer (ESW/TA) (FY11) capital and counter cyclical loss lending • ROSC (BCP/IAIS) (FY11) reserves; improved supervision from • The level of deposit guarantee was • Financial Sector Advisory TA FY11 ROSC from baseline: raised from EUR50,000 to EUR100,000 (FY12) Capital/Asset ratio: 13.8%; Non in line with EU legislation. performing loans: 8.8%; Loss • Parliament adopted new legislation, Provisions/Non-performing loans: currently under review by the Supreme 54.6% (Dec 31, 2010) Court, subordinating credit unions to • Increased capital market integration the supervisory powers of the PFSA, with pan-European securities reducing systemic risks. markets and improved risk management of private pension assets • Improved capacity to oversee and supervise credit unions in Poland’s regional banking services from baseline: Delinquent/Total Loans: 12.7%; Net Profit/Asset ratio: -0.2% (March 31, 2010) Note: Text in italics denotes changes/additions from original CPS 19 Annex 2: CPS PR Pillars and Themes FY11-131, 2/ Pillar/Theme Making Europe Work for Poland Policy Reforms for Europe 2020 and Complementing the EU Agenda Convergence Pillar 1: Social and Regional Development Strategies AAA Social Sector Reforms Spatial Inclusion Strengthening Subnational Inst & Capacity Strategy for Human Capital Dev TA Lending AAA  Social sectors reform Lending AAA DPL series -Social Inclusion TA  Regional development -Municipal credit -Municipal finance (closed) (FBS) lines (FIL)1/ (B) ESW/TA (strategic) -Subnational Transport -Subnational Reg Dev strategies / PERs (FBS) Pillar 2: Public Sector Public Sector Reform: PFM / PAR Reform Lending AAA  Public finance management -PARSP (ongoing) -PFM TA (ongoing)  Public admin / governance -Public finance/ -Admin reform TA Admin Reform (FBS) DPLs (A) Pillar 3: Growth & Transport Policy & Inst Reform Transport Policy & Inst Reform Competitiveness Lending AAA Lending  Transport infrastructure Energy / Transport RBL Roads/rail reform TA Roads Rehab & development (C) (FBS) Maint (ongoing)  Private sector development PSD: Innovation and Skills AAA Innovation TA (ongoing; FBS) PSD: Business Envir & Deregulation AAA Doing Business TA (FBS) Pillar 4: Regional and Financial Sector Regulation Sustainable Energy Efficient Growth Climate Global Public Goods Change  Climate change and energy Lending AAA  Financial sector stability -Odra River (ongoing) -Low-Emissions -GEF Energy Efficiency CEM follow-up (ongoing) -Energy efficiency -Energy Efficiency studies (ongoing) /Renewable Energy -Water/flood mgt TA DPL (FBS) -IFC -Financial Reporting TA Program 2010- 2015 (ongoing) 1/ Subject to confirmation following general elections in October 2011. 2/ Excludes regional work that generally includes Poland. A: Very likely; B: likely; C; possible 20 Annex 2b: CPS PR: Tentative Program FY11-13 1/ 2/ LENDING $ FY AAA FY Theme 1: Making Europe Work for Poland Municipal credit line (FIL)1(B) 500 FY12 Municipal finance ESW/TA FY12 Municipal credit line (FIL)2 (B) 250 FY13/14 Subnational transport ESW FY12 Subnational RDS/PER (FBS) FY12/13 Theme 2: Policy Reforms for Europe 2020 and Convergence Innovation TA (ongoing; FBS) FY11 Energy Efficiency and Renewable Strategy for Human Capital Energy DPL 1000 FY11 Development TA FY12 Energy efficiency studies Energy/transport RBL (C) 500 FY12/13 (ongoing) FY11 Doing Business TA (FBS) FY12 Low-emissions CEM follow-up TA FY12 Roads/railways reform TA (FBS) FY12 Financial Reporting TA Program 2010-2015 (ongoing) FY16 Theme 3: Complementing the EU Agenda PF/Adm Reform DPL1 (A) 500 FY12 Public finance TA (ongoing) FY11/12 PF/Adm Reform DPL2 (A) 250 FY13 Administrative reform TA (FBS) FY12 Social Inclusion TA (FBS) FY12 Memo: total lending (mill. $) FY09 2500 FY10 1250 FY11 1000 FY12 1250 FY13 750 1/ Subject to confirmation following general elections in October 2011. 2/ Excludes regional work that generally includes Poland. (A): Very likely; (B): likely; (C): possible 21 Annex 3: Subnational Cooperation Action Plan (SCAP) 2010-2012 Background 1. Over the past couple of years, the World Bank has been increasing its cooperation with subnational governments in Poland. This reflects a number of factors: (i) subnational governments are responsible for important social service delivery and infrastructure functions and account for a substantial share of public spending; (ii) many regions lag significantly in their economic development relative to the national average and are therefore major recipients of EU financial aid; (iii) regions are responsible for their own development programs, and many cities also undertake longer-term development planning; and (iv) subnational governments often also have less-developed institutional and technical capacity as compared to the central government. 2. Initial efforts to engage subnational partners focused on the capital city, Warsaw, its surrounding region, Mazowieckie, as these are among the most developed and sophisticated subnational governments and often serve as pilots and examples for other subnational governments. Recently the cooperation was expanded to Lubelskie Voivodeship, one of the least developed regions in Eastern Poland. 3. Looking ahead, World Bank cooperation with subnational entities in Poland will be guided by the Subnational Cooperation Action Plan for Poland for 2010-2012. The document proposes a strategic approach for development of subnational cooperation in Poland and constitutes the basis for the Bank’s activities in this field over the next two to three years. Objectives 4. The main objective of the SCAP is to support sustainable socio -economic development of subnational governments in Poland through innovative knowledge-based and financial cooperation with regional and municipal authorities. The goal is to be achieved by providing unique, world class non- profit expertise which may be combined with flexible, responsive and tailor -made financial support. This objective is fully in line with the priorities of the government National Development Strategy 2007-2015. Proposed actions 5. Given its mandate, the World Bank aims to target regions and cities with relatively low levels of income. The extent of previous cooperation with the Bank and good institutional contacts, available financing, and political stability are also important considerations. The World Bank sees the following regions and cities as priority: Lublin and Lubelskie region, Rzeszów and Podkarpackie region, Białystok and Podlaskie region, Wrocław and Dolnośląskie region, Warminsko-Mazurskie, and Katowice and Śląskie region. 6. The World Bank has identified the following as priority service areas, based on an assessment of needs/demand, value-added and uniqueness of services, and capacity to deliver, though this list is non- exhaustive and can evolve over time.  Infrastructure: public transport including metropolitan transport, regional / municipal strategies of transport development; roads management, (including innovative PPPs);  Regional development: regional development strategies, territorial and urban development/planning, municipal land and property asset management; brownfields redevelopment, monitoring and evaluation of EU funds;  Public finance: Municipal financial and debt management, subnational Public Expenditure Reviews, Performance-Based Budgeting; and  Social sector: health sector, education, labor market (including innovative PPPs). Sources of financing and modalities of cooperation 22 7. The assumption of the SCAP is to provide development support to regions / cities, mainly through analytic and advisory services, most likely on a fee or cost-sharing basis. However, financial support is not excluded. 8. In addition to regular Bank budget resources, the Bank’s analytical and advisory work could be covered from the following financing sources: (i) Polish public funds; (ii) EU funds; and also possibly from (iii) bilateral grants; and (iv) international financial institutions (IFI) loans. 9. However, regardless the origins of funding, due to its unique character, the Bank cannot enter into competitive bidding for its services. While the Polish Procurement Law does not clearly exempt the Bank from competitive bidding for advisory services (as it does for lending), the provisions and published opinions does allow for this both due to the presumed uniqueness of services provided and the special procedures of the Bank that prevent it from entering into competitive bidding. In parallel with the Polish Procurement Law, the Law on Rules of Development Policy provides for a special procedure to select of partners for joint implementation of a number of EU co-financed projects, namely the ―partnership agreement (project)‖. In this case, public procurement rules do not apply, i.e., there is no need for competitive bidding. Current experience and main conclusions 10. AAA. Recent and ongoing support includes fee-based service agreements with two Polish regions: (i) Mazowieckie Voivodship in: (a) improving strategic planning of development, rehabilitation and maintenance of regional roads on a fee-basis and (b) Public Expenditure Review covered by the WB grant; and (ii) Lubelskie Voivodship ongoing assistance in analyzing of current and future development of the Region and in reviewing and advising on Regional Development Strategy, provided on a cost- sharing basis with EU funding involved. 11. Despite some progress made in this area, a primary concern and one of the main stumbling blocks in developing FBS is Polish procurement law constraining sole-sourcing the Bank. Given the lack of systemic approach to procurement, it is treated on a case-by-case basis, so far effectively only by combining FBS with Bank's own resources so that Bank’s advisory services are exempted from the Polish procurement law. Another possibility would be to sole source the Bank, however, a prerequisite is a solid justification of uniqueness of Bank's services. 12. Subnational Lending. The most promising avenue for subnational lending could be a line of credit operated by BGK (Bank Gospodarstwa Krajowego). However, a sovereign guarantee requirement, as well as modality of such an instrument and determining Polish government support for subnational lending still remain issues. Although IL for Warsaw infrastructure investments was put on hold as it has triggered pari passu clauses with other IFIs (which could also be a case for some other Po lish cities) support to specific subnational governments may be also tested, most likely using BGK as intermediary. Critical success factors 13. Successful operationalization and implementation of SCAP for Poland will depend on the Bank’s ability to match real priorities and needs of subnational partners with its own strong commitment. Critical internal success factors reinforcing the Bank’s engagement include the following: - Availability of highly qualified technical staff for project identification, implementation and quality assurance, ideally combining both global and local expertise; - Effective project management and handling of relationships with clients, preferably by locally based Bank staff project coordinators. 14. However, effective realization of SCAP will also greatly depend on factors on a client side. The following external determinants are crucial for successful implementation of SCAP: - Capacity of counterparts to define development programs, identify needs and areas for Bank assistance; - Establishment of close cooperation with the Bank and client responsiveness in order to facilitate the Bank to carry out advisory services; - Continuity and stability of counterparts. 23 Annex 4: Summary of Recent Key Strategic Analytical Work Annex 4a: Transition to Low-Emissions Economy in Poland This report, part of the World Bank’s series of low -carbon growth studies, aims to assess how Poland can move to a low-emissions development path without sacrificing growth and employment. The report notes that:  Poland can cut its greenhouse gas emissions by almost a third by 2030 by applying existing technologies, at an average cost of €10 to 15 per ton of carbon dioxide equivalent abated.  Costs to the economy will peak in 2020; but by 2030, the shift towards low emissions will augment growth. Overall, this abatement will lower GDP by an average one percent through 2030 from where it otherwise would have been.  The economic cost in output and employment of Poland’s required abatement by 2020 under EU rules is higher than for the average EU country; and the restrictions on emissions trading between sectors aggravate that cost.  The energy sector currently generates near half of Poland’s emissions; but the transport sector — with precipitous growth and the need for behavioral change in addition to the adoption of new technologies — may end up posing the tougher policy challenge. A low-emissions growth path appears to be particularly difficult for Poland. Poland’s economy remains today among the least emissions-efficient in the EU, and the country is a European and global outlier with more than 90 percent of its electricity generated from locally-abundant coal. Yet, as an EU member, Poland must comply with EU energy and climate policies. O ver the next few decades, Poland faces the test of catching up to EU income levels while simultaneously becoming less dependent on abundant domestic coal for energy needs. The switch to low-emissions energy supply, end-user energy efficiency measures, and transport policy will be the central pillars of Poland’s low-emissions strategy. The power sector, as the dominant source of today’s emissions, necessarily must be addressed, but the sector’s large investment costs raise financing challenges while long lead times guarantee that its structure will shift only slowly. With lower capital costs and earlier returns, energy efficiency measures hold out the promise of relatively low cost abatement that works directly to delink emissions from growth, the essence of a low-emissions economy. Yet, the transport sector may prove the most challenging to hold emissions growth within the EU target since most technological solutions are already in place, leaving policymakers with only behavioral solutions — such as getting people out of their cars and onto public and non-motorized transport— that are much more complicated to implement. Poland’s transition to a low-emissions economy by 2030 seems to be affordable. However, capturing the full package of technologically feasible and economically sensible abatement measures requires coordinated and early action by the government. With an ambitious approach, Poland can aim to reduce its GHG emissions by about one-third by 2030 (relative to 1990) at manageable cost to incomes and employment. Similarly, meeting the EU targets for 2020 appear generally feasible for Poland at manageable cost as well, albeit likely more challenging for less energy-intensive sectors such as transport than for sectors that are covered by EU-wide carbon trading. The report has already made an impact. One specific outcome of this analytic work is Bank support through the development policy operation for energy efficiency policy reforms in Poland. Moreover, Bank representatives were invited to participate in the national Energy Round Table, a series of high-level discussions on Poland's low carbon strategy. Also, insights from the study have been used by the government in preparing its medium-term and long-term economic strategies. Last is the transfer of one of the models developed under the study to the government for additional study of EU policies and the use of another of the models for more in-depth analysis of energy efficiency questions. 24 Annex 4b: Poland Transport Policy Note—Toward a Sustainable Land Transport Sector Poland’s rapid economic growth since EU accession has translated into a strong increase in freight and passenger traffic, even above GDP growth. Most of this growth has been served by road transport despite the existence in Poland of one of the largest rail networks in the EU. In spite of many positive developments, the country is still perceived by potential investors as having a poor quality of transport infrastructure. Poland has made significant progress in developing land transport infrastructure over the last several years. It has successfully seized the opportunities from the accession to the EU and the large financial support provided for development of transport infrastructure. For example, total road spending in Poland doubled from 2004-2007 and almost doubled again in 2007-2010. The results of such large investments are visible mostly in the road sector, where the percentage of roads in good condition increased from 49 in 2005 to nearly 60 in 2009 and absorption of EU funds under the current 2007 -2014 program is well underway. Current road-focused transport policy orientation is partly understandable as the country still lacks a good backbone network of highways, while the surge in car ownership and road traffic have resulted in strong demand for high quality infrastructure supporting primarily road mobility. Poland is still one of the worst EU performers in road injuries despite progress in legal regulations, enforcement and education campaigns. The economic and social cost of road crashes is estimat ed at 1.5 percent of GDP or US$10 billion a year. By approaching road safety initiatives more as investments rather than just costs to the budget, it was possible to reduce the number of fatalities in Poland by over 25 percent in 2009-10 to around 3900 in 2010. To sustain this positive trend, further coordinated efforts and sustainable medium–term funding would be necessary. Finally, the contribution of transport to CO2 emissions has already reached around 12 percent with road transport representing 92 percent of the sector emissions. Of the imbalances in the land transport sector which need to be addressed in the short to medium -term, the key ones are related to a relatively low level of state funding for railways, resulting in the need for a significantly larger share of user funding of the railway infrastructure compared to road users. Another one is the relative underfunding of revitalization and current maintenance of existing land transport infrastructure compared to modernization and construction of new infrastructure. The sustainability of road sector financing, which depends largely on EU structural funds and debt, is also a matter of concern. On the discrepancy between investment in new infrastructure on the one hand and revitalization and maintenance of the infrastructure on the other hand, we believe there is a lot to be gained from adopting a life-cycle approach to transport infrastructure and assuring sufficient medium-term funding for reducing the backlog in rehabilitation of existing infrastructure as well as proper current and periodic maintenance of newly developed infrastructure. While the current transport policy orientation of the government seems to focus on improvement of road mobility, changes are needed in the transport policy in order to align it with EU recommendations towards a more balanced and energy efficient sector and to overcome numerous other challenges. These are mostly linked to further reforms in railways to improve efficiency and competitiveness of this transport mode and the need to focus attention on improving railway infrastructure. The report makes an attempt to identify some basic alternative policy options and provides a general impact assessment using a simplified simulation tool developed as part of the study. These simulations show that modifications are needed in the direction of land transport policy, including adoption of a medium term financial strategy, further institutional strengthening and improvement in coordination between different stakeholders and transport modes. Delaying these reforms would be risky. The study suggests a number of priority actions to be considered by the government that should lead to improved financial, economic, social and environmental sustainability of the Polish land transport sector in the medium-long term. 25 Annex 4c: Poland Public Expenditure Review Analysis of Social and Public Wages This report looks at public spending on pensions, education, health, social assistance, labor market programs, and public wages. Presenting the findings of a series of studies and notes compiled since April 2009, it highlights how reforming such spending, which comprises about one quarter of GDP, is essential for mitigating the impact of the economic crisis and for transforming Poland from a welfare state to a workfare society in line with Government’s Vision 2030. The report has two main messages. First, Poland can take measures to reduce public expenditures on social sectors and public wages by around 2.3 percentage points over the next three years . This would go a long way towards reducing the fiscal deficit from around 6 percent of GDP in 2009 to below 3 percent of GDP in 2012, consistent with the Maastricht threshold and as advised by the European Council from July 2009. The adjustment would allow the Government to maintain public debt below the constitutional ceiling of 60 percent of GDP and to aim for euro adoption by the middle of the decade. Such fiscal consolidation can be done while maintaining economic and social priority programs that mitigate the social costs of the crisis and enhance growth prospects. Delaying the adjustment to latter years would make the problem more difficult to address, raises the probability of new fiscal crisis in the years ahead, and runs the risks of constraining policy flexibility in future. Second, beyond supporting the fiscal adjustment required in the context of the economic crisis, public expenditure reforms can also help bring about structural changes envisioned as part of the Government’s strategy for 2030. This vision entails a fundamental transformation to a workfare society in response to the challenges of globalization, energy deficiency, climate change, and population aging. The aim is to build a competitive, innovative and energy efficient economy supported by a well performing state for a socially and regionally cohesive society. This report provides a comprehensive assessment of Poland’s social sector and public wage polices and lays out options for reform. The summary report has five parts. The first part lays out the macroeconomic context. It emphasizes that Poland has weathered the global economic crisis remarkably well but that the recovery is likely to be feeble and subject to uncertainty. The next part discusses the fiscal fallout of the crisis and argues that public expenditure reform should be a crucial pillar for fiscal consolidation. Sections III to V contain the main findings of the report. Section III presents a list of important reforms of public expenditures on social sectors and wages in support of Vision 2030. Section IV simulates the fiscal impact of public expenditure reforms, with a particular focus on state budget expenditures. The final section discusses how institutional reforms in the areas of medium-term and performance-based budget can support the reform agenda. Volume 2 presents the detailed analyses of social sectors and institutional reforms of public finance. The analysis offers three original contributions to the debate o n public expenditure reform in Poland. First, based on empirical evidence from administrative and household survey data, the report provides in-depth treatments of the social sectors. It takes stock of the achievements of the last years, presents outstanding challenges and lays out policy options to support Vision 2030, drawing on experience in the central Europe and elsewhere. Second, based on the Government’s latest macroeconomic framework, the report presents estimates of fiscal savings for specific public expenditure reforms. While these calculations rely on a number of simplifying assumptions, they relate public expenditure reforms to a fiscal framework and provide order-of-magnitudes for potential savings. Third, the report presents an action plan to meet the goal of program-based budget appropriations in financial year 2013, as well as the new Multi-Year State Financial Plan. 26 Annex 4d: Europe 2020 Poland--Fueling Growth and Competitiveness through Employment, Skills, and Innovation. This Report aims to analyze how Poland could help offset a projected decline in potential growth rate after the crisis and meet the Europe 2020 targets. Growth and competitiveness through employment, skills, and innovation and technology absorption are key issues to enable the EU to meet the targets set out in the Europe 2020 Strategy for Smart, Sustainable, and Inclusive Growth. Poland has undertaken important reforms in the first two areas, but it needs to go further to sustain its impressive pre- crisis growth rates and meet the new targets on which Poland still lags behind. The Report argues that accelerating post-crisis rate of growth and meeting the EUROPE 2020 targets could be achieved through reforms in three specific areas: raising employment, improving skills, and enhancing technology absorption and innovation. On raising employment, the report argues that although labor market conditions have substantially improved in Poland in recent years, the current employment rate of 65 percent is still less than the EU average and well below the Europe 2020 target. Raising the employment/population ratio is thus one of the key challenges that Poland faces on the road to convergence to the income level of the EU-15. The report shows that reducing labor market inactivity of older workers would yield particularly substantial economic benefits. Achieving a higher employment rate would also be critical given population aging and the growing life expectancy. On improving skills, surveys indicate that Polish employers see inadequate workforce skills as one of the main constraints to the activity of their firms, with innovative firms tending to be more affected by skill shortages than traditional firms. To reduce the skills mismatch in Poland, the key challenge going forward will be to increase the supply of tertiary students, while ensuring that they are able to acquire the key skills that employers want. In addition, it will be crucial to give greater access to adult learning opportunities for those already in the labor market and those who are unemployed, but could shift to different jobs requiring different skills. Finally, Polish higher education will also need to offer the new skills that employers seek as well as provide good quality vocational courses at the tertiary level. On enhancing technology absorption and innovation, the report argues that growth in Poland in the longer term will have to increasingly rely on technological change in addition to factor accumulation. The report shows that Poland ranks poorly among EU countries with regard to the efficiency of public expenditures and that Poland has a large scope to increase the efficiency of public expenditures on Research & Development (R&D) before increasing its levels. Further restructuring of Research and Development Institutes (RDIs), enhancing interest in innovation among Polish firms, and promoting international collaboration on co-patents will be crucial to support productivity-based growth. The Report provides a list of specific policy recommendations for each of the three areas. It recommends, for instance, to make further revisions regarding the access to social security benefits so that they do not present a disincentive for labor market participation; develop a learning outcomes approach for all levels of learning, with more emphasis placed on generic skills as a basis for labor mobility; and reform the RDI financing system to strengthen applied research and links with the needs of Polish small and medium enterprises and industry. 27 Annex 5: Poland at a Glance Poland at a glance 5/9/11 CAS A2 Ke y D e v e lo pm e nt Indic a t o rs High P o land inco me Age distribution, 2008 (2009) Male Female P o pulatio n, mid-year (millio ns) 38.1 ,1 0 11 75-79 Surface area (tho usand sq. km) 313 35,527 60-64 P o pulatio n gro wth (%) 0.1 0.7 Urban po pulatio n (% o f to tal po pulatio n) 61 77 45-49 30-34 GNI (A tlas metho d, US$ billio ns) 468.6 43,030 15-19 GNI per capita (A tlas metho d, US$ ) 12,280 38,781 GNI per capita (P P P , internatio nal $ ) 18,440 37,286 0-4 6 4 2 0 2 4 6 GDP gro wth (%) 1.8 0.5 percent of total population GDP per capita gro wth (%) 1.7 -0.2 ( m o s t re c e nt e s t im a t e , 2 0 0 3 – 2 0 0 9 ) .25 P o verty headco unt ratio at $ 1 a day (P P P , %) <2 .. Under-5 mortality rate (per 1,000) P o verty headco unt ratio at $ 2.00 a day (P P P , %) <2 .. Life expectancy at birth (years) 76 80 20 Infant mo rtality (per 1,000 live births) 6 6 Child malnutritio n (% o f children under 5) .. .. 5 A dult literacy, male (% o f ages 1 and o lder) 100 99 10 5 A dult literacy, female (% o f ages 1 and o lder) 99 98 Gro ss primary enro llment, male (% o f age gro up) 97 101 Gro ss primary enro llment, female (% o f age gro up) 97 101 0 A ccess to an impro ved water so urce (% o f po pulatio n) .. 100 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) .. 99 1990 1995 2000 2007 Poland High income a N e t A id F lo ws 19 8 0 19 9 0 2000 2009 (US$ millio ns) Net ODA and o fficial aid – 1,320 1,393 1,522 Growth of GDP and GDP per capita (%) To p 3 do no rs (in 2008): n.a. – – – – 8 n.a. – – – – 6 n.a. – – – – 4 2 0 A id (% o f GNI) – 2.4 0.8 0.6 -2 A id per capita (US$ ) – 35 36 40 -4 -6 -8 Lo ng- T e rm E c o no m ic T re nds -10 95 05 Co nsumer prices (annual % change) .. 585.5 10.1 3.5 GDP implicit deflato r (annual % change) .. 55.2 7.3 3.6 GDP GDP per capita Exchange rate (annual average, lo cal per US$ ) .. 0.9 4.3 3.1 Terms o f trade index (2000 = 100) .. 104 100 109 19 8 0 – 9 0 19 9 0 – 2 0 0 0 2 0 0 0 – 0 9 (average annual gro wth %) P o pulatio n, mid-year (millio ns) 35.6 38.1 38.5 38.1 0.7 0.1 -0.1 GDP (US$ millio ns) .. 58,976 71 1 ,263 431,307 .. 4.7 4.4 (% o f GDP ) A griculture .. 8.3 5.0 3.6 .. 0.5 0.8 Industry .. 50.1 31.7 29.9 .. 7.1 5.7 M anufacturing .. .. 18.5 16.7 .. 9.9 8.5 Services .. 41.6 63.3 66.5 .. 5.1 3.8 Ho useho ld final co nsumptio n expenditure .. 48.0 63.1 60.5 .. 5.2 3.6 General go v't final co nsumptio n expenditure .. 19.3 18.5 19.2 .. 3.7 4.2 Gro ss capital fo rmatio n .. 25.6 24.8 20.2 .. 10.6 5.9 Expo rts o f go o ds and services .. 28.6 27.1 38.9 .. 1 1 .3 9.1 Impo rts o f go o ds and services .. 21 .5 33.5 38.9 .. 16.7 8.0 Gro ss savings .. 15.9 18.8 18.6 28 Poland B a la nc e o f P a ym e nt s a nd T ra de 2000 2009 Governance indicators, 2000 and 2009 (US$ millio ns) To tal merchandise expo rts (fo b) 36,179 135,811 To tal merchandise impo rts (cif) 50,381 1 51 45,1 Voice and accountability Net trade in go o ds and services -10,904 358 Political stability Current acco unt balance -10,343 -7,199 Regulatory quality as a % o f GDP -6.0 -1.7 Rule of law Wo rkers' remittances and co mpensatio n o f emplo yees (receipts) 1,496 8,816 Control of corruption Reserves, including go ld 27,466 79,591 0 25 50 75 100 2009 C e nt ra l G o v e rnm e nt F ina nc e Country's percentile rank (0-100) 2000 higher values imply better ratings (% o f GDP ) Source: Kaufmann-Kraay-Mastruzzi, World Bank Current revenue (including grants) 38.1 36.7 Tax revenue 19.8 20.3 Current expenditure 38.2 38.2 T e c hno lo gy a nd Inf ra s t ruc t ure 2000 2008 Overall surplus/deficit -3.0 -7.1 P aved ro ads (% o f to tal) 68.3 90.3 Highest marginal tax rate (%) Fixed line and mo bile pho ne Individual .. 32 00 subscribers (per 1 peo ple) 46 141 Co rpo rate 30 19 High techno lo gy expo rts (% o f manufactured expo rts) 3.3 5.2 E xt e rna l D e bt a nd R e s o urc e F lo ws E nv iro nm e nt (US$ millio ns) To tal debt o utstanding and disbursed 64,834 195,201 A gricultural land (% o f land area) 60 53 To tal debt service 0,1 1 56 27,538 Fo rest area (% o f land area) 29.8 30.4 Debt relief (HIP C, M DRI) – – Terrestrial pro tected areas (% o f surface area) .. 24.3 To tal debt (% o f GDP ) 37.9 45.3 Freshwater reso urces per capita (cu. meters) 1,402 1,406 To tal debt service (% o f expo rts) .. .. Freshwater withdrawal (billio n cubic meters) 16.2 .. Fo reign direct investment (net inflo ws) 9,343 16,974 CO2 emissio ns per capita (mt) 7.8 8.3 P o rtfo lio equity (net inflo ws) 447 559 GDP per unit o f energy use (2005 P P P $ per kg o f o il equivalent) 5.1 6.1 Composition of total external debt, 2008 Other multi- lateral, 0 Energy use per capita (kg o f o il equivalent) 2,317 2,547 IMF, 0 IDA, 0 IBRD, 1,776 Bilateral, 1,121 Wo rld B a nk G ro up po rt f o lio 2000 2009 Short-term, 64,904 (US$ millio ns) IB RD To tal debt o utstanding and disbursed 2,229 1,655 Disbursements 349 31 Private, P rincipal repayments 199 152 150,221 Interest payments 122 62 US$ millions IDA To tal debt o utstanding and disbursed – – Disbursements – – P riv a t e S e c t o r D e v e lo pm e nt 2000 2009 To tal debt service – – Time required to start a business (days) – 32 IFC (fiscal year) Co st to start a business (% o f GNI per capita) – 17.9 To tal disbursed and o utstanding po rtfo lio 1 11 38 Time required to register pro perty (days) – 197 o f which IFC o wn acco unt 91 38 Disbursements fo r IFC o wn acco unt 8 5 Ranked as a majo r co nstraint to business 2000 2009 P o rtfo lio sales, prepayments and (% o f managers surveyed who agreed) repayments fo r IFC o wn acco unt 21 8 Tax rates .. 57.5 A ccess to /co st o f financing .. 50.7 M IGA Gro ss expo sure 2 0 Sto ck market capitalizatio n (% o f GDP ) 18.3 31 .4 New guarantees 0 0 B ank capital to asset ratio (%) 7.1 7.9 No te: Figures in italics are fo r years o ther than tho se specified. 2009 data are preliminary. 5/9/11 .. indicates data are no t available. – indicates o bservatio n is no t applicable. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 29 Millennium Development Goals Poland With selected targets to achieve b etween 1990 and 2015 (estimate clo sest to date sho wn, +/- 2 years) P o la nd G o a l 1: ha lv e t he ra t e s f o r e xt re m e po v e rt y a nd m a lnut rit io n 19 9 0 19 9 5 2000 2008 .25 P o verty headco unt ratio at $ 1 a day (P P P , % o f po pulatio n) <2 <2 <2 <2 P o verty headco unt ratio at natio nal po verty line (% o f po pulatio n) .. 14.6 14.8 .. Share o f inco me o r co nsumptio n to the po o rest qunitile (%) 9.2 8.2 7.9 7.3 P revalence o f malnutritio n (% o f children under 5) .. .. .. .. G o a l 2 : e ns ure t ha t c hildre n a re a ble t o c o m ple t e prim a ry s c ho o ling P rimary scho o l enro llment (net, %) .. .. 97 96 P rimary co mpletio n rate (% o f relevant age gro up) 98 94 95 96 Seco ndary scho o l enro llment (gro ss, %) 88 95 100 100 Yo uth literacy rate (% o f peo ple ages 1 5-24) 100 100 100 100 G o a l 3 : e lim ina t e ge nde r dis pa rit y in e duc a t io n a nd e m po we r wo m e n Ratio o f girls to bo ys in primary and seco ndary educatio n (%) 100 .. 98 99 Wo men emplo yed in the no nagricultural secto r (% o f no nagricultural emplo yment) .. 47 47 47 P ro po rtio n o f seats held by wo men in natio nal parliament (%) 14 13 13 20 G o a l 4 : re duc e unde r- 5 m o rt a lit y by t wo - t hirds Under-5 mo rtality rate (per 1 ,000) 17 14 10 7 Infant mo rtality rate (per 1,000 live births) 15 12 8 6 M easles immunizatio n (pro po rtio n o f o ne-year o lds immunized, %) 95 96 97 98 G o a l 5 : re duc e m a t e rna l m o rt a lit y by t hre e - f o urt hs M aternal mo rtality ratio (mo deled estimate, per 1 00,000 live births) .. .. .. 8 B irths attended by skilled health staff (% o f to tal) .. .. 100 100 Co ntraceptive prevalence (% o f wo men ages 1 5-49) 49 .. .. .. G o a l 6 : ha lt a nd be gin t o re v e rs e t he s pre a d o f H IV / A ID S a nd o t he r m a jo r dis e a s e s P revalence o f HIV (% o f po pulatio n ages 1 5-49) .. 0.1 0.1 0.1 Incidence o f tuberculo sis (per 100,000 peo ple) 52 51 35 25 Tuberculo sis case detectio n rate (%, all fo rms) 81 82 81 79 G o a l 7 : ha lv e t he pro po rt io n o f pe o ple wit ho ut s us t a ina ble a c c e s s t o ba s ic ne e ds A ccess to an impro ved water so urce (% o f po pulatio n) .. .. .. .. A ccess to impro ved sanitatio n facilities (% o f po pulatio n) .. .. .. .. Fo rest area (% o f to tal land area) 29.2 29.5 29.8 30.4 Terrestrial pro tected areas (% o f surface area) .. .. .. 24.3 CO2 emissio ns (metric to ns per capita) 9.1 9.0 7.8 8.3 GDP per unit o f energy use (co nstant 2005 P P P $ per kg o f o il equivalent) 3.0 3.5 5.1 6.1 G o a l 8 : de v e lo p a glo ba l pa rt ne rs hip f o r de v e lo pm e nt 00 Telepho ne mainlines (per 1 peo ple) 8.6 14.8 28.5 25.5 00 M o bile pho ne subscribers (per 1 peo ple) 0.0 0.2 17.5 1 1 5.2 00 Internet users (per 1 peo ple) 0.0 0.6 7.3 49.0 00 P erso nal co mputers (per 1 peo ple) 0.8 2.9 6.9 16.9 Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 125 100 160 140 100 75 120 75 100 50 50 80 25 60 25 40 0 20 2000 2002 2004 2006 2008 0 0 1990 1995 2000 2007 2000 2002 2004 2006 2008 Primary net enrollment ratio Poland High income Fixed + mobile subscribers Internet users Ratio of girls to boys in primary & secondary education No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. 5/9/11 Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 30 Annex 6: Selected Indicators of Bank Portfolio Performance and Management as of 3/16/2011 CAS B2 Indicator 2008 2009 2010 2011 Portfolio Assessment a Number of Projects Under Implementation 7 5 5 4 b Average Implementation Period (years) 3.4 2.7 3.5 5.1 a, c Percent of Problem Projects by Number 14.3 40.0 20.0 25.0 a, c Percent of Problem Projects by Amount 1.5 11.1 0.6 2.4 d Disbursement Ratio (%) 9.7 26.8 10.1 10.7 Portfolio Management CPPR during the year (yes/no) N N N N Supervision Resources (total US$) 660,674 648,027 422,882 340,709 Average Supervision (US$/project) 94,382 129,605 84,576 85,177 Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 44 7 Proj Eval by OED by Amt (US$ millions) 4,699.2 854.4 % of OED Projects Rated U or HU by Number 20.5 28.6 % of OED Projects Rated U or HU by Amt 11.2 11.3 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 31 Annex 7: IBRD Program Summary as of 3/16/2011 CAS B3 Proposed IBRD Base-Case Lending Program Strategic Rewards b Implementation b Fiscal year Proj ID US$(M) (H/M/L) Risks (H/M/L) 2011 PL ENERGY EFFICIENCY DPL 1,000.0 H M 2012 Municipal Credit Line (FIL) 1 500.0 H H PF/ Adm Reform 500.0 H M 2013 Municipal Credi Line (FIL) 2 250.0 H H Energy/Roads Results Based Lending* 500.0 M M PF/Adm Reform DPL2 250.0 H M *FY12 or FY13 3,000.0 Total Annex 8: IFC Investment Operations Program 2008 2009 2010 2011* Original Commitments (US$m) IFC and Participants 12.25 14.73 IFC's Own Accounts only 12.25 14.73 Original Commitments by Sector (%)- IFC Accounts only FINANCE & INSURANCE 100 100 Total 0 100 100 0 Original Commitments by Investment Instrument (%) - IFC Accounts only Equity 45.17 Loan 54.83 Quasi loan 100 Total 0 100 100 0 * Data as of March 01,2011 32 Annex 9: Summary of Analytical and Advisory Assistance CAS B4 a b Product Completion FY Cost (US$000) Audience Objective Recent completions TA on Regional Roads Mazovieckie Voivodship (FBS) FY10 229 Gov KG/PS Education Reform in Poland TA FY10 164 Gov KG/PS Regulatory, Business Environment and State Control Reform FY10 80 Gov KG/PS Poland Transport Policy Note FY10 210 Gov KG/PS Warsaw City Policy Note FY10 102 Gov KG/PS PEIR Update FY10 290 Gov KG/PS Mazowieckie region PEIR FY10 248 Gov KG/PS Regional Development FY10 60 Other KG/PS/PD Private & Financial Sector TA FY11 92 Gov KG/PS Tax Expenditure Report TA FY11 38 Gov Poland Low Emissions Study FY11 858 Gov KG/PD/PS Underway Training of Supreme Audit Institution FY11 15 Gov KG/PS (SAI0 Poland Health & SP Technical Cooperation FY11 147 Gov KG/PS Public Finance TA FY11 34 Gov KG/PS Lubelskie: Support for Regional Development Strategy FY11 28 Gov KG/PS TA for Innovation, Knowledge and Competitieness (EU) accession countries) FY11 135 Gov KG/PD/PS TA Program of Technical Cooperation in Pensions Policy in New EU Member States and Croatia (EU accession countries) FY11 52 Gov KG/PS ROSC - Financial Sector Assessment Program FY11 77 Gov KG/PD Strategy for Human Capital Development FY12 130 Gov KG/PS Use of Country Systems for Procurement in Poland FY12 20 Gov KG/PS Financial Reporting TA Program 2010-2015 FY16 Planned Municipal Finance FY12 tbd Gov Subnational Transport 1 FY12 25 Gov Monitoring & Evaluation TA (FBS) FY12 tbd Gov Low emissions CEM follow-up TA FY12 tbd Gov Roads/Railways Reform TA (FBS) FY12 tbd Gov Administrative Reform TA (FBS) FY12 tbd Gov Subnational RDS/PeR (FBS) FY12 tbd Gov ____________ a. Government, donor, Bank, public dissemination. b. Knowledge generation, public debate, problem-solving. 33 Annex 10: Poland Social Indicators CAS B5 Latest single year Same region/income group Europe & Upper- Central middle- 1980-85 1990-95 2002-08 Asia income POPULATION Total population, mid-year (millions) 37.2 38.6 38.1 443.3 949.3 Growth rate (% annual average for period) 0.9 0.2 0.0 0.1 0.8 Urban population (% of population) 59.9 61.5 61.3 63.7 74.8 Total fertility rate (births per woman) 2.3 1.6 1.4 1.8 2.0 POVERTY (% of population) National headcount index .. 23.8 .. .. .. Urban headcount index .. .. .. .. .. Rural headcount index .. .. .. .. .. INCOME GNI per capita (US$) .. 2,970 11,730 7,350 7,852 Consumer price index (2000=100) 0 48 108 133 121 Food price index (2000=100) 0 62 103 .. .. INCOME/CONSUMPTION DIST RIBUTION Gini index 25.2 32.4 34.9 .. .. Lowest quintile (% of income or consumption) 9.8 6.5 7.3 .. .. Highest quintile (% of income or consumption) 35.0 38.9 42.4 .. .. SOCIAL INDICATORS Public expenditure Health (% of GDP) .. .. 4.6 3.7 3.5 Education (% of GDP) 4.8 4.4 5.7 4.5 4.6 Net primary school enrollment rate (% of age group) Total .. .. 96 92 94 Male .. .. 95 93 94 Female .. 96 96 92 93 Access to an improved water source (% of population) Total .. .. .. 95 94 Urban .. 100 100 99 98 Rural .. .. .. 88 82 Immunization rate (% of children ages 12-23 months) Measles 92 96 98 96 93 DPT 94 96 99 96 92 Child malnutrition (% under 5 years) .. .. .. .. 4 Life expectancy at birth (years) Total 71 72 76 70 71 Male 67 68 71 66 68 Female 75 76 80 75 75 Mortality Infant (per 1,000 live births) 18 12 6 19 19 Under 5 (per 1,000) 20 14 7 22 23 Adult (15-59) Male (per 1,000 population) 253 250 209 305 210 Female (per 1,000 population) 105 94 80 126 127 Maternal (modeled, per 100,000 live births) .. .. 8 45 110 Births attended by skilled health staff (%) .. .. 100 97 95 Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey. World Development Indicators database, World Bank - 23 April 2010. 34 Annex 11: Key Economic Indicators CAS B6 Actual Estimate Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 National accounts (as % of GDP) Gross domestic product a 100 100 100 100 100 100 100 100 100 Agriculture 5 4 4 4 4 4 4 3 3 Industry 31 31 32 32 32 32 30 30 30 Services 65 65 64 65 65 65 67 67 67 Total Consumption 81 81 78 80 80 80 81 79 78 Gross domestic fixed investment 18 20 22 22 21 18 19 20 20 Government investment 4 5 5 5 6 6 7 6 5 Private investment 14 15 17 17 15 13 13 14 15 Exports (GNFS)b 37 40 41 40 40 42 41 41 42 Imports (GNFS) 38 42 44 44 40 43 42 43 43 Gross domestic savings 18 18 19 19 18 18 20 21 22 Gross national savings c 18 17 18 18 17 18 19 20 21 Memorandum items Gross domestic product 303976 341670 425321 529401 431184 468476 531981 580227 630587 (US$ million at current prices) GNI per capita (US$, Atlas method) 7280 8340 9800 11870 12190 12420 13470 14920 16440 Real annual growth rates Gross domestic product at market prices 3.6 6.2 6.8 5.1 1.7 3.8 4.0 4.0 3.7 Real annual per capita growth rates Gross domestic product at market prices 3.7 6.3 6.8 5.1 1.6 3.8 4.1 4.2 4.0 Total consumption 2.8 5.3 4.7 6.1 2.0 3.3 3.5 3.7 2.4 Private consumption 2.1 5.1 5.0 5.7 2.0 3.2 3.9 4.0 4.4 Balance of Payments (US$ millions) Exports (GNFS)b 112653 138060 174251 213976 171071 194747 215974 238652 262517 Merchandise FOB 96395 117269 144787 176458 141309 161779 190456 215632 244399 Imports (GNFS)b 114681 144330 186550 234942 170631 199229 223336 247009 270228 Merchandise FOB 99161 124219 161699 202329 145616 170203 201978 228860 257074 Resource balance -2028 -6270 -12299 -20966 440 -4482 -7361 -8358 -7711 Net current transfers 8183 6492 8480 8068 6627 6195 8811 8731 8970 Current account balance -3716 -9225 -20094 -25533 -9055 -15385 -18096 -20968 -21580 Net foreign direct investment 6951 10821 18078 10299 8583 4983 10167 8599 8450 Long-term loans (net) 4059 -367 4627 3520 4264 4892 3794 3348 3153 Official -7514 -1976 -2533 -9019 1981 2858 2027 2124 1949 Private 11573 1609 7160 12539 2283 2034 1767 1224 1204 Other capital (net, incl. errors & ommissions) 841 1443 10214 8011 10986 21237 26231 25557 22652 Change in reserves d -8135 -2672 -12825 3703 -14778 -15727 -22096 -16536 -12675 Memorandum items Resource balance (% of GDP) -0.7 -1.8 -2.9 -4.0 0.1 -1.0 -1.4 -1.4 -1.2 35 Actual Estimate Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 Public finance (as % of GDP at market prices)e Current revenues 38.8 39.7 39.8 39.1 36.8 36.8 39.3 39.9 38.9 Current expenditures 39.0 39.0 37.3 37.8 38.2 40.2 39.1 37.9 37.3 Current account surplus (+) or deficit (-) -0.2 0.7 2.5 1.3 -1.5 -3.4 0.2 2.0 1.6 Capital expenditure 4.4 4.8 4.8 5.5 6.3 5.6 6.6 5.8 4.9 Monetary indicators M2/GDP 43.4 46.7 47.7 52.2 53.6 54.8 .. .. .. Growth of M2 (%) 13.1 16.0 13.4 18.6 8.1 8.3 .. .. .. Private sector credit growth / 105.3 105.9 108.0 102.8 72.5 84.6 .. .. .. total credit growth (%) Price indices( YR02 =100) Merchandise export price index .. .. .. .. .. .. .. .. .. Merchandise import price index .. .. .. .. .. .. .. .. .. Merchandise terms of trade index .. .. .. .. .. .. .. .. .. Real exchange rate (US$/LCU)f 136.3 139.4 144.7 159.3 135.0 143.5 .. .. .. Consumer price index (% change) 2.1 1.0 2.5 4.2 3.5 2.6 3.5 2.8 2.5 GDP deflator (% change) 2.6 1.5 4.0 3.1 3.6 1.3 3.3 2.6 2.5 a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. 36 Annex 12: Key Exposure Indicators CAS B7 Actual Estimated Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total debt outstanding and 132927 169636 234052 245496 281094 312214 359088 388752 414464 disbursed (TDO) (US$m)a Net disbursements (US$m)a 2937 36709 64416 11444 35598 31120 46874 29665 25712 Total debt service (TDS) 37420 41772 60936 75786 82299 98838 93792 97387 102698 (US$m)a Debt and debt service indicators (%) TDO/XGSb 118.0 122.9 134.3 114.7 164.3 160.3 166.3 162.9 157.9 TDO/GDP 43.7 49.6 55.0 46.4 65.2 66.6 67.5 67.0 65.7 TDS/XGS 33.2 30.3 35.0 35.4 48.1 50.8 43.4 40.8 39.1 Concessional/TDO ... ... ... ... ... ... ... ... ... IBRD exposure indicators (%) IBRD DS/public DS 2.2 3.8 5.8 3.5 3.4 2.7 5.3 2.3 1.5 Preferred creditor DS/public DS (%)c ... ... ... ... ... ... ... ... ... IBRD DS/XGS 0.2 0.2 0.2 0.1 0.1 0.1 0.2 0.1 0.1 IBRD TDO (US$m)d 1796 1961 1870 1776 4493 5417 6247 6807 7175 Of which present value of guarantees (US$m) ... ... ... ... ... ... ... ... ... Share of IBRD portfolio (%) ... ... ... ... ... ... ... ... ... d IDA TDO (US$m) .. .. .. .. .. .. .. .. .. IFC (US$m) Loans ... ... ... ... ... ... ... ... ... Equity and quasi-equity /c ... ... ... ... ... ... ... ... ... MIGA MIGA guarantees (US$m) ... ... ... ... ... ... ... ... ... a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. 37 Annex 13: IFC Committed and Disbursed Outstanding Investment Portfolio CAS B8 (IFC) As of 2/28/2011 (In USD Millions) Committed Disbursed Outstanding **Quasi Partici **Quasi Partici FY Approval Company Loan Equity Equity *GT/RM pant Loan Equity Equity *GT/RM pant 1997 Cpf 0 0.24 0 0 0 0 0.14 0 0 0 0 Fm bank 0 5.14 14.66 0 0 0 3.24 5.23 0 0 2009 Fundusz 1.08 0 0 0 0 1.08 0 0 0 0 0 Schwarz group 22.48 0 0 0 0 22.48 0 0 0 0 Total Portfolio: 23.56 5.38 14.66 0 0 23.56 3.38 5.23 0 0 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types. 38 Annex 14: Portfolio (IBRD/Grants) CAS B8 Closed Projects 47 IBRD/IDA * Total Disbursed (Active) 287.44 of which has been repaid 0.00 Total Disbursed (Closed) 4,985.68 of which has been repaid 2,605.42 Total Disbursed (Active + Closed) 5,273.13 of which has been repaid 2,605.42 Total Undisbursed (Active) 183.40 Total Undisbursed (Closed) 0.00 183.40 Total Undisbursed (Active + Closed) Active Projects Difference Between Last PSR Expected and Actual Supervision Rating Original Amount in US$ Millions Disbursements a/ Development Implementatio Frm Project ID Project Name Fiscal Year IBRD IDA GRANT Cancel. Undisb. Orig. Objectives n Progress Rev'd P070246 MU ENERGY EFFICIENCY (GEF) U 2005 11 2.444938 2.4449377 0.15 P086768 S ODRA RIVER BASIN FLOOD PROT MS 2007 184 168.4217 64.220907 P065270 POST-ACC RUR SPPRT S S 2006 88.8 9.756076 -1.037561 P096214 MS ROAD MAINTENANCE & REHAB 3 MS 2006 180.2 5.224612 -10.69391 Overall Result 453 11 185.8473 54.934374 0.15 39 IBRD 33467R PO L A N D SELECTED CITIES AND TOWNS PROVINCE (WOJEWÓDZTWO) CAPITALS NATIONAL CAPITAL POLAND RIVERS MAIN ROADS MAIN RAILROADS PROVINCE (WOJEWÓDZTWO) BOUNDARIES INTERNATIONAL BOUNDARIES 14°E 16°E 18°E 20°E 22°E 24°E B a l t ic Sea RUSSIAN To Gulf of Gusev FEDERATION Gdansk LITHUANIA Gdynia To Slupsk ´ Gdansk Vilnius To 54°N Stralsund Koszalin POMORSKIE Elblag Suwalki WA R M I N S K O - 54°N MAZURSKIE ZACHODNIOPOMORSKIE Wisla To Neubrandenburg Olsztyn Szczecin GERMANY K U J AW S K O - PODLASKIE BELA RUS To Berlin POMORSKIE , Lomza Pila Bydgoszcz Ostroleca Bialystok Notec Torun Od Gorzów Ciechanów ra Wielkopolski ew Warta ar N Wloclawek Bu g To To Baranavichy , Plock Berlin Poznan Wisla MAZOWIECKIE Konin WARSAW LUBUSKIE War ta Siedlce To Pinsk 52°N 52°N Zielona Góra WIELKOPOLSKIE Biala Skierniewice Podlaska To To Leszno Ny Berlin Kalisz Lódz Kovel' sa s O Sieradz dr LUBELSKIE a a DOLNOSLASKIE DOLN OSL ASKIE LÓDZKIE To Piotrków Radom Lublin To Dresden Trybunalski Kovel' Legnica Jelenia Wroclaw Chelm Góra Kielce ,, Walbrzych OPOLSKIE Czestochowa Zamosc Opole SWIETOKRZYSKIE To SLASKIE Tarnobrzeg S Prague a an tula Vis Katowice To Prague PODKARPACKIE 50°N Kraków 50°N Tarnów Rzeszów To , L'viv C Z E C H R EPU B LI C LIC MALOPOLSKIE Przemysl Bielsko- Krosno Biala Nowy Sacz To Brno 0 25 50 75 100 Kilometers To Rysy (2,499 m) To UK R UKR AI N E Zvolen Kosice 0 25 50 75 Miles This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information SLOVAK REPUBLI C SLO VA K REPUBLIC shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 18°E 20°E 22°E 24°E MARCH 2007