Economy of Poland

Economy - overview Poland today stands out as one of the most successful and open transition economies. The privatization of small and medium state-owned companies and a liberal law on establishing new firms marked the rapid development of a private sector now responsible for 70% of economic activity. In contrast to the vibrant expansion of private non-farm activity, the large agriculture component remains handicapped by structural problems, surplus labor, inefficient small farms, and lack of investment. The government's determination to enter the European Union as soon as possible affects most aspects of its economic policies. Improving Poland's worsening current account deficit and tightening monetary policy, now focused on inflation targeting, also are priorities. Warsaw continues to hold the budget deficit to around 2% of gross domestic product. Structural reforms advanced in pensions, health care, and public administration in 1999, but resulted in larger than anticipated fiscal pressures. Further progress on public finance depends mainly on privatization of Poland's remaining state sector. Restructuring and privatization of "sensitive sectors" (e.g., coal and steel) has begun, but work remains to be done. Growth in 2000 should be moderately above 1999.

The Polish economy grew rapidly in the mid-1990s, but growth has slowed considerably in recent years. The gross domestic product (GDP) grew 4.0% in 2000, but was expected to increase only by about 1.0% in both 2001 and 2002. Slowing growth has boosted unemployment, which stood at 17.4% at the end of 2001. Tight monetary policy and slow growth have helped temper inflation, which was down to 5.5% in 2001. Likewise, Poland's current account deficit, which grew rapidly in the late 1990s, fell to 4.0% of GDP in 2001. The budget deficit remains a source of concern: the slowing economy drove up the deficit to an estimated 5% of GDP in 2001.

Throughout the 1990s the United States and other Western countries supported the growth of a free enterprise economy by reducing Poland's foreign debt burden, providing economic aid, and lowering trade barriers. Poland graduated from USAID assistance in 2000. Poland is currently negotiating entry into the European Union with a target date of 2004.

Agriculture Agriculture employs 28.4% of the work force but contributes only 3.4% to the gross domestic product (GDP), reflecting relatively low productivity. Unlike the industrial sector, Poland's agricultural sector remained largely in private hands during the decades of communist rule. Most of the former state farms are now leased to farmer tenants. Lack of credit is hampering efforts to sell former state farmland. Currently, Poland's 2 million private farms occupy 90% of all farmland and account for roughly the same percentage of total agricultural production. These farms are small--8 hectares (ha) on average--and often fragmented. Farms with an area exceeding 15 ha accounted for only 9% of the total number of farms but cover 45% of total agricultural area. Over half of all farming households in Poland produce only for their own needs with little, if any, commercial sales.

Poland is a net exporter of confectionery, processed fruit and vegetables, meat, and dairy products. Processors often rely on imports to supplement domestic supplies of wheat, feed grains, vegetable oil, and protein meals, which are generally insufficient to meet domestic demand. However, Poland is the leading producer in Europe of potatoes and rye and is one of the world's largest producers of sugar beets. Poland also is a significant producer of rapeseed, grains, hogs, and cattle. Attempts to increase domestic feed grain production are hampered by the short growing season, poor soil, and the small size of farms.

Pressure to restructure the agriculture sector is intensifying as Poland prepares to accede to the European Union, which is unwilling to subsidize the vast number of subsistence farms that do not produce for the market. The changes in agriculture are likely to strain Poland's social fabric, tearing at the heart of the traditional, family-based small farm as the younger generation drifts toward the cities.

Industry Before World War II, Poland's industrial base was concentrated in the coal, textile, chemical, machinery, iron, and steel sectors. Today it extends to fertilizers, petrochemicals, machine tools, electrical machinery, electronics, and shipbuilding.

Poland's industrial base suffered greatly during World War II, and many resources were directed toward reconstruction. The communist economic system imposed in the late 1940s created large and unwieldy economic structures operated under a tight central command. In part because of this systemic rigidity, the economy performed poorly even in comparison with other economies in central Europe.

In 1990, the Mazowiecki government began a comprehensive reform program to replace the centralized command economy with a market-oriented system. While the results overall have been impressive, many large state-owned industrial enterprises, particularly the railroad and the mining, steel, and defense sectors, have remained resistant to the change and downsizing required to survive in an open market economy.

Economic Reform Program The economic reforms introduced in 1990 removed price controls, eliminated most subsidies to industry, opened markets to international competition, and imposed strict budgetary and monetary discipline. Poland was the first former centrally planned economy in central Europe to end its recession and return to growth in the early 1990s. Since 1992, the Polish economy has enjoyed an accelerated recovery, although growth has recently slowed. The private sector now accounts for over two-thirds of GDP.

As a result of Poland's growth and investment-friendly climate, the country has received over $50 billion in direct foreign investment since 1990. However, the government continues to play a strong role in the economy, as seen in excessive red tape and the high level of politicization in many business decisions. Investors complain that state regulation is not transparent or predictable; the economy suffers from a lack of competition in many sectors, notably telecommunications. In early 2002, the government announced a new set of economic reforms, designed in many ways to complete the process launched in 1990. The package acknowledges the need to improve Poland's investment climate, particularly the conditions for small and medium-sized enterprises, and better prepare the economy to compete as an EU member. The government also aims to improve Poland's public finances to prepare for eventual adoption of the euro.

Foreign Trade With the collapse of the ruble-based COMECON[?] trading bloc in 1990, Poland scrambled to reorient its trade. As early as 1996, 70% of its trade was with EU members, and neighboring Germany today is Poland's dominant trading partner. While membership in the EU is Poland's primary goal, it has fostered regional integration and trade through the Central European Free Trade Agreement[?] (CEFTA), which includes Hungary, the Czech Republic and the Slovak Republic, and Slovenia.

Most of Poland's imports are capital goods needed for industrial retooling and for manufacturing inputs, rather than imports for consumption. Therefore, a deficit is expected and should even be regarded as positive at this point. Poland, a member of the World Trade Organization, has been steadily lowering tariffs in line with its WTO and EU commitments. Most products from EU countries now enter Poland duty-free; while Poland will apply the EU's common external tariff to goods from other countries (including the U.S.) upon EU entry, it continues to maintain higher tariffs in advance of accession. The Polish government has agreed to lower tariffs on selected U.S. products to address this differential. Most Polish exports to the U.S. receive tariff benefits under the Generalized System of Preferences (GSP) program.

Opportunities for trade and investment continue to exist across virtually all sectors. The American Chamber of Commerce in Poland, founded in 1991 with seven members, now has more than 300 members. Strong economic growth potential, a large domestic market, prospective EU membership, and a high level of political stability are the top reasons U.S. and other foreign companies do business in Poland.

GDP: purchasing power parity - $276.5 billion (1999 est.)

GDP - real growth rate: 3.8% (1999 est.)

GDP - per capita: purchasing power parity - $7,200 (1999 est.)

GDP - composition by sector:
agriculture: 5%
industry: 35%
services: 60% (1998)

Population below poverty line: 23.8% (1993 est.)

Household income or consumption by percentage share:
lowest 10%: 4%
highest 10%: 22.1% (1992)

Inflation rate (consumer prices): 8.4% (1999 est.)

Labor force: 15.3 million (1998 est.)

Labor force - by occupation: industry 25%, agriculture 25%, services 50% (1999 est.)

Unemployment rate: 11% (1999 est.)

Budget:
revenues: $31.6 billion
expenditures: $34.8 billion, including capital expenditures of $NA (1999 est.)

Industries: machine building, iron and steel, coal mining, chemicals, shipbuilding, food processing, glass, beverages, textiles

Industrial production growth rate: 4.5% (1999 est.)

Electricity - production: 134.879 billion kWh (1998)

Electricity - production by source:
fossil fuel: 96.47%
hydro: 3.18%
nuclear: 0%
other: 0.35% (1998)

Electricity - consumption: 121.938 billion kWh (1998)

Electricity - exports: 8.1 billion kWh (1998)

Electricity - imports: 4.6 billion kWh (1998)

Agriculture - products: potatoes, fruits, vegetables, wheat; poultry, eggs, pork, beef, milk, cheese

Exports: $27.8 billion (f.o.b., 1999)

Exports - commodities: manufactured goods and chemicals 57%, machinery and equipment 21%, food and live animals 12%, mineral fuels 7% (1997)

Exports - partners: Germany 36%, Italy 5.8%, Russia 5.6%, Netherlands 4.7%, France 4.6%, Ukraine 3.8%, UK 3.8 (1998)

Imports: $40.8 billion (f.o.b., 1999)

Imports - commodities: manufactured goods and chemicals 43%, machinery and equipment 36%, mineral fuels 9%, food and live animals 8% (1997)

Imports - partners: Germany 25.8%, Italy 9.4%, France 6.5%, Russia 5.1%, UK 4.9%, US 3.8%, Netherlands 3.8% (1998)

Debt - external: $44 billion (1998)

Economic aid - recipient: $4.312 billion (1995)

Currency: 1 zloty (Zl) = 100 groszy

Exchange rates: zlotych (Zl) per US$1 - 4.1696 (December 1999), 3.9671 (1999), 3.4754 (1998), 3.2793 (1997), 2.6961 (1996), 2.4250 (1995)

Fiscal year: calendar year

See also : Poland