Poland has steadfastly pursued a policy of economic liberalisation since 1990 and today stands out as a success story among transition economies. Even so, much remains to be done, especially in bringing down the unemployment rate, which is still the highest in the EU despite recent improvement. The privatisation of small- and medium-sized state-owned companies and a liberal law on establishing new firms has encouraged the development of the private business sector, but legal and bureaucratic obstacles alongside persistent corruption are hampering its further development. Poland’s agricultural sector remains handicapped by surplus labour, inefficient small farms and lack of investment.
Restructuring and privatisation of ’sensitive sectors’, for example, coal, steel, railways and energy, were initiated but have since stalled. Reforms in health care, education, the pension system and state administration have resulted in larger-than-expected fiscal pressures. Further progress in public finance depends mainly on reducing losses in Polish state enterprises, restraining entitlements and overhauling the tax code to incorporate the growing grey economy and farmers, most of whom pay no tax.
The previous socialist-led government introduced a package of social and administrative spending cuts to reduce public spending by about USD 17 billion (Bn) by 2007, but full implementation of the plan was trumped by election year politics in 2005. The right-wing Law and Justice party won parliamentary elections in September 2005, and Lech Kaczynski won the presidential election the following month, having run on a state interventionist fiscal and monetary platform.
Poland joined the EU in May 2004, and surging exports to the EU contributed to Poland’s strong growth in 2004, though its competitiveness could be threatened by the zloty’s appreciation. GDP per capita roughly equals that of the three Baltic states. Poland benefited from nearly USD 23.2 billion in EU funds that were available during 2006. Farmers have already begun to reap the rewards of membership through booming exports, higher food prices and EU agricultural subsidies.
The country was one of the few in Europe to report a rise in GDP during the economic downturn. A sharp depreciation of the zloty was reported, but the effects of this have been kept to a minimum.