Poland WT/TPR/S/71
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I. ECONOMIC ENVIRONMENT
(1) BACKGROUND
1. Poland was among the first countries in Central and Eastern Europe to embark on radical
economic reform.  The reform plan, launched in January 1990, was aimed at stabilizing prices, wages,
and the exchange rate.  The programme was based on sharp cuts in public spending, devaluation of
the currency, wage control and widespread liberalization of the economy.  Reforms, continued at aslower pace from the mid-1990s, initially generate d a deep recession, followed by a gradual and
accelerating recovery, led in the beginning by domestic consumption.  The private sector has
expanded significantly and is currently the engine for economic growth.  It accounted for 59% of
GDP in 1997, compared with 18% in 1989, and currently supplies some three quarters of
manufacturing output and value added.  Real GDP a nnual growth averaged around 5% between 1992
and 1999.  Since 1994, growth has been firmly export- and investment-led, both increasing more
rapidly than GDP.  By 1995, the Polish economy had recovered its real GDP levels existing prior to
the transformation, and currently exceeds these levels  by some 25%.  The informal (grey) part of the
economy, consisting mainly of small private businesses, is estimated to have grown rapidly during the
1990s.  According to the authorities, it accounte d for between 10% and 20% of GDP in the mid-
1990s, providing employment for about 2.4 million people.
2. The transformation from a centrally planned to a market economy has generated substantial
changes in the composition of output.  Led by strong  growth in trade, the services sector has steadily
expanded (Table I.1).  Between 1993 and 1998, the share of services in GDP rose from 64% to 74%,
while that of agriculture (including hunting and forestry) and manufacturing fell from 7% and 25%,
respectively, to 4% and 19%.  Nevertheless, Poland's rapid expansion during the 1990s has been
driven mainly by the manufacturing sector, which contributed to two thirds of the increase in valueadded.
1  Moreover, despite the modest and declining contribution of agriculture to GDP, farming still
employs one quarter of the labour force.  The services sector provides most (almost half) of all job
opportunities.  The share of merchandise trade (exports and imports) in GDP also rose sharply during
the 1990s – up from 38% in 1994 to 49% in 1997 – and remains substantially above earlier levels,
despite falling to 47% and 44% in 1998 and 1999, respectively.
3. Poland's transition to a market economy has proceeded at a remarkable pace.  Wide-ranging
macroeconomic and structural reforms continue to  be implemented, including trade liberalization;
privatization of state-owned enterprises; price deregulation; opening of financial and other important
service sectors; and currency and exchange rate li beralization.  Regulations facilitating the entry of
both foreign and domestic firms and creating a framework for competitive markets based on privateinvestment have also been introduced.  Fundamental democratic reforms and changes to the political
system accompanied these policy changes.
2
4. Poland's impressive economic performance has translated into social progress.  Most social
indicators, such as life expectancy and child mortality, have improved substantially.  Unemployment,
which officially did not exist in the statistics prior to 1990, surged during the recession in 1990-91,and peaked at 16% in 1993.  It fell continuously, in tandem with the expanding economy, to 10% in
1997, about the EU average, but rose to around 13% at end-1999.  The number of poor has gone
down.  In 1999, GDP per head averaged about US$4,000.
                                                          
1 OECD (2000).
2 The success of Poland's economic transition could be illustrated by its membership of the OECD
since 1996 and its acceptance by the EU in 1999 as a "functioning market economy".WT/TPR/S/71 Trade Policy Review
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Table I.1
Main economic and social indicators
Area 312,685 km2Urban share of population 62%
Population (1998) 38.7 million Nominal GDP at current prices (1999, Zl billion) 609.0
Per capita income (1998 current US$) 3,982
Annual population growth (1998) 1.8% Sectoral share of GDP (per cent, 1998)
- Agriculture, hunting, forestry & fishing 4.2
- Mining 2.5
- Manufacturing 19
- Services 74.3
Life expectancy at birth (1998)
-m a l e s
- females68.9 years
77.3 yearsSectoral share of formal employment (per cent, 1998):
- Agriculture, hunting, forestry & fishing
- Mining
- Manufacturing-S e r v i c e s25.8
3.2
28.842.2
Crude birth rate per '000 (1996) 10.2 Enrolment ratio in education (1997)
- Primary 99.7
- Secondary 87.1
Infant mortality rate per '000 (1998) 9.5
Source : Information provided by the Government of Poland.
5. The reform agenda has been increasingly driven by Poland's goal of accession to the
European Union.3  This objective is having a profound impact on its economic and trade-related
policies, which are being harmonized to those of the EU.  New institutional arrangements and
enactment of laws and regulations are required to achieve this objective.  The drive towards EU
membership is providing a renewed opportunity for Poland to further implement necessary reforms,
such as in taxation, investment, trade, agricultural, and industrial policies.
(2) RECENT ECONOMIC PERFORMANCE
6. The Polish economy is performing well, despite reduced growth from mid-1998 to mid-1999
as domestic and external demand for Polish goods weakened, due primarily to the Russian financial
crisis and the economic slowdown in the EU, especi ally Germany.  Real gr owth slowed to 4.8% in
1998 and to 4.1% in 1999 (Table I.2).  The contagion effects from the Russian crisis were minimizedthrough easing monetary policy, and the economy rebounded quickly with growth again accelerating
from mid-1999.  Future growth prospects appear favourable (section (5)). Poland's integration into the
world economy in general, and the EU in particular, has been an integral component of the transition
process.  Poland's robust growth performance reflects an increasingly active private sector and
substantial inward foreign investment.  Internationa l confidence is reflected in growing foreign direct
and portfolio investments, which totalled close to US$7 billion in 1998 (equivalent to 4.3% of GDP).
In 1998, foreign direct investment in Poland accounted for 40% of all inflows to Central and Eastern
Europe and the Baltic States.
4
                                                          
3 Ministry of the Economy (1999a).  If Poland meets this plan and is ready by 2003, its membership
will still need to be ratified by EU national parliaments.  The earliest possible date for Poland's accession to theEU is therefore 1 January 2004 (Bank Handlowy, 1999).
4 EBRD (1998).Poland WT/TPR/S/71
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Table I.2
Economic performance, 1995-99
1995 1996 1997 1998 1999a
National accounts (constant prices) (Percentage change)
Real GDP, market prices 7.0 6.0 6.8 4.8 4.1
Private consumption 3.6 8.7 7.1 .. ..
Collective consumption 2.9 3.4 .. 4.2 3.5
Gross fixed capital formation 16.9 20.6 20.6 14.1 10.6
Exports, goods and services 23.6 12.5 11.0 1.3 0.5
Imports, goods and services 24.3 28.0 21.4 7.8 6.0
Prices and interest rates (Per cent)
Consumer price inflation (period average) 27.8 19.9 15.9 11.8 7.3
Bank lending rate (annual average) 33.5 26.1 25.0 24.5 17.5
Real effective exchange rateb100.0 108.8 111.4 117.7 ..
Savings and investment (Per cent of GDP)
Gross investment 18.7 20.9 23.6 25.3 27.0
Private consumption 61.2 63.1 63.5 62.3 62.5
Public finance
State government balancec-2.6 -2.5 -1.3 -2.4 -2.2
Revenues from customs duties 2.0 1.8 1.6 1.1 0.8
Consolidated central government balanced-1.3 -2.3 -1.8 -2.7 ..
Total outstanding public debt 55.7 49.4 46.2 42.7 38.9
Monetary sector (end period) (Percentage change)
M1 34.7 13.1 18.2 13.0 ..
M2e34.9 31.1 29.1 25.2 15.3
External sector (Per cent of GDP, unless otherwise specified)
Trade balance -1.5 -6.1 -8.3 -9.2 -9.1
Current account balance -1.9 -6.3 -7.5 -8.5 -9.5
Including unrecorded trade 3.3 -1.0 -3.2 -4.5 -7.6
Capital and financial account balance 2.3 3.6 5.6 7.0 6.1
Foreign direct investment, net 1.0 2.0 2.2 3.9 4.5
Portfolio investment, net 1.0 0.2 1.5 0.4 1.6
Total external debt (end-period) 37.2 32.3 29.4 27.3 27.2
Short-term external debt (STED) 1.8 2.0 2.8 .. ..
Debt-service ratio, paidf12.2 7.8 5.8 6.9 7.0
Gross official reserves, US$ billiong15.0 18.0 20.7 27.4 27.3
Reserve cover (months of GS imports)g6.5 5.8 5.9 6.8 8.0
Merchandise trade (imports plus exports) 40.0 42.4 48.5 46.7 43.9
(Twelve-month growth rate, end period, per cent)
Merchandise export growthh35.0 6.7 11.5 10.6 -12.4
Merchandise import growthh38.9 31.9 18.2 13.8 -6.8
Memorandum item :
Nominal GDP (US$ billion) 119.1 134.6 135.6 158.4 154.1
.. Not available.
aP r e l i m i n a r y .b Increase equals zloty appreciation.
c Since 1998, income from privatization does not constitute current income to the state budget but is a source of financing the
budget deficit.
d Includes state budget, Social Insurance Fund, Pension Fund and Labour Fund.
e M2 = M1 + interest bearing local-currency deposits and other deposits + treasury bills.
f Debt service as a share of exports of goods and non-factor services in convertible currencies.g GS = goods and services.  Total reserves, including gold.h Current U.S. dollars.
Source : Data supplied by the Polish authorities;  Ce ntral Statistics Office (various issues), Quarterly Statistics , Warsaw;
Central Statistical Office (1998), Statistical Yearbook of the Republic of Poland , Warsaw;  and IMF (various
issues ), International Financial Statistics .WT/TPR/S/71 Trade Policy Review
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7. Unemployment has risen since 1997, from 10.3% to 13% at end-1999, due to subdued
economic growth and labour market rigidities.5  In addition, although annual inflation fell sharply
from 12% in 1998 to 7% in 1999, it remains higher than in most of Poland's trading partners.
Moreover, inflationary pressures have intensified since mid-1999.  Poland continues to have
substantial and widening current account deficits, 8.5% of GDP in 1998 and 9.5% in 1999.  The
adverse effects of the widening current account deficit have been mitigated by financing from privateinward FDI and not from public debt, and by substantial unrecorded trade which, if included, would
reduce the deficit by about half.  Continued prudent macro-stabilization policies are nevertheless
needed to sterilize the potentially inflationary ef fects of capital inflows on the Polish economy and the
real exchange rate.
6
(i) Fiscal policies
8. Poland's fiscal position had steadily improved since 1992, reaching a deficit of 1.3% of GDP
in 1997 (Table I.2 and Chart I.1).  However, higher fiscal deficits occurred in 1998 and 1999.
Inclusion of the Government's Zl 4 billion loan to the Social Security Administration (ZUS), to offset
pension losses, raises the Government's 1999 budget deficit to around 4% of GDP, compared with a
consolidated deficit in 1998 of 3.4%.  This suggests that fiscal policy was more expansionary in 1999.The 2000 Budget, passed by Parliament in December 1999, proposes a deficit of around 2% of GDP.
However, the practice of putting more deficit items "below the line or outside" the budget to meet
deficit targets appears to be undermining the transparency of fiscal policy.
7  Budget deficits are
largely met from privatization receipts.
9. Transfers to social security funds represent the largest item of public expenditure.  In the 2000
Budget these are projected to account for 25% of government expenditure.  The Budget also provides
for export credit subsidies to be increased by 100%.  Since the beginning of Poland's economictransformation, the pension system has worsened financially and had become the main factor
contributing to the budget deficit.
10. On the revenue side, the Government has in recent years reduced the overall tax pressure,
while, at the same time, moving towards greater reliance on indirect taxes.  In 1999, the authorities
introduced a major tax reform package.
8  The company tax rate is to be reduced from 34% in 1999 to
22% in 2004, and several other reforms are being introduced to broaden the tax base, such as
eliminating investment incentives and closing loopho les.  Indirect taxes, such as VAT, and excise
duties are also being amended to harmonize them with EU requirements, including increases on some
commodities, and bringing agriculture into the VAT base.
11. The Government's current fiscal strategies were adopted by the Council of Ministers in
June 1999 (the "Strategy of Public Finance and Economic Development 2000-2010").  This highlights
the importance of accelerating the privatization of state-owned enterprises and the need to control
public finances and the budget deficit.  Public finances are to be based on gradually reducing public
spending as a share of GDP, from 45% to 34-36% over the ten-year period; increasing domestic
                                                          
5 Labour market rigidities include wage indexation and minimum wages legislation.
6 For example, the National Bank of Poland has recently established an account to receive foreign
currency proceeds of privatization rather than ch annelling the funds through the exchange market.
7 Polish State Budget for 2000 – Synthesis, Foreign Policy Department, Ministry of Finance,
28 December 1999.  It has been estimated that extra-budgetary funds amounted to 12% of total governmentspending in 1998 (OECD, 2000).
8 Proposed cuts in personal income tax rates were not implemented.Poland WT/TPR/S/71
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savings from around 20% of GDP to 27-28% and foreign savings to 6-7%; and raising the
contribution of the private sector to 90% of GDP by 2005.
-10.0-8.0-6.0-4.0-2.00.0
1992 93 94 95 96 97 1998State government balance
Source :  Central Statistical Office (various issues ), Statistical Yearbook of the Republic of Poland, Warsaw.Chart I.1
Fiscal position, 1992-98
Per cent of GDP
(ii) Exchange rate and monetary policies
12. The National Bank of Poland is responsible, under the Constitution, for safeguarding the
value of the currency.  In February 1998, an independent ten-member Monetary Policy Council
(RPP), chaired by the Bank's president, was established to strengthen the Bank's independence in
setting the required policies. 9  The Bank's main legislative objective is to "maintain price stability
while also acting in support of government economic policies, insofar as the latter does not constrain
pursuit of that objective".  The Council sets annual monetary policy guidelines for parliamentary
approval and makes decisions on key instruments including interest rates, mandatory reserves, open-
market operations, and obligations resulting from loans and exchange rate policy.10
13. During the review period, the zloty has appreciated in real terms, causing concerns about
potential loss of export competitiveness (Table I.2).11  Real exchange rate appreciation has been a
                                                          
9 In 1998, the National Bank of Poland was granted de jure  independence within the terms of the 1997
Constitution. Other members of the RPP are appointed in  equal proportions by the President and both houses of
Parliament.
10 Warsaw School of Economics (1999).
11 A crawling-peg system replaced a fixed exchange rate system in October 1991.  In 1995 the system's
flexibility was enhanced through the introduction of an exchange rate band of plus and minus 7% around thecrawling mid-value. Several further adjustments have been made to the crawling-peg mechanism.  The currencyhas traded since March 1999 within a band of plus and minus 15% on either side of the parity (its central fixingWT/TPR/S/71 Trade Policy Review
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common experience in most transition economies foll owing structural reforms, privatization, and
liberalization of foreign investment.  Moreover, in an effort to slow the growth in domestic demand
for credits, high real interest rates were maintained, thereby attracting substantial foreign investment.
These inflows have caused the domestic currency to appreciate in real terms. Exporters, and domestic
producers competing with imports, have been penalized by these movements, since nominal
depreciations of the zloty have been insufficient to offset Poland's much higher inflation ratecompared with its trading partners.  This has undermined the international competitiveness of the
Polish economy.  However, during 1999, the real effective exchange rate stabilized, partly due to
substantial nominal depreciation of the zloty and reduced inflation in Poland.
12
14. Disciplined monetary policy has been geared to containing inflation.  Targeting money supply
(M2 including foreign exchange deposits) was until recently the intermediate objective of monetarypolicy.  The target set for M2 was exceeded by a wide margin between 1994-97, with real M2
increasing, on average, at double-digit annual rates.  The expansion of monetary aggregates was
largely driven by acceleration of credit to enterprises and households.
13
15. In 1998, the Bank abandoned monetary targeting and adopted a new monetary policy
framework of direct inflation targeting.14  The sole objective of monetary policy is now to achieve an
annual inflation rate of below 4% by 2003.  The Polish authorities intend to apply for EMU
membership in 2006.  Poland intends to join the new exchange rate mechanism (ERM2) in 2004 and
would have to peg the zloty against the euro within the prevailing fluctuation margins (currently + or
– 15%).15  The Government intends to move to a floating exchange rate in 2000 to let the zloty find an
equilibrium level before entering ERM2.  Recent changes in the exchange rate system to move to a
wide fluctuating band with a slowly crawling central parity pegged to a currency basket have added
greater flexibility to the exchange rate mechanism.
(iii) Inflation and interest rate developments
16. Inflation has fallen steadily, although it remains relatively high.  Supported by disciplined
fiscal policies, average inflation has fallen, though more slowly than expected, from 43% in 1992 to
almost 12% in 1998 and 7% in 1999.  This is still well above the Bank's adopted target of not more
than 4% by 2003.  Recent falls in inflation have been helped substantially by international
developments – commodity prices have eased (except for oil) and the collapse in exports of food
products to Russia and Ukraine has led to intense price competition in the domestic market.16
17. Although Poland made significant progress in cooling its overheated economy in 1997 and
the beginning of 1998, this was achieved at the expense of exceptionally high real interest rates.  The
                                                                                                                                                                                    
point), and the rate of crawl of the parity rate reduced progressively by 1% per month from early 1997 to,
currently, 0.3% per month since March 1999.  The parity rate is set against a U.S. dollar/euro basket (40%U.S. dollar and 60% euro).  The increased flexibility is aimed at maintaining the exchange rate as a nominalanchor for price inflation and as a mechanism to pr event excessive appreciation that could erode external
competitiveness.
12  OECD (2000).  During the last quarter of 1999, the zloty declined in value to reach its lowest level
in two years.
13 OECD (1998).
14 National Bank of Poland (1998).
15 A period of two years in the ERM2 without devaluing against another currency would be needed
before joining the third stage of the EMU.  According to the OECD, such a strategy is not without risk as it
would entail a loss of autonomy in monetary and exchange rate policy at a time when more independence mightbe necessary to mitigate against unexpected shocks (OECD, 2000).
16 EIU (1998).Poland WT/TPR/S/71
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National Bank of Poland, which influences short-term rates mainly by issuing money-market bills on
the interbank deposit market, raised the intervention rate several times, to a maximum of 24% by end-
February 1998.  In response to a slowdown in GDP  growth and a weakening of wage and credit
growth following the Russian financial crisis, monetary policy was eased and the intervention rate
lowered progressively from 24% to 13% in January 1999.  It was again increased to 14% in
September 1999 in response to growing inflationary pressures.
(iv) Balance of payments
(a) Current account developments
18. The trade deficit has widened since 1994 as growth in import demand has outpaced export
growth.  The trade deficit amounted to 8.3% of GDP in 1997 compared with 0.9% in 1994 (excluding
unrecorded trade).17   In 1998 it widened further to 9.2% of GDP and remained at about that level in
1999.  The impact of the Russian financial crisis was greater than anticipated; exports to Russia fell
substantially more than imports.  Moreover, overall import growth has exceeded export growth
throughout the 1990s.  In 1999, exports fell by more than 12%, much more than the 7% decline in
imports.  Consequently, Poland's current account deficit has continued to widen, accentuated by a rise
in the deficit on services.  The trade balance has, in recent years, been partly offset by the positivebalance on unclassified transactions (amounting to US$6 billion in 1998 and US$4 billion in 1999).
(b) Capital flows and foreign debt developments
19. The debt restructuring deals of the early 1990s have helped Poland's rapid growth.  A debt
forgiveness plan was agreed with official Paris Club creditors in 1991.  This was followed in 1994 by
a similar arrangement with the private London Club banks (the Brady debt reduction plan).  In each
case, about half of the debts were written off, with the reduced debts to be repaid to the Paris Club by
2014 and to the London Club by 2024.  As a result, external debt has continued to drop, from 37% ofGDP in 1995 to 27% in 1999.  The debt-service ratio (paid) has also fallen substantially, from 12% of
GDP in 1995 to 7% in 1998 and 1999, after bottoming at 6% in 1997.  Short-term external debt
accounts only for about one tenth of total external debt, equivalent to less than 20% of external
reserves.
20. Aided by these debt-rescheduling arrangements, Poland has regained access to international
private financing – international bonds, syndicated loans, foreign direct investment, and investment
from abroad in the form of purchases of domestic debt securities and equities – and no longer relies
on official flows in financing its current account deficits.  Favourable investment ratings from
international agencies have enabled Poland to obtain funds on increasingly attractive terms, including
lower interest margins and longer maturities.
18
21. A surge in fixed capital inflows has been evident since 1995.  Capital inflows have been
dominated by direct investment, and portfolio flow s into equity and treasury bills.  Foreign direct
                                                          
17 The official statistics on merchandise trade seriously underestimate the amount of trade due to illicit
trade and under-reporting of the value of imports.  It is estimated that some 25% of trade on the eastern borders,and 15-20% of trade on the border with the EU, is unrecorded.  The National Bank of Poland makes adjustmentfor cross-border trade in its external accounts, estimating its net contribution to be US$6.1 billion or 4.5% of
GDP in 1997, down from US$7.2 billion in 1996 (EU, 1998; and EIU, 1998).
18 In mid-1995 Poland received its first sovereign debt rating when Moody's awarded it a grade of
Baa 3.WT/TPR/S/71 Trade Policy Review
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investment has accelerated sharply in recent years.  FDI inflows roughly matched the current account
deficit in 1998.
22. Despite the trade and current account deficits, reserves have continued to increase strongly.
At the end of 1998 and 1999 reserves (including  gold) amounted to US$27 billion, equivalent to
around six to eight months of imports, comp ared with US$15 billion at the end of 1995.
(3) POLAND 'S ECONOMIC REFORMS
23. Almost all sectors have been touched by the Government's reform agenda during the period
under review (1992-2000).  Average tariffs have been reduced, albeit much faster for imports from
bilateral trading partners, such as the EU, than from MFN sources.  Apart from major on-going
structural reforms, a number of macroeconomic reforms have been implemented recently, mainly
directed at complying with EU requirements.
Public-finance-related reforms
24. A number of fiscal reforms have been implemented.  The Constitution has banned, since
October 1998, direct lending to the Government by the National Bank of Poland to finance deficits.
The Polish President also no longer has the power to veto the Budget.  Furthermore, a new Public
Finance Act was adopted by Parliament in Novemb er 1998.  It is aimed at improving public finance
transparency and preparing for EU accession.  The legislation establishes procedures to be taken if
total public debt, including state guarantees, exceeds 50% of GDP, and also sets a public debt ceiling
of 60% (coinciding with one Maastricht condition required for EMU membership).  The Government
is also required to prepare a public debt medium-term strategy.  This legislation should provide a
useful framework for fiscal consolidation.19
25. In recent years, Poland has embarked on impressive social reforms, including to pensions,
health, education and decentralization of public finances.  Early retirement, easy eligibility, andgenerous pay-out rates as well as the ageing population structure have given Poland a large and
growing public pension bill.  The pension payments have escalated, thereby requiring substantial
funding from the government budget.  In early 1999, Poland introduced a comprehensive reform of
the pension system, which now consists of three pillars: the existing under-funded pay-as-you-go
(PAYG) system; a new funded scheme; and voluntary individual retirement schemes.  The reformimplies considerable transitional costs, but over time should alleviate the pressure on the budget.
Moreover, the pension reform may improve Poland's relatively low private savings rate and boost
capital markets.
26. Poland has also decentralized public finances by reforming regional administration
arrangements in 1999 and establishing a smaller number of more powerful regions (Box I.1).
                                                          
19 OECD (2000).Poland WT/TPR/S/71
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Box I.1  The new system of local governments and fiscal devolution
In January 1999 a third tier of local government was created along with devolution of both public authority
and control of some public services over public finances from higher to lower levels of government.  Thesereforms enhance a citizen's ability to control and monitor public institutions, and the new system is alsolikely to better reflect local preferences.  By creating a middle level of government it could more efficientlyprovide public services that have spillovers extending beyond individual localities.  Another advantage with
the reform is that local governments are crucial to th e on-going social reforms because many social service
functions will be managed at the local level.  It is also significant for Poland's preparation for entry into theEU, which places great emphasis on regional self-government.  However, local governments, in principle,are allowed to incur debt.  To control the country's overall debt situation formal constraints on these
borrowings may be needed.
A Communist-era network of 49 centrally administer ed regions (voivodship) was replaced by 16 self-
governing authorities, subdivided into 308 new distri cts (poviat) and 2,489 community councils (gmina);
gminas have been in function since 1990.  This new structure recreates Poland's pre-1939 local governmentstructure.
Expenditure assignments :  The regions are responsible for regional development as well as region-wide
services including higher education, specialized medical services, ambulance services, culture, road
networks, and water management.  Districts are responsible for local services, including secondary
education and most hospitals.  The community councils  continue to run primary schools and health centers
and local infrastructure.  They also produce local deve lopment plans, including those for land use.  The
changes affect foreign and domestic investors, because the regions have been made responsible for regionaleconomic development.  Unlike the regions and the districts, which are responsible only for the tasks theyare assigned, community councils can tackle any local issue as long as they have the financial resources.
Revenue assignments:   The revenues of the local governments consist of
- own revenues, understood as property taxes, shared personal and corporate income taxes;- statutory incomes (fees and taxes), which may be utilized for any purpose;- general subsidies, which although calculated for specific purposes such as education and roads, may 
also be spent freely or carried over as surpluses from year to year;
- specific state budget grants, given for a specific purpose (unutilized funds have to be returned to 
the state budget); and
- revenues obtained from their own assets, mainly concerning the community councils, which are 
especially equipped with ground, housing and commercial properties.
Local governments have some authority to borrow mone y, which may raise concern about the future overall
public debt situation.  Under the old two-tier govern ment system, local governments faced a limit whereby
the sum of interest, principal, and payments for debt guarantees could not exceed 15% of total revenues,
including intergovernmental grants.  At the end of 1996, although no local government had yet reached its
limit, the outstanding amount of municipal debt had almost doubled, from Zl 447 million in 1995 to Zl 897million (but still only 0.25% of GDP).
Source : Chancellery of the Prime Minister of the Republic of Poland (1998), Effectiveness, Openness,
Subsidiarity: A New Poland for New Challenges , Warsaw, December; OECD (1996),
Transition at the Local Level: the Czech Repub lic, Hungary, Poland and the Slovak Republic ,
Paris; and Financial Times , 30 March 1999.WT/TPR/S/71 Trade Policy Review
Page 10
Currency reforms
27. Reforms have continued since 1990 when the zloty was made convertible internally, making
foreign currencies freely purchasable domestically fo r current international transactions.  The Foreign
Exchange Law of 1994 introduced full current account convertibility of the currency.20  In
October 1995 the Law was amended, enabling Polish exporters to open bank accounts in foreign
countries.  In 1996, the Government eliminated the requirement for Polish firms to convert theirforeign currency receipts into zlotys.
28. When Poland acceded to the OECD, in 1996, it made commitments to liberalize capital
movements, including eliminating all inconsistent restrictions by 1 January 2000.  Poland
implemented a new Foreign Exchange Law in January 1999 aimed at meeting these obligations.  The
zloty is now an externally convertible currency and off-shore accounts in zlotys are allowed.  Someexceptions were retained, such as on transactions in debt instruments with maturities of under one
year and derivatives.  From 2000, the only restrictions on capital movements, apart from FDI and
short-term capital flows, are on real estate purchases abroad and at home.
(4) T
RADE AND FOREIGN INVESTMENT PERFORMANCE
(i) Trade patterns
(a) Geographic pattern of merchandise trade
29. The geographic pattern of Poland's trade has altered significantly since the beginning of the
economic transformation process, with the EU replacing the former COMECON area as Poland's
main trading partner.  The EU is now Poland's main source of imports (66% of merchandise imports
in 1998) and its principal market for exports (68%) – partly as a result of their trade agreement
(Tables I.3 and I.4).  Germany is Poland's largest single trading partner, accounting for around 30% of
total merchandise trade in 1998.  However, Polish exports to Central and Eastern Europe and Russiahave rapidly expanded.  In 1997, for example, the Russian Federation ranked second in exports and
third in imports.  The Russian financial crisis in 1998, however, reduced its importance as an outlet
for Polish exports.  Trade with CEFTA member countries has also expanded slightly, aided by the
liberalization of bilateral trade.
(b) Commodity pattern of merchandise trade
30. The changes in the geographic pattern of trade have been accompanied by shifts in the
structure of products traded.  The share of manufactured products in Poland's exports has increased
during the review period, from 59% in 1992 to 77% in 1998, while primary products decreased from
40% to 23% (Table I.5).  Exports of machinery and transport equipment and other consumer goods
have grown significantly, while the export share of iron and steel and chemicals has declined.Poland's ability to attract foreign direct investment has enabled it to export cars and other products
from plants established with foreign capital and technology.
                                                          
20 In June 1995 Poland formally accepted the obligations of Article VIII, Sections 2, 3 and 4 of the
Articles of Agreement of the IMF.Poland WT/TPR/S/71
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Table I.3
Exports by destination, 1980-98
(US$ billion and per cent)
1980 1990 1991 1992 1993 1994 1995 1996 1997 1998
Total (US$ billion) 17.0 13.6 14.9 13.2 14.0 17.2 22.9 24.4 25.7 28.2
(Per cent of total)
America 4.7 4.7 4.2 5.0 4.7 6.0 4.4 3.8 3.9 4.0
United States 2.5 2.8 2.5 2.3 2.9 3.4 2.7 2.3 2.6 2.7
Canada 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Other America 1.9 1.4 1.3 2.4 1.5 2.2 1.4 1.1 0.9 1.0
Europe 85.2 85.4 88.5 85.4 85.7 84.0 89.8 90.0 90.8 92.0
EU15 34.4 54.8 64.1 65.6 69.5 68.3 70.1 66.6 64.3 68.4
Germany 15.5 25.1 29.3 31.4 36.4 35.6 38.4 34.5 33.0 36.3
Italy 2.9 2.9 4.1 5.5 5.3 4.9 4.9 5.5 5.9 5.9
Netherlands 1.0 3.1 5.2 6.0 5.9 5.8 5.6 4.8 4.7 4.8
France 2.9 3.2 3.8 3.6 4.2 3.9 3.6 4.4 4.4 4.7
United Kingdom 3.2 7.1 7.1 4.3 4.3 4.5 4.0 3.9 3.8 3.9
EFTA 3.0 5.7 5.5 2.7 1.9 1.6 1.6 2.2 1.5 1.7
East Europe 45.5 22.1 16.8 15.4 13.3 13.5 17.3 20.4 24.1 20.9
Former USSR 31.2 15.3 11.0 9.3 7.8 8.6 11.4 13.9 17.2 13.6
Russian Federation .. .. .. 5.5 4.6 5.3 5.6 6.8 8.4 5.7
Ukraine .. .. .. 1.4 1.3 1.5 3.2 4.0 4.7 3.9
Other Europe 2.2 2.8 2.1 1.7 1.0 0.6 0.8 0.9 0.9 1.0
Asia 5.2 6.3 4.4 6.7 6.6 5.7 4.4 4.8 3.8 2.7
Middle East 2.3 2.1 2.0 2.1 1.2 1.7 1.2 1.2 0.9 1.3
East Asia 2.2 3.4 1.9 4.0 5.0 3.6 2.6 3.2 2.5 1.2
South Asia 0.6 0.8 0.4 0.5 0.4 0.4 0.6 0.3 0.3 0.3
Africa 2.8 2.3 2.0 2.7 2.7 1.7 1.3 1.4 1.3 1.1
Other 2.1 1.4 0.9 0.2 0.2 2.6 0.1 0.1 0.2 0.3
.. Not available.
Source : UNSD Comtrade database (SITC Rev.1).
Table I.4
Imports by origin, 1980-98(US$ billion and per cent)
1980 1990 1991 1992 1993 1994 1995 1996 1997 1998
Total (US$ billion) 19.1 8.2 15.5 15.9 18.8 21.4 29.0 37.1 42.3 47.0
(Per cent of total)
America 9.2 2.7 3.2 5.0 6.7 5.3 5.8 6.8 6.6 5.7
United States 4.0 1.6 2.3 3.4 5.3 3.5 3.9 4.4 4.5 3.8
Canada 1.4 0.1 0.2 0.4 0.4 0.3 0.4 0.5 0.4 0.5
Other America 3.8 0.9 0.7 1.2 1.0 1.5 1.5 1.9 1.6 1.4
Europe 81.4 87.2 85.4 83.7 82.9 82.2 84.1 82.5 81.8 82.1
EU15 30.9 51.4 59.0 62.0 64.8 64.0 64.7 64.0 63.9 66.0
Germany 13.4 20.1 26.5 23.9 28.1 27.3 26.7 24.7 24.1 26.5
Italy 2.0 7.5 4.5 6.9 7.8 8.3 8.6 9.9 9.9 9.4
France 4.2 3.0 3.6 4.4 4.3 4.4 4.9 5.5 5.9 6.5
United Kingdom 3.5 5.7 4.0 6.6 5.8 5.1 5.2 5.9 5.5 4.9
Netherlands 1.1 2.6 4.9 4.8 4.7 4.5 4.5 3.8 3.6 3.8
Sweden 1.3 2.0 1.8 1.9 2.2 2.7 3.1 2.7 3.0 2.9
EFTA 2.3 7.9 5.5 4.2 3.6 3.4 3.1 2.5 2.5 2.2
East Europe 46.3 25.2 19.0 16.3 13.4 13.8 15.4 15.2 14.6 12.9
Former USSR 33.1 19.8 14.1 11.8 9.6 9.6 9.6 9.5 8.6 6.9
Russian Federation .. .. .. 8.5 6.7 6.7 6.8 6.8 6.4 5.0
Other Europe 1.9 2.7 1.9 1.3 1.0 1.0 0.8 0.8 0.9 1.0
Table I.4 (cont'd)WT/TPR/S/71 Trade Policy Review
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1980 1990 1991 1992 1993 1994 1995 1996 1997 1998
Asia 5.5 8.5 10.7 10.1 8.9 7.9 8.4 9.2 10.2 11.0
Middle East 2.6 3.1 4.0 3.1 1.9 1.0 0.8 0.3 0.4 0.4
East Asia 2.5 4.8 6.1 6.4 6.4 6.3 7.0 8.3 9.3 10.1
South Asia 0.5 0.6 0.6 0.5 0.6 0.5 0.5 0.5 0.5 0.5
Africa 1.9 0.5 0.4 1.2 1.4 1.4 1.6 1.3 1.2 1.1
Other 1.9 1.0 0.3 0.1 0.2 3.2 0.1 0.2 0.2 0.1
.. Not available.
Source : UNSD, Comtrade database (SITC Rev.1).
Table I.5
Exports by groups of products, 1980-98
(US$ billion and per cent)
Commodity 1980 1990 1991 1992 1993 1994 1995 1996 1997 1998
Total (US$ billion) 17.0 13.6 14.9 13.2 14.0 17.2 22.9 24.4 25.7 28.2
(Per cent of total)
Total primary products 29.4 35.8 39.6 40.0 32.1 31.8 28.5 25.7 27.0 22.6
Agriculture 8.9 15.8 20.0 18.1 14.3 14.8 13.2 13.1 14.5 12.6
Food 6.4 12.7 14.7 13.9 11.1 11.6 10.4 10.8 12.3 10.6
Mining 20.4 20.0 19.7 21.9 17.8 17.0 15.3 12.6 12.4 10.0
Ores and other minerals 2.4 2.6 2.9 4.0 2.2 1.4 1.3 1.1 1.0 0.7
Non-ferrous metals 4.8 6.7 6.1 7.3 6.7 6.6 6.0 4.8 4.9 3.9
Fuels 13.2 10.7 10.7 10.6 8.8 8.9 8.0 6.8 6.6 5.4
Coal, excluding briquettes 9.2 7.1 6.2 6.9 6.8 6.1 5.4 4.7 4.4 3.4
Manufactures 60.7 59.1 55.4 59.1 66.1 67.9 71.1 74.2 72.9 77.2
Iron and steel 3.7 6.9 7.3 7.6 7.2 7.1 6.2 5.5 5.7 4.5
Chemicals 5.2 9.1 9.2 8.7 6.7 6.8 7.8 7.7 7.8 6.7
Other semi-manufactures 3.9 7.3 9.5 10.4 10.9 12.1 13.6 13.8 13.9 14.6
Machinery and transport equipment 36.0 26.1 18.5 19.2 20.6 19.8 21.1 23.5 21.6 28.4
Power generating machines 1.5 2.0 1.7 0.7 0.5 0.4 0.7 0.7 0.5 0.5
Other non-electrical machinery 15.8 7.7 4.3 4.4 4.0 4.2 4.5 4.8 5.0 5.3
Office machines &
telecommunications equipment2.4 2.3 0.8 0.7 1.0 1.3 1.8 2.3 3.1 4.0
Other electrical machines 4.4 3.7 3.2 4.4 4.0 3.8 4.0 4.7 5.1 5.9
Automotive products 4.9 2.7 1.2 3.8 5.2 4.4 4.8 5.4 5.9 7.0
Passenger motor vehicle
excluding buses.. .. .. 2.0 3.9 3.0 2.9 3.2 3.0 3.6
Other transport equipment 7.1 4.2 3.9 4.9 5.9 5.8 5.3 5.6 2.0 5.6
Textiles 2.7 2.0 1.6 2.0 2.1 2.2 2.1 2.2 2.5 2.6
Clothing 3.8 2.7 3.4 5.0 11.3 10.8 10.1 9.8 8.7 8.6
Other consumer goods 5.3 4.9 5.9 6.2 7.3 9.1 10.1 11.7 12.7 11.9
Furniture 1.0 1.5 2.4 3.1 4.1 5.2 5.9 6.6 6.9 6.8
Other 0.1 5.1 5.0 0.9 0.2 0.3 0.4 0.1 0.1 0.2
.. Not available.
Source: UNSD, Comtrade database (SITC Rev.1).
31. Manufactured products also dominate Poland's imports, accounting for more than
three quarters of total merchandise imports in 1998.  Machinery and transport equipment andchemicals are the most important import items (Table I.6).  In 1998, imports of transport equipment,
including components and CKD kits, reflected an expanding local automotive sector, and again
recorded the largest increase.  Agricultural imports have continued to decline since 1992.Poland WT/TPR/S/71
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Table I.6
Imports by groups of products, 1980-98
(US$ billion and per cent)
Commodity 1980 1990 1991 1992 1993 1994 1995 1996 1997 1998
Total (US$ billion) 19.1 8.2 15.5 15.9 18.8 21.4 29.0 37.1 42.3 47.0
(Per cent of total)
Total primary products 43.0 37.2 37.1 34.2 28.8 26.9 25.2 24.7 22.2 18.6
Agriculture 19.1 10.8 15.7 14.2 13.5 13.5 12.8 12.8 10.7 9.7
Food 14.0 7.7 13.1 11.5 11.2 10.6 9.6 10.1 8.3 7.7
Agricultural raw material 5.1 3.2 2.7 2.6 2.3 2.9 3.2 2.6 2.4 2.0
Mining 23.8 26.4 21.4 20.0 15.3 13.4 12.4 11.9 11.5 8.9
Ores and other minerals 4.3 3.3 2.0 2.5 1.9 1.9 1.9 1.6 1.5 1.3
Non-ferrous metals 1.4 1.1 0.5 0.8 1.0 1.0 1.3 1.2 1.2 1.3
Fuels 18.1 21.9 18.9 16.8 12.4 10.5 9.2 9.2 8.7 6.3
Manufactures 51.0 62.8 62.6 64.7 69.6 73.1 74.4 75.0 77.6 80.4
Iron and steel 6.2 4.2 1.3 2.0 2.3 2.6 3.2 2.9 2.7 3.2
Chemicals 7.6 8.6 9.5 13.2 12.9 14.5 14.6 13.4 13.5 13.3
Other semi-manufactures 4.0 4.0 6.2 7.2 7.7 8.8 9.7 9.8 10.1 10.5
Machinery and transport equipment 27.4 34.5 32.7 29.7 29.4 29.2 30.1 33.2 36.1 38.1
Power generating machines 0.7 0.9 0.7 0.3 0.4 0.5 0.5 0.4 0.4 0.4
Other non-electrical machinery 13.8 16.0 9.5 12.7 10.7 11.4 11.2 11.6 11.8 12.2
Agricultural machinery and tractors 2.0 1.1 0.5 0.4 0.3 0.4 0.5 0.8 0.8 0.5
Office machines & telecommunications
equipment2.2 5.3 8.6 6.6 6.8 5.9 6.1 6.7 7.1 7.9
Other electrical machines 2.2 2.7 2.5 4.1 4.7 5.0 5.3 5.6 5.6 5.9
Automotive products 6.2 3.5 6.4 5.0 6.2 5.7 6.2 7.9 9.7 10.5
Other transport equipment 2.3 1.3 1.1 0.7 0.5 0.8 0.8 1.0 1.6 1.0
Textiles 1.6 2.1 1.7 1.9 7.2 7.9 7.4 6.3 5.7 5.8
Clothing 0.8 1.8 2.6 1.2 1.3 1.2 1.1 1.2 1.2 1.3
Other consumer goods 3.4 7.5 8.7 9.4 8.7 8.8 8.3 8.1 8.2 8.2
Other 0.1 0.0 0.3 1.1 0.1 0.0 0.5 0.1 0.3 1.1
Source: UNSD, Comtrade database (SITC Rev.1).
(c) Intra-industry trade
32. Poland's intra-industry trade, which refers to imports and exports of goods in the same
product category, has increased since 1992, as measur ed by the Grubel-Lloyd index (Chart I.2).  In
1998 it amounted to 41% of Poland's total merchandise trade, up from 34% in 1992.  Factors
underlying this rise may reflect greater specialization by firms in differentiated products to gain
economies of scale.  Another reason may be that firms in the early stages of transition to a market
economy have established linkages with countries having higher levels of development to obtain
access to know-how, working capital and distribution channels.21
                                                          
21 Hoekman, and Djankov (1996).WT/TPR/S/71 Trade Policy Review
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05101520253035404550
1992 1998 1992 1998 1992 1998 1992 1998Per cent
Source :     WTO Secretariat based on UNSD, Comtrade database (SITC Rev.1).Chart I.2
Intensity of Poland's intra-industry trad e with selected regions, 1992 and 1998
World
EU15
Germany
Former USS R
(d) Trade in services
33. Poland's receipts of services have exceeded payments during the review period, except in
1998.  Receipts increased from US$1.6 billion in 1992 (equivalent to 1.9% of GDP) to US$3.7 billion
(2.7% of GDP) in 1997.  In 1997, freight and transportation accounted for some 29% of total receiptsand tourism for another 16%.  The major items on the debit account, which amounted to some US$3.4
billion in 1997, are travel (20% of debits in 1997), and freight and transportation (12%).
(ii) Foreign direct and portfolio investment
34. Foreign investment is viewed as an important element in Poland's transformation process.  It
has played a leading role in the privatization process, and the country's success in attracting relativelylarge amounts of foreign investment has been crucial to its successful transition.  Foreign investment
has assisted Poland by introducing modern technology and management techniques; improving the
supply of quality products; reducing production costs; and upgrading social infrastructure, such as
through the construction of roads, housing estates and electricity-supply networks.
22  F o r e i g n
investment has largely financed Poland's current account deficits.  In 1998, foreign investment (direct
and portfolio) amounted to over 4% of GDP.
35. FDI has accelerated rapidly since 1995, while portfolio investment has shown a more volatile
pattern (Table I.7).  Between 1992 and 1998, the st ock of foreign capital grew some 18-fold and
reached US$31 billion.  Labour productivity is said to be higher in companies with foreign
participation; in 1996, it was almost double the national average.23  While FDI initially focused on
serving the domestic market, this is changing, and companies with foreign participation have a higher
export orientation.  This reflects their better product quality and enhanced internationalcompetitiveness, as well as access to foreign distribution channels and state-of-the-art marketing
strategies.  Such firms also tend to have higher import intensity.
                                                          
22 Ladyka, Stanislaw (1995).
23 Foreign Trade Research Institute (1998), p. 37.Poland WT/TPR/S/71
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Table I.7
Foreign investment by source and activity, 1993-98
(US$ million and per cent)
1993 1994 1995 1996 1997 1998
Foreign direct investment, net (US$ million) 580 542 1,134 2,741 3,041 6,164
Portfolio investment, net (US$ million) 0 -624 1,171 241 2,098 636
Total (US$ million) 580 -82 2,305 2,982 5,139 6,800
Total as a per cent of GDP 0.7 -0.1 1.9 2.2 3.8 4.3
Foreign direct investment inflows by country (per cent of total):a
European Union (15) 48.1 42.6 48.1 53.6 55.3 60.4
G e r m a n y 7 . 5 8 . 91 0 . 01 2 . 71 1 . 91 8 . 8
France 6.3 6.2 8.4 7.5 9.1 8.8
Italy 9.5 8.5 6.7 10.2 9.2 7.5
United Kingdom 2.4 2.6 5.4 4.2 5.7 7.1
Netherlands 8.2 5.6 6.0 7.9 6.9 6.9
Austria 6.9 3.7 3.6 2.6 3.7 2.8
United States 36.3 32.7 24.9 24.7 22.5 18.0
International companiesb10.2 18.7 16.1 12.4 9.3 6.6
Korea, Rep. of 0.2 0.1 1.0 1.5 6.1 5.2
Russia 0.7 0.5 0.3 0.2 0.1 3.5
Foreign direct investment inflows by activity (per cent of total):a, c
Agriculture 0.3 0.2 0.1 0.1 0.1 0.1
Mining and quarrying 0.0 0.0 0.0 0.0 0.1 0.0
Manufacturing, including 52.9 53.7 58.1 58.2 62.4 58.3
- food products, beverages and tobaccod15.1 16.6 19.9 21.1 18.5 16.4
- transport equipment .. .. .. .. 14.2 13.3
- pulp, paper and paper products, publishing and printinge7.7 3.0 6.5 5.1 6.5 5.0
- chemicals and chemical productsf7.9 5.9 7.8 5.3 6.1 4.7
Power, gas and water supplyg7.2 6.2 5.2 4.0 0.5 0.9
Services, including 39.6 39.9 36.6 37.7 36.9 40.7
- construction 13.3 8.8 7.3 5.0 3.1 6.2
- financial intermediationh13.2 19.0 19.0 21.2 17.7 17.6
- wholesale and retail trade, repairsi4.9 5.5 5.3 5.9 8.0 10.8
.. Not available.
a Data only include foreign direct investment over US$1 million.  Data are not available prior to 1993.
b Includes the European Bank for Reconstruction and Development (EBRD) .c Data were reclassified in 1997 using the European Classification of Activities (NACE).  Therefore, the data prior to 1996 are not
fully comparable with data of 1997 and onwards.
d For data prior to 1997, classification group was named food processing.e For data prior to 1997, classification group was named wood and paper.
f For data prior to 1997, classification group was named chemical.
g For data prior to 1997, classification group was named light, fuel and power.h For data prior to 1997, classification group was named finance and insurance.
i For data prior to 1997, classification group was named trade.
Note: Data are on a cash basis from the balance of payments.
Source : WTO Secretariat, based on data from Polish Agency for Foreign Investment (www.paiz.gov.invest98.htm),
Foreign Trade Research Institute (1998),  Foreign Investments in Poland , Warsaw (by country and by origin), and
the National Bank of Poland.
36. The major investors in Poland are EU companies, their share in total foreign direct investment
inflows amounted to 60% in 1998, substantially up from 1993.  Germany, the United States and
France were the most important sources of foreig n direct investment in 1998.  Investments undertaken
by nationals from Russia and some Asian countries ha ve shown strong growth in recent years, albeit
from low levels.WT/TPR/S/71 Trade Policy Review
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37. During the review period, the share of manufacturing industry in total investment in Poland
has grown steadily, albeit slowly, at the expense of other sectors.  Manufacturing activities accounted
for more than half (58%) of inward FDI in 1998, while services accounted for 41%.  In 1998, the
largest recipient subsectors were financial intermediation (17.6%) and food, beverages and tobacco(16%).
38. Net inflows of portfolio investment peaked at US$2.1 billion in 1997, and dropped to
US$0.6 billion in 1998.  The importance of long-term treasury bonds increased considerably in 1997,partly due to increased real returns and expectations of a long-term appreciation of the currency.
24  At
end-1997, the nominal value of treasury bonds held by foreign investors amounted to approximately
Zl 4.5 billion (or about US$1.3 billion).  In 1997, foreign interest in Polish non-treasury debt
instruments also increased substantially, especially for banking debt instruments.  Foreigners also
invest via the Warsaw Stock Exchange (WSE);  the share of investment in the WSE held abroad was
estimated at some US$5 billion at end-1997.
(5) O UTLOOK
39. Poland's reforms have underpinned an impressive economic performance.  In the past decade,
it has been transformed from a socialist centrally planned economy to a market-based one that isincreasingly being integrated into global markets.  EU membership should bring further advantages as
remaining trade barriers are removed and movement of services, capital and labour are further
liberalized.  This should enhance Poland's economic efficiency.  However, meeting the goal of EU
membership poses tremendous challenges, requiring huge restructuring and modernization of most
sectors.  As important as EU accession is for Poland, care is needed to ensure that concerns over EU
membership do not distract from implementing othe r economic reforms needed if it is to maximize
the benefits of trade liberalization.
40. Care is also required to ensure that business uncertainty is not overly increased by frequent
changes in Poland's laws and regulations, including in the foreign trade area.
25  Between end-1994 and
end-1996, 128 amendments were made to 76 legal acts regulating business activity, frequently with
short notice and in a few cases with retroactive power.26
41. The short-term outlook for Poland appears to be favourable.  The economy's recovery is
expected to gather momentum in 2000 and 2001, but the pace will hinge crucially on export growth to
Western Europe, as well as to other markets such as the United States, Japan and East Asia.  It also
requires prudent macroeconomic policies to control the effects of a widening current account deficit
and threats of rising inflation.  Real GDP is proj ected to grow by around 5% in 2000 and to approach
6% in 2001.  Exports are expected to return to double-digit growth by 2001, and unemployment to fall
from 2000.  Inflation is forecast to rise to 7% in 2000, partly due to excise and VAT increases, but to
fall to 5% by 2001 provided appropriate monetary policies are maintained.  The current accountdeficit is expected to decline as a share of GDP.
                                                          
24 Foreign Trade Research Institute (1998).
25 Ladyka, Stanislaw (1997); OECD (1998); and Kaminski and Stefanowicz (1997).
26 OECD (1998).