S-B/A 1 a18-17_sb-a.htm AMENDMENT NO. 1 TO REGISTRATION STATEMENT (SHELF PROSPECTUS)
As filed with the Securities and Exchange Commission on May 25, 2018
Registration No. 333-223719 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
Amendment No.1 to
REGISTRATION STATEMENT
Under Schedule B
of the Securities Act of 1933
_____________________________________________
The State Treasury of the
Republic of Poland
(Name of Registrant)
Consul General of the Republic of Poland
233 Madison Avenue
New York, NY 10016
(Name and address of authorized agent in the United States)
It is requested that copies of notices and communications
from the Securities and Exchange Commission be sent to:
Doron Loewinger, Esq.
White & Case LLP
5 Old Broad Street
London EC2N 1DW
United Kingdom
_____________________________________________
Approximate date of commencement of proposed sale to the public:  From time to time after the effective date of this Registration Statement.
The securities covered by this Registration Statement are to be offered on a delayed or continuous basis pursuant to Releases Nos. 336240 and 336424 under the Securities Act of 1933.
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered
Amount to be registered
Proposed maximum offering price per unit (1)
Proposed maximum aggregate offering price (1)
Amount of registration fee(2)
Debt Securities
U.S.$ 4,000,000,000
100%
U.S.$ 4,000,000,000
U.S.$498,650
____________
(1)
Estimated solely for purposes of determining the registration fee in accordance with Rule 457(o) of the Securities Act of 1933.
(2)
Pursuant to Rule 457(p) under the Securities Act of 1933, a filing fee of U.S.$377,650 has already been paid with respect to unsold securities that were previously registered pursuant to Registration Statements under Schedule B of the Securities Act of 1933 filed by the Registrant February 6, 2015 (No. 333-201910) and is being carried forward. The filing fee of U.S.$498,650 due for this Registration Statement is partially offset against the registration fee previously paid. An additional registration fee of U.S. $120,350 has been paid with respect to this Registration Statement.
____________________________________________



The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine



CROSS REFERENCE SHEET
The following are cross references between Schedule B of the Securities Act of 1933 and the Prospectus and the Registration Statement:
Schedule B Item
 
Heading in Prospectus or location in Registration Statement
1 
 
Cover Page
2 
 
Use of Proceeds
3 
 
Public Debt; Tables and Supplementary Information
4 
 
Public Debt
5 
 
Public Finance
6 
 
*
7 
 
Authorized Agent in the United States
8 
 
*
9 
 
*
10 
 
Plan of Distribution*
11 
 
**
12 
 
Validity of the Securities
13 
 
*
14 
 
**
___________
*
Information to be provided from time to time in the prospectus supplements and/or pricing supplements to be delivered in connection with any offering of debt securities.
**
Information included in Part II of this Registration Statement or as an exhibit hereto or to be provided from time to time by one or more amendments to this Registration Statement.


THE STATE TREASURY
of
THE REPUBLIC OF POLAND
Represented by
The Minister of Finance
Debt Securities
The State Treasury of the Republic of Poland may offer up to U.S.$ 4,000,000,000.00 of its debt securities for sale from time to time based on information contained in this prospectus and various prospectus supplements.  The securities will be unconditional, unsecured and general obligations of the Republic of Poland. The securities will rank equally in right of payment with all other unsecured and unsubordinated obligations of the Republic of Poland and will be backed by the full faith and credit of the Republic of Poland.
The State Treasury of the Republic of Poland will provide the specific terms of these securities in supplements to this prospectus. You should read this prospectus and any supplement carefully before you invest. This prospectus may not be used to make offers or sales of securities unless accompanied by a supplement.
_________________
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy of this prospectus.  Any representation to the contrary is a criminal offense.
_________________
May 25, 2018
(i)


ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that the State Treasury of the Republic of Poland (known as the "State Treasury") filed with the Securities and Exchange Commission (the "SEC"), under a "shelf" registration process.  Under this shelf registration process, the State Treasury may sell, from time to time, any of the debt securities described in this prospectus in one or more offerings up to a total U.S. dollar equivalent amount of U.S.$ 4,000,000,000.00.  This prospectus provides you with basic information about the Republic of Poland ("Poland"), and a general description of the debt securities the State Treasury may offer.  Each time the State Treasury sells debt securities under this shelf registration process, it will provide a prospectus supplement that will contain updated information about Poland, if necessary, and specific information about the terms of that offering.  Before you invest, you should read both this prospectus and any prospectus supplement.  References herein to the prospectus are also to the relevant prospectus supplement.
Any information in this prospectus may be updated or changed in a prospectus supplement, in which case the more recent information will apply.
All references to "U.S. dollars" or "U.S.$"  in this prospectus are to United States dollars, all references to "złoty" or "PLN" are to Polish złoty, all references to "EUR" are to the euro, the currency of the adopting member states of the European Union (the "EU") and all references to "CHF" are to Swiss francs, all references to "SDR" are to special drawing rights, supplementary foreign-exchange reserve assets maintained by the International Monetary Fund ("IMF").  All currency conversions in this prospectus are at the National Bank of Poland's official middle rate of exchange on a particular date or calculated at the average of the middle rates of exchange for a particular period.  For your convenience, the State Treasury has converted certain amounts from złoty into U.S. dollars at the average exchange rate for each relevant period or the exchange rate in effect on a given date.  The following table sets forth the złoty to U.S. dollar, the złoty to euro and the U.S. dollar to euro exchange rates for the last day of the periods indicated and the average exchange rates during the periods indicated.
 
   
2013
   
2014
   
2015
   
2016
   
2017
 
   
(PLN per U.S.$)(1)
 
Year end
    3.0120       3.5072       3.9011       4.1793       3.4813  
Average for year
  3.1608       3.1551       3.7701       3.9431       3.5482  
   
(PLN per EUR)(1)
 
Year end
    4.1472       4.2623       4.2615       4.4240       4.1709  
Average for year
    4.1975       4.1852       4.1839       4.3625       4.2016  
   
(U.S.$ per EUR)(2)
 
Year end
    1.3779       1.2101       1.0859       1.0552       1.1981  
Average for year
    1.3281       1.3297       1.1096       1.1072       1.1841  
____________
 
 
(1)
Source:  National Bank of Poland
(2)
Source:  Federal Reserve Bank of New York
For information on the convertibility of the złoty, see "Balance of Payments and Foreign Trade—Exchange Rate Policy".
Poland's Government (the "Government") budgets on a calendar year basis and, accordingly, quarterly data represent the relevant quarters of a calendar year.
Official economic data in this prospectus may not be directly comparable with data produced by other sources.  Although a range of government ministries and other public bodies, including the State Treasury, the National Bank of Poland ("NBP") and Statistics Poland, produce statistics on Poland and its economy, there can be no assurance that these statistics are comparable with those compiled by other bodies, or in other countries, which may use different methodologies.  You should be aware that figures relating to Poland's Gross Domestic Product ("GDP") and many other figures relating to Poland's national accounts and economy cited in this prospectus have been prepared in accordance with EU standards as implemented in Poland (the European System of National and Regional Accounts 2010 ("ESA 2010"), unless otherwise stated – see "Public Finances") and may differ from figures prepared by other bodies, which may use a different methodology.  The existence of an unofficial or unobserved economy may affect the accuracy and reliability of statistical information.  You should also be aware that none of the statistical information in this prospectus has been independently verified.
(ii)

Totals in certain tables in this prospectus may differ from the sum of the individual items in such tables due to rounding.  In addition, certain figures contained in this prospectus are estimates prepared in accordance with procedures customarily used in Poland for the reporting of data.  Certain other figures are preliminary in nature.  In each case, the actual figures may vary from the estimated or preliminary figures set forth in this prospectus.
Unless otherwise stated, all references to increases or decreases in GDP, are to increases or decreases in real GDP, that is, to increases or decreases in nominal GDP adjusted to reflect the rate of inflation over the relevant period.  References to the inflation rate are, unless otherwise stated, to the annual percentage change calculated by comparing the consumer price index ("CPI"), of a specific month against the index for the same month in the immediately preceding year.
This prospectus includes forwardlooking statements.  All statements other than statements of historical fact included in this prospectus regarding, among other things, Poland's economy, budget, fiscal condition and policies, politics, debt or prospects may constitute forwardlooking statements.  In addition, forwardlooking statements generally can be identified by the use of forwardlooking terminology such as "may", "will", "expect", "project", "intend", "estimate", "anticipate", "believe", "continue", "could", "should", "would" or the like.  Although the State Treasury believes that expectations reflected in its forwardlooking statements are reasonable at this time, there can be no assurance that such expectations will prove to be correct.  The State Treasury undertakes no obligation to update the forwardlooking statements contained in this prospectus or any other forwardlooking statement included herein.
Poland's long-term foreign currency and local currency debt is rated by certain rating agencies.  You should be aware that a credit rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.  Any adverse change in Poland's credit rating could adversely affect the trading price of securities issued by Poland under the shelf registration process to which this prospectus relates.
You should rely only on the information contained or incorporated by reference in this prospectus, any supplement to this prospectus or any free writing prospectus that we provide to you.  We have not authorized anyone to provide you with information that is different from what is contained in this prospectus.  You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus.  This prospectus is not an offer to sell or a solicitation of an offer to buy any of our securities in any jurisdiction in which such offer or solicitation would be unlawful.
Poland's internet address is http://www.poland.pl and the Ministry of Finance's internet address is http://www.mf.gov.pl.  The information contained on or accessible from our websites does not constitute a part of this prospectus and is not incorporated by reference herein.
MIFID II PRODUCT GOVERNANCE / TARGET MARKET
The prospectus supplement in respect of any debt securities offered under this shelf registration process will include a legend entitled "MiFID II Product Governance" which will outline the target market assessment in respect of the debt securities being offered and which channels for distribution of the debt securities are appropriate. Any person subsequently offering, selling or recommending the debt securities (a "distributor") should take into consideration the target market assessment; however, a distributor subject to Directive 2014/65/EU (as amended, "MiFID II") is responsible for undertaking its own target market assessment in respect of the debt securities (by either adopting or refining the target market assessment) and determining appropriate distribution channels.
A determination will be made in relation to each offering about whether, for the purpose of the MiFID Product Governance rules under EU Delegated Directive 2017/593 (the "MiFID Product Governance Rules"), any underwriter subscribing for any debt securities is a manufacturer in respect of such debt securities, but otherwise none of the underwriters, dealers or agents or any of their respective affiliates will be a manufacturer for the purpose of the MIFID Product Governance Rules.
(iii)



TABLE OF CONTENTS
Page
 
 
 
Page
 
Use of Proceeds
 
1
 
The Republic of Poland
 
2
 
The Economy
 
15
 
Balance of Payments and Foreign Trade
 
21
 
Monetary and Financial System
 
26
 
Public Finance
 
33
 
Public Debt
 
42
 
Total External Debt
 
47
 
Description of the Securities
 
48
 
Enforceability of Judgments
 
57
 
Taxation
 
59
 
Plan of Distribution
 
60
 
Validity of the Securities
 
61
 
Authorized Agent in the United States
 
62
 
Official Statements and Documents
 
63
 
Further Information
 
64
 
 INDEX TO TABLES AND SUPPLEMENTARY INFORMATION  1

 
(iv)


Use of Proceeds
Unless otherwise indicated in the relevant prospectus supplement, the net proceeds from the sale of securities will be used to finance Poland's State budget borrowing requirements or for general financing purposes.  See "Public Finance"
1



The Republic of Poland
Overview
 
Poland is one of the largest countries in Central Europe with a total territory (comprising land area, internal waters and territorial sea) of 322,575 square kilometers.  Situated on the Baltic Sea, Poland has a coastline of 770 kilometers and is bordered by Germany, the Czech Republic, the Slovak Republic, Ukraine, Belarus, Lithuania and the Russian Federation.  Poland's terrain is comprised largely of lowlands traversed by its main river, the Vistula, with lakes, rivers and marshes across the northern and central regions, and several mountain ranges, including the Tatras, in the south.  Poland has more than 92,000 square kilometers of forest (approximately 29.5 percent of Poland's total land area) and 130,000 square kilometers of arable land (approximately 44.1 percent of Poland's total land area).
With a population of approximately 38.4 million in 2016, Poland is also one of the most populated countries in Central Europe.  Population density is estimated at approximately 123 persons per square kilometer, with approximately 60.3 percent of the population living in urban areas.  Warsaw, the capital of Poland and its largest city, has an estimated population of 1.7 million.  Fifteen other urban centers each have populations in excess of 200,000.
Poland is an ethnically and religiously homogeneous country.  Approximately 97.1 percent of the population is ethnically Polish and approximately 98.2 percent of the population speaks Polish at home.  Germans constitute the largest minority group, numbering approximately 148,000 persons, concentrated principally in Silesia.  Smaller ethnic and national groups have cultural ties to neighboring states such as Belarus, Ukraine and Lithuania.  It is estimated that approximately 96.0 percent of the population is Roman Catholic.
A map of Poland is set forth below:
 

Constitution, Government and Political Parties
 
The Constitution and Political System
 
Under the Constitution adopted in 1997, a bicameral Parliament (comprising an upper chamber, known as the Senate, and a lower chamber, known as the Sejm) is elected for a four‑year term in general elections. The
 
2

Sejm consists of 460 members and the Senate consists of 100 members.  Generally, the Sejm is elected using a system of proportional representation, provided that a minimum of 5.0 percent share of the popular vote must be gained by a party (8.0 percent for party coalitions) to gain seats. Under the Constitution, fascist, communist and racist political parties are banned.  All legislation must be approved by the Sejm and the Senate, and signed by the President.  In addition, the Sejm has the power to overrule the Senate by an absolute majority vote and to overrule the President by a 60.0 percent majority vote cast in the presence of at least half the total number of deputies. The President, with the approval of the Senate, or the Sejm, may call a referendum on matters of fundamental importance to the country.
The Constitution also establishes the independence of the NBP, Poland's central bank, which is charged with the responsibility of maintaining the value of the national currency, the Polish złoty. The Constitution also grants the NBP the exclusive power of setting and implementing monetary policy.  Under the Constitution, the Government is prohibited from incurring loans or issuing guarantees or sureties if, as a result, public debt would exceed 60.0 percent of GDP. There are also certain budget‑related requirements that apply if public debt exceeds 43.0, 48.0 or 55.0 percent of GDP. These public debt figures are calculated according to the Polish definition of public debt. For more information, please see "Public Debt—Debt Management". Under Article 220, section 2 of the Constitution, a budget act may not provide for the financing of the budget deficit by the NBP. These limitations are intended to safeguard the fiscal health of the economy.
Under the Constitution, the President is directly elected for a five‑year term and may be re‑elected only once.  Presidential powers include the right to initiate legislation, to veto certain legislative acts and, in certain instances, to dissolve Parliament.  The President's power to dissolve Parliament is limited to instances where the Sejm fails to present the annual budget act for the President's signature within four months of receipt thereof from the Government, or where the Sejm fails to pass a vote of confidence in the Government following attempts to nominate a government in the manner provided for in the Constitution.  The President commands the armed forces, represents the State in its foreign relations, appoints the judges (at the request of the National Council of the Judiciary) as well as the First President of the Supreme Court (as from the candidates indicated by the General Assembly of the Judges of the Supreme Court) and nominates the Prime Minister as well as the President of the NBP, subject to approval by the Sejm.
The Prime Minister is the head of the Council of Ministers and is responsible for forming the Government, which must then receive a vote of confidence from the Sejm.
Poland is divided into 16 provinces, known as voivodships.  Each voivodship is represented by a provincial governor, or voivode, appointed by the Government, who represents the Government at the voivodship level.  There are also three levels of independent territorial self‑government: voivodships, which are divided into poviats, which are further divided into gminas.  There are 16 voivodships at the top level (where self‑governing authorities are located alongside government‑appointed voivods), 314 counties as poviats and 66 cities with poviat status at the intermediate level and 2,478 basic units of locally‑elected governments, known as gminas (including 66 cities with poviat status).  Self‑governing authorities are elected by popular vote.  All of the self‑governing entities are financially autonomous and independent of each other and of the Government.  The Prime Minister may limit their activities only to the extent that their actions conflict with national law.  The self‑governing entities are financed by a share of national taxes and by their own revenues, such as local taxes and fees.  The gminas are entitled under the Constitution to exercise powers that are not designated as powers of other public authorities.
Judicial authority is vested in the Supreme Court and the common courts (appellate, regional and lower courts), the administrative courts (the Primary Administrative Court and voivodeship administrative courts) and the military courts. A separate Constitutional Tribunal has jurisdiction over all matters relating to constitutional issues.
Current Government and Politics
The most recent presidential election concluded on May 24, 2015, after two rounds. The two competing candidates were Bronisław Komorowski, of the Civic Platform ("PO") party (the former President of Poland) and Andrzej Duda, of the Law and Justice ("PiS") party (a former Secretary of State in the Chancellery of the President of Poland and a former member of the EU Parliament). Andrzej Duda won the election with
 
3

51.55 percent of the votes cast in the second round of the election, and assumed office on August 6, 2015. The next presidential elections will be held in 2020.
The most recent Parliamentary elections were held on October 25, 2015. Following these elections, the PiS received 37.58 percent of the vote, the PO received 24.09 percent of the vote, the Kukiz'15 received 8.81 percent of the vote, Nowoczesna  "Nowoczesna") received 7.55 percent of the vote and the Polish People's Party ("PSL") received 5.13 percent of the vote. In November 2015, the Government was formed, led by the Prime Minister Beata Szydło, who had previously been a Member of the Polish Parliament (during the fifth, sixth and seventh terms) and a Deputy President of the PiS. Beata Szydło resigned in December 2017, and Mateusz Morawiecki was appointed as Prime Minister.
The following table shows a breakdown of the distribution of seats in the Sejm (by party) and the Senate (by party) as of April 30, 2018:
 
Seats
Sejm
 
Law and Justice (PiS) 
237
Civic Platform (PO) 
136
Kukiz '15 
29
Nowoczesna 
25
Polish People's Party (PSL) 
18
Free and Solidarity 
6
Unaffiliated 
9
Total 
460

 
Seats
Senate
 
Law and Justice (PiS) 
63
Civic Platform (PO) 
31
Unaffiliated 
6
Total 
100
___________
Source:  Sejm and Senate
The next Parliamentary elections will be held in autumn 2019.
The most recent local elections were held in November 2014 with votes spread between local committees and main political parties.  Of the two largest political parties, PO received 26.36 percent of the national vote and 179 out of 555 available seats in the regional legislatures, and PiS received 26.85 percent of the national vote and 171 seats in the regional legislatures.
The next local elections will be held in autumn 2018.
Government Policies and Legislative Agenda
Constitutional Tribunal
 
The Polish constitutional tribunal (the "Constitutional Tribunal") was established in 1982 to resolve constitutional issues involving governmental institutions. The Constitutional Tribunal is composed of 15 judges, chosen by the Sejm for a term of nine years each.
In June 2015, the Sejm enacted a new act on the Constitutional Tribunal (the "June 2015 Act"), which enabled the former Parliament to appoint five new judges to replace five judges whose terms were to expire by the end of 2015. Five new judges (the "Former Parliament Appointees") were appointed by the former Parliament in October 2015. Following the October 2015 Parliamentary elections, Andrzej Duda, the President of Poland, refused to accept the five Former Parliament Appointees' oaths, and the Parliament revoked the appointment of the Former Parliament Appointees and appointed five other judges (whose oaths were accepted by the President) (the "New Parliament Appointees") in their stead.
4



Subsequently, a group of members of Parliament from PO and PSL filed a motion to the Constitutional Tribunal to resolve whether the June 2015 Act, and the appointment of the Former Parliament Appointees thereunder, was constitutional. In December 2015, the Constitutional Tribunal ruled that three of the five Former Parliament Appointees had been constitutionally appointed by the former Parliament. However, the President has not yet accepted the oaths of these three judges.
At the end of December 2015, new legislation (the "December 2015 Act") was enacted containing significant changes to the June 2015 Act. Among other things, the December 2015 Act (i) increased the threshold required for decisions of the Constitutional Tribunal from a simple majority to a two-thirds majority, (ii) increased the quorum requirement from 9 to 13 judges, (iii) increased to six months (or three months, in exceptional circumstances) the delay before which the Constitutional Tribunal may rule on a case referred to it, and (iv) required the Constitutional Tribunal to hear cases in the order in which they are filed.  On March 9, 2016, the Constitutional Tribunal held that the December 2015 Act is unconstitutional.
In July 2016, the Sejm enacted a new act on the Constitutional Tribunal that replaced the June 2015 Act (as amended by the December 2015 Act). The act on the Constitutional Tribunal of July 2016 was replaced by the Act on the Organization and Proceedings before the Constitutional Tribunal of November 30, 2016 and the Act on the Status of Judges of the Constitutional Tribunal of November 30, 2016. The Act on the Organization and Proceedings before the Constitutional Tribunal states, inter alia, that (i) the General Assembly of the Constitutional Tribunal is only composed of the judges who swore their oath to the President, (ii) the President of the Constitutional Tribunal is chosen by the President based on a list of candidates presented by the General Assembly of the Constitutional Tribunal. The Act on the Status of Judges of the Constitutional Tribunal states, inter alia, that (i) no judge of Constitutional Tribunal can be more than 70 years old and (ii) judges must submit a statement on financial disclosure. In October 2017, the Constitutional Tribunal held that the Act on the Organization and Proceedings before the Constitutional Tribunal and the Act on the Status of Judges of the Constitutional Tribunal are constitutional.
On December 20, 2016, after the end of Andrzej Rzepliński's term of office, the President of the Republic of Poland appointed Julia Przyłębska, the new President of the Constitutional Tribunal. Currently, all 15 seats in the Constitutional Tribunal are appointed.
Reform of the Judicial System
The judicial system in Poland is regulated principally by the Polish Constitution, the Act on the National Judicial Council dated May 12, 2011, as amended (the "Act on the National Judicial Council"), the Act on the System of Common Courts dated July 27, 2001, as amended (the "Act on the System of Common Courts") and the Act on the Supreme Court dated November 23, 2002 as amended (the "Act on the Supreme Court").
In order to reform the Polish judicial system, the Government prepared drafts of the amending acts of the Act on the National Judicial Council, the Act on the System of Common Courts and the Act on the Supreme Court and introduced them to the Sejm.
The new legislation raised concerns about its constitutionality, including among non-governmental and legal organizations.
Due to the concerns regarding the constitutionality of the judicial reform, on July 24, 2017, the President decided to veto two of the amending acts, which had been passed by the Sejm (the Act on the National Judicial Council and the Act on the Supreme Court). However, he signed the third amending act, the Act on the System of Common Courts, and, later on, proposed his own drafts of the other two acts. The presidential drafts of the act amending the Act on the National Judicial Council and of the act replacing the Act on the Supreme Court were passed by the Sejm on December 8, 2017. The President signed these acts on December 20, 2017. They were announced in the Official Journal of Laws on January 2, 2018. The amendments to the Act on the National Judicial Council came into force in January 2018 and the new Act on the Supreme Court will come into force as from April 3, 2018.
The judicial reform introduces material changes to the functioning of the common courts in Poland by increasing the government's authority to supervise the judicial branch. The most important changes include:
 
5

(i) the discretionary power of the Minister of Justice to appoint and dismiss presidents of common courts, (ii) the power of presidents of common courts to transfer a judge to another department of a court without the judge's consent, (iii) the introduction of a new system for appointing judges to handle particular cases based on random drawings, (iv) new rules concerning the promotion of judges to higher courts, (v) requirement to publish judicial statements of financial disclosure, and (vi) new rules concerning judges' retirement that introduces mandatory retirement for male judges at the age of 65 and for female judges at the age of 60 with the Minister of Justice having the power to decide on the extension of judicial mandates (until the age of 70).
Pursuant to the amended Act on the System of Common Courts, during the first six months after the law entered into force, the Minister of Justice had the power to dismiss and appoint the president and vice-presidents of the common courts for any reason and without any obligation to state reasons. Six months after the law entered into force, the Minister of Justice is still able to dismiss court presidents however, he/she must first consult the National Council for the Judiciary, which can veto any planned dismissals through a resolution adopted by a two-thirds majority vote.
Changes to the functioning and composition of the National Judicial Council included: (i) shortening the term of office of the current members of the National Judicial Council, (ii) the appointment of members of the National Judicial Council who are judges by the Sejm with a 3/5 majority and not by other judges as it was before the amendment, and (iii) the nomination of candidates for members of the National Judicial Council by 25 judges or 2,000 Polish citizens. On March 6, 2018 the Sejm has appointed the new National Judicial Council comprising of 15 members.
Changes in the Supreme Court include changes to the functioning, organization and composition of the Polish Supreme Court as well as proceedings before that court. The most important changes include: (i) the introduction of new extraordinary complaints against any and all final rulings of common and military courts (including those that became final after October 17, 1997, within a three-year period following the entry into force of the new Act on the Supreme Court) as an additional type of appellate procedure; (ii) the increase in the total (maximum) number of judges of the Supreme Court from the current 93 to at least 120 (the final number to be set by the Polish President) – mainly due to the introduction of new chambers – and the introduction of a new possibility for the Minister of Justice to delegate judges of common courts to the Supreme Court (whereas the ordinary procedure for appointing judges of the Supreme Court remains unchanged, i.e., they are still appointed by the Polish President at the request of the National Judiciary Council); (iii) changes to the procedure to appoint the First President of the Supreme Court, including the possibility of early termination of the First President's mandate, (iv) the introduction of two new chambers of the Supreme Court, i.e., the disciplinary chamber and the extraordinary control and public issues chamber, the replacement of labor, social insurance and public issues chamber with a new labor and social insurance chamber and the abolition of the military chamber, where the two main existing chambers (the civil chamber and penal chamber) remain in the structure, (v) new requirements for Supreme Court judge candidates, (vi) the lowering of the retirement age from 70 to 65 (unless the President has consented to the continuation of a  judge's tenure at his/her request) and (vii) the compulsory retirement of all judges of the abolished military chamber.
In June 2017, the Polish President has also signed the act amending the law on National School of Judiciary. The new act stipulates among others that the judge's training in the National School of Judiciary will be the basic route to the judge's profession. After completion of education at the National School of Judiciary and subject to positive results on the final exams, new graduates will be appointed as assessors by the Minister of Justice for an indefinite period. The National Judicial Council will have the right to object to entrusting the assessor with the duties of a judge. The new laws also introduce changes concerning the application procedure for vacant judicial posts by the court referendaries and judges' assistants.
 
Military Modernization Program
In 2017, the new Defense Concept of the Republic of Poland was published, summarizing The Strategic Defense Review 2016, including the State development and defense financing framework outlined in The Strategy for Responsible Development. On October 7, 2017, the Ministry of National Defense signed the updated Technical Modernization Plan of the Armed Forces in the Republic of Poland for the period from 2017 to 2022, implementing the results of The Strategic Defense Review 2016. According to the government's current plans, the expenses for defense are expected to amount to PLN 282.8 billion in between 2017 and
 
6

2022 and the number of Polish soldiers should reach 150,000. Procurement processes for military equipment are ongoing.
In September 2017, the Sejm passed amendments to the law on technical modernization and financing of the Polish military forces. Under that law, the level of expenditures dedicated to national defense will increase to 2 percent of GDP in 2018 and 2019, 2.1 percent in 2020, 2.2 percent in the years 2026-2029 and should reach 2.5 percent of GDP in 2030.
As a result, the limit for defense spending in the draft 2018 budget increased by PLN 3.9 bn.
Restructuring of the Coal Mining and Energy Sectors
In December 2015, the new Government adopted amendments to the Polish Act on the Functioning of Coal Mining dated September 7, 2007. While amendments to the Act adopted by the previous Government covered a period until the end of 2015, the amendments enacted following the 2015 Parliamentary elections extend certain of the provisions until 2018. The main reason for the recent amendments is to enable the free disposal of mines by mining companies or designated assets to Spółka Restrukturyzacji Kopalń S.A. until January 2018. The latest amendments also define the conditions for granting one-off severance payments to employees, whom this provision will benefit from January 1, 2016. Payment may be granted to employees whose employments were terminated by mutual agreement between December 31, 2015, and December 31, 2018, and who have a minimum of five years' work experience in the mining sector. According to the Ministry of Energy, the amendment does not imply liquidation of mines.
After reviewing policies with regard to state-owned enterprises, the new Government created Polska Grupa Górnicza ("PGG") – a special purpose vehicle company designed to acquire assets and liabilities of the coal mining company Kompania Węglowa S.A., which was facing financial difficulties. Due to the above mentioned acquisition, PGG currently is the biggest coal enterprise and the biggest coal producer in Europe.
Rating considerations
Since the mid-1990s, Poland has been assessed by rating agencies including Standard & Poor's ("S&P"), Moody's ("Moody's") and Fitch ("Fitch"). Poland's credit rating has been upgraded several times throughout the years, in line with the country's economic growth. On January 15, 2016, Poland's credit rating was downgraded by S&P, for the first time in history.  The Polish long-term foreign currency sovereign credit rating was downgraded from "A-" to "BBB+." S&P also downgraded the Polish long-term and short-term local currency sovereign credit ratings from "A/A-1" to "A-/A-2", respectively. At the same time, the rating outlook was revised from positive to negative. Over time, the concerns raised by S&P have not materialized, which resulted in the agency revising the rating outlook positively. In December 2016, Poland's rating outlook was raised to stable and then to positive in April 2018. The positive outlook reflects S&P's view of the strong economic expansion and solid fiscal performance of Poland. The outlook level itself indicates an increased likelihood of a rating upgrade within 24 months. 
 
International Relations and Regional Arrangements
 
International Relations
 
Poland is a founding member of the United Nations, belongs to most international organizations and maintains diplomatic relations with 189 countries.  In 1967, Poland joined the General Agreement on Tariffs and Trade ("GATT") and is a member of the World Trade Organization ("WTO"), the successor to GATT.  In 1986, Poland re‑joined the International Bank for Reconstruction and Development ("IBRD"), known as the World Bank, and the IMF, having withdrawn its original memberships in 1950.  Since 1987, Poland has also been a member of the International Finance Corporation ("IFC") and the International Development Association ("IDA").  Poland became a member of the Multilateral Investment Guarantee Agency ("MIGA") in 1990.  In addition, Poland was a founding member of the European Bank for Reconstruction and Development ("EBRD").  In 1996, Poland was accepted for full membership in the Organization for Economic Co‑operation and Development ("OECD").  It became a member of the European Investment Bank ("EIB") in 2004 following its accession to the EU, and joined the Council of Europe Development Bank ("CEB") in 1998. Poland is also one of the founding members of the Asian Infrastructure Investment Bank ("AIIB").
 
7

On March 12, 1999, Poland became a member of the North Atlantic Treaty Organization.
Regional Arrangements
European Union Membership
Poland and nine other candidate countries signed the Accession Treaty with the EU (the "Accession Treaty") on April 16, 2003 in Athens.  The Accession Treaty was ratified by all EU members and candidate countries and came into force on May 1, 2004.
Accession to the EU enabled Poland to participate in the EU legislative and decision‑making process and made it bound by EU law (i.e., EU treaties, regulations, directives and decisions).  By acceding to the EU, Poland became eligible to have representation in the European Parliament.  For the purpose of European Parliamentary elections Poland is subdivided into constituencies, in the same manner as the United Kingdom, Ireland, Italy, France, Netherlands, Belgium and Germany.  Following the European Parliamentary elections in 2014, Poland has 51 members of the European Parliament, with the majority of its members belonging to the Group of European People's Party or the Group of European Conservatives and Reformists.
As a member of the EU, Poland has to comply with the Stability and Growth Pact, which is a rule‑based framework for the coordination of national fiscal policies in the EU. It was established to safeguard sound public finances, an important requirement for the Economic and Monetary Union ("EMU") to function properly.
While no deadline has been set, the adoption of the euro is required by the Accession Treaty. In order to adopt the euro, a member state must fulfil the euro convergence criteria. While taking the Treaty obligations into account, it is borne in mind that Poland is still a developing and converging economy. The level of real convergence of Poland with the Eurozone  in terms of GDP per capita still lags behind developed EU member states. Moreover, although the rate of business cycle synchronization is relatively stable in the recent period, Poland's economic structure diverges from the euro area. In such circumstances, the adoption of the euro would pose a threat of negative shocks affecting the Polish economy. At the same time, the effectiveness of the EU reform agenda may also still be perceived as unsatisfactory (despite recent reforms) and does not ensure the long-term stability of the Economic and Monetary Union ("EMU"). Therefore the government is currently focused on improving the potential of the Polish economy and not on the adoption of the euro. As the stability of the Eurozone is of vital importance for the Polish economy, the Government will still take part in initiatives at the EU level to strengthen the institutional setup of the EMU. Fiscal and economic turbulence that was observed in several Eurozone member states stressed the need for institutional reforms. Actions at the EU level will be conducted along with structural reforms in Poland to foster competitiveness of the Polish economy.
Like all EU member states, Poland is subject to multilateral surveillance by the EU's Council and like all non-Eurozone member states; it is obliged to prepare convergence programs on an annual basis. Each convergence program provides for the monitoring of economic developments in each of the EU member states and for the EU as a whole, as well as consistency of economic policies with the broad guidelines set by the EU on a regular basis.
Convergence programs cover fiscal policy, the main assumptions underlying the economic outlook and an assessment of economic policy measures and their budgetary impact. This information is presented for the current and previous years and also includes forecasts for the next three years. Poland published its latest Convergence Program update in April 2018. According to the Program, the general government deficit is projected to reach 2.1 percent of GDP in 2018. From 2019, a declining trend is projected for the deficit, which is forecast to decline to 1.5 percent of GDP in 2019, 1.1 percent of GDP in 2020 and 0.7 percent of GDP in 2021.
According to the "Public Finance Sector Debt Management Strategy in the years 2018-2021" accepted by the Council of Ministers in September 2017, the debt-to-GDP ratio is projected to reach 53.8 percent in 2017, and it is projected to increase to 54.2 percent (calculated in accordance with the EU definition of public debt) in 2018.  In 2019 and 2020, it is projected to decrease to 54.0 percent and 51.8 percent, respectively. As of 31 December 2017, the State Treasury debt (the main component of public debt) decreased in nominal terms (from PLN 928.7 billion at the end of 2016 to PLN 928.5 billion) and was lower than assumed in the strategy by PLN 40 billion (approximately 2.0 percent of GDP), which constitutes a lower base for levels of debt in subsequent years.
 
8

EU Rule of Law Assessment
In March 2014, the European Commission established a new EU Framework to strengthen the Rule of Law (the "Framework"). The Framework establishes a three-stage process with the objective of preventing, through a dialogue with the relevant EU member state, the escalation of an emerging systemic threat to the rule of law into a situation where the European Commission would need to issue a proposal to trigger sanction mechanisms under Article 7 of the Treaty of the European Union (the "TEU"). Those three stages are: (i) European Commission assessment, (ii) European Commission recommendation and (iii) monitoring of the member state's follow-up to the European Commission's recommendation. If no solution is found within that Framework, the European Commission may apply Article 7 of the TEU, which provides for special mechanisms with far-reaching sanctions in case a member state does not respect the fundamental values referred to in Article 2 of the TEU, including the rule of law. The most serious sanction under Article 7 is to suspend a member state's voting rights in EU institutions.
In January 2016, the European Commission announced that it has commenced an assessment of recent developments in Poland pursuant to the Framework. The College of Commissioners held a first orientation debate on January 13, 2016 to assess Poland's situation under the Framework and started a dialogue with Polish authorities in connection with the recent changes to the Constitutional Tribunal and state-owned media. See "‑Government Policies and Legislative Agenda‑Constitutional Tribunal". The Prime Minister of Poland at the time, Beata Szydło, participated in a debate on the matter in the European Parliament on January 19, 2016. On July 27, 2016, the first Rule of Law Recommendation regarding the rule of law in Poland was published, setting out the European Commission's concerns about the Constitutional Tribunal in Poland. The first recommendation stated that effective constitutional review by the Constitutional Tribunal in Poland is limited. On December 21, 2016, the second Rule of Law Recommendation was published by the European Commission. In the second recommendation, the European Commission advised the Polish Government to follow up on actions already requested in the first recommendation and publish as well as fully implement all the judgments of the Constitutional Tribunal. On July 26, 2017, the third European Commission Recommendation was published. It addresses concerns about the judiciary reform in Poland, which in the European Commission's opinion is a systematic threat to the rule of law in Poland. See "- New Government Policies and Legislative Agenda‑Constitutional Tribunal".
Triggering of Article 7 of the TEU by the EU Commission
 
On December 20, 2017, the EU Commission concluded that despite the efforts described on "—EU Rule of Law Assessment", its concerns about the lack of an independent and legitimate constitutional review and judicial independence in Poland have not been resolved. The Commission has, therefore, triggered Article 7 of the TEU for the first time by issuing a Reasoned Proposal under Article 7.1 of the TEU (the "Reasoned Proposal") and the EU Council has found that there is a clear risk of a serious breach by the Republic of Poland of the rule of law. At the same time, the Commission issued a complementary (fourth) Rule of Law Recommendation (which supplements three previous Recommendations, adopted on July 27, 2016, December 21, 2016 and July 27, 2017) setting out the steps that the Polish authorities can take to remedy the situation. This fourth recommendation invites the Polish authorities to address the issues within three months and to inform the Commission of the steps taken to that effect. If the recommended actions are taken, the Commission will reconsider its Reasoned Proposal. The Commission's concerns relate to: (i) the lack of an independent and legitimate constitutional review (in the Commission's opinion, the independence and legitimacy of the Constitutional Tribunal in Poland have been seriously undermined and it is no longer able to provide effective constitutional review and the effectiveness of a constitutional justice system is a key component of the rule of law), and (ii) the threats to the independence of the ordinary judiciary arising from the adoption of new legislation relating to the Polish judiciary (the Act on the National Judicial Council, the Act on the System of Common Courts and the Act on the Supreme Court), which significantly increases the systematic threat to the rule of law in Poland.
Under Article 7.1 of the TEU, after hearing Poland's position, the Council must obtain consent of the European Parliament before adopting a decision by four-fifths majority of the member states (22 out of the 27 member states entitled to vote) determining that there is a clear risk of serious breach of the rule of law in Poland.
9

On March 1, 2018 he European Parliament accepted the Commission's proposal to trigger Article 7 of the TEU.
However, under Article 7 of the TEU, sanctions may only be imposed on a member state after a unanimous determination by all member states that of the existence of a serious and persistent breach of the rule of law. Once this decision has been made, the Council may decide, by a qualified majority, to suspend certain of Poland's rights under the EU, the most serious of which is the suspension of voting rights.
The Government does not believe that the EU Commission will impose any sanctions on Poland.
Inflow of EU Funds
One of the most important issues in the early years of Poland's membership of the EU was to implement effectively projects co-financed by the EU. This is in line with the principle of European solidarity, which requires that the more affluent EU member states help less developed EU countries bridge the gap in their economic and social development. Poland's EU membership resulted in a major inflow of EU funds of approximately EUR 147.6 billion between May 2004 and March 2018 (mostly from structural funds for Cohesion Policy-related initiatives and payments under the Common Agricultural Policy).  Conversely, during that period, Poland made approximately EUR 48.4 billion of "Own Resources" payments to the EU.  The net inflow of EU resources during that period amounted to approximately EUR 99.2 billion. The following table sets forth information relating to the inflow of EU funds into Poland for the periods indicated.
   
 
 
2014
   
 
2015
   
 
2016 
   
 
2017 
   
 
 
Three months ended March 31, 2018
   
(EUR millions)
Inflow of EU Funds
                           
Cohesion Policy 
   
12,001.1
     
7,932.9
     
5,180.6
     
7,078.0
     
1,524.6
Common Agricultural Policy
   
5,108.7
     
5,057.9
     
4,522.5
     
3,982.0
     
2,325.2
Other Funds 
   
14.8
     
63.2
     
273.3
     
92.6
     
10.8
Total 
   
17,124.6
     
13,054.1
     
9,976.4
     
11,152.6
     
3,860.6
____________
SourceMinistry of Finance
The decrease in inflow of EU funds between the years 2014 and 2017 is due to the change in EU spending policies, from the 2007-2013 EU financial perspective to the 2014 -2020 EU financial perspective. Spending of EU funds allocated under the 2007-2013 financial perspective was possible until the end of 2015.
Under the Cohesion Policy, Poland received higher inflows of EU funds in 2014 related to operational programs under the 2007-2013 EU financial perspective. Inflow of funds under this policy significantly decreased in 2015, as most of the inflows under the 2007-2013 EU financial perspective had already occurred in previous years. This trend was intensified by the fact that the first inflows for operational programs under the 2014-2020 EU financial perspective only occurred in 2016.
The Common Agricultural Policy was implemented in an accelerated pace and by 2015 the entire allocation of EU funds for this policy under the 2007-2013 EU financial perspective had been used. The decrease in inflow of EU funds under this policy in 2016 and 2017 is due to the early implementation of the Common Agricultural Policy under the 2014-2020 EU financial perspective, as inflows for agricultural programs began in 2014.
The following table sets forth information relating to the use of EU funds for the period from May 2004 to March 2018.
 
(EUR millions)
Current expenditures 
68,649.8
Capital expenditures 
78,919.8
Total 
147,569.6
____________
Source:  Ministry of Finance
10

The following table sets forth certain information with respect to the projected inflow of EU funds for the periods indicated.  These are projections based on the current EU budget and do not reflect legal commitments on behalf of the EU to provide the funds.  See "About this Prospectus" for further information with respect to forward looking statements.
   
2018
   
2019
   
(EUR millions)
Projected Future Inflows of EU Funds
         
Common Agricultural Policy 
   
4,838.0
     
4,861.0
Cohesion Policy 
 
9,953.0
   
11,684.0
____________
SourceMinistry of Finance
The following table set forth certain information with respect to Poland's contribution to the EU budget (i.e. "Own Resources" payments to the EU) for the periods indicated.
   
2014
   
2015
   
2016
   
2017
   
Three months ended March 31, 2018
   
(EUR millions)
Own Resources Payments
                           
Payments related to Gross National Income
   
2,932.4
     
2,962.8
     
3,003.4
     
2,024.7
     
683.5
Payments related to VAT 
   
529.6
     
481.1
     
555.4
     
570.8
     
134.1
Traditional Own Resources Payments
   
431.2
     
507.9
     
604.4
     
645.3
     
173.3
Rebates and corrections 
   
259.9
     
310.2
     
330.1
     
316.6
     
64.7
Total 
   
4,153.1
     
4,262.1
     
4,493.4
     
3,557.3
     
1,055.6
____________
SourceMinistry of Finance
Climate Change Policies and the Paris Agreement
Polish climate policies are based on the EU's common climate policy, pursuant to which the 2020 climate and energy package, which targets a 20 percent reduction of greenhouse gas emissions (compared to 1990), a 20 percent energy efficiency increase (compared to 2005) and an increase on the share of renewable energy sources in the total energy consumption to 20 percent (the Polish target is to increase to 15 percent), has been adopted for the period through 2020.
EU climate policy divides the economy into two sectors: the Emission Trading Scheme (the "ETS") sector (consisting of, among other sectors, industry and energy production), the total emissions of which are capped in consecutive years by emission allowances, which may be purchased by specific installations in auctions across the EU (the EU-wide goal in the ETS sector for 2020 is to reduce the emissions by 20 percent, as compared to 1990 levels), and the non-ETS sector (which includes agriculture, forestry and transport), for which EU member states have individual emission targets (Poland's target is an increase in emissions of 14 percent, as compared with 2005 levels).
The EU has also agreed to set a target domestic emission reduction of at least 40 percent by 2030 (compared to 1990 levels), where the ETS sector's target reduction is of 43 percent and the non-ETS sector's is of 30 percent (in each case for the EU as a whole). According to the provisional agreement between the European Council, European Parliament and European Commission as of December 2017, Poland will be required to decrease its emissions in the non-ETS sector by 7 percent compared with 2005 levels. This has yet to be formally adopted by both the European Parliament and the Council.
Since the reduction target submitted by the EU to the 2015 United Nations Climate Change Conference ("COP 21") reflects the abovementioned internal EU targets, the conclusion of the Paris Agreement under the United Nations Framework Convention on Climate Change (the "Paris Agreement") at COP 21 will in and of itself have no direct impact on Poland's energy sector or its economy. The final text of the Paris Agreement also calls for climate neutrality as a long-term goal, rather than decarbonization of the economy.
To achieve its energy efficiency goal, the National Energy Efficiency Action Plan for Poland 2017 was adopted by the Council of Ministers on January 23, 2018. The document includes measures to improve energy end-use efficiency by sector. It also includes calculations of the energy savings already obtained and planned to be achieved by 2020.
11

In order to achieve the goal to increase the share of renewable energy sources to 15 percent of total energy consumption in Poland (the target for the EU as a whole is 20 percent), the Ministry of Energy prepared a draft amendment to the Renewable Energy Law which was adopted by the Council of Ministers on March 6, 2018.
Over the last ten years, Poland has systematically improved the energy efficiency of all sectors of its economy by creating a common energy policy and laws on energy efficiency protecting consumer interests, taking into account available energy resources and the technological conditions of energy generation and transmission.
Poland's energy policy is currently under review by the new Government.
 
On February 22, 2018, the European Court of Justice ruled that Poland had breached EU standards on air pollution. Between 2007 and 2015, Poland exceeded the European limits for emission of PM10, a particulate matter of less than 10 micrometers in diameter that is harmful when inhaled. In this context, the Polish Government appointed a plenipotentiary to the Prime Minister to fully implement the new "Clean Air" program to fight smog. This new program contains fourteen actions to be taken as part of Poland's fight against smog, such as:
·
Measures to reduce high emissions from coal-fired furnaces;
 
·
Tax breaks for the purchase of electric, hybrid and hydrogen-powered cars;
 
·
The introduction of more stringent standards for coal sold to the public;
 
·
The introduction of lower tariffs for electricity for heating homes;
 
·
A thermo-modernization program.
Relationship with Multilateral Financial Institutions
Poland is a member of various multilateral financial institutions, including the World Bank, the EIB, the EBRD and the IMF.  As of February 28, 2018, Poland's liabilities to multilateral financial institutions amounted to EUR 18.1 billion and accounted for 25.8 per cent. of the State Treasury's total external debt.
 
World Bank
 
The World Bank program in Poland currently consists of two investment projects in the area of flood management: (i) the Odra River Basin Flood Protection and (ii) the Odra-Vistula Flood Management Project (with the financial engagement of the Council of Europe Development Bank) and a number of knowledge and advisory products that have helped Poland address its key development challenges, including in the areas of health, fiscal policy or regional disparities. As of March 31, 2018, the World Bank's exposure to Poland, net of principal repayments, amounted to EUR 7.0 billion.
 
European Investment Bank
 
The main areas of EIB operations in Poland comprise the transport, power and energy, water, sewerage, solid waste, urban development, health, higher education, telecommunications and agriculture sectors.  In addition, the EIB provides commercially based loans to private enterprises and municipalities, as well as loans to financial intermediaries, in order to fund loans to small and medium sized enterprises.
Total investment of the EIB in Poland amounted to EUR 5 billion in 2017. As of March 31, 2018, the EIB had committed EUR 66.2 billion to Polish borrowers, of which more than EUR 49.4 billion had already been disbursed.  As of March 31, 2018 the EIB's exposure to Polish borrowers, net of principal repayments, amounted to EUR 33.6 billion.
In the second half of 2015, the European Fund for Strategic Investments ("EFSI") was launched jointly by the EIB Group and the European Commission to drive investment in infrastructure and innovation projects across the EU as well as to help finance small- and medium-sized enterprises and mid-cap companies.  Poland is implementing the Plan and has obtained financing for several projects under the EFSI.
12

As of April 30, 2018, 37 projects were approved under the infrastructure and innovation window in Poland, totaling EUR 2.7 billion and mobilizing total investments related to the EFSI of up to EUR 8.5 billion. As of the same date, ten SME financing agreements were concluded with financial intermediaries (banks, investment funds) in Poland, totaling EUR 156 million in financing which is expected to trigger EUR 1.4 billion in investments.
European Bank for Reconstruction and Development
Since the beginning of its operations in Poland, the EBRD has invested over EUR 8.9 billion in nearly 398 projects (as of February 28, 2018) in various sectors of the country's economy (corporate, financial institutions, infrastructure and energy). Most of the EBRD's investments, approximately EUR 8.0 billion, was granted to the private sector.
EBRD's strategic directions for Poland include promotion of low carbon economy, enhancing the private sector's role in the economy and assisting in the development of a sustainable financial sector and capital markets.
International Monetary Fund
Poland is a member of the IMF's Special Data Dissemination System and complies with applicable practices and standards in publicly disseminating economic and financial data.  Currently, the IMF performs standard Article IV consultations with Poland on a 12-month cycle.
Between 2009 and 2017, Poland had access to IMF funds under the Flexible Credit Line ("FCL"), an instrument designed for countries with very strong economic foundations and policy frameworks. In those years, Poland treated the FCL as an emergency resource and did not borrow any of the available funds. Since January 2015, Poland has been gradually reducing the amount of funds available to it under the FCL, in line with its intention to terminate the agreement once external conditions improved. On November 3, 2017, Poland terminated the FCL agreement.
The last Article IV consultation with Poland was concluded by the Executive Board of the IMF on June 7, 2017. The consultation confirmed the strong economic fundamentals, adequate policies and the resilience of the financial sector in Poland. GDP growth is currently projected to accelerate to 3.8 percent in 2017 and remain strong in 2018. Risks to the short-term growth outlook are broadly balanced. The general government deficit is projected to be 2.9 percent of GDP in 2017. In the IMF's view, Poland's fiscal performance in 2017 has been very encouraging. The visible success of measures implemented to improve efficiency of the fiscal administration constitutes an important support for further fiscal consolidation. In the medium- to long- term the economy faces a number of challenges. The recently adopted Responsible Development Strategy sets a program designed to overcome these challenges as well as ambitious targets to raise living standards to the same level as in the more developed EU countries.
International Development Association
Since 1988 Poland has been a member and contributor to the IDA, which grants preferential long term loans to the world's poorest countries.  As of April 30, 2018, Poland's contribution to the IDA amounted to SDR 40.4 million and EUR 17.3 million of which SDR  35.9 million and EUR 1.0 million had already been paid. Poland's latest commitment to the IDA was made in October 2017 (IDA 18) and was twice as high as the previous commitments (amounting to EUR 17.3 million). Poland also participates in IDA's MDRI (Multilateral Debt Relief Initiative). As of April 30, 2018, Poland had committed PLN 37.0 million and had already paid PLN 8.3 million.
Nordic Investment Bank
Although Poland is not a member of the Nordic Investment Bank ("NIB"), it has access to NIB financing.  As of March 31, 2018, the NIB's exposure to Poland, net of principal repayments, amounted to approximately EUR 488.2 million.
 
13

 
Asian Infrastructure Investment Bank
 
In June 2016, Poland became a founding member of the Asian Infrastructure Investment Bank ("AIIB"). Poland is currently not borrowing from the AIIB.
Council of Europe Development Bank
Poland has been a member of the CEB since 1998.  As of March 31, 2018, the CEB had approved EUR 4.9 billion in loans to Poland, of which EUR 3.3 billion had already been disbursed. As of March 31, 2018, the CEB's exposure to the State Treasury amounted to EUR 210.4 million.
 
Major International Treaties
Since joining the EU, Poland's trade policy has been in accordance with the rules of the EU Treaty.  The EU has a customs union among EU member states and a common trade policy in relation to non-EU countries which involves, among other things, a common customs tariff, a common import and export regime and the undertaking of uniform trade liberalization measures as well as trade defense instruments.  Poland is a party to all trade agreements concluded by the EU with other countries.
The Accession Treaty, together with the Treaty on the EU and the Treaty on the Functioning of the EU, constitute the legal basis for regulating, inter alia, economic, trade, service, capital and human resource flows, investment support and protection.
In June 2017, Poland signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ("MLI"). On September 29, 2017, the Sejm implemented the act upon ratification of the MLI and gave its consent for the MLI's ratification by the Polish President. The act was approved by the Senate on October 19, 2017, and ratified by the Polish President on November 9, 2017. The MLI offers solutions for governments to close the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide. The MLI modifies the application of thousands of bilateral tax treaties concluded to eliminate double taxation.
14

The Economy
Poland, with over 38.4 million inhabitants, is the most populous member of the EU among all the countries of Central and Eastern Europe (and the 6th in the EU as a whole). The Polish economy has significant strengths: the private debt of nonfinancial enterprises and households is relatively low and the currency regime is flexible. Poland's exports and economy do not depend on a single sector and the domestic market is broad. The banking sector remains well capitalized, liquid and profitable and the macroeconomic policy is geared towards maintaining long-term high and sustainable growth. Since joining the EU in 2004, Poland has benefited significantly from EU structural funds, allowing the government to invest steadily in infrastructural and social development. Adjustments to the EU standards have supported the country's modernization. The service sector comprises the largest component of the Polish economy (63 percent), followed by the industry and construction sectors (34.5 percent) and agriculture (2.4 percent).
Strong macroeconomic fundamentals and policy framework, large and diversified domestic demand and agile fiscal policy made Poland the only EU country to have avoided recession during the post-2007 global economic and financial crisis, and growing by nearly 40 percent between 2008 and 2017, with an average annual GDP growth of more than 3 percent. Today Poland is the eighth-largest economy in the EU in real GDP terms, with a buoyant private sector, internationally competitive export-oriented companies, as well as well-educated and skilled human capital.
Poland's monetary policy framework is laid out in the Constitution and the Act on the National Bank of Poland ("NBP"). The NBP is responsible for the implementation of the monetary policy, the basic objective of which is to maintain price stability while supporting the Government's economic policy. For nearly 20 years, the Monetary Policy Council (the independent decision-making body of the NBP) ("MPC") has been conducting monetary policy with a direct inflation targeting strategy. In 2004, the MPC adopted an inflation target of 2.5 percent with a symmetrical tolerance band for deviations of ± 1 percent. The principles of the monetary policy strategy and the inflation target level have not changed since then.
Since 2004, the average consumer price index ("CPI") annual rate in Poland has not exceeded 4.5 percent and was slightly above 2 percent on average. Because of the relatively high share of food and energy in the CPI basket, inflation in Poland is sensitive to changes of commodity prices. Nevertheless, the level of core inflation (CPI excluding food and energy) remains low: it ranged from -0.2 to 2.7 percent per year between 2004 and 2017.
The following table illustrates certain macroeconomic statistics for the specific periods below:
   
2004
   
2008
   
2015
   
2016
   
2017
 
   
(Current prices, Purchasing Power Standards per capita)
 
GDP per capita 
   
11,300
     
14,500
     
19,800
     
19,900
     
-
 
   
(% of GDP)
 
Private consumption 
   
64.2
     
61.8
     
58.4
     
58.6
     
58.6
 
Public consumption 
   
18.3
     
18.6
     
18.0
     
17.9
     
17.7
 
Investment 
   
18.3
     
23.1
     
20.1
     
18.0
     
17.7
 
Export 
   
34.3
     
37.9
     
49.5
     
52.3
     
54.0
 
Import 
   
36.9
     
42.9
     
46.4
     
48.2
     
49.9
 
Value added:
                                       
   Industry 
   
22.9
     
21.8
     
23.2
     
23.4
     
23.9
 
   Construction 
   
5.7
     
6.9
     
7.1
     
6.2
     
6.5
 
   Trade; repair of motor vehicles 
   
16.5
     
16.4
     
15.7
     
15.5
     
15.7
 
   
(total=100)
 
Structure of employment (LFS(1), 15 years and over):
                                       
   Agriculture 
   
18.0
     
14.0
     
11.5
     
10.5
     
10.2
 
   Industry and Construction 
   
28.8
     
31.9
     
30.4
     
31.3
     
31.5
 
   Services 
   
53.2
     
54.2
     
58.1
     
58.1
     
58.3
 
   
(%)
 
Participation rate (LFS(1),, 15 and over)
   
54.4
     
54.2
     
56.2
     
56.2
     
56.4
 
Employment rate (LFS(1),, 20-64 years)
   
57.3
     
65.0
     
67.8
     
69.3
     
70.9
 
Unemployment rate (LFS(1),, 15-74 years)
   
19.1
     
7.1
     
7.5
     
6.2
     
4.9
 
Labour productivity per person (EU28=100)
   
61.7
     
62.0
     
74.0
     
75.2
     
-
 
CPI 
   
3.5
     
4.2
     
(0.9
)
   
(0.6
)
   
2.0
 
Core inflation 
   
1.7
     
2.3
     
0.3
     
(0.2
)
   
0.7
 
 
 
 
15

   
2004
   
2008
   
2015
   
2016
   
2017
 
   
(million EURO)
 
Official reserve assets 
   
26967
     
44139
     
86894
     
108064
     
94 550
 
   
(% of GDP)
 
International investment position 
   
(45.4
)
   
(47.1
)
   
(61.0
)
   
(59.9
)
   
(61.9
)
CAB 
   
(5.5
)
   
(6.7
)
   
(0.6
)
   
(0.3
)
   
0.3
 
Credit to the non-financial sector:
                                       
   Nonfinancial enterprises 
   
12.5
     
16.9
     
15.6
     
16.0
     
15.8
 
   Households 
   
11.8
     
28.7
     
34.3
     
35.1
     
33.3
 
 
Source: Eurostat, NBP, Statistics Poland, own calculations
Notice: data on labor market and balance of payments are not entirely comparable, because of changes in methodology
 
(1)
LFS – Labor Force Survey
 
Economic Performance
Poland has had a solid economic performance throughout the four quarters of 2017. GDP growth accelerated to 4.6 percent in 2017.  Private consumption remained the main engine of the economy supported by the good conditions of the labor market and fiscal stimulus (child benefits under the Family 500+ Program, a PLN 500 monthly tax-free allowance for each second and subsequent child under 18 in each family (irrespective of the family's monthly income) which includes the first child for families with low income). After contracting sharply in 2016, investment expanded 3.4 percent in 2017, with the biggest contribution coming from the general government sector. Strong foreign demand for Polish goods and services resulted in strong exports in 2017.
After four years of very weak inflationary pressure (including over two years of CPI deflation from July 2014 to October 2016, in the first quarter of 2017), the CPI rate increased, mainly driven by higher energy and food prices. In the following quarters of 2017, the CPI rate was relatively stable and it reached an average of 2.0 percent in 2017. In the first quarter of 2018, the CPI rate decreased to 1.5 percent, mainly driven by the slower growth of food and energy prices. Despite the favorable conditions of the labor market and the high growth of private consumption, core inflation (CPI excluding food and energy) has remained at low levels and has remained in the narrow band between 0.7 percent and 1.0 percent since April 2017.
The positive trends on the labor market continued in 2017 and in the beginning of 2018. Labor demand increased, unemployment declined and growth of real wages remained at a relatively high level. Harmonized unemployment rate (seasonally adjusted, Eurostat) fell to a historically low level (4.4 percent in February 2018).
External imbalance of the Polish economy is currently at a low level in historical terms. In 2016, Poland's current account deficit amounted to 0.3 percent of GDP. In 2017 the current account was slightly positive (0.3 percent of GDP). The main driver of the overall external imbalance was the negative primary income component (3.8 percent of GDP). At the same time, the balance of services registered a record high surplus (4.0 percent of GDP).
The MPC has kept the NBP's interest rates unchanged since March 2015, with the reference rate at 1.5 percent. The MPC has assessed the current level of interest rates to be sufficient to keep the Polish economy on the sustainable growth path as well as to maintain macroeconomic balance.
The following table sets out certain macroeconomic statistics for the five years ended 2017:
   
2013
   
2014
   
2015
   
2016
   
2017
 
   
(Real growth, %)
 
GDP 
   
1.4
     
3.3
     
3.8
     
3.0
     
4.6
 
Total consumption 
   
0.8
     
2.8
     
2.8
     
3.4
     
4.4
 
Private consumption 
   
0.3
     
2.4
     
3.0
     
3.9
     
4.7
 
Investment 
   
(1.1
)
   
10.0
     
6.1
     
(8.2
)
   
3.4
 
   
(Contribution to GDP growth, pp)
 
Domestic demand 
   
(0.6
)
   
4.7
     
3.2
     
2.2
     
4.85
 
Net export 
   
1.9
     
(1.4
)
   
0.6
     
0.7
     
0.21
 
   
(%)
 
Employment growth (LFS(1),, 15 years and over)
   
(0.1
)
   
1.9
     
1.4
     
0.8
     
1.4
 
Unemployment rate (LFS(1),, 15-74 years)
   
10.3
     
9.0
     
7.5
     
6.2
     
4.9
 
CPI 
   
0.9
     
0.0
     
(0.9
)
   
(0.6
)
   
2.0
 
NBP reference rate (end of the period) 
   
2.50
     
2.00
     
1.50
     
1.50
     
1.50
 
   
(% of GDP)
 
CAB 
   
(1.3
)
   
(2.1
)
   
(0.6
)
   
(0.3
)
   
0.3
 

 
Source: Statistics Poland, NBP, Eurostat, own calculations
(1)
LFS – Labor Force Survey
 
 
16

 
The following table illustrates the composition of GDP (as a percentage of total GDP) by sections for the periods indicated:
   
2013
   
2014
   
2015
   
2016
   
2017
 
   
(%)
 
Sections
                             
Agriculture, forestry and fishing 
   
2.9
     
2.6
     
2.2
     
2.4
     
2.1
 
Industry 
   
22.0
     
22.5
     
23.2
     
23.4
     
23.9
 
Construction 
   
6.6
     
7.0
     
7.1
     
6.2
     
6.5
 
Trade; repair of motor vehicles 
   
17.1
     
15.8
     
15.7
     
15.5
     
15.7
 
Transport 
   
5.3
     
5.5
     
5.7
     
5.7
     
6.0
 
Accommodation and catering 
   
1.0
     
1.0
     
1.0
     
1.0
     
1.0
 
Information and communication 
   
3.5
     
3.5
     
3.6
     
3.7
     
3.4
 
Financial and insurance activities 
   
3.8
     
4.0
     
3.6
     
3.9
     
3.6
 
Real estate activities 
   
4.6
     
4.7
     
4.4
     
4.6
     
4.5
 
Professional, scientific and technical activities and Administrative and support service activities
   
6.6
     
6.7
     
7.2
     
7.0
     
7.9
 
Public administration and defense; compulsory social security; Education; Human health and social work activities
   
13.3
     
13.3
     
13.1
     
13.1
     
12.5
 
Arts, entertainment and recreation; other service activities; activities of household and extra‑territorial organizations and bodies
   
2.1
     
2.1
     
2.0
     
2.1
     
2.0
 
Gross value added 
   
88.8
     
88.7
     
88.7
     
88.4
     
88.0
 
Taxes on products less subsidies on products
   
11.2
     
11.3
     
11.3
     
11.6
     
12.0
 
Gross Domestic Product 
   
100.0
     
100.0
     
100.0
     
100.0
     
100.0
 
___________
Source:  Statistics Poland.
Risks to the Polish Economy
The major risk factors for GDP growth in Poland are associated with the situation in the external environment, particularly with the Eurozone's economic performance. Poland's strong trade and financial links with the Eurozone, including through participation in the German supply chains, make it susceptible to shocks emanating from major trade partners. The weakening of the growth rate of the Eurozone might weigh on Polish exports and investment and ultimately adversely affect the economic growth in Poland. In the short term, downside risks from the external environment come mainly from elevated geopolitical tensions and protectionist policies, but also from potentially tighter global financial conditions. Uncertainties about macroeconomic policies pursued in major countries outside Europe and the upcoming Brexit add to these factors.

Supervision of companies with State Treasury shareholdings
The key element of the reform of the exercise of ownership rights of the Treasury is the December 16, 2016 Law, in force since January 1, 2017, on the rules of state property management, along with its implementing provisions, which implemented changes to the management system of state property.
 
17

In line with the new state property management system, the Prime Minister coordinates the ownership policy with respect to companies with Treasury shareholdings. Ownership rights with respect to those companies are exercised by ministers, government plenipotentiaries or state legal persons, according to rights conferred upon them by the Prime Minister.
The standards for both the selection of supervisory board members and the requirements from candidates to such positions were raised. The role of the supervisory board in the current activities of the companies was enhanced, which improved the transparency of distribution of the companies' funds with special oversight of representation, marketing and consulting expenses.
A new restriction on selling Treasury and state legal persons' shares was introduced and direct privatization was abandoned.
A group of 30 companies of particular importance for the economy was selected, in which the exercise of rights of the Treasury is subject to the Prime Minister's close scrutiny. The companies selected are characterized as having fundamental importance for the safety of the Polish economy and the country. This group includes, among others, companies from the sectors of hard coal mining, power generation, distribution of electricity and gas, as well as oil and gas, utility companies, air and rail transport, a postal company and defense companies. It also includes companies that have a key market share in a given sector, such as chemicals, banking and insurance.
The selection of companies was made taking into account (i) the company's size, measured by its assets, number of employees and turnover; (ii) the industry in which the company operates, with special emphasis on energy, fuel, gas, transport, media, banking, insurance, raw materials and state security; and (iii) the significance of the company's market share in the sector or industry or the national economy.
Analysis of the entities in which the State Treasury has a stake, taking into account the above criteria, led to the selection of a group of companies whose operations have a direct impact on the economic sphere in Poland, ensuring an appropriate level of national security.
The effectiveness of the new ownership policy can be evidenced by the increase in value of the key companies with Treasury shareholdings listed on the Warsaw Stock Exchange by almost PLN 15 billion (7.71 percent) in 2016 and more than PLN 67 billion (32.59 percent) in the first nine months of 2017. As a comparison, the WIG index (Warsaw Stock Exchange Index) increased by 24.22 percent, and the WIG20 (Warsaw Stock Exchange Index of the twenty largest companies on the Warsaw Stock Exchange) rose by 25.95 percent in the first nine months of 2017.
The Treasury property also generates regular income for the State budget, such as dividend and income payments, which in 2017 exceeded PLN 2 billion. This income is stable despite the intensive investment policy of the Treasury, which will continue to improve them and will increase future profits.
 
Labor Market
 
As of June 30, 2017, the number of employed persons in Poland amounted to 16.5 million.  One person out of three (31.6 percent) in the workforce was employed in the industrial sector and 57.5 percent in services.  A substantial share of the workforce is still employed in the agriculture sector (approximately 10.5 percent).
The registered unemployment rate at the end of December 2017 was 6.6 percent, down from 8.2 percent at the end of December 2016. As of December 31, 2017, young people (aged 18 to 24) constituted 13.5 percent of the registered unemployed, approximately 27.1 percent of all registered unemployed were persons with only primary education, incomplete primary or lower secondary education, and 42.1 percent of the registered unemployed had been without a job for more than one year.
The following table shows the employment rate by gender in Poland as of the end of the periods indicated (according to the Statistics Poland's Labor Force Survey):
 
18

     
Employment rate
 
     
Total
   
Male
   
Female
 
     
(%)
 
 
 2016                    
 
Q1
     
52.1
     
60.0
     
44.9
 
 
Q2
     
52.7
     
60.6
     
45.5
 
 
Q3
     
53.0
     
61.3
     
45.4
 
 
Q4
     
53.2
     
61.6
     
45.5
 
 
2017
                         
 
Q1
     
53.2
     
61.3
     
45.8
 
 
Q2
     
53.9
     
61.9
     
46.6
 
 
Q3
     
54.0
     
62.7
     
46.1
 
 
Q4
     
53.7
     
62.2
     
45.8
 
___________
Source:  Statistics Poland
The following table shows the employment by age in Poland as of December 2016 and 2017 (according to the Statistics Poland's Labor Force Survey):
         
Employment rate
 
   
Total
   
Male
   
Female
 
   
(%)
 
   
2016
   
2017
   
2016
   
2017
   
2016
   
2017
 
Total 
   
53.2
     
53.7
     
61.6
     
62.2
     
45.5
     
45.8
 
15 – 17 years 
   
1.3
     
1.7
     
2.0
     
2.1
     
-
     
1.2
 
18 – 19 years 
   
8.5
     
9.7
     
8.8
     
10.1
     
8.5
     
9.3
 
20 – 24 years 
   
48.9
     
51.0
     
56.5
     
58.5
     
40.9
     
43.1
 
25 – 29 years 
   
78.7
     
78.7
     
86.4
     
86.7
     
70.6
     
70.3
 
30 – 34 years 
   
81.0
     
82.3
     
89.1
     
91.0
     
72.6
     
73.2
 
35 – 39 years 
   
82.4
     
83.3
     
89.8
     
90.7
     
74.9
     
75.8
 
40 – 44 years 
   
83.8
     
84.2
     
89.7
     
89.9
     
77.8
     
78.4
 
45 – 49 years 
   
81.5
     
82.4
     
84.3
     
84.8
     
78.7
     
79.9
 
50 – 54 years 
   
75.5
     
76.6
     
78.5
     
79.7
     
72.6
     
73.5
 
55 – 59 years 
   
63.1
     
64.7
     
70.0
     
71.4
     
56.9
     
58.1
 
60 – 64 years 
   
32.3
     
33.5
     
44.9
     
48.2
     
21.4
     
20.6
 
60 years and more 
   
5.1
     
5.4
     
9.0
     
8.7
     
2.6
     
3.2
 
In the age:
                                               
15 – 64 years 
   
65.1
     
66.4
     
71.8
     
73.4
     
58.4
     
59.4
 
20 – 64 years 
   
69.9
     
71.1
     
77.3
     
78.8
     
62.6
     
63.5
 
55 – 64 years 
   
47.7
     
48.5
     
57.6
     
59.7
     
38.8
     
38.5
 
Pre - working 
   
1.3
     
1.7
     
2.0
     
2.1
     
-
     
1.2
 
Working1 
   
71.0
     
72.4
     
75.0
     
76.6
     
66.4
     
67.7
 
Mobile 
   
72.4
     
73.7
     
79.3
     
80.8
     
65.3
     
66.4
 
Non - mobile 
   
68.6
     
70.2
     
68.8
     
70.4
     
68.5
     
70.0
 
Post – working2 
   
8.2
     
8.2
     
9.0
     
8.7
     
7.8
     
7.9
 
___________
Source:  Statistics Poland
(1)
Women aged 18 – 59, men aged 18 – 64.
(2)
Women aged 60 and older, men aged 65 and older.
The following table shows the registered unemployment rate in Poland since 2013 for the periods indicated:
   
2014
   
2015
   
2016
   
2017
   
As of
March 31, 2018
 
   
(%)
 
Registered unemployment rate
   
11.4
     
9.7
     
8.2
     
6.6
     
6.6
 
___________
Source:  Statistics Poland
Citizens of Ukraine are the largest group of foreigners working in Poland. In 2016, the number of work permits issued for citizens of Ukraine totaled 106,223 (83 percent of total work permits issued). It represents an increase of 110 percent in comparison to the previous year. In 2016, short-term employment of Ukrainians increased by approx. 66 percent as compared with 2015. In 2016, district labor offices registered 1,262,845 employer's declarations of an intention to entrust work to Ukrainian citizens (96 percent of all registered declarations in that year).
 
19

In the first six months of 2017, the number of work permits issued for the citizens of Ukraine amounted to 91,436, which represented an increase of 114 percent in comparison to the first six months of 2016 (42,650 work permits issued).
At the same time, in the first six months of 2017, the number of registered employers' declarations of an intention to entrust work to Ukrainians was 904,854 which represented an increase of over 47 percent in comparison to the first six months of 2016 (614,196 registered declarations).
While recent statistics indicate a significant increase in the number of foreigners working in Poland, the participation rate of foreigners in Poland's labor market is still low in comparison with other EU countries, although it affects local economies in some regions. Immigration is considered to be a supportive instrument in alleviating the demographic challenges faced by Poland, and the Government's main focus in this context is on family policy (including expanding maternity leave and child income tax credit schemes) and labor force activation policy.
 
20

Balance of Payments and Foreign Trade
Balance of Payments
 
Since September 30, 2014, Poland has prepared balance of payments and international investment position data according to the sixth edition of the Balance of Payments and International Investment Position Manual ("BPM6").  Historical data was also re-compiled according to BPM6. Poland's current account deficit amounted to U.S.$2.7 billion in 2015 and U.S.$1.4 billion in 2016.  Measured by balance of payments statistics, the trade surplus (goods) amounted to U.S.$2.5 billion in 2015 and U.S.$3.3 billion in 2016.  In 2017 the current account was positive and amounted to U.S.$1.6 billion. This balance was influenced by positive balances of services, trade in goods as well as negative primary income balance and secondary income.
Poland's exports of goods have grown from approximately U.S.$72.7 billion in 2004 to U.S.$224.5 billion in 2017.  Significant expansion of Polish foreign trade has been fueled by a favorable competitive position and strong trade links with other EU countries, including participation in regional and international supply chains.  Export growth has been supported by the resulting gains in market share, and an expansion towards Central and Eastern Europe as well as other developing countries.
In 2017, the value of Poland's exports increased by 14.4 percent and the value of imports increased by 15.8 percent in comparison with 2016.  FDI inflows have financed a substantial portion of the current account deficit. In 2016, net FDI decreased and amounted to U.S.$5.6 billion.  In 2015 and 2016 net FDI fully covered the current account deficit.  In 2017, the balance of net FDI was positive and amounted to U.S.$1.9 billion.  The following table sets out Poland's balance of payments and related statistics for the periods indicated:
 
21

   
2013
   
2014
   
2015
   
2016
   
2017
 
   
(U.S.$ millions)
 
Current Account 
   
(6,744
)
   
(11,444
)
   
(2,659
)
   
(1,369
)
   
1,584
 
  Balance on Goods 
   
(453
)
   
(4,291
)
   
2,464
     
3,263
     
873
 
    Goods:  exports f.o.b. 
   
198,107
     
210,628
     
191,023
     
196,340
     
224,538
 
    Goods:  imports f.o.b. 
   
198,560
     
214,919
     
188,559
     
193,077
     
223,665
 
  Balance on Services 
   
10,145
     
12,046
     
12,111
     
15,582
     
21,035
 
    Services:  Credit 
   
44,629
     
48,723
     
45,098
     
49,812
     
59,211
 
    Services:  Debit 
   
34,484
     
36,677
     
32,987
     
34,230
     
38,176
 
  Balance on Primary Income 
   
(15,896
)
   
(18,649
)
   
(16,284
)
   
(18,680
)
   
(20,218
)
    Primary income:  Credit 
   
15,263
     
15,443
     
12,560
     
12,654
     
12,321
 
    Primary income:  Debit 
   
31,159
     
34,092
     
28,844
     
31,334
     
32,539
 
  Balance on Secondary Income 
   
(540
)
   
(550
)
   
(950
)
   
(1,534
)
   
(106
)
    Secondary Income:  Credit 
   
8,028
     
7,884
     
6,443
     
6,093
     
6,883
 
    Secondary Income:  Debit 
   
8,568
     
8,434
     
7,393
     
7,627
     
6,989
 
Capital Account 
   
11,964
     
13,305
     
11,331
     
4,884
     
6,805
 
  Capital account:  Credit 
   
12,620
     
14,340
     
12,025
     
5,670
     
7,327
 
  Capital account:  Debit 
   
656
     
1,035
     
694
     
786
     
522
 
Financial Account 
   
(6,018
)
   
(6,350
)
   
753
     
(551
)
   
1,473
 
  Direct investment assets 
   
(3,411
)
   
6,799
     
4,913
     
11,170
     
4,394
 
  Direct investment liabilities 
   
795
     
19,776
     
15,065
     
16,758
     
6,268
 
  Portfolio investment assets 
   
2,162
     
5,866
     
11,035
     
(6,101
)
   
1,161
 
    Equity securities 
   
1,185
     
2,613
     
9,997
     
(6,392
)
   
70
 
    Debt securities 
   
977
     
3,253
     
1,038
     
291
     
1,091
 
  Portfolio investment liabilities 
   
2,399
     
3,616
     
7,859
     
(2,200
)
   
6,105
 
    Equity securities 
   
2,648
     
3,146
     
4,117
     
(2,655
)
   
1,578
 
    Debt securities 
   
(249
)
   
470
     
3,742
     
455
     
4,527
 
  Other investment assets 
   
1,559
     
4,453
     
5,153
     
2,421
     
5,082
 
    Monetary authorities 
   
1
     
2
     
1
     
245
     
(245
)
    Central and local government 
   
58
     
(5
)
   
41
     
243
     
(18
)
    MFI (excluding Central Bank) 
   
(1,001
)
   
859
     
67
     
345
     
594
 
    Other sectors 
   
2,501
     
3,597
     
5,044
     
1,588
     
4,751
 
  Other investment liabilities 
   
3,369
     
316
     
(2,419
)
   
16,274
     
(12,154
)
    Monetary authorities 
   
1,888
     
(1,480
)
   
(50
)
   
16,732
     
(11,177
)
    Central and local government 
   
2,843
     
2,503
     
(34
)
   
(122
)
   
(786
)
    MFI (excluding Central Bank) 
   
193
     
1,278
     
(1,902
)
   
(2,746
)
   
(2,832
)
    Other sectors 
   
(1,555
)
   
(1,985
)
   
(433
)
   
2,410
     
2,641,
 
  Financial derivatives 
   
(710
)
   
(64
)
   
(978
)
   
130
     
(1,157
)
  Official Reserve Assets 
   
945
     
304
     
1,135
     
22,661
     
(7,788
)
Net errors and omissions 
   
(11,238
)
   
(8,211
)
   
(7,919
)
   
(4,066
)
   
(6,916
)
Source:  NBP
Foreign Direct Investment
FDI comprises transactions on shares in direct investment entities (including purchases of such shares), reinvestment of earnings and a balance of transactions on debt instruments.
The inflow of FDI to Poland is based on data reported by companies and by banks.  Annual figures on FDI are set according to the OECD Benchmark Definition of Foreign Direct Investment – 4th edition.  The following table sets out the inflow of FDI to Poland for the periods indicated:

   
Components of FDI inflow
 
   
Equity capital
   
Reinvested earnings
   
Other capital
   
Total (net)
 
   
(U.S.$ millions)
 
Year
                       
2012 
   
3,822
     
5,605
     
2,996
     
12,422
 
2013 
   
(1,795
)
   
4,661
     
760
     
3,625
 
2014 
   
4,214
     
8,221
     
1,830
     
14,266
 
2015 
   
5,803
     
7,731
     
1,735
     
15,268
 
2016 
   
2,137
     
8,679
     
3,110
     
13,927
 
___________
Source:  NBP
In 2016 the value of net FDI inflow amounted to U.S.$13,927 million.  In 2016, the net inflow from EU countries amounted to U.S.$12,792 million, with the most significant investments coming from the Netherlands and Germany, and the net outflow to countries outside the EU amounted to U.S.$1,135 million,
22

with the most significant investment coming from Switzerland.  The following table sets out the inflow of FDI to Poland from selected countries in 2016:

   
Components of FDI inflow
 
   
Equity capital
   
Reinvested earnings
   
Other capital
   
Total (net)
 
   
(U.S.$ millions)
 
Country
                       
Total World 
   
2,137
     
8, 679
     
3,110
     
13,927
 
of which:
                               
EU 
   
2,296
     
7,848
     
2,649
     
12,792
 
of which:
                               
Netherlands 
   
2,051
     
2,284
     
785
     
5,120
 
Germany 
   
146
     
2,129
     
1,202
     
3,477
 
Luxembourg 
   
195
     
799
     
1,213
     
2,207
 
France 
   
159
     
370
     
503
     
1,032
 
Austria 
   
397
     
171
     
454
     
1,022
 
United Kingdom 
   
302
     
284
     
(56
)
   
531
 
Ireland 
   
85
     
3
     
(660
)
   
(573
)
Extra EU 
   
(158
)
   
832
     
461
     
1,135
 
of which:
                               
Switzerland 
   
272
     
407
     
218
     
898
 
___________
Source:  NBP
In 2016, the most significant inflow of investment was in the manufacturing sector, which amounted to U.S.$4,037 million.  There were also significant inflows from professional, scientific and technical activities (U.S.$2,643 million) and from information and communication (U.S.$2,485 million).  The following table sets out the inflow of FDI to Poland in selected sectors in 2016:

   
Components of FDI inflow
 
   
Equity capital
   
Reinvested earnings
   
Other capital
   
Total (net)
 
   
(U.S.$ millions)
 
Economic activity
                       
Manufacturing 
   
(278
)
   
3,538
     
777
     
4,037
 
Professional, scientific and technical activities
   
1,371
     
623
     
649
     
2,643
 
Information and communication 
   
125
     
1,030
     
1,330
     
2,485
 
Wholesale and retail trade; repair of motor vehicles and motorcycles
   
523
     
1,490
     
(497
)
   
1,516
 
Real estate activities 
   
545
     
644
     
292
     
1,481
 
Financial and insurance activities 
   
(261
)
   
892
     
428
     
1,058
 
Transportation and Storage 
   
(27
)
   
235
     
(219
)
   
(12
)
Electricity, gas, steam and air conditioning supply
   
49
     
(286
)
   
(251
)
   
(488
)
Other service activities 
   
0
     
8
     
(4
)
   
4
 
Total 
   
2,137
     
8,679
     
3,110
     
13,927
 
___________
Source:  NBP
Inflow of FDI in 2016 was mainly attributable to: (i) reinvested earnings amounting to U.S.$8,679 million; (ii) net inflow of capital against debt instruments (other capital) of U.S.$3,110 million; and (iii) net inflow of equity of U.S.$2,137 million.
Portfolio Investment Liabilities
In the first six months of 2017, the balance on foreign investment portfolio was positive and amounted to U.S.$4.3 billion.  Investment in debt securities by non-residents stood at U.S.$3.9 billion, mostly in Treasury Bonds issued in the domestic market (U.S.$4.7 billion).  Investment in equity securities by non-residents stood at U.S.$0.4 billion net (mostly equity securities issued by the enterprise sector).
At the end of June 2017, Poland's investment liabilities portfolio totaled U.S.$171.4 billion.  The foreign investment holdings of Polish debt securities portfolio amounted to U.S.$124.3 billion and of equity securities to U.S.$47.1 billion.  The main holders of Polish debt securities (issued in the domestic market) originated from Japan, the United States, Luxembourg, Norway, Ireland, Germany and the United Kingdom. 
23

Non-resident holders (other than direct investors) of Polish equity securities originated mainly from the United States, Germany, Luxembourg and France.
Foreign Trade
 
Exports accounted for 46.3 percent of GDP in 2013, 47.6 percent in 2014, 49.5 percent in 2015, 52.3 percent in 2016 and 54.0 percent in 2017.  Imports constituted 44.4 percent in 2013, 46.1 percent in 2014, 46.4 percent in 2015, 48.2 percent in 2016 and 49.9 percent in 2017.
Focus of Trade
In 2017, trade with EU countries accounted for 79.7 percent of exports and 60.1 percent of imports.  Germany is Poland's largest trading partner, accounting for 27.4 percent of exports and 23.1 percent of imports in the first nine months of 2017.  Trade with other EU countries accounted for 52.3 percent of exports and 37.0 percent of imports in the same period.
The most significant export items in 2016 were machinery and transport equipment (cars, vehicles, ships, boats, parts and accessories to motor vehicles), manufactured goods and miscellaneous manufactured articles (other consumer goods).  The most significant imported items are similar to those which dominate exports, with chemicals and related products playing a relatively more important role than that of exports.
The following table sets out, on a percentage basis, the geographic distribution of Poland's exports and imports for the years indicated:

   
2013
   
2014
   
2015
   
2016
   
2017
 
   
Export
   
Import
   
Export
   
Import
   
Export
   
Import
   
Export
   
Import
   
Export
   
Import
 
Developed Countries:
                                                           
Germany 
   
25.1
     
21.7
     
26.3
     
22.0
     
27.1
     
22.9
     
27.4
     
23.3
     
27.4
     
23.1
 
United Kingdom
   
6.5
     
2.6
     
6.4
     
2.6
     
6.7
     
2.7
     
6.7
     
2.6
     
6.4
     
2.4
 
Other EU countries 
   
43.4
     
34.2
     
44.8
     
34.4
     
45.6
     
34.4
     
45.7
     
35.3
     
45.9
     
34.6
 
Other developed countries
   
6.9
     
7.5
     
6.6
     
6.9
     
6.3
     
6.9
     
6.5
     
7,0
     
6.7
     
7.4
 
Total developed countries
   
81.9
     
66.0
     
84.1
     
65.9
     
85.7
     
66.9
     
86.3
     
68.2
     
86.4
     
67.5
 
Central and Eastern Europe:
                                                                               
CEFTA(1) 
   
0.6
     
0.2
     
0.7
     
0.2
     
0.6
     
0.2
     
0.7
     
0.3
     
0.7
     
0.3
 
Russia 
   
5.3
     
12.1
     
4.2
     
10.3
     
2.9
     
7.3
     
2.8
     
5.8
     
3.0
     
6.5
 
Other Central and Eastern Europe(2)
   
4.2
     
1.6
     
3.1
     
1.5
     
2.5
     
1.3
     
2.7
     
1.4
     
2.9
     
1.6
 
Total Central and Eastern Europe
   
9.4
     
13.6
     
7.3
     
11.8
     
5.3
     
8.6
     
5.5
     
7.2
     
5.9
     
8.1
 
Developing countries 
   
8.7
     
20.4
     
8.6
     
22.3
     
9.0
     
24.5
     
8.2
     
24.6
     
7.7
     
24.5
 
Total 
   
100.0
     
100.0
     
100.0
     
100.0
     
100.0
     
100.0
     
100.0
     
100.0
     
100.0
     
100.0
 
___________
Notes:
(1)
In 2006, CEFTA consisted of Bulgaria, Romania, Croatia and Macedonia.  From May 1, 2007 to July 2013, CEFTA comprised: Albania, Bosnia and Herzegovina, Croatia, Macedonia, Moldova, Montenegro, Serbia and Kosovo.  Since July 1, 2013, CEFTA no longer includes Croatia due to Croatia’s accession to the EU.
(2)
“Other central and eastern Europe” includes European countries of the former USSR.
Source:  Statistics Poland
Trade Policy
Since Poland's accession to the European Union on May 1, 2004, Poland has applied the EU's Customs Tariff.
The Common Customs Tariff specifies tariff classification rules and customs rates for each Combined Nomenclature ("CN") code describing goods.  Each economic operator that operates in Poland is obliged to comply with the Common Customs Tariff if its activity consists of the import or export of goods, regardless of whether they are domestic or foreign economic operators.
The Common Customs Tariff is binding in its entirety and directly applicable in all EU member states, including Poland.
Since January 1, 2018, the Commission Implementing Regulation (EU) No 2017/1925 of October 12, 2017 amending Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on
24

the Common Customs Tariff (OJ L 282 of October 31, excise tax 2017) has governed the Common Customs Tariff.
The average effective tariff rate as provided in the Budget Act for 2018 is 1.0 percent.

Official Reserves
In 2015, Poland’s official reserves decreased by U.S.$5.5 billion and as of December 31, amounted to U.S.$94.9 billion.  In 2016, reserves increased by U.S.$19.5 billion and as of December 31, amounted to U.S.$114.4 billion.  In 2017, Poland’s official reserves decreased by U.S.$1.1 billion and as of December 31 amounted to U.S.$113.3 billion. The Government considers these reserves to be adequate based on Poland’s short-term external debt and the months of import coverage these reserves provide.
The following table sets out certain information in U.S. dollar equivalents regarding Poland's official reserve assets at the end of the periods indicated.
   
Official Reserve Assets(1) Excluding Monetary Gold
   
Official Reserve Assets of Monetary Gold
   
Total Official Reserve Assets
   
Months of Import Coverage(2) in Total Official Reserves Assets
 
   
(U.S.$ millions)
   
(U.S.$ millions)
   
(U.S.$ millions)
       
2013 
   
102,243.8
     
3,975.7
     
106,219.5
     
6.4
 
2014 
   
96,469.6
     
3,968.6
     
100,438.2
     
5.6
 
2015 
   
91,405.8
     
3,515.3
     
94,921.1
     
6.0
 
2016 
   
110,554.6
     
3,837.0
     
114,391.6
     
7.1
 
2017 
   
108,986.8
     
4,292.1
     
113,278.9
     
6.1
 
___________
(1)
Including Poland's reserve position in IMF.
(2)
Based on average imports of goods.
Source:  NBP


25

Monetary and Financial System
Structure and Development of the Polish Banking System
 
As of September 30, 2017, there were 35 commercial banks (14 with majority Polish ownership and 21 with majority foreign ownership), 555 cooperative banks and 28 branches of foreign credit institutions operating in Poland. Three domestic banks performed services abroad either through a subsidiary or a branch, however the scope of this activity remained limited. The sector was dominated by commercial banks, which collectively held 92.9 percent of the total sector's assets. The market share of foreign controlled banks in the banking sector assets amounted to 45.4 percent (including branches of credit institutions). Concentration of the market is moderate, the market share of the five largest banks in the sector's assets amounted to 48.3 percent.
The Polish banking sector earnings and profitability were in line with European averages. At the end of September 2017, annualized Return on Assets ("ROA") was 0.76 percent, which was considerably higher than the ratio in the EU as demonstrated by EBA Risk Dashboard Data as of Q2 2017. On the first nine months of 2017, the net profit of the banking sector was 7 percent lower than in the same period of the previous year, mainly as a result of external factors (such as the banking tax (which has been in force since February 2016), and one-off annual payments to the bank resolution fund (which was paid in full by most banks in the first three months of 2017, compared to payments in four installments in 2016)) and the high base effect (non-recurring income from the sale of Visa Europe in June 2016). The monthly banking tax rate of 0.0366 percent is applied to the tax base of total assets decreased by PLN 4 billion, value of Treasury bonds, value of own funds and, in the case of affiliating banks, deposits of affiliated cooperative banks. The banking tax has been in force since February 2016. Banks are obliged to pay the total annual contribution to the bank resolution fund in the Bank Guarantee Fund ("BGF") each year until July 20, comparing to four quarterly instalments in 2016. Most large banks paid the total annual contribution in Q1 2017. Despite the persistent low interest rate environment, the NIM ratio was steadily rising over the recent two years and in September 2017 amounted to 2.41 percent.
Lending to non-financial customers grew by 5.0 percent year-on-year (on an exchange rate adjusted basis) as of September 2017. Growth of lending to non-financial customers was slightly higher than the growth of nominal GDP in the same period and thus supported sustainable economic growth without giving rise to imbalances in the economy nor in the financial system. The ratio of loans to the non-financial sector to GDP was stable and relatively low (it amounted to approximately 51 percent as of September 30, 2017 and increased by 5 percent since the end of 2008). Lending to corporations increased at 5.6 percent per year, mainly backed by a strong growth of 12.1 percent on investment loans. Consumer loans grew by 5.8 percent per year, and housing loans by 3.4 percent per year. Zloty denominated housing loans grew by 10.7 percent and foreign currency denominated housing loans decreased by 7.3 percent per year. Since 2011, new housing loans are being granted mostly in domestic currency, as a result the share of FX housing loans in the total stock of housing loans is continuously decreasing. In September 2017, the total share of FX housing loans in the total stock of housing loans amounted to approximately 36 percent (in 2009 it reached over 70 percent). All data on loan volume changes quoted in this paragraph are exchange rate adjusted.
The quality of the Polish banking sector's assets was high and gradually improving, supported by favorable performance of the corporate sector and the labor market. Total NPL ratio decreased to 6.9 percent in September 2017 from 7.3 percent in the same period of 2016. Housing loans portfolio outperformed other loan portfolios, the NPL ratio amounted to 2.9 percent. Coverage of impaired loans by provisions (59.1 percent for household impaired loans and 48.5 percent for enterprise impaired loans) is sufficient, taking into account the average collateralization of loans and market prices of impaired loans.
The Polish banking sector remained well capitalized. According to EBA Risk Dashboard as of September 30, 2017 the average capital ratios of Total Capital (TCR) and Tier 1 was 18.0 percent and 16.5 percent, respectively. Even though the Tier 1 capital ratio of the Polish banking sector remained close to the EU average (15.7 percent as of June 30, 2017), it was better capitalized since banks in Poland apply significantly more conservative risk weights. The ratio of risk weighted assets to total assets in Poland was significantly higher than the EU average (60.5 percent compared to 36.8 percent as of June 30, 2017). Consequently, according to ECB the average leverage (assets to equity) for Polish banks was approximately 9.3, compared to 15.5 in the EU.
26

Funding and liquidity of Polish banks remained sound. Banks have continued increasing the share of cheaper local funding (mainly non-financial sector deposits) in their funding structure. The growth rate of deposits was high (5 percent year-on-year (on an exchange rate adjusted basis) on September 30, 2017 , of which deposits of households grew by 5.6 percent year-on-year and deposits of enterprises by 3 percent on September 30, 2017). The loan to deposit ratio remained in a gradual downward trend and amounted to 98.2 percent on September 30, 2017. Total liabilities of the banking system to financial non-residents (of which 70.6 percent were in foreign currency as of September 30, 2017) continued the downward trend and accounted for approximately 11.1 percent of bank assets on September 30, 2017 (as compared to the highest historical value of approximately 20 percent in the beginning of 2009.
The National Bank of Poland
 
The NBP is the central bank of Poland. It is authorized by the Constitution, the Act on Narodowy Bank Polski of August 29, 1997 as amended (the "NBP Act") and the Banking Act of August 29, 1997 as amended (the "Banking Act") and are consistent with EU standards. EU law, the Constitution of the Republic of Poland and the NBP Act all confirm the NBP's independence, which is essential for the credibility of the central bank. According to the Constitution, the NBP has the exclusive right to issue money as well as to formulate and implement monetary policy. In line with the Act on NBP, it provides banking services to the State budget. Although the NBP may act as a financial agent to the Government, it is not regarded as liable for the obligations of the State Treasury in this respect. NBP is also responsible for establishing the necessary conditions for the development of the banking system. Following an amendment to the Act on NBP in 2015, NBP has been assigned the task of acting towards stability of the financial system as well as eliminating or reducing the systemic risk of the financial sector.
The NBP has three governing bodies, the President, the MPC and the Management Board. The President of the NBP is appointed by the Sejm at the request of the President of the Republic of Poland for a six-year term, with strictly limited possibilities of removal. Adam Glapiński was officially appointed President of the NBP by the Sejm on June 10, 2016 and took office on June 21, 2016 after taking an oath of allegiance to the Sejm. The President of the NBP is the chairman of the two other governing bodies of NBP as well as of the Financial Stability Committee in the area of the macroprudential supervision. Under the NBP Act, the powers of the President of the NBP are separated from those of the MPC and the Management Board of the NBP.
Monetary policy decisions are taken by the MPC. According to the Constitution and the Act on NBP, the MPC formulates annual monetary policy guidelines and submits these to the Sejm together with the Draft Budget Act submitted by the Council of Ministers. Based on these guidelines, the MPC makes monetary policy decisions, in particular on interest rates, required reserve ratios and remuneration rates on the reserve holding. In addition, the Constitution requires that within 5 months following the end of each fiscal year, the MPC submits to the Sejm a report on the achievement of the purposes of the monetary policy. The Council also issues a triannual Inflation Report, which presents the MPC's assessment of the macroeconomic conditions influencing inflation developments.
The MPC consists of the President of the NBP as Chairman and nine Members from outside the NBP, which are appointed in equal numbers by the Polish President, the Sejm and the Senate for a period of 6 years. The tenure of eight of the current Members and the Chairman began in 2016.
The principles for setting the zloty exchange rate are laid down by the Council of Ministers (i.e. the Government) in consultation with the MPC. The NBP Management Board performs tasks related to the foreign exchange policy. The NBP publishes current middle exchange rates for foreign currencies and rates for other types of foreign exchange such as buy and sell prices of foreign currencies and performs its function of central foreign exchange authority by holding and managing the official foreign exchange reserves, and by conducting banking operations and taking other measures to ensure the safety of foreign exchange operations and liquidity of international payments.
The NBP Management Board's core responsibilities include implementing the resolutions of the MPC, supervising open market operations, performing tasks concerning the exchange rate policy and analyzing the stability of Poland's financial system. The Management Board consists of the President of the NBP and six to eight members, of which two are Vice Presidents. In line with the Management Board's mandate regarding financial stability set forth in the NBP Act, the NBP produces a semi-annual Financial Stability Report, which
27

analyzes the resilience of the domestic financial system, in particular of the banking sector, against potential or materialized financial and macroeconomic shocks. The reports take into account a wide range of financial and macroeconomic indicators which are largely based on data received directly from financial institutions and supported by the NBP's own quantitative and qualitative research.
Financial Stability Committee - Macroprudential Authority
According to the Act on Macroprudential Supervision, FSC is the macroprudential authority in Poland. The FSC is a collegial body where four main financial safety net institutions: the NBP, the Ministry of Finance, the Polish Financial Supervision Authority and the BGF are represented. The President of the NBP is the chairman of the Committee in the area of macroprudential supervision. The secretariat for the FSC is provided by the NBP.
The primary task of the FSC is to identify, assess and monitor systemic risks stemming from the financial system or its environment, as well as to limit such risks using macroprudential instruments. For this purpose, the Committee may deploy soft law instruments, such as issuing recommendations or statements.
Recommendations are issued when the FSC wants to indicate the need to take measures to mitigate the systemic risk identified. Addressees of the recommendations can only be the NBP, the Ministry of Finance, the Polish Financial Supervision Authority and the BGF that are institutions that have the possibility to take supervisory and regulatory measures in order to stabilize the domestic financial system. Recommendations are not legally binding, however are backed by a "comply or explain" mechanism.
When a high level of systemic risk is identified and the FSC finds it necessary to inform about the source of this risk and the possible consequences for the financial system, the FSC will issue a statement. The range of addressees of the statement is wide and includes both the NBP, the Ministry of Finance, the Polish Financial Supervision Authority, the BGF and other entities in the financial system. The issuance of a statement may serve only as a communication instrument, but it should also encourage the competent authorities or economic agents to take corrective action to limit the consequences of the systemic risk.
The Committee holds its meetings every quarter. Information on its activities is available at: http://www.nbp.pl/macroprudentialsupervision/index.aspx.
The FSC, as a Polish macroprudential authority, cooperates with the European Systemic Risk Board (ESRB), other European Union authorities, macroprudential authorities of the member states or third countries, as well as international institutions.
Monetary Policy
 
The primary objective of the NBP's monetary policy is to maintain price stability, while supporting the economic policy of the Government. While striving to maintain price stability, the NBP pursues the inflation targeting strategy under the floating exchange rate regime. At the same time, monetary policy is conducted in a way that fosters sustainable economic growth and financial stability.
The MPC sets a numerical medium‑term target for inflation and meets regularly each month to discuss the economic conditions and outlook, and, after analyzing risks to price stability, takes no action or adjusts the monetary policy instruments. The NBP's main instrument is a short-term interest rate.
Since 2004, the medium‑term inflation target has been set at 2.5 percent with a symmetrical band for deviations of +/‑ 1 percentage point. The target is defined over a medium‑term horizon and in terms of annual growth of CPI. Every year the MPC also publishes Monetary Policy Guidelines, providing an outline for the monetary policy in the coming year. This outline is fully compatible with the medium‑term strategy.  Since the introduction of the medium-term target of 2.5 percent, the average CPI inflation in Poland has amounted to 2.0 percent. After a rise of inflation in early 2017, consumer price growth stabilized at a level close to but below the NBP's target (2.0 percent in December 2017). Volatile factors, such as energy and food prices, have been recently exerting some upward pressure on consumer prices. At the same time, since the beginning 2017 core inflation has been stable and moderate (0.9 percent in December 2017). According to the NBP's November 2017 Inflation Report, CPI inflation is expected to remain close to the target in the coming years.
28

Since March 2015, the MPC has been keeping the NBP interest rates unchanged, with the level of the NBP's reference rate remaining at 1.5 percent.
Monetary Policy Implementation
 
The NBP's interest rates are the principal instrument of monetary policy with regard to reaching predetermined inflation targets in Poland. By setting the level of these rates, the MPC influences the level of short-term money market interest rates.
The NBP's reference rate reflects the general direction of monetary policy. It determines the yield obtainable on open market operations. Due to a liquidity surplus prevailing in the Polish banking sector, open market operations are used to absorb excess liquidity from the interbank market. Starting from 2008, open market operations have been conducted on such a scale as to enable the Polish Overnight Index Average ("POLONIA") to run close to the NBP's reference rate.
The NBP's open market operations can be divided into the following three categories:
·
main open market operations, which are executed on a weekly basis in the form of the issuance of NBP bills with a seven-day maturity. A fixed rate at the level of the NBP's reference rate is binding during tenders. Regular issuance of NBP bills plays a pivotal role in pursuing the objectives of the NBP’s open market operations;
 
·
fine-tuning open market operations that may be conducted with the aim of limiting the volatility of short-term market interest rates. They are executed on an ad-hoc basis within the required reserve maintenance periods, whenever liquidity conditions in the banking sector are substantially out of balance, as well as on the last business day of the above-mentioned reserve maintenance periods. This may involve liquidity-absorbing operations (issuance of NBP bills, reverse repo transactions) or liquidity-providing ones (redemption of NBP bills before maturity, repo transactions). The maturity and yield of these operations as well as the exact manner in which they are carried out depend on the situation in the banking sector; and
 
·
structural open market operations which may be conducted in order to affect the long-term liquidity structure in the banking sector. If required, the NBP may carry out the following structural operations: bond issuances and the purchase or sale of securities in the secondary market.
The following table sets out details of interest rates set by the NBP and changes made to them since 2009:
   
Lombard Rate
   
Reference Rate
   
Deposit Rate
 
   
(%)
 
Effective Date
                 
January 28, 2009 
   
5.75
     
4.25
     
2.75
 
February 26, 2009 
   
5.50
     
4.00
     
2.50
 
March 26, 2009 
   
5.25
     
3.75
     
2.25
 
June 25, 2009 
   
5.00
     
3.50
     
2.00
 
January 20, 2011 
   
5.25
     
3.75
     
2.25
 
April 6, 2011 
   
5.50
     
4.00
     
2.50
 
May 12, 2011 
   
5.75
     
4.25
     
2.75
 
June 9, 2011 
   
6.00
     
4.50
     
3.00
 
May 10, 2012 
   
6.25
     
4.75
     
3.25
 
November 8, 2012 
   
6.00
     
4.50
     
3.00
 
December 6, 2012 
   
5.75
     
4.25
     
2.75
 
January 10, 2013 
   
5.50
     
4.00
     
2.50
 
February 7, 2013 
   
5.25
     
3.75
     
2.25
 
March 7, 2013 
   
4.75
     
3.25
     
1.75
 
May 8, 2013 
   
4.50
     
3.00
     
1.50
 
June 6, 2013 
   
4.25
     
2.75
     
1.25
 
July 4, 2013 
   
4.00
     
2.50
     
1.00
 
October 9, 2014 
   
3.00
     
2.00
     
1.00
 
March 4, 2015…………………………………………
   
2.50
     
1.50
     
0.50
 
___________
Source:  NBP
 
29

The latest easing cycle started in late 2012. Since then, interest rates have been cut on 10 occasions, bringing the reference rate to 1.5 percent in March 2015. Interest rates remain unchanged since March 4, 2015.
Bank Regulation
 
With effect from January 1, 2008, banking supervision has been carried out by the Polish Financial Supervision Authority (PFSA) as stipulated in the Act of July 21, 2006 on the Supervision of the Financial Market (the "Financial Market Supervision Act").
According to Article 4, paragraph 1 of the Financial Market Supervision Act, the PFSA's responsibilities comprise the following:
·
exercising supervision of the financial market;
 
·
taking action to foster the proper operation of the financial market;
 
·
taking action to promote the development of the financial market and its competitiveness;
 
·
taking educational and informative actions related to the operation of the financial market;
 
·
participating in the preparation of legal acts relating to financial market supervision;
 
·
creating opportunities for the amicable and conciliatory dissolution of disputes between the participants of the financial market, including, in particular, disputes arising from contractual relationships between the entities subject to the PFSA’s supervision and the customers buying their services; and
 
·
other statutory tasks.
Credit Unions
 
Deposit-taking institutions in Poland include credit unions. Credit unions form a system that is almost entirely separated from the banking sector, both in terms of regulatory framework (they are regulated by specific regulations beyond the Banking Act, however some provisions of the Banking Act apply to them) and economic links.  Credit unions constitute a relatively small part of the Polish financial system and the ratio of assets of the 35 credit unions operating in Poland to the total assets of the banking sector stood at less than 0.6 percent as of September 30, 2017. Due to their small size and the absence of links with other financial institutions, credit unions do not pose a systemic risk.
As of September 30, 2017, disbursements of covered deposits made from the BGF to customers of 4 failed credit unions stood at PLN 1.1 billion. The BGF also provided the banks and their subsidiaries that took over failed credit unions with unlimited guarantees covering any losses resulting from the takeovers. Provision of such disbursements and guarantees may continue in the future due to the ongoing restructuring of the credit union sector.
Foreign Currency housing loans portfolio
 
In the years 2007 and 2008, in the period when the Polish zloty remained strong in relation to foreign currencies, a marked increase in foreign currency housing loans was observed, in CHF in particular. This increase was a result of both demand and supply factors, including housing aspirations of the society, differences in the interest rates and the expectation that Poland would accede to the Eurozone. Since the end of 2011, lending in the housing loans segment has focused almost exclusively on loans in zloty as a consequence of the changes in strategies of banks and the activities of the supervisory authority and the NBP. As of September 2017, the value of the foreign currency housing loans portfolio represents 8.1 percent of the banking sector assets.
In August 2017, the President of the Republic of Poland submitted a draft bill amending the Act of October 9, 2015 on support to borrowers in difficult financial situation, who took out housing loans and the Act of February 15, 1992 on corporate income tax. The draft law provides for, among others, establishing the new Restructuring Fund (supplementary to the already existing Relief Fund) to be financed from banks' quarterly
30

contributions amounting to 0.5 percent of the value of their FX housing loans portfolio. Banks would be allowed to tap the Restructuring Fund to refund costs resulting from the voluntary restructuring of the FX housing loans, which would assume the conversion to the zloty and outstanding capital reduction (costs are defined as the difference between a balance sheet value of a housing loan before and after the restructuring).
Capital Markets
 
Warsaw Stock Exchange
In 1991, Poland established the Warsaw Stock Exchange (the "WSE"). The WSE operates the main market and also acts as the operator of an alternative market called NewConnect (established in August 2007) for smaller companies.  In November 2010, the WSE went public and its shares were self-listed.
In September 2009, the WSE launched CATALYST, the first organized market in debt securities in Poland and a unique market of its kind in Central and Eastern Europe.  The system facilitates and optimizes issuances of, as well as trading in, corporate and municipal bonds. BondSpot SA, a subsidiary of the WSE, also operates the Treasury BondSpot Poland, which is a wholesale market dedicated to trading in Treasury bonds and Treasury bills.
According to the WSE, it is now the largest national financial instruments exchange in Central and Eastern Europe (including Poland, the Czech Republic, Slovakia, Slovenia, Bulgaria, Romania, Austria and Hungary) and in recent years has been one of the fastest-growing exchanges in Europe.  It offers a wide range of products and services within its trading markets of equities, derivatives, debt and structured products, electricity, natural gas, property rights, as well as clearing of transactions, operation of the Register of Certificates of Origin of electricity and sale of market data.
As of May 2017, there were 476 companies listed on the WSE (426 local members and 50 foreign members) and out of a total of 65 investment firms conducting their activities under Polish law, 12 of which were banks conducting brokerage activities and the rest were independent entities. In May 2018, there were 2,990 licensed brokers of securities, 383 commodities brokers and 666 licensed investment advisors.
Foreign investors may trade on the WSE on the same terms as domestic investors and may freely repatriate trading profits in a foreign currency.
Treasury securities
Treasury bonds and bills denominated in PLN are sold at regular auctions by the State Treasury.  The primary domestic market is based on a selected group of banks acting as primary dealers.
The following table sets forth certain information with respect to the sale of treasury securities on the domestic market for the periods indicated:

     
Q1 2017
     
Q2 2017
     
Q3 2017
     
Q4 2017
     
2017
 
   
(nominal amount, PLN billions)
 
Gross sales of treasury securities
                                       
Treasury bonds 
   
41.3
     
30.1
     
16.1
     
35.2
     
122.7
 
Treasury bills 
   
6.0
     
0
     
0
     
0
     
6.0
 
Total 
   
47.3
     
30.1
     
16.1
     
35.2
     
128.6
 
Net sales of treasury securities
                                       
Treasury bonds 
   
23.7
     
9.7
     
(4.4
)
   
(1.0
)
   
28.0
 
Treasury bills 
   
6.0
     
0
     
(6.0
)
   
0
     
0
 
Total 
   
29.7
     
9.7
     
(10.3
)
   
(1.0
)
   
28.0
 
__________
Source:  Ministry of Finance
Trading of Treasury bonds is conducted on three secondary markets: non‑regulated OTC market, the Treasury BondSpot Poland electronic platform and on regulated markets of Warsaw Stock Exchange and BondSpot S.A. In 2017, trading of Treasury bonds occurred primarily on the non-regulated OTC market (95.1 percent of total trading volume), while the respective shares of the Treasury BondSpot Poland electronic platform and the WSE of total Treasury bond trading volume amounted to 4.9 percent and approximately 0.01 percent, respectively.
31

The main holders of State Treasury debt at the end of December 2017 were foreign investors with PLN 471.8 billion (50.8 percent), the domestic banking sector with PLN 257.3 billion (27.7 percent) and domestic non-banking investors with PLN 198.8 billion (21.4 percent).The average time to maturity ("ATM") of domestic marketable debt increased from 4.36 years at the end of December 2016 to 4.49 years at the end of December 2017. The ATM of total State Treasury debt has remained at the safe level above 5 years. The average time to re‑fixing ("ATR") and duration of domestic marketable debt increased from 3.35 and 3.07 years at the end of December 2016, respectively, to 3.33 and 3.04 years at the end of December 2017. The level of interest rate risk for foreign debt does not pose a threat for the cost minimization objective, as sensitivity of foreign currency debt servicing cost to changes in interest rates is limited (ATR at 4.98 years and duration at 4.49 years at the end of December 2017).
The following table sets out the ATM, ATR and duration of State Treasury debt as of the dates indicated:

   
As of December 31,
 
   
2013
   
2014
   
2015
   
2016
   
2017
 
ATM
                             
Domestic debt 
   
4.49
     
4.19
     
4.27
     
4.36
     
4.49
 
Foreign debt 
   
7.19
     
7.08
     
6.88
     
6.92
     
6.46
 
Total 
   
5.33
     
5.24
     
5.22
     
5.27
     
5.12
 
ATR
                                       
Domestic debt 
   
3.28
     
3.17
     
3.24
     
3.35
     
3.33
 
Foreign debt 
   
5.68
     
5.35
     
4.98
     
5.23
     
4.92
 
Total 
   
4.03
     
3.97
     
3.87
     
4.02
     
3.84
 
Duration (1)
                                       
Domestic debt 
   
3.09
     
3.03
     
3.04
     
3.07
     
3.04
 
Foreign debt 
   
4.79
     
4.80
     
4.54
     
4.71
     
4.49
 
Total