0001104659-20-053116.txt : 20200429 0001104659-20-053116.hdr.sgml : 20200429 20200429131547 ACCESSION NUMBER: 0001104659-20-053116 CONFORMED SUBMISSION TYPE: S-B PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20200429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLAND REPUBLIC OF CENTRAL INDEX KEY: 0000079312 IRS NUMBER: 000000000 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-B SEC ACT: 1933 Act SEC FILE NUMBER: 333-237895 FILM NUMBER: 20828975 BUSINESS ADDRESS: STREET 1: 233 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 48 22 694 5000 MAIL ADDRESS: STREET 1: MINISTRY OF FINANCE STREET 2: UL. SWIETOKRZYSKA 12 CITY: WARSAW POLAND STATE: R9 ZIP: 00916 S-B 1 a20-15525_1sb.htm REGISTRATION STATEMENT UNDER SCHEDULE B

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As filed with the Securities and Exchange Commission on April 29, 2020

Registration No. 333-           

 

 

 

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 


 

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. 33-6240 and 33-6424 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.$

4,000,000,000.00

 

100

%

U.S.$

4,000,000,000.00

 

U.S.$

519,200

 

 


(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.$498,000 has already been paid with respect to unsold securities that were previously registered pursuant to the Registration Statements under Schedule B of the Securities Act of 1933 filed by the Registrant on March 16, 2018 (No. 333-223719) and is being carried forward. The filing fee of U.S.$519,200 due for this Registration Statement is partially offset against the registration fee previously paid. An additional registration fee of U.S.$21,200 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.

 

 

 


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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.

 


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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.

 


 

April 29, 2020

 

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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 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.

 

 

 

2015

 

2016

 

2017

 

2018

 

2019

 

 

 

(PLN per U.S.$)(1)

 

Year end

 

3.9011

 

4.1793

 

3.4813

 

3.7597

 

3.7977

 

Average for year

 

3.7701

 

3.9431

 

3.5482

 

3.6134

 

3.8395

 

 

 

(PLN per EUR)(1)

 

Year end

 

4.2615

 

4.4240

 

4.1709

 

4.3000

 

4.2585

 

Average for year

 

4.1839

 

4.3625

 

4.2016

 

4.2623

 

4.2980

 

 

 

(U.S.$per EUR)(2)

 

Year end

 

1.0859

 

1.0552

 

1.1981

 

1.1456

 

1.1227

 

Average for year

 

1.1096

 

1.1072

 

1.1841

 

1.1817

 

1.1194

 

 


(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 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 the Central Statistical Office, 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 European Union 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.

 

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

 

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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 forward-looking 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 forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking 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 forward-looking 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 forward-looking statements contained in this prospectus or any other forward-looking 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.

 

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MIFID II PRODUCT GOVERNANCE/TARGET MARKET

 

The prospectus supplement in respect of any debt securities offered under this shelf registration process may 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.

 

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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”.

 

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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 322,719 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 94,341 square kilometers of forest (approximately 30.2 percent of Poland’s total land area) and 136,350 square kilometers of arable land (approximately 43.6 percent of Poland’s total land area).

 

With a population of approximately 38.4 million as of June 30, 2019, 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 60.1 percent of the population living in urban areas. Warsaw, the capital of Poland and its largest city, has an estimated population of 1.778 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 94.0 percent of the population is Roman Catholic.

 

A map of Poland is set forth below:

 

 

Recent Developments

 

COVID-19

 

On March 4, 2020, the first case of COVID-19 in Poland was confirmed and since then, the number of confirmed cases in Poland has increased. Since the beginning of the outbreak in Poland, the Polish authorities have been

 

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gradually adopting new measures to combat the spread of COVID-19, including restricting travel and movement of citizens, limiting the size of gatherings, restricting the export of certain drugs and medical products, restricting most foreigners from entering Poland and implementing a mandatory quarantine period for persons arriving in Poland from abroad and/or showing symptoms of COVID-19. In March 2020, the operation of kindergartens, schools, universities and other facilities (e.g., hotels, cinemas, clubs and gyms) was suspended or restricted (e.g., restaurants, cafes, bars, large shops and shopping malls) and a significant number of employers have allowed their office employees to work remotely. On March 20, 2020, the Government declared an “epidemiological emergency” (but not a state of emergency) and has since further tightened restrictions. International passenger air and rail connections have also been suspended. Starting from April 20, 2020, the Government started softening some of the imposed restrictions, including, among others, the movement of citizens. Further softening of the restrictions is expected to be introduced gradually in the course of the next few months; however, as of the date of this prospectus, no precise schedule in this regard has been presented by the Government.

 

On April 16, 2020, the Government announced a plan to ease restrictions imposed in response to the COVID-19 pandemic, which consists of four stages. In the first stage, starting from April 20, 2020, the rules on the number of people in shops and workplaces are less restrictive. In the second stage, hotels, museums, theaters and libraries are expected to be opened. In addition, stores with construction equipment will be allowed to operate during weekends. The third stage involves reopening restaurants, shopping malls, hairdressers and cosmetics facilities, gradual opening of schools and the possibility of organizing small open-air sports events. In the fourth stage, reopening of cinemas, fitness clubs, and massage parlors is planned. The specific dates will depend on the further development of the pandemic.  COVID-19 has and will likely continue to have negative effects on the global economy, including the Polish economy. The adverse consequences of the COVID-19 pandemic may significantly decrease the Government’s tax revenues. It is estimated that 95% of businesses in Poland have been negatively affected by the COVID-19 outbreak and most of them have already adopted or are planning to adopt measures to counteract its effects, including by means of layoffs. The Government expects that the COVID-19 outbreak and the measures taken to combat its spread may adversely impact various sectors of the economy and therefore negatively affect Polish GDP in 2020. In March 2020, the Government, in cooperation with the National Bank of Poland and the Polish Financial Supervision Authority, announced a stimulus plan to support Poland’s economy and mitigate the economic impact of COVID-19.

 

The Government has decided on measures to support the economy, which will inevitably suffer from the COVID-19 crisis by introducing a series of legislative changes called the Anti-Crisis Shield. These measures include an approximately PLN 212 billion (approximately 9% of Polish GDP) package, including financial support for certain companies to partially cover employee remuneration and the suspension of mandatory social security contribution payments. This stimulus plan will be financed by the State Treasury.

 

The Government has stated that this stimulus plan will:

 

1.                                      Provide support for the labor market (mostly financed by the public sector) including: wage subsidies, subsidies for the self-employed conducting business activities without employees, an exemption for micro-entrepreneurs and self-employed workers from paying social and health insurance contributions for a period of 3 months, an extension of a special care allowance for children under 8 years of age due to school closures,

 

2.              Provide support for companies focused mainly on preserving their liquidity in the period of the shutdown (which is expected to be partially funded by EU funds and the central budget and partially by Bank Gospodarstwa Krajowego, a state development bank whose mission is to support the social and economic development of Poland and the public sector in the fulfilment of its tasks (“BGK”), and/or Polski Fundusz Rozwoju S.A., a state-controlled entity facilitating the development of Polish companies (the “Polish Development Fund”) in various forms, e.g. guaranties, loans and subsidies for loans,

 

3.                                      Include measures to strengthen the health care sector,

 

4.                                      Include a support package for the financial sector, valued at PLN 70 billion and primarily delivered by the National Bank of Poland, which will include a liquidity and capital supporting package, reduction

 

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of the required reserve rate, repo operations and the purchases of bonds and other operations similar to the targeted longer-term refinancing operations, and

 

Moreover, in addition to the PLN 212 billion package described above, an additional amount of approximately PLN 100 billion is expected to be distributed to SMEs and large enterprises via the Polish Development Fund. The amount for distribution is expected to be raised by the Polish Development Fund through issuances of bonds guaranteed by the State Treasury, most of which is to be acquired by the National Bank of Poland.

 

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 and, with respect to the Sejm only, using a system of proportional representation. The Sejm consists of 460 members and the Senate consists of 100 members. Generally, electoral rules for the Sejm stipulate 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 comprising 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. See “Public Debt—Debt Management”. Moreover, since 1999, under 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 judges at the request of the National Council of the Judiciary (the “NCJ”) and nominates the Prime Minister, who is subsequently approved by the Sejm by means of a vote of confidence. At the President’s request, the Sejm appoints the president of the NBP.

 

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. The Council of Ministers runs internal and foreign affairs of the State.

 

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, poviats and 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 2,477 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.

 

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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 voivodship 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 and was won by Andrzej Duda who received 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 are scheduled to be held on May 10, 2020; however, due to the COVID-19 outbreak in Poland, the date of the next presidential elections is not certain.

 

The most recent parliamentary elections were held on October 13, 2019. Following those elections, the Law and Justice (“PiS”) and its United Right Coalition (Zjednoczona Prawica) received 43.59 percent of the votes cast, the Civic Platform (“PO”) and its Civic Coalition (Koalicja Obywatelska) (“KO”) 27.40 percent, Lewica (the Left, previously known as Sojusz Lewicy Demokratycznej (Democratic Left Alliance) 12.56 percent, the Polish People’s Party (“PSL”) and its Polish Coalition 8.55 percent and Konfederacja Wolność i Niepodległość (Confederation Liberty and Independence) (“Confederation”) 6.81 percent. The ruling PiS retained its majority in the Sejm, but lost its majority in the Senate to the opposition. With 43.59 percent of the votes cast, PiS received the highest vote share by any party since Poland returned to democracy in 1989. Since November 2019, the current Government is led by the Prime Minister, Mateusz Morawiecki, who held the position of the Prime Minister also prior these elections. The next parliamentary elections will be held in 2023.

 

The following table shows a breakdown of the distribution of seats in the Sejm (by party) and the Senate (by party) as of April 16, 2020:

 

 

 

Seats

 

Sejm

 

 

 

United Right Coalition (including PiS)

 

235

 

Civic Coalition (KO)

 

134

 

The Left

 

49

 

Polish Coalition

 

30

 

Confederation

 

11

 

Unaffiliated (German Minority)

 

1

 

Total

 

460

 

 

 

 

Seats

 

Senate

 

 

 

United Right Coalition (including PiS)

 

48

 

Civic Coalition (KO)

 

43

 

Polish Coalition

 

3

 

The Left

 

2

 

Unaffiliated

 

4

 

Total

 

100

 

 


Source: Sejm and Senate

 

The most recent local elections were held in November 2018, with votes spread between local committees and the main political parties. Of the two largest political parties, PiS received 34.13 percent of the national vote and 254 of 552 available seats in the regional legislatures, while PO and its Civic Coalition received 26.97 percent of the national vote and 194 seats in the regional legislatures.

 

The next local elections will be held in 2023 (the term of office of local officials and deputies has been extended from 4 to 5 years applying as from the term of office of local officials and deputies elected in the most recent local elections held in 2018).

 

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Government Policies and Legislative Agenda

 

Reform of the Polish judicial system

 

During the last few years, the Government has focused on reforms in the judicial system. These reforms have reduced judicial independence from other state bodies. As a result, the European Commission initiated an official review of Poland’s commitment to European Union standards for adherence to the rule of law. Under Article 7 proceedings, initiated by the European Commission against Poland in December 2017, the European Council may rule that Poland has committed a serious and persistent breach of common EU values and decide to suspend certain rights Poland has as member of the EU, including the voting rights of the Government’s representative in the European Council, and to impose economic sanctions such as limiting Poland’s access to EU funds and subsidies. As of the date of this prospectus, Article 7 proceedings remain in progress.

 

One of the key features of the judicial reform was lowering the retirement age of judges of the ordinary courts and public prosecutors, and the age for early retirement of judges of the Supreme Court, to 60 years for women and 65 years for men, but granting the Minister of Justice the power to extend the period of active service of judges of the ordinary courts beyond the new retirement ages.

 

In its judgment C-192/18 of November 5, 2019, the EU Court of Justice stated that these reforms were contrary to EU law and brought an action for failure to fulfil obligations before the EU Court of Justice. The European Commission argued that this discretionary power awarded to a member of the executive amounted to an infringement on the principle of effective legal protection which derives from EU law. Further, the European Commission argued that the discretionary power of the Minister of Justice to extend the tenure of judges without clear criteria, timeframe, or the possibility to appeal the extension infringed the principle of judicial independence in EU law. The EU Court of Justice accepted these arguments and ruled in favor of the European Commission.

 

Another aspect of judicial reform in Poland was the newly created Disciplinary Chamber of the Supreme Court. In November 2019, the EU Court of Justice resolved that the Supreme Court should assess whether the Disciplinary Chamber is judicially independent from legislative and executive bodies. The Disciplinary Chamber does not satisfy the requirement of judicial independence established by EU law. According to the ruling of the EU Court of Justice, if the Disciplinary Chamber does not fulfill the criterion of independence, the Supreme Court should not apply local law provisions regarding the jurisdiction of the Disciplinary Chamber as such laws are incompatible with EU legislation, which overrides local laws. On 23 January 2020, the judges of the three joint Supreme Court’s Chambers (Labor and Social Security, Civil Law and Criminal law) ruled that the Disciplinary Chamber is not an independent court.

 

The European Commission has also questioned the manner of appointment of the members of the NCJ, which is a body that nominates judges to fill judicial vacancies. In the European Commission’s view, the Disciplinary Chamber is not independent due to the fact that its judges are appointed by the NCJ, which is subordinated to the lower house of the Polish parliament. On April 8, 2020, agreeing with the European Commission’s motion, the EU Court of Justice instructed Poland to immediately suspend applying local law provisions concerning the jurisdiction of the Disciplinary Chamber of the Supreme Court over disciplinary matters of judges. This interim measure ordered by the EU Court of Justice will apply throughout the period of the proceedings before the EU Court of Justice, which remain pending.

 

Military Modernization Program

 

According to the Government’s plans, military expenditures in 2020 are projected to increase up to approximately PLN 50 billion, which constitutes approximately 2.1 percent of the GDP. Approximately 80 percent of military spending in 2020 will be for activities related to external security and border protection. The largest planned modernization expenditures are investments in missile troops and artillery, combatting threats to sea trade, modernization of troops and air defense. Due to the economic impact of COVID-19, it cannot be excluded that the Government may temporarily cut military spending.

 

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

 

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the years, in line with the country’s economic growth. In April 2018, Poland’s rating outlook was raised by S&P to positive. In 2019 and 2020, S&P, Moody’s and Fitch re-affirmed their ratings. S&P’s rating for Poland announced in October 2019 was A-/A-2 for long and short term liabilities in foreign currency and A/A-1 for long and short term liabilities in the local currency. The ratings’ outlook is stable.

 

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 International Monetary Fund (“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 European Union, and joined the Council of Europe Development Bank (“CEB”) in 1998. Poland is also a founding member of the Asian Infrastructure Investment Bank (“AIIB”)

 

On March 12, 1999, Poland became a member of the North Atlantic Treaty Organization.

 

Regional Arrangements

 

European Union Membership and Adoption of the Euro

 

Poland and nine other candidate countries signed the Accession Treaty with the European Union (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. It is also bound by EU law (i.e. EU treaties, regulations, directives and decisions including EU judicial decisions). For the purpose of European Parliamentary elections, Poland is subdivided into constituencies, in the same manner as Ireland, Italy, France, the Netherlands, Belgium and Germany.

 

Following the European Parliamentary elections in 2019, Poland initially had 51 members of the European Parliament, but on February 1, 2020 the number has increased to 52 following the reallocation of the United Kingdom’s seats following its withdrawal from the EU on January 31, 2020. The majority of these members belong to the Group of European Conservatives and Reformists or the Group of the European People’s Party. The next European Parliamentary elections will be held in May 2024.

 

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 economic and monetary union (“EMU”). It was established to safeguard sound public finances, an important requirement for the EMU to function properly.

 

No deadline has been set for euro adoption in Poland; however, it is required by the Accession Treaty. Changing the currency to the euro requires fulfilment of nominal and legal convergence criteria, e.g. participation in the Exchange Rate Mechanism (“ERM II”). The level of Poland’s real convergence with the Eurozone, i.e. in terms of GDP per capita, is lower than in the case of developed EU Member States. Although the rate of business cycles synchronization has been relatively stable in recent years, Poland’s economic structure diverges from the Eurozone. The differences in economic structure stem from a larger share of agriculture, industry and construction in the Polish GDP compared to the Eurozone. Simultaneously, the share of financial intermediation and scientific activity in the Poland’s economy is smaller than in the case of the Eurozone. In such circumstances, euro adoption may pose a threat of negative shocks affecting the Polish economy.

 

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The EMU has undergone substantial reforms in recent years, aimed at completing its architecture and strengthening long-term stability. Due to the high level of uncertainty over its results and future economic conditions, neither target date for euro adoption nor fixed date for joining the ERM II has been set.

 

Like all EU member states, Poland is subject to multilateral surveillance by the EU Council and is required to prepare a convergence program on an annual basis. The Convergence Program (or Stability Program in Eurozone countries) provides for the monitoring of economic developments in each of the Member States and for the EU as a whole, as well as examining the consistency of those countries’ economic policies with recommendations set by the EU. 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 the previous year and includes forecasts for the next three years.

 

On April 28, 2020, Poland published its latest Convergence Program update. Pursuant to the European Commission’s guidelines, the content of the Convergence Program 2020 update has been limited due to the COVID-19 outbreak and it presents the results of anti-crisis measures adopted in connection with the spread of COVID-19. According to the 2020 update, the level of economic activity in Poland in the second quarter of 2020 is expected to decrease and GDP for 2020 is expected to decline by 3.4%, the first decline since the 1990s. Private consumption and investments, particularly investments other than by the Government or local governments, are expected to fall. The general weakening of the economy is expected to also affect the labor market and tax revenue. In 2020, inflation is expected to be 2.8% on average. Due to the expenses incurred in connection with combating the effects of the COVID-19 outbreak, the deficit of the general government sector is expected to increase from 0.7% of GDP in 2019 to 8.4% of GDP in 2020, while the general government debt to GDP ratio will increase from 46.0% in 2019 to 55.2% in 2020. According to the Convergence Program 2020 update, in 2021 GDP is expected to recover faster than the pace of the GDP decrease in 2020.

 

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 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 179.5 billion between May 2004 and February 2020 (mostly from structural funds for Cohesion Policy-related initiatives and payments under the Common Agricultural Policy). Conversely, during that period Poland made approximately EUR 58.3 billion of “Own Resources” payments to the EU. The net inflow of EU resources during that period was approximately EUR 121.0 billion. The following table sets forth information relating to the inflow of EU funds into Poland for the periods indicated.

 

 

 

2016

 

2017

 

2018

 

2019

 

Two months
ended
February 29,
2020

 

 

 

(EUR millions)

 

Inflow of EU Funds

 

 

 

 

 

 

 

 

 

 

 

Cohesion Policy

 

5,180.6

 

7,077.9

 

11,055.5

 

11,399.2

 

1,090.8

 

Common Agricultural Policy

 

4,522.5

 

3,981.9

 

4,260.0

 

4,494.7

 

2,607.8

 

Other Funds

 

273.3

 

92.7

 

443.3

 

451.0

 

12.8

 

Total

 

9,976.4

 

11,152.6

 

15,758.9

 

16,284.9

 

3,711.4

 

 


Source: Ministry of Finance

 

The following table sets forth information relating to the use of EU funds for the period from May 2004 to February 2020.

 

 

 

(EUR millions)

 

Current expenditures

 

80,874.2

 

Capital expenditures

 

98,589.9

 

Total

 

179,464.1

 

 


Source: Ministry of Finance

 

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.

 

 

 

2020

 

2021

 

 

 

(EUR millions)

 

Projected Future Inflows of EU Funds

 

 

 

 

 

Common Agricultural Policy

 

4,748.4

 

5,068.8

 

Cohesion Policy

 

10,581.3

 

13,116.2

 

 


Source: Ministry of Finance

 

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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.

 

 

 

 

2016

 

2017

 

2018

 

2019

 

Two months
ended February 29, 2020

 

 

 

(EUR millions)

 

Own Resources Payments

 

 

 

 

 

 

 

 

 

 

 

Payments related to Gross

 

 

 

 

 

 

 

 

 

 

 

National Income

 

3,003.4

 

2,024.7

 

2,900.7

 

3,180.8

 

929.7

 

Payments related to VAT

 

555.4

 

570.8

 

547.7

 

742.6

 

279.8

 

Traditional Own Resources

 

 

 

 

 

 

 

 

 

 

 

Payments

 

604.5

 

645.2

 

748.9

 

830.1

 

120.2

 

Rebates and corrections

 

330.1

 

316.6

 

269.8

 

296.1

 

85.2

 

Total

 

4,493.4

 

3,557.3

 

4,467.1

 

5,049.6

 

1,414.9

 

 


Source: Ministry of Finance

 

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 at December 31, 2019, Poland’s liabilities to multilateral financial institutions amounted to EUR 14.8 billion and accounted for 24.6 percent of the State Treasury’s total external debt.

 

As at December 31, 2019, the World Bank’s exposure to Poland, net of principal repayments, amounted to 7.0 billion.

 

As at December 31, 2019, the EIB had committed EUR 72.9 billion to Polish borrowers, of which more than EUR 56.6 billion had already been disbursed. As at December 31, 2020, the EIB’s exposure to Polish borrowers, net of principal repayments, amounted to EUR 32.6 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 (“SME”). Poland is implementing the Plan and has obtained financing for several projects under the EFSI.

 

As at December 31, 2019, 59 projects were approved under the infrastructure and innovation window in Poland, totaling EUR 3.7 billion in financing and mobilizing total investments relating to the EFSI up to EUR 16.4 billion.

 

In addition, for SME financing, 13 agreements were concluded with financial intermediaries (banks, investment funds) in Poland, totaling EUR 0.21 billion in financing. Since the beginning of its operations in Poland, the EBRD has invested over EUR 10.3 billion in nearly 431 projects in various sectors of the country’s economy - corporate, financial institutions, infrastructure and energy (as of December 2019). Most of the EBRD’s investments, approximately EUR 9.3 billion, were granted to the private sector. The value of the EBRD’s current portfolio projects in Poland is nearly EUR 3 billion.

 

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.

 

The latest Article IV consultation with Poland was concluded by the Executive Board of the IMF on January 18, 2019. The consultation notes the Polish economy’s strong and sustained expansion, low imbalances and improved social outcomes. Poland’s economic growth benefited from a rebound in Eurozone activity, an increase in EU transfer and new large social benefit programs. Amid historically low unemployment, potential output expanded with the influx of foreign workers, which helped to dampen inflation pressures. According to the IMF report, adherence to sound policy frameworks has gradually lowered fiscal and external vulnerabilities and safeguarded financial stability, helping to cement investor confidence and insulate Polish financial markets from the turbulence that affected several emerging economies during the first half of 2018. According to the IMF report, the level of reserves is adequate and the external position is in line with medium-term fundamentals and desirable policies.

 

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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 at January 31, 2020, Poland’s contribution to the IDA amounted to SDR 40.4 million and EUR 17.3 million, of which SDR 37.8 million and EUR 4.7 million has already been paid. Poland also participates in the IDA’s Multilateral Debt Relief Initiative. As at January 31, 2020, Poland had committed PLN 37.0 million and paid PLN 10.7 million.

 

Although Poland is not a member of the Nordic Investment Bank (“NIB”), it has access to NIB financing. As at December 31, 2019, loans granted to local governments and private sector entities in Poland by the NIB amounted to approximately EUR 396.2 million. In June 2016, Poland became a founding member of the Asian Infrastructure Investment Bank (“AIIB”). Poland is currently not borrowing from the AIIB.

 

Poland has been a member of the CEB since 1998. As at December 31, 2019, the CEB approved EUR 340 million in new loans to Poland, of which EUR 350 million had been disbursed and CEB’s exposure to the State Treasury amounted to EUR 211.75 million.

 

Poland is a founding member state of the Three Seas Initiative, a forum of regional dialogue and economic cooperation for twelve Central and Eastern Europe countries located in the area surrounded by three seas of the region: the Adriatic, Baltic and the Black Sea. The first Three Seas Business Forum meeting resulted in the signing of a letter of intent to establish the Three Seas Investment Fund (“3SIIF”). It was initially formed by two institutions from Poland and Romania (BGK and EximBank, respectively) that contributed over EUR 500 million, which was to be increased up to EUR 4-5 billion in the future. It was designed as a commercial financial instrument supporting infrastructure projects in the transport, energy and digitalization sectors in Central and Eastern Europe

 

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 European Union and the Treaty on the Functioning of the European Union, constitute the legal base 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”) and expects to ratify the MLI by late 2020. 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.

 

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THE ECONOMY

 

With over 38.3 million inhabitants, Poland is the most populous member of the EU among all the countries of Central and Eastern Europe (and the fifth in the EU as a whole). The Polish economy’s strengths include: the private debt of non-financial enterprises and households is relatively low; 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 country’s macroeconomic policy is geared towards maintaining long-term high, 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 modernisation. The service sector comprises the largest component of the Polish economy (65 percent), followed by the industry and construction sectors (33 percent) and agriculture (2 percent).

 

Strong macroeconomic fundamentals and policy framework, large and diversified domestic demand and flexible fiscal policy made Poland the only EU country to avoid recession during the post-2007 global economic and financial crisis, growing by 50 percent between 2008 and 2019, with an average annual GDP growth of approximately 3.5 percent. Today, Poland is the sixth-largest economy in the EU, with a buoyant private sector, internationally competitive export-oriented companies, as well as well-educated and skilled human capital.

 

Poland’s monetary policy mandate is laid out in the Constitution and the Act on the National Bank of Poland (“NBP Act”). The NBP is responsible for the implementation of monetary policy, the basic objective of which is to maintain price stability while supporting the government’s economic policy, insofar as this does not constrain the pursuit of the basic objective of NBP. For over 20 years, the Monetary Policy Council (an independent decision-making body of the NBP) (“MPC”) has been conducting monetary policy with an 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 main principles of the NBP’s monetary policy strategy, including the inflation target level, its medium-term nature and floating exchange rate regime, have not changed since.

 

Between 2004 and 2019, the average consumer price index (“CPI”) in Poland was 2 percent, which was in line with the NBP’s inflation target, while the average level of core inflation (CPI excluding food and energy) stood at 1.3 percent. The following table illustrates certain macroeconomic statistics for specific years:

 

 

 

2004

 

2008

 

2017

 

2018

 

2019

 

 

 

(Current prices, Purchasing Power Standards
(“PPS” per capita)

 

GDP per capita

 

11,290

 

14,470

 

20,750

 

21,770

 

N/A

 

 

 

( % of GDP)

 

Private consumption

 

64.2

 

61.8

 

58.3

 

58.1

 

57.3

 

Public consumption

 

18.3

 

18.6

 

17.7

 

17.8

 

17.9

 

Investment

 

18.3

 

23.1

 

17.5

 

18.2

 

18.6

 

Export

 

34.3

 

37.9

 

54.3

 

55.5

 

55.8

 

Import

 

36.9

 

42.9

 

50.2

 

52.0

 

50.5

 

Value added:

 

 

 

 

 

 

 

 

 

 

 

Industry

 

22.6

 

21.9

 

22.3

 

21.9

 

21.9

 

Construction

 

6.4

 

7.2

 

6.2

 

6.7

 

6.8

 

Trade; repair of motor vehicles

 

16.4

 

15.9

 

15.4

 

15.4

 

15.4

 

 

 

(total=100)

 

Structure of employment (LFS(1), 15 years and over):

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

18.2

 

14.3

 

10.2

 

9.6

 

9.1

 

Industry and Construction

 

28.9

 

32.5

 

31.5

 

31.7

 

32.0

 

Services

 

52.7

 

54.4

 

57.9

 

58.3

 

58.4

 

 

 

( %)

 

Participation rate (LFS(1), 15 and over)

 

54.4

 

54.2

 

56.4

 

56.3

 

56.2

 

Employment rate (LFS(1), 20-64 years)

 

57.0

 

65.0

 

70.9

 

72.2

 

73.0

 

Unemployment rate (LFS(1), 15-74 years)

 

19.1

 

7.1

 

4.9

 

3.9

 

3.3

 

Labor productivity per person (EU27=100(2))

 

 

62.5

 

74.9

 

76.8

 

N/A

 

CPI

 

3.5

 

4.2

 

2.0

 

1.6

 

2.3

 

Core inflation

 

1.7

 

2.3

 

0.7

 

0.7

 

2.0

 

 

 

(EUR million)

 

Official reserve assets

 

26,967

 

44,139

 

94,550

 

 102,268

 

114,511

 

 

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2004

 

2008

 

2017

 

2018

 

2019

 

 

 

(Current prices, Purchasing Power Standards
(“PPS” per capita)

 

 

 

( % of GDP)

 

International investment position

 

(45.1

)

(46.8

)

(62.4

)

(55.3

)

(50.5

)

CAB

 

(5.5

)

(6.7

)

0.1

 

(1.0

)

0.5

 

Credit to the non-financial sector:

 

 

 

 

 

 

 

 

 

 

 

Non-financial enterprises

 

12.5

 

16.9

 

15.8

 

15.9

 

15.3

 

Households

 

11.8

 

28.7

 

33.3

 

33.3

 

33.0

 

 


Source: Eurostat, NBP, Statistics Poland, own calculations

Notice: data on the labor market are not entirely comparable because of changes in methodology

(1)         LFS — Labor Force Survey.

(2)         EU27 from February 2020 (without the UK)

 

Economic Performance

 

Poland had a solid economic performance in 2019 with GDP growth of 4.1 percent, (a slight decrease compared to growth of around 5 percent. in 2017 and 2018). Domestic demand was the main growth source. Household consumption contributed to GDP growth due to favorable labor market conditions, strong consumer confidence and new social benefit programs. Household consumption increased by 3.9 percent in 2019, compared to 4.2 percent in 2018. This decrease was primarily attributable to an increase in the household savings rate. Investments increased by 7.2 percent in 2019. In contrast to 2018, investments outside the general government sector played a dominant role as a driver of investment growth. The contribution of net exports was positive, but export growth slowed as a result of weaker external demand.

 

Inflation rose gradually during 2019. The delayed effects of high economic growth and wage pressure resulted in higher core inflation (CPI excluding food and energy), mainly due to the faster growth of services prices. Supply factors were the main reason for a significant increase in food prices in the second half of 2019. In contrast, energy price inflation declined, turning negative in the last six months of 2019 due to base effects and low global oil prices. As a result, overall CPI inflation amounted to 2.3 percent on average in 2019 compared with 1.6 percent a year earlier. In the first quarter of 2020, the inflation rate in Poland increased to 4.5 percent. Main upward pressure came from housing, water, electricity, gas and other fuels (7.5 percent in March 2020 vs. 2.0 percent in December 2019), food and non-alcoholic beverages (8.0 percent vs. 6.9 percent), and alcoholic beverages and tobacco (4.3 percent vs. 1.6 percent).

 

The current account balance was positive and amounted to 0.5 percent of GDP in 2019. This was mainly a consequence of an improvement in the balance of goods (0.5 percent of GDP). The main negative impact on current account balance was still the primary income component (-4.4 percent of GDP), mainly foreign direct investors’ income. According to preliminary data, the current account surplus increased to 0.8% of GDP in February 2020 (in 12-month terms).

 

The MPC kept the NBP’s interest rates unchanged from March 2015 to March 2020 with the reference rate of 1.50 percent. However, on, March 17 and April 8, 2020 respectively, the MPC lowered the reference rate to, 1.00 percent and 0.50 percent respectively, to protect the economy from the negative impact of COVID-19. In addition, the MPC lowered the lombard rate to 1.50 and 1.00 percent respectively and the rediscount rate to 1.05 and 0.55 percent respectively. The NBP also introduced measures to provide liquidity, allow the banking system to continue functioning normally and support the financial markets. In March 2020, the NBP announced the first Polish quantitative easing program, aimed at purchasing government bonds in the secondary market, which in April 2020 was extended to all State securities and State-guaranteed debt securities. This program aims to increase liquidity in the secondary markets and strengthen monetary policy. As of the date of this prospectus, the NBP has carried out four operations of buying securities issued by the State Treasury on the secondary market (purchases occurred on March 19, March 23, March 26 and April 16, 2020) of a total face value of PLN 49.6 billion. As a result, the NBP supplied banks with an additional amount of approximately PLN 55 billion. The NBP may purchase the State Treasury securities and Government guaranteed debt securities on the secondary market as a part of its structural operations. These operations are aimed at changing the long-term liquidity structure in the banking sector, ensuring the liquidity in the secondary markets for the purchased securities and enhancing the impact of the NBP interest rate cuts on the economy, i.e., strengthening the monetary policy transmission mechanism.

 

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There is no maximum planned volume set for the program of purchasing the State Treasury debt. The timing and scale of these operations depend on the market conditions and the NBP’s assessment of their market impact.

 

The following table sets out certain macroeconomic statistics for the five years ended 2019:

 

 

 

2015

 

2016

 

2017

 

2018

 

2019

 

 

 

(Real growth, %)

 

GDP

 

3.8

 

3.1

 

4.9

 

5.3

 

4.1

 

Total consumption

 

2.8

 

3.5

 

4.1

 

4.3

 

4.1

 

Private consumption

 

3.0

 

3.9

 

4.5

 

4.5

 

3.8

 

Investment

 

6.1

 

(8.2

)

4.0

 

9.4

 

7.2

 

 

 

(Contribution to GDP growth, percentage points)

 

Domestic demand

 

3.2

 

2.3

 

4.6

 

5.3

 

2.9

 

Net export

 

0.6

 

0.8

 

0.3

 

0.0

 

1.2

 

 

 

(%)

 

Employment growth (LFS(1), 15 years and over)

 

1.4

 

0.7

 

1.4

 

0.4

 

(0.1

)

Unemployment rate (LFS(1), 15-74 years)

 

7.5

 

6.2

 

4.9

 

3.9

 

3.3

 

CPI

 

(0.9

)

(0.6

)

2.0

 

1.6

 

2.3

 

NBP reference rate (end of the period)

 

1.50

 

1.50

 

1.50

 

1.50

 

1.50

 

 

 

(% of GDP)

 

CAB

 

(0.6

)

(0.5

)

0.1

 

(1.0

)

0.5

 

 


Source: Statistics Poland, NBP, Eurostat, Ministry of Finance

(1) LFS — Labor Force Survey.

 

The following table illustrates the composition of GDP (as a percentage of total GDP) by sectors for the periods indicated:

 

 

 

2015

 

2016

 

2017

 

2018

 

2019

 

 

 

(%)

 

Sectors

 

 

 

 

 

 

 

 

 

 

 

Agriculture, forestry and fishing

 

2.2

 

2.4

 

2.1

 

2.1

 

2.0

 

Industry

 

23.2

 

23.4

 

23.9

 

21.9

 

22.0

 

Construction

 

7.1

 

6.2

 

6.5

 

6.7

 

6.8

 

Trade; repair of motor vehicles

 

15.7

 

15.5

 

15.7

 

15.4

 

15.5

 

Transport

 

5.7

 

5.7

 

6.0

 

6.2

 

6.6

 

Accommodation and catering

 

1.0

 

1.0

 

1.0

 

1.1

 

1.1

 

Information and communication

 

3.6

 

3.7

 

3.4

 

3.8

 

3.6

 

Financial and insurance activities

 

3.6

 

3.9

 

3.6

 

3.7

 

3.7

 

Real estate activities

 

4.4

 

4.6

 

4.5

 

4.2

 

4.2

 

Professional, scientific and technical activities and Administrative and support service activities

 

7.2

 

7.0

 

7.9

 

7.7

 

7.7

 

Public administration and defense; compulsory social security; Education; Human health and social work activities

 

13.1

 

13.1

 

12.5

 

12.7

 

12.6

 

Arts, entertainment and recreation; other service activities; activities of household and extra-territorial organizations and bodies

 

2.0

 

2.1

 

2.0

 

2.0

 

1.9

 

Gross value added

 

88.7

 

88.4

 

88.0

 

87.5

 

87.8

 

Taxes on products less subsidies on products

 

11.3

 

11.6

 

12.0

 

12.5

 

12.2

 

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 German supply chains, make it susceptible to shocks emanating from major trade partners. The further weakening of the growth rate of the Eurozone may adversely impact Polish exports and investment and ultimately adversely affect economic growth in Poland. In the short term, downside risks from the external environment come mainly from elevated geopolitical tensions and protectionist policies. Uncertainties about the macroeconomic policies pursued in major countries outside Europe add to these factors. Additionally, the recent outbreak of COVID-19 and the measures taken to combat its spread has

 

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adversely affected and may continue to adversely affect the economic performance of the Eurozone and Poland. See “Recent Developments—COVID-19”.

 

Supervision of companies with State Treasury shareholdings

 

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

 

In line with the new state property management system, the Prime Minister coordinates the ownership policy implemented 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 ownership supervision standards applicable to both the selection of Treasury representatives and formulation of expectations of Treasury representatives were raised. The role of the supervisory board in the current activities of the company was enhanced, which improved the transparency of the distribution of company funds with special oversight of representation, marketing and consulting expenses.

 

A new model of selling shares of the Treasury and state legal persons was introduced, direct privatization was abandoned, and the model of selling shares of the Treasury was based on market standards.

 

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 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 Treasury property also generates regular income for the state budget, such as dividend and income payments, which by the end of November 2019 exceeded PLN 3.4 billion. This income is stable despite large investment by the Treasury, which will continue to improve them and will increase future profits.

 

Labor Market

 

The overall situation of the labor market in 2019 remained positive. According to Eurostat, the unemployment rate (seasonally unadjusted data) was 3.2 percent as of December 2019, which is one of the lowest rates in the EU. Labor demand and participation rate decreased, but nominal wages continued to grow at a similar rate as in 2018. Workers from outside of the EU, particularly from Ukraine, play an important role in the labor market.

 

In the fourth quarter of 2019, the number of employed persons in Poland was 16.5 million. Thirty-two percent of the workforce was employed in the industrial sector and 58.2 percent was employed in services. A substantial share of the workforce is still employed in the agricultural sector (9.1 percent).

 

The registered unemployment rate at the end of December 2019 was 5.2 percent, down from 5.8 percent at the end of December 2018. The latest available data on the registered unemployment rate relate to February 2020, when the rate was 5.5% (a decrease by 0.6 percentage points compared to February 2019).

 

As of December 31, 2019, young people (aged 18 to 24) constituted 12.3 percent of the registered unemployed, approximately 26.5 percent of all registered unemployed were persons with only primary education or less and 38.0 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 in the periods indicated:

 

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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

 

2018

 

 

 

 

 

 

 

Q1

 

53.7

 

61.8

 

46.2

 

Q2

 

54.4

 

62.5

 

47.1

 

Q3

 

54.6

 

62.9

 

47.1

 

Q4

 

54.0

 

62.6

 

46.1

 

2019

 

 

 

 

 

 

 

Q1

 

53.7

 

62.2

 

45.9

 

Q2

 

54.4

 

62.8

 

46.8

 

Q3

 

54.9

 

63.7

 

46.9

 

Q4

 

54.4

 

63.5

 

46.1

 

 


Source: Statistics Poland’s Labor Force Survey

 

The following table shows employment by age in Poland in 2018 and the second quarter of 2019:

 

 

 

Employment rate

 

 

 

Total

 

Male

 

Female

 

 

 

(%)

 

 

 

2018

 

Q2,2019

 

2018

 

Q2,2019

 

2018

 

Q2,2019

 

Total

 

54.2

 

54.4

 

62.4

 

62.8

 

46.6

 

46.8

 

15 – 17 years

 

1.1

 

1.3

 

1.2

 

1.2

 

1.0

 

1.3

 

18 – 19 years

 

10.3

 

9.5

 

11.1

 

11.9

 

9.5

 

6.9

 

20 – 24 years

 

53.5

 

54.9

 

60.2

 

60.3

 

46.5

 

49.2

 

25 – 29 years

 

79.3

 

79.8

 

88.0

 

88.7

 

70.2

 

70.4

 

30 – 34 years

 

81.9

 

82.9

 

90.6

 

91.8

 

72.8

 

73.6

 

35 – 39 years

 

84.0

 

83.2

 

91.2

 

91.7

 

76.6

 

74.3

 

40 – 44 years

 

86.1

 

87.0

 

90.3

 

91.5

 

81.7

 

82.4

 

45 – 49 years

 

83.9

 

85.2

 

86.3

 

87.7

 

81.4

 

82.7

 

50 – 54 years

 

77.9

 

80.1

 

79.7

 

81.7

 

76.1

 

78.7

 

55 – 59 years

 

65.8

 

67.0

 

72.0

 

72.4

 

60.1

 

62.0

 

60 – 64 years

 

33.7

 

33.7

 

48.5

 

49.7

 

20.7

 

19.7

 

65 years and more

 

5.4

 

5.4

 

8.8

 

8.4

 

3.2

 

3.4

 

60 years and more

 

13.7

 

13.5

 

21.8

 

21.6

 

7.9

 

7.7

 

In the age:

 

 

 

 

 

 

 

 

 

 

 

 

 

15 – 64 years

 

67.4

 

68.2

 

74.0

 

75.0

 

60.8

 

61.4

 

20 – 64 years

 

72.2

 

73.1

 

79.4

 

80.5

 

65.0

 

65.7

 

55 – 64 years

 

48.9

 

49.2

 

59.8

 

60.4

 

39.1

 

39.1

 

Pre - working

 

1.1

 

1.3

 

1.2

 

1.2

 

1.0

 

1.3

 

Working(1)

 

73.6

 

74.6

 

77.3

 

78.3

 

69.4

 

70.3

 

Mobile

 

74.8

 

75.4

 

81.5

 

82.4

 

67.9

 

68.2

 

Non - mobile

 

71.5

 

73.1

 

71.0

 

72.3

 

72.1

 

74.2

 

Post – working(2)

 

8.2

 

7.9

 

8.8

 

8.4

 

7.9

 

7.7

 

 


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 for the periods indicated:

 

 

 

2015

 

2016

 

2017

 

2018

 

2019

 

 

 

(%)

 

Registered unemployment rate

 

9.7

 

8.2

 

6.6

 

5.8

 

5.2

 

 


Source: Statistics Poland Labor Force Survey

 

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Citizens of Ukraine are the largest group of foreigners working in Poland.

 

In 2018, the number of work permits issued for Ukrainian citizens amounted to 238,334 (72 percent of total work permits issued). It indicates an increase by 24 percent to the previous year. In 2018 district labor offices registered 1,446,304 employer’s declarations on entrusting work to a foreigner for Ukrainian citizens (91 percent of all registered declarations in that year) and 133,029 seasonal work permits (almost 99 percent of all seasonal work permits in that year).

 

In terms of the above mentioned short-term employment, data for 2018 is not comparable with the previous years, because at the beginning of 2018 new regulations in this area had been introduced, including implementing a new instrument - seasonal work permit.

 

In 2019 the number of work permits issued for the citizens of Ukraine amounted to 330,495 which meant an increase by 39 percent in comparison to the previous year. At the same time in 2019 the number of registered employers’ declarations on entrusting work to a foreigner for Ukrainians was 1,475,923 which meant an increase of 2 percent in comparison to the previous year.

 

In 2019, the number of seasonal work permits issued for the citizens of Ukraine amounted to 129,683. While recent statistics indicate continuous increase in the number of foreigners working in Poland, the participation rate of foreigners in Poland’s labor market is still rather low in comparison with other EU countries, although it affects local economies in some regions. Also, Poland became a leader among the EU countries in issuing first residence permits for the purpose of work. The employment of foreigners in Poland is complementary to the resources of the national labor force. Labor migration fills shortages especially within simple jobs, although there is a visible increase in demand for highly qualified employees too.

 

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BALANCE OF PAYMENTS AND FOREIGN TRADE

 

Balance of Payments

 

In recent years, the Polish economy has not recorded external imbalances. Its current account balance, positive or negative, does not exceed 1 percent of GDP.

 

Since September 30, 2014, Poland has prepared balance of payments and international investment position data according to the guidelines outlined in the sixth edition of the Balance of Payments and International Investment Position Manual (“BPM6”). Historical data starting from 2004 was recompiled according to the BPM6.

 

In 2019, Poland’s current account balance was positive and amounted to EUR 2,477 million, compared to a deficit of EUR 5,046 million in 2018 and of EUR 290 million in 2017. In 2019, the balance of trade in goods was positive and amounted to EUR 2,415 million compared to EUR 4,782 million in 2018 and EUR 1,426 million in 2017. In 2019, the balance of trade in goods improved as a result of faster growth in exports than in imports. In 2019, the value of exports increased by 6.2 percent, and the value of imports increased by 2.8 percent, compared with the corresponding period in 2018. During 2018, the value of exports and imports increased by 7.4 percent and by 10.6 percent, respectively, compared to 2017. Trade in goods was in recent years the most important driver of current account improvement. Trade with European Union countries (Eurozone mainly) constitutes the largest part of Polish exports and imports. Both exports and imports are diversified in the case of type of goods traded, intermediate and consumer goods are the largest.

 

Direct investments are presented in the balance of payments according to the assets and liabilities principle. In 2019, inflows of capital in the amount of EUR 13,355 million were observed in the balance of payments. During 2019, the surplus in the balance of direct investment resulted from a positive balance of transactions involving equity and investment fund shares amounting to EUR 12,835 million. The balance of debt instruments was also positive, amounting to EUR 520 million.

 

The following table sets out Poland’s balance of payments and related statistics for the periods indicated:

 

 

 

2015

 

2016

 

2017

 

2018

 

2019

 

 

 

(EUR millions)

 

Current Account

 

(2,375

)

(2,245

)

290

 

(5,046

)

2,477

 

Balance on Goods

 

2,213

 

2,935

 

1,426

 

(4,782

)

2,415

 

Goods: exports f.o.b.

 

172,124

 

177,448

 

201,890

 

216,880

 

230,369

 

Goods: imports f.o.b.

 

169,911

 

174,513

 

200,464

 

221,662

 

227,954

 

Balance on Services

 

10,911

 

13,963

 

17,956

 

21,652

 

25,174

 

Services: Credit

 

40,656

 

44,934

 

51,866

 

58,763

 

64,280

 

Services: Debit

 

29,745

 

30,971

 

33,910

 

37,111

 

39,106

 

Balance on Primary Income

 

(14,653

)

(17,717

)

(18,955

)

(20,493

)

(23,296

)

Primary income: Credit

 

11,345

 

11,132

 

11,723

 

12,294

 

11,740

 

Primary income: Debit

 

25,998

 

28,849

 

30,678

 

32,787

 

35,036

 

Balance on Secondary Income

 

(846

)

(1,426

)

(137

)

(1,423

)

(1,816

)

Secondary Income: Credit

 

5,808

 

5,483

 

6,057

 

5,657

 

5,843

 

Secondary Income: Debit

 

6,654

 

6,909

 

6,194

 

7,080

 

7,659

 

Capital Account

 

10,158

 

4,457

 

5,891

 

10,423

 

10,586

 

Capital account: Credit

 

10,788

 

5,171

 

6,362

 

11,785

 

11,579

 

Capital account: Debit

 

630

 

714

 

471

 

1,362

 

993

 

Financial Account

 

603

 

1,347

 

(2,360

)

1,684

 

8,872

 

Direct investment assets

 

4,388

 

12,813

 

3,431

 

1,592

 

3,388

 

Direct investment liabilities

 

13,530

 

16,639

 

10,182

 

14,016

 

13,355

 

Portfolio investment assets

 

9,961

 

(5,536

)

1,194

 

392

 

(282

)

Equity securities

 

9,033

 

(5,777

)

155

 

(1,189

)

(688

)

Debt securities

 

928

 

241

 

1,039

 

1,581

 

406

 

Portfolio investment liabilities

 

7,091

 

(2,189

)

5,413

 

(3,310

)

(11,322

)

Equity securities

 

3,744

 

(2,459

)

1,221

 

713

 

4

 

Debt securities

 

3,347

 

270

 

4,192

 

(4,023

)

(11,326

)

Other investment assets

 

4,600

 

2,487

 

5,726

 

5,190

 

1,526

 

Monetary authorities

 

0

 

227

 

(230

)

0

 

(3

)

Central and local government

 

34

 

220

 

16

 

1,081

 

770

 

MFI (excluding Central Bank)

 

30

 

298

 

444

 

2,922

 

(742

)

Other sectors

 

4,536

 

1,742

 

5,496

 

1,187

 

1,501

 

Other investment liabilities

 

(2,213

)

14,572

 

(11,031

)

(112

)

1,921

 

 

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2015

 

2016

 

2017

 

2018

 

2019

 

 

 

(EUR millions)

 

Monetary authorities

 

(72

)

15,082

 

(10,157

)

1,865

 

1,544

 

Central and local government

 

(17

)

(70

)

(650

)

(911

)

(769

)

MFI (excluding Central Bank)

 

(1,742

)

(1,874

)

(2,341

)

(3,094

)

(3,247

)

Other sectors

 

(382

)

1,434

 

2,117

 

2,028

 

4,393

 

Financial derivatives

 

(879

)

175

 

(1,004

)

(1,124

)

(1,016

)

Official Reserve Assets

 

941

 

20,430

 

(7,143

)

6,228

 

9,210

 

Net errors and omissions

 

(7,180

)

(865

)

(8,541

)

(3,693

)

(4,191

)

 


Source: NBP

 

Foreign Direct Investment (“FDI”)

 

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

 

Reinvestment of earnings

 

Debt instruments

 

Total (net)

 

 

 

(EUR millions)

 

Year

 

 

 

 

 

 

 

 

 

2014

 

3,177

 

6,198

 

1,380

 

10,755

 

2015

 

5,229

 

6,966

 

1,563

 

13,758

 

2016

 

1,776

 

8,549

 

3,855

 

14,181

 

2017

 

(938

)

9,172

 

(92

)

8,142

 

2018

 

2,616

 

8,864

 

339

 

11,818

 

 


Source: NBP

 

In 2018, the net FDI inflows in Poland amounted to EUR 11,818 million. The inflows from EU countries amounted to EUR 10,989 million, primarily from the Netherlands and Luxembourg. Net inflows from countries outside the EU amounted to EUR 829 million, with the most significant inflows from Switzerland.

 

Inflows of FDI in 2018 were mainly attributable to: (i) reinvestment of earnings amounting to EUR 8,864 million; (ii) net inflows of equity of EUR 2,616 million; and (iii) net inflows of capital against debt instruments (other capital) of EUR 339 million.

 

The following table sets out the inflow of FDI to Poland from selected countries in 2018:

 

 

 

Components of FDI inflow

 

 

 

Equity capital

 

Reinvested earnings

 

Other capital

 

Total (net)

 

 

 

(U.S.$ millions)

 

Country

 

 

 

 

 

 

 

 

 

Total

 

3,086

 

10,455

 

399

 

13,940

 

EU

 

2,701

 

9,749

 

514

 

12,963

 

Netherlands

 

2,863

 

1,989

 

3,897

 

8,749

 

Germany

 

(598

)

2,695

 

(232

)

1,865

 

Luxembourg

 

147

 

1,372

 

540

 

2,060

 

France

 

475

 

697

 

(1,327

)

(155

)

Austria

 

(505

)

208

 

(150

)

(448

)

United Kingdom

 

14

 

527

 

(929

)

(388

)

Ireland

 

(2

)

36

 

(426

)

(391

)

Outside of the EU

 

385

 

707

 

(114

)

978

 

Switzerland

 

508

 

252

 

(268

)

492

 

 


Source: NBP

 

In 2018, the most significant inflow of investment was in the manufacturing sector, which amounted to U.S.$5,953 million. There were also significant inflows from wholesale and retail trade; repair of motor vehicles

 

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and motorcycles (U.S.$3,868 million) and from professional, scientific and technical activities (U.S.$1,793 million). The following table sets out the inflow of FDI to Poland in selected sectors in 2018:

 

 

 

Components of FDI inflow

 

 

 

Equity
capital

 

Reinvested
earnings

 

Other capital

 

Total
(net)

 

 

 

(U.S.$ millions)

 

Economic activity

 

 

 

 

 

 

 

 

 

Manufacturing

 

820

 

4,572

 

561

 

5,953

 

Professional, scientific and technical activities

 

(25

)

901

 

918

 

1,793

 

Information and communication

 

(235

)

374

 

(1,630

)

(1,490

)

Wholesale and retail trade; repair of motor vehicles and motorcycles

 

2,312

 

1,677

 

(122

)

3,868

 

Real estate activities

 

286

 

747

 

(280

)

754

 

Financial and insurance activities

 

(588

)

1.595

 

(149

)

858

 

Transportation and Storage

 

239

 

241

 

236

 

716

 

Electricity, gas, steam and air conditioning supply

 

72

 

128

 

60

 

260

 

Other service activities

 

(2

)

14

 

(9

)

4

 

Total

 

3,086

 

10,455

 

399

 

13,940

 

 


Source: NBP

 

Inflow of FDI in 2018 was mainly attributable to: (i) reinvested earnings amounting to U.S.$10,455 million; (ii) net inflow of equity of U.S.$3,086 million and (iii) net inflow of capital against debt instruments (other capital) of U.S.$399 million.

 

Portfolio Investment Liabilities

 

In the first six months of 2019, the balance on foreign portfolio investment was negative and amounted to U.S.$4.1 billion. The balance of non-resident investment in debt securities was also negative and stood at U.S.$5.0 billion, mostly in Treasury Bonds issued in the domestic market (U.S.$4.7 billion). Net inflow of non-resident investment in equity securities was U.S.$0.9 billion, primarily of equity securities issued by the enterprise sector.

 

As at June 30, 2019, Poland’s portfolio investment liabilities was U.S.$166.6 billion. Foreign portfolio investment holdings of Polish debt securities amounted to U.S.$116.5 billion and of equity securities to U.S.$50.1 billion. The main holders of Polish debt securities issued in the domestic market originated from Japan, Luxembourg, the United Kingdom, the United States, the Netherlands, Ireland and Germany. Non-resident holders (other than direct investors) of Polish equity securities originated mainly from the United States, France, Luxembourg and the United Kingdom.

 

Foreign Trade

 

Exports accounted for 47.6 percent of GDP in 2014, 49.5 percent in 2015, 52.2 percent in 2016, 54.3 percent in 2017 and 55.6 percent in 2018. Imports constituted 46.1 percent of GDP in 2014, 46.4 percent in 2015, 48.2 percent in 2016, 50.2 percent in 2017 and 52.2 percent in 2018.

 

Focus of Trade

 

In 2018, trade with EU countries accounted for 80.6 percent of exports and 58.8 percent of imports. Germany is Poland’s largest trading partner, accounting for 28.2 percent of exports and 22.6 percent of imports. Trade with other EU countries accounted for 52.4 percent of exports and 36.2 percent of imports.

 

The most significant export items in 2018 were machinery and transport equipment (cars, vehicles, ships, boats, parts and accessories for 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 in exports.

 

The following table sets out, on a percentage basis, the geographic distribution of Poland’s exports and imports for the years indicated:

 

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2015

 

2016

 

2017

 

2018

 

2019*

 

 

 

Export

 

Import

 

Export

 

Import

 

Export

 

Import

 

Export

 

Import

 

Export

 

Import

 

Developed Countries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Germany

 

27.1

 

22.9

 

27.4

 

23.3

 

27.5

 

23.1

 

28.2

 

22.6

 

27.6

 

21.8

 

United Kingdom

 

6.7

 

2.7

 

6.7

 

2.6

 

6.4

 

2.4

 

6.2

 

2.4

 

6.2

 

2.3

 

Other EU countries

 

45.6

 

34.4

 

45.7

 

35.3

 

46.1

 

34.9

 

46.2

 

33.8

 

46.0

 

33.6

 

Other developed countries

 

6.3

 

6.9

 

6.5

 

7,0

 

6.6

 

7.3

 

6.5

 

7.1

 

6.8

 

7.8

 

Total developed countries

 

85.7

 

66.9

 

86.3

 

68.2

 

86.6

 

67.7

 

87.1

 

65.9

 

86.6

 

65.5

 

Central and Eastern Europe:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CEFTA(1)

 

0.6

 

0.2

 

0.7

 

0.3

 

0.7

 

0.3

 

0.7

 

0.4

 

0.7

 

0.4

 

Russia

 

2.9

 

7.3

 

2.8

 

5.8

 

3.0

 

6.4

 

3.0

 

7.1

 

3.2

 

6.2

 

Other Central and Eastern Europe(2)

 

2.5

 

1.3

 

2.7

 

1.4

 

2.1

 

1.2

 

2.1

 

1.4

 

2.2

 

1.3

 

Total Central and Eastern Europe

 

5.3

 

8.6

 

5.5

 

7.2

 

5.8

 

7.9

 

5.8

 

8.9

 

6.1

 

7.8

 

Developing countries

 

9.0

 

24.5

 

8.2

 

24.6

 

7.6

 

24.4

 

7.1

 

25.2

 

7.3

 

26.6

 

Total

 

100.0

 

100.0

 

100.0

 

100.0

 

100.0

 

100.0

 

100.0

 

100.0

 

100.0

 

100.0

 

 


Notes:

(*)    Preliminary data.

(1)    In 2006, the Central European Free Trade Agreement (“CEFTA”) consisted of Bulgaria, Romania, Croatia and Macedonia. From 1 May 2007 to July 2013, the CEFTA consisted of Albania, Bosnia and Herzegovina, Croatia, Macedonia, Moldova, Montenegro, Serbia and Kosovo. Since 1 July 2013, the CEFTA no longer includes Croatia following Croatia’s accession to the EU.

(2)    “Other Central and Eastern Europe” includes European countries of the former Union of Soviet Socialist Republics.

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, 2020, the Commission Implementing Regulation (EU) No 2019/1776 of October 9, 2019 amending Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff (OJ L 280 of September 31, 2019) has governed the Common Customs Tariff.

 

Official Reserves

 

Poland’s official reserves were U.S.$128.4 billion in 2019, U.S.$117.0 billion in 2018 and U.S.$113.3 billion in 2017. 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)

 

 

 

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

 

6.0

 

2018

 

111,664.1

 

5,300.5

 

116,964.6

 

5.4

 

2019

 

117,209.1

 

11,195.9

 

128,405.0

 

6.0

 

 


(1)         Including Poland’s reserve position in IMF.

(2)         Based on average imports of goods.

Source: NBP

 

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Exchange Rate Policy

 

The following table sets out the official NBP exchange rate between the złoty and the U.S. dollar for the periods indicated:

 

 

 

2015

 

2016

 

2017

 

2018

 

2019

 

End of period

 

3.9011

 

4.1793

 

3.4813

 

3.7597

 

3.7977

 

Average

 

3.7701

 

3.9431

 

3.7777

 

3.6134

 

3.8395

 

 


Source: NBP

 

The following table sets out the official NBP exchange rate between the złoty and the euro for the periods indicated:

 

 

 

2015

 

2016

 

2017

 

2018

 

2019

 

End of period

 

4.2615

 

4.4240

 

4.1709

 

4.3000

 

4.2585

 

Average

 

4.1839

 

4.3625

 

4.2576

 

4.2623

 

4.2980

 

 


Source: NBP

 

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MONETARY AND FINANCIAL SYSTEM

 

Structure and Development of the Polish Banking System

 

Poland had 30 commercial banks (14 with majority Polish ownership and 16 with majority foreign ownership), 536 co-operative banks and 33 branches of foreign credit institutions operating in Poland as of January 2020. Commercial banks dominate the banking sector and comprise 89.3 percent of the banking sector’s assets, 46.0 percent of which belonged to foreign-controlled banks, including branches of credit institutions. Co-operative banks, which are numerous but small, formed Institutional Protection Schemes in 2016 and since then have been progressing towards integration and improving their competitive position in relation to commercial banks. The five largest banks comprise 50.7 percent of the sector’s assets. Three domestic banks performed services abroad either through a subsidiary or a branch; however, the scope of this activity was fairly limited and did not influence overall financial results of the sector.

 

The Polish banking sector’s earnings and profitability were high compared to current European averages. Despite the persistent low interest rate environment, the net interest margin ratio has been rising over the past four years, recently reaching 2.63 percent. Although profitability has slightly fallen in the past year as a result of shrinking non-interest margin and higher contributions to guarantee funds, it is still significantly higher than the EU average. In January 2020, the annualized return on assets was 0.76 percent.

 

Lending to non-financial customers increased by 5.4 percent(1) year-on-year and was slightly lower than the growth of nominal GDP. It continued to support sustainable economic growth without giving rise to imbalances in the economy or in the financial system. Corporate loans increased by 5.4 percent year-on-year, consumer loans by 9.3 percent, and residential housing loans by 5.9 percent, of which złoty-denominated housing loans grew by 12.3 percent and foreign currency-denominated housing loans decreased by 7.9 percent. Since 2011, new housing loans are being granted almost entirely in złoty. As a result, the share of foreign currency housing loans in the total stock of housing loans decreased to 29 percent, or 5.7 percent of GDP, compared to a high of over 70 percent of the total housing loan portfolio, or 10 percent of GDP, in 2009. The ratio of loans to the non-financial sector to GDP was stable and reached about 50 percent in 2019. Since the end of 2008, the ratio has increased by approximately five percentage points.

 

The quality of the Polish banking sector’s assets remained relatively high and was gradually improving, supported by the favorable performance of the corporate sector and significant improvement in the labor market. Housing loan portfolios outperformed other loan portfolios, with the NPL ratio (2.4 percent) much lower than the average for the non-financial sector loans (6.8 percent). The coverage ratio of impaired loans by provisions amounted to about 59 percent, and may be regarded as high, taking into account the average collateralization of loans.

 

Banks continued strengthening the funding structure in 2019, i.e., increasing the share of local funding, mainly non-financial sector deposits, compared to foreign currency deposits and loans of financial non-residents. The loan to deposit ratio decreased and amounted to approximately 93 percent. Specialized banks pursued issuances of covered bonds, but market funding is still a minor source of financing in the Polish banking sector.

 

The Polish banking sector remained well-capitalized in 2019. The average Total Capital Ratio (TCR) was 18.4 percent and Tier 1 capital ratio was 16.3 percent. Even though capital ratios within the Polish banking sector stayed close to the EU average, banks in Poland were, in fact, better capitalized since they applied more conservative risk weights. The ratio of risk-weighted assets to total assets in Poland was significantly higher than the EU average (60 percent) and the average leverage (assets over equity) for Polish banks visibly lower (10 percent). Stress tests conducted regularly by the NBP and published semi-annually confirm that the banking sector in Poland is resilient to severe macro and financial market shock scenarios.

 

The National Bank of Poland

 

The NBP is the central bank of Poland. Its tasks are stipulated in the Constitution of the Republic of Poland of April 2, 1997, the Act on Narodowy Bank Polski of August 29, 1997 (the “NBP Act”) and the Banking Act of August 29, 1997 (the “Banking Law”), consistent with the EU standards. EU law, the Constitution of the

 


(1)       All data on loan volume changes quoted in this paragraph are exchange rate adjusted.

 

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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 NBP Act, 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. The NBP is also responsible for establishing the necessary conditions for the development of the banking system. Following an amendment to the NBP Act in 2015, the NBP has been assigned the task of acting to ensure the stability of the financial system as well as eliminating or reducing the systemic risk.

 

The NBP has three governing bodies, the President, the MPC and the Management Board. The President of the NBP is appointed by the Sejm (lower chamber of the Polish Parliament) at the request of the President of the Republic of Poland for a six-year term, with strictly limited rights 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 the 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 made by the MPC. According to the Constitution and the NBP Act, the MPC formulates annual monetary policy guidelines and submit 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 rate on the reserve holding. In addition, the Constitution requires that within 5 months following the end of the fiscal year, the MPC must submit a report to the Sejm on the achievement of the monetary policy goals. The MPC 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, 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 throughout 2016. The principles for setting the exchange rate of zloty are set by the Council of Ministers (i.e., the Government) in consultation with the MPC. The NBP Management Board performs tasks concerning the foreign exchange policy. The NBP publishes current exchange rates for foreign currencies and rates for other types of foreign exchange 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 international payments liquidity.

 

The NBP Management Board’s core responsibilities involve 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 consisting of the President of 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 Bank produces a semi-annual Financial Stability Report, which analyzes the resilience of the domestic financial system, in particular 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 with the NBP’s own quantitative and qualitative research.

 

Financial Stability Committee - macroprudential authority

 

Pursuant to the Act on Macroprudential Supervision over the Financial System and Crisis Management, which came into effect November 1, 2015, the Financial Stability Committee (“FSC”) is the macroprudential authority in Poland. The FSC is a collegial body where four main financial safety net institutions are represented: National Bank of Poland (NBP), the Ministry of Finance, the Polish Financial Supervision Authority and the Bank Guarantee Fund. The President of 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 risk stemming from the financial system or its environment, as well as, to undertake actions in order to limit such risk by means of macroprudential

 

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instruments. For this purpose, the Committee may deploy “soft law” instruments, i.e., issue recommendations or present statements.

 

Recommendations are issued when the FSC wants to indicate the necessity to take measures aimed at mitigating the identified systemic risk. Addressees of the recommendations can be only institutions that make up the FSC, that is, 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, they are backed by the “comply or explain” mechanism.

 

Statements are presented when a high level of systemic risk is identified and the FSC finds it necessary to inform the Government about the source of this risk and the possible consequences for the financial system. The range of addressees of the statement is wide and includes both institutions that make up the FSC and entities of the financial system. The presentation 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 build-up of systemic risk.

 

The Committee holds its meetings every quarter. Information on its activity 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 11 times per year, to discuss the economic conditions and outlook, and, after analysing risks to price stability, either takes no action or adjusts the monetary policy instruments. According to the MPC Monetary Policy Guidelines, the principal instrument of monetary policy is the NBP interest rates. 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 ±1 percentage point, average CPI inflation in Poland has amounted to 2.0 percent. In 2019, average annual CPI inflation amounted to 2.3 percent, thus remaining in line with the NBP target. Core inflation (excluding food and energy prices), remained moderate in 2019, reaching an average of 2.0 percent. According to the MPC assessment, following a temporary rise driven by supply and regulatory factors, inflation is expected to decrease and move close to the target in the monetary policy transmission horizon.

 

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 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.

 

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The NBP’s open market operations can be divided into the following three categories:

 

·                                       main open market operations, which are undertaken on a weekly basis in the form of issuances of NBP bills with seven-day maturities. A fixed rate at the level of the NBP’s reference rate is binding during tenders;

 

·                                       fine-tuning open market operations that may be conducted with the aim of limiting the volatility of short-term market interest rates. This may involve liquidity-absorbing operations (issuance of NBP bills, reverse repo transactions) or liquidity-providing operations (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 of the banking sector. If necessary, the NBP can issue bonds or purchase or sell securities on 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

 

March 17, 2020

 

1.50

 

1.00

 

0.50

 

April 8, 2020

 

1.00

 

0.50

 

0.00

 

 


Source: NBP

 

The latest easing cycle started in late 2012. Since then, interest rates have been cut on 12 occasions, bringing the reference rate to 0.50 percent in April 2020. In response to the negative economic impact of COVID-19, the MPC decided to ease monetary conditions in March and April 2020 by decreasing interest rates. According to the information from the meeting of the Monetary Policy Council (“MPC”) held on April 8, 2020, the NBP will continue to provide liquidity to the banking sector using repo transactions and will purchase government securities and government-guaranteed debt securities on the secondary market. Furthermore the NBP will offer bill discount credit aimed at refinancing loans granted to enterprises by banks. These measures are intended to ease financing conditions in the economy, to mitigate the negative economic impact of COVID-19, to reduce the risk of inflation falling below the NBP inflation target in the medium term and to support macroeconomic and financial stability.

 

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”).

 

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According to Article 4, paragraph 1 of the Financial Market Supervision Act, the PFSA’s responsibilities comprise the following:

 

·                                          exercising supervision over the financial market;

 

·                                          taking actions to foster the proper operation of the financial market;

 

·                                          taking actions to promote the development of the financial market and its competitiveness;

 

·                                          taking actions to support the development of the financial market innovation;

 

·                                          taking educational and informative actions related to the operation of the financial market to protect the legitimate interests of participants 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;

 

·                                          cooperation with the Polish Audit Supervision Agency (Polska Agencja Nadzoru Audytowego), including providing information to the extent necessary to carry out certain market monitoring tasks; 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 have specific regulations beyond the Banking Act, however some provisions of the Banking Act apply accordingly) and economic links. Credit unions constitute a relatively small part of the Polish financial system and as of December 2019, the ratio of assets of the 25 credit unions operating in Poland to the total banking sector assets stood at less than 0.5 percent. Due to their small size and the virtual absence of any links with other financial institutions, credit unions should not pose systemic risk.

 

As of December 31, 2019, PLN 4.37 billion of disbursements of covered deposits were made from the Bank Guarantee Fund (“BGF”) to customers of 11 failed credit unions. The BGF also provided the banks that took over failed credit unions with unlimited guarantees covering any losses resulting from the takeovers, as well as subsidies. Provision of such disbursements and guarantees may continue in the future due to the ongoing restructuring of the credit union sector.

 

FX housing loans portfolio

 

In the years 2007-2008, in the period when the Polish złoty remained strong in relation to foreign currencies, a marked increase in FX 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 expectations of Poland’s forthcoming accession to the Eurozone. Since the end of 2011, as a consequence of the changes in strategies of banks and the activities of the supervisory authority and the NBP, lending in the housing loans segment has focused almost exclusively on loans in the Polish złoty. As of December 2019, the value of the FX housing loans portfolio represents 5.5 percent of banking sector assets.

 

The Financial Stability Committee (“FSC”) assesses that, in economic terms, the FX loans portfolio has not generated significant risk to the stability of the financial system. As of December 2019, the financial standing of the majority of households that took out loans in foreign currencies was good and their resilience to exchange rate shocks remained high. This is primarily attributable to high initial income buffers, high growth in nominal wages throughout lending period and low interest rates in foreign currencies. As a result, FX housing loans exhibited good repayment rate and the NPL ratio was only slightly higher than for Polish złoty loans.

 

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In 2019, the Court of Justice of the EU (the “CJEU”) ruled on the possible consequences of unfair clauses in certain FX mortgage loan agreements, including annulment. The CJEU’s ruling, however, left up to Polish courts to determine on a case-by-case basis whether a given clause is unfair and which consequences to apply. This ruling, although not decisive on the legal assessment of potential unfairness of indexation clauses, has led to an increase in the number of court cases against banks and result in higher provisions — regardless of the real credit risk and NPL’s level. Capital buffers accumulated following FSC recommendation should, however, lower the impact of potential costs on banks’ activity. Taking into consideration both pending and potential court cases, several Polish banks have recently made provisions related to costs resulting from litigation.

 

Moreover, on January 1, 2020, an amendment to the Act dated October 9, 2015, on support to borrowers in difficult financial situation, who took out housing loans (the “Act on Support to Borrowers”) entered into force. The aim of this legislation is to support borrowers who took out housing loans, regardless the currency, and are in difficult financial situation. The Act on Support to Borrowers defines the rules of granting repayable financial support (covering installments) and loans to borrowers in difficult financial situation. This amendment facilities the process of receiving support from the Borrowers Support Fund (the “BSF”) by decreasing the threshold of eligibility to obtain the financial support, increasing the maximum monthly payment by the BSF from PLN 1,500 to PLN 2,000 and extending the maximum timespan of the support (36 months instead of 18 months). In certain circumstances, the BSF’s council may cancel the receivables due from the borrowers to the BSF.

 

Polish banks have implemented certain measures in response to COVID-19, including the option to postpone payment of credit installments. Depending on the bank, customers may request the deferral of the payment of installments and/or interest for three to six months. See “Recent Developments—COVID-19”.

 

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. The WSE offers a wide range of products and services within its trading markets of equities, derivatives, debt and structured products, electricity, natural gas and property rights, as well as the clearing of transactions, operation of the Register of Certificates of Origin of electricity, and the sale of market data.

 

As of February 3, 2020, there were 448 companies listed on the WSE (400 local members and 48 foreign members) and, of a total of 47 investment firms conducting their activities under Polish law, nine were banks conducting brokerage activities and the remainder were independent entities. In January 2020, there were 3,145 licensed brokers of securities and 765 licensed investment advisers.

 

Foreign investors may trade on the WSE on the same terms as domestic investors and may freely repatriate trading profits in a foreign currency.

 

Development of the Polish capital markets resulted in upgrading Poland’s status to “developed market” in the indices run by FTSE Russell as part of the September 2017 FTSE Country Classification annual review of markets. Receiving the status of a “developed market” by Poland was the first such event in almost a decade. Moreover, Poland is the first country from the CEE region for which the “developed market” status was updated by FTSE Russell. Since the date of promotion, major Polish companies have been included in the FTSE Developed Index.

 

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In 2019 Poland has adopted a capital markets development strategy, prepared with support from the EU and the EBRD. The strategy is in line with the Strategy for Responsible Development adopted by the Government in 2017. The document sets out 90 steps to make the local capital markets more efficient including steps to improve the regulatory environment and measures to develop the market infrastructure and introduce new products and services.

 

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 2019

 

Q2 2019

 

Q3 2019

 

Q4 2019

 

2019

 

 

 

(nominal amount, PLN billions)

 

Gross sales of Treasury securities

 

 

 

 

 

 

 

 

 

 

 

Treasury bonds

 

45.7

 

33.1

 

33.6

 

22.4

 

134.8

 

Treasury bills

 

0

 

0

 

0

 

0

 

0

 

Total

 

45.7

 

33.1

 

33.6

 

22.4

 

134.8

 

Net sales of Treasury securities

 

 

 

 

 

 

 

 

 

 

 

Treasury bonds

 

21.0

 

(0.4

)

4.6

 

(4.4

)

20.8

 

Treasury bills

 

0

 

0

 

0

 

0

 

0

 

Total

 

21.0

 

(0.4

)

4.6