Poland Economy

Poland Economy


  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax system

Basic data

According to cheeroutdoor.com, Poland belongs to the developed states of the former Eastern Bloc with a high human development index. According to IMF calculations, the GDP per capita in 2021 reached USD 37,540. The average annual GDP growth rate was 5.7% in 2021. Thus, the Polish economy erased a 2.8% decline in 2020, which was caused by the effects of the coronavirus pandemic. Further revival and strengthening of the Polish economy is expected in the coming years. GDP growth is currently forecast at 4.9% in 2022 and 4.3% in 2023. However, these forecasts may still be revised in light of the economic impact of Russian aggression in Ukraine. In this regard, the Polish economy faces the same challenges as other economies in the region – disruption of supply chains, rising commodity and energy prices and resulting inflation, costs of managing the humanitarian crisis associated with the wave of refugees.

Inflation and its effects will be the main economic challenge. The European Commission predicts that the total annual inflation rate in Poland will reach 11.6% in 2022 and 7.3% in 2023 (earlier forecasts spoke of 6.8% and 3.8%). Government measures have helped reduce the dynamics of price increases, but they will not stop external factors. Compared to EU countries, Poland is the second most affected country by inflation after Lithuania. The Monetary Policy Board decided to raise interest rates dramatically (the reference rate in May 2022 was 5.25% compared to 0.1% in September 2021) and does not rule out further increases in the coming months. However, these actions of the National Bank may expose the Polish economy to the risk of stagflation. The fight against inflation, on the other hand, is not helped by the government’s relaxed fiscal policy and its social programs (such as 500+, thirteenth and fourteenth pensions),

The dominant sector of the Polish economy is services, with a share in GDP creation at the level of 58%. Industry, agriculture and mining are also very strong. Poland has the third largest agricultural area in the EU, and since 2004 Polish farmers have been net beneficiaries of the EU’s Common Agricultural Policy fund (mainly direct payments). The main industries are engineering, metallurgy, automotive, chemical, electrical, textile and food industries. Mining and processing of mineral raw materials play an important role. The vast majority of Poland’s international trade is with EU countries. Poland’s main trading partner is Germany. Both in terms of imports and exports.

The basis of Polish exports is the engineering industry, which accounts for 37% of Polish exports. The chemical industry is in second place (mainly drugs and pharmaceutical products). Agriculture and the food industry are then in third place. Poland can boast of a very well developed meat industry. Machines, equipment and means of transport make up the largest share of Polish imports. Poland also imports industrial goods and chemicals. The share of food in Polish imports is 6.7%.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 4.5 -2.8 5.3 4.9 4.3
GDP/population (USD/PPP) 34,510.00 34,500.00 37,540.00 41,100.00 44,020.0
Inflation (%) 2.3 3.4 5.1 6.2 3.6
Unemployment (%) 5.4 5.9 6 4.9 4.5
Export of goods (billion USD) 264.5 261.4 347.2 373.6 405
Import of goods (billion USD) 262.5 244.7 341.9 373.9 408.2
Trade Balance (Billion USD) 1.3 14.4 8.5 3.3 0.8
Industrial production (% change) 4.2 -1.1 14.5 6,7 4.4
Population (millions) 37.9 37.9 37.8 37.7 37.7
Competitiveness 38/63 39/63 47/64 ON ON
OECD export risk ON ON ON ON ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -2.5
Public debt (% of GDP) 55.5
Current account balance (billion USD) -5.76
Taxes 2022
AFTER 19% – basic; 9% – reduced
F.O 12% – from 1 July 2022
VAT 23% – basic; 0% / 5% / 8% – reduced

According to IMF estimates, the deficit of the Polish state budget reached 2.5% of GDP in 2021 (in 2020 it was 7.1%). The total level of public debt was at the level of 55.5% of GDP at the end of 2021 (it was 57.4% at the end of 2020). In connection with the pressure on public finances caused by the extraordinary expenses associated with the coronavirus pandemic, in September 2021 the Polish government approved the update of the Strategy for debt management in the public finance sector in the years 2022-2025. The aim of the strategy is to keep the public debt within the limit set by the constitution and to optimize the costs of servicing the debt.

In current forecasts for 2022, the IMF expects the Polish state budget deficit to reach 4.1% of GDP and the total amount of public debt to 53.3% of GDP. However, the costs associated with managing the wave of refugees from Ukraine will create additional pressure on the state budget. It can therefore be expected that the forecast will change during the year. Poland’s current account reached a deficit of $5.76 billion in 2021 (for 2020 it was in surplus of $17.52 billion) in 2020). A deficit of USD 20.62 billion is expected this year as well.

According to the National Bank of Poland (NBP), the total value of the current and capital account balance reached negative PLN 9.7 billion in the 4th quarter of 2021, and its ratio to GDP was at the level of 1.3%. A deficit of PLN 2billion was recorded on the current account of the balance of payments. The level of the deficit was influenced by the negative balance of foreign trade in goods (PLN -1billion), primary income (PLN -29.6 billion) and secondary income (PLN -7.7 billion). Services reported a positive balance (PLN 30.8 billion). The deterioration in the current account balance recorded in the 4th quarter of 2021 compared to the 4th quarter of 2020 was mainly due to the deterioration of the trade balance in goods. Throughout 2021, the current account balance was negative at PLN -1billion, which represented 0.6% of GDP.

Total foreign debt at the end of 2021 totaled PLN 1,473.534 billion. Shares of individual sectors: government sector PLN 413.747 billion; central bank PLN 69.744 billion; MFIs – ​​excluding the Central Bank PLN 222.166 billion; direct investments: intercompany loans PLN 444.244 billion and other sectors PLN 323.633 billion.

Banking system

The Polish banking system is similar to the systems in other EU countries and in many developed economies in the world. The basic legal act governing the functioning of the Polish banking system is the “Banking Act” of 29 August 1997 (Prawo bankowe). Regulations regarding letters of credit in Polish legislation can also be found in the Banking Act.

The Polish banking system consists of market-forming institutions (commercial banks) and stabilizing institutions – the National Bank of Poland (Central Bank; NBP), the Financial Supervision Authority (Supervisory Authority; KNF) and the Bank Guarantee Fund (deposit guarantee fund; BFG).

The structure of the banking sector in terms of the origin of capital has not changed in recent years. Polish capital controls more than half of the assets of the banking sector, of which the state treasury owns 46% and private Polish investors 10.4%. Among foreign investors, the capital of ES, DE, FR and NL has long played the most important role. At the end of March 2022, 568 entities from the banking sector were active, of which there were 30 commercial banks, 36 branches of credit institutions and 502 cooperative banks.

The largest Polish bank in terms of assets is controlled by the state treasury PKO Bank Polski – PLN 377.2 billion. In second place is Bank Pekao, whose controlling stake is held by the state treasury – PLN 23 billion. In third place is the Spanish Santander Bank Polska – PLN 22 billion. The fourth in the order is mBank (the main shareholder is the German Commerzbank) – PLN 183 billion. The fifth is the Dutch ING Bank Śląski – PLN 180.6 billion.

The Polish banking system is stable. The last quarter of 2021 saw a series of interest rate hikes, which helped improve the outlook for banking activity. The combination of higher interest rates, higher economic growth than the EU average and historically low unemployment creates favorable conditions for banking activity in the coming years.

Tax system

The Polish tax system is considered complicated and confusing.

Currently, there are several types of taxes in Poland. These are mostly direct taxes such as personal income tax, corporate income tax, inheritance and gift tax, public activity tax, land tax, forest tax, real estate tax, road tax, tonnage tax, tax on the extraction of certain minerals raw materials and a flat-rate tax on the value of production put on the market (the so-called shipbuilding tax). The rest is made up of indirect taxes such as: value added tax, consumption tax (Akcyza) and gaming tax. In Poland, there are a number of fees such as bank tax, fee for using a place for sale on the market, spa fee, residence tax, fee for owning a dog, advertising fee, stamp duty.

PIT (personal income tax) – generally in Poland there is a two-level tax scale with rates of 17% (reduced to 12% from 01/07/2022) and 32% with an income threshold of PLN 120,000 and an annual tax reduction amount in the amount of PLN 5,100.

CIT (Corporate Income Tax) – in Poland it is 19% of the tax base or 9% of the tax base in the case of taxpayers whose income for the fiscal year did not exceed the PLN equivalent of EUR 1,200,000.

VAT – The basic rate in Poland is 23%. Reduced rates of 8%, 5% and 0% are set for some goods and services.

More and more tax settlements are done electronically, but there are also many difficulties associated with this. In the 6th edition of the international ranking of the competitiveness of tax systems prepared by the Tax Foundation, the Polish tax system was evaluated as the third worst of the 36 surveyed countries – members of the Organization for Economic Cooperation and Development. And it’s not about the high rates themselves. The main weakness is the complexity of the tax system and numerous exemptions. The government’s policy of creating new exemptions and preferences (including small CIT, IP Box, Estonian CIT for the selected, exemption of young people from PIT) only further complicates the already hostile system for taxpayers. Therefore, reducing the PIT rate from 17% to 12% in 2022 is in no way the answer to the biggest problem, which is the complexity of the entire system.

Poland Economy