IMF on Poland: "Fiscal easing saved Poland"

The IMF has just published its Concluding Statement after a 10 day mission in Warsaw (in which I have also participated on an ad hoc basis).

I was shocked to read in the IMF statement that "A large and timely fiscal stimulus was particularly helpful". This is a very courageous statement on the part of the IMF given the prevailing domestic propaganda maintaning that Poland has done so well in the crisis because it has been "fiscally disciplined" and "resisted other countries' ill-considered policy of fiscal stimuli".

IMF knows better: it says that "Discretionary fiscal relaxation of an estimated 1¾ percent of GDP in 2008 and 2½ percent of GDP in 2009, together with a fall in revenues due to the economic slowdown, increased the general government deficit from under 2 percent of GDP in 2007 to over 7 percent of GDP in 2009. While the Government initially intended to offset revenue shortfalls to the extent needed to maintain the state budget deficit below the limit of Zloty 18 billion in 2009—through what would have been highly pro-cyclical expenditure cuts—it appropriately changed such plans at mid-year, when it increased the deficit limit to Zloty 27 billion. Thus, fiscal policy—through a combination of discretionary relaxation and the work of automatic stabilizers—has provided a much welcomed counter-cyclical stimulus in 2008-09."

It concludes that "fiscal relaxation was was one of the key factors preventing Poland from falling into recession"

Wow, that's impressive!

The IMF stance is very much in line with what I (co-) wrote more than a year ago in a series of articles in the Polish press (, here, , here , here , here and here), arguing that fiscal relaxation is needed to prevent Poland from falling into a recession. At that time the Ministry of Finance was still arguing, as the IMF documents above, that Poland needed to keep general government deficit below 3 percent of GDP to enter the ERMII and then euro zone in 2012. This amounted to conducting a very pro-cyclical policy. Had the MoF kept its position, Poland would have not escaped a recession for sure.

Luckily, the MoF changed its mind later in the year (allowing a deficit of almost 7% of GDP in 2009 and 2010), albeit it did not change its rhetoric.

Interestingly, the Polish press has not picked up ANY of this in their review of the IMF statement. Just see this and this text in Wyborcza and this one in Rzeczpospolita...

IMF is courageous not only in its fiscal assessment. For the first time ever it talks about FX intervention and reduction in interest rates to stop excessive FX appreciation (sic!), argues against cutting contributions to OFE, recommends against too fast fiscal tightening ("reducing the deficit to 3 percent already by 2012 would, in our view, be too ambitious, considering that the economic recovery is incipient and still uncertain"), and talks about a forceful action by the government to prevent too rapid increase in FX lending. Finally, in a stark reversal of its earlier position, the IMF recommends to delay Euro adoption.