DRAFTCOUNTRY PARTNERSHIP

STRATEGY (CPS) for POLAND for 2009 - 2013

Consultations with Civil SocietyMay 2009

OUTLINE

• What is a CPS?• Country Context• Country Development Program• World Bank Program• Risks

WHAT IS A CPS ?

• A World Bank document usually made public• Guides our work in a country based on the

country’s own development program• It defines key areas of value-added and

strategic areas of engagement/collaboration• It attempts to define expected results of the

partnership • It is not a negotiated document• It is consulted with Government and civil

society

COUNTRY CONTEXT• Geopolitical, EU relations, and political

situation - a successful integration into the EU since 2004 with EU

institutions being now main external partners - access to considerable external financing: both EU and market - stable majority government with strong social support but lack

of parliamentary majority - no significant governance problems

• Economic developments, labor market and poverty profile

- strongly affected by the deterioration in external environment but moderate vulnerability

- well poised financial system, inflation slowed down during crisis, balance of payments relatively strong

- growth to slow down but to remain positive in 2009 - unemployment on the rise after a remarkable improvement in

recent years (which led to lower poverty)

COUNTRY CONTEXT (continued)

• Medium-term economic and fiscal outlook - Poland is faring better than other countries in the region

although global crisis has worsened its macroeconomic and fiscal outlook

- medium term economic prospects seriously affected by shrinking demand and tighter international and domestic credit conditions (growth projected to slow down to 0-1 percent in 2009)

- sharp economic slowdown may make it difficult to maintain budget deficit below 3 percent of GDP

- an ambitious Government euro adoption course (by 2012); may be delayed by 1-2 years

- authorities took steps to preserve financial stability andsupport the economy (Plan for Stability and Development)

Country Development Program

Overarching objectives: rapid convergence to EU living standards with joining the euro-zone as the main strategy to achieve this; also acceleration of structural reforms

• Public finance management• Tax reform• Raising employment (especially among elderly

and women) • Strengthening education policies• Improving efficiency and quality in health care• Developing infrastructure• Deregulation and privatization• Low-carbon growth and energy security

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WORLD BANK PROGRAM

- • Implementation of CPS 2005 and lessons learned:

- it did not adequately differentiate the Bank’s potential role from that of other partners

2009 CPS APPROACH: Need to define better the Bank’s role and value-added

- flexibility was appropriate but did not facilitate a focused or strategic dialogue as it was designed at a time of uncertain interest in cooperation with the Bank for a MIC which just joined the EU

2009 CPS APPROACH: Need to establish a more strategic yet flexible framework of activities that can be scaled up or down

- implementation was hindered by successive changes in counterparts

2009 CPS APPROACH: Need to strenghten collaboration at director level and broader dialogue across political spectrum

WORLD BANK PROGRAM

- External partners and key areas of Bank value added:

• EU at large main partner (to support income convergence, knowledge economy and infrastructure); also EIB (co-financing, energy efficiency, infrastructure, subnational). EBRD and IFC mainly phased out but coming back in response to the crisis

• WB can still add value within the domain of its broader institutional and regional strategic priorities and as a complement to EU programs: global and regional goods, knowledge on development lessons, complement to the EU Lisbon Agenda, social sector reform

The knowledge acquired in Poland and the lessons learned can be of great value to less advanced clients in the region and beyond

WORLD BANK PROGRAM

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Strategic pillars of collaboration

1) Social and Spatial Inclusion

Social sectors reform: areas: labor market and social protection (employment promotion and pensions), education, health, and long-term care

instruments: DPL program; AAA; subnational lending?

Regional Development

areas: infrastructure development, social service delivery; monitoring and evaluation

instruments: subnational lending; AAA to the Ministry of Regional Development (largely on a fee4service basis)

WORLD BANK PROGRAM

- 2) Public Sector Reform

areas: i) analysis and capacity building aimed at improving the quality of public finances; (ii) strengthening public finance management practices and institutions, including performance-based budgeting, public investment planning, and the medium-term fiscal framework; and (iii) efforts to enhance public administration and governance (both at central and subnational level)

instruments: DPL program; subnational lending?; AAA (national and subnational Public Expenditure Reviews; Public Finance Management TA; potential cooperation with Ministry of Justice and Central Anti-corruption Bureau

WORLD BANK PROGRAM

- 3) Growth and Competitiveness :

Infrastructure

areas: maintenance and rehabilitation, policy reforms and investment lending to improve public transport in urban area

instruments: investment lending; potential policy lending; AAA (mainly on Fee4Service basis)

Private sector development

areas: deregulation, PPPs, privatization, streamlining tax administration, gender aspects

instruments: DPL program, AAA (mainly on a Fee4Service basis)

WORLD BANK PROGRAM

- 4) Global and Regional Public Goods

Climate Change:

areas: energy efficiency, abatement of carbon emissions, transport, greening investments

instruments: AAA (e.g. Climate Change CEM); potential lending for energy efficiency, natural disaster mitigation, renewable energy investments, or clean carbon technologies)

Financial Sector Stability

areas: stress test for banks; easing of credit conditions

instruments: AAA (e.g. FSAP w. IMF); lending (credit line to support SMEs through PKO BP)

WORLD BANK PROGRAM

PROGRAM WILL DEPEND LARGELY ON DEPTH AND DURATION OF CRISIS:

BASELINE: Assumes crisis will abate in 2010. Total exposure increasing to about USD 7 billion in 2010 with new lending declining quickly thereafter. Instruments: ongoing Development Policy Lending (DPL) program (focusing on public finance reforms, labor market and social sector reforms, and private sector development) and a limited number of other operations supporting economic activity and the longer-term development agenda; moderate AAA program in public finance, human development, private sector development, and infrastructure.

PROLONGED ENGAGEMENT: If crisis turns out to be deeper or more prolonged, Bank lending could possibly be scaled up and extended for a longer period. Instruments: scaling up of lending program through additional DPLs or additional lending to support subnational or longer-term development agenda (infrastructure, climate change). Lending still assumed to be phased-out by 2013. AAA program might also be expanded.

It is planned that fee-for-service business would be phased in as crisis subsides and that this would gradually become the main business model. Could be viable for many years to come.

WORLD BANK PROGRAM

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Current portfolio:

Relatively small with total exposure of about USD 3 billion: recently disbursed DPL, four investment operations (roads, flood protection, rural support and energy efficiency); two PCF operations

Planned lending activities:

First year: Anchored in the DPL series (second and third loans), while supporting economic activity and the longer-term development agenda through innovative, non-sovereign loans (planned loans for the City of Warsaw to support transport infrastructure developemnt and to PKO BP for onlending to financial instituions engaged with SMEs)

Beyond the first year: less well-defined at present but could be scaled up to incorporate more lending or down towards a more limited program of fee-

based services, depending upon client demand; potential focus on energy and climate change agenda; expansion of subnational cooperation

WORLD BANK PROGRAM

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Proposed Baseline Lending Program

FY Amount US$(M)

DPL 2 2009 1250Warsaw City SIL/Swap 2010 500PKO BP Credit Line 2010 500DPL3 2010 1250City 2 2011 250Climate Change 1 2011 300City 3 2012 150Climate Change 2 2012 300TOTAL 4500

WORLD BANK PROGRAM

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Recent/Proposed Nonlending (AAA) Services Completion FY

Performance-Based Budgeting 2009Poznan Climate Change 2009DPL Education Reform TA 2009-10Mazowieckie Public Expenditure Review 2009-10Climate Change CEM 2009-10PER 2009-10DPL Health TA 2010DPL Social Protection TA 2010Warsaw City ESW 2010Transport Policy Note 2010City 2/3 AAA 2011Energy ESW 2011Transport/railways ESW 2011City 4/5/6 AAA 2012

WORLD BANK PROGRAM

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RISKS:

Economic: a more severe crisis and prolonged economic downturn may undermine fiscal consolidation and early euro adoption plans; could affect confidence and lead to balance of payments pressures

Political: the projected deterioration of economic prospects may undermine political support to the Government and reduce its willingness to push for more radical reforms; elections in 2009 – 2011 (European Parliament and Local Government; Presidential; general) may make political environment less stable; difficulties obtaining qualified majority support needed to amend Constitution for euro-adoption or overturn Presidential vetos on reforms

For more information on the World Bank and it’s activities in Poland, please:

• visit the following web page: www.worldbank.org.pl

• call the following number:

22 520 80 00

• visit our office in Warsaw, located at:

53 E. Plater Str., 9th Floor