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Economic and Policy Response to Coronavirus

IMF Update on Policy Actions in Poland

The following information is copied straight from the IMF for your convenience. Also, find it here: https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#P

Background. Poland reported its first confirmed COVID-19 case on March 5, 2020. A second wave firmly established itself in October, accelerating in recent weeks, surpassing the first wave by a large margin. Beginning in March, the government introduced containment measures including closures of schools, universities, restaurants, and all non-essential retail trade and service outlets, as well as bans on large gatherings, border controls, and travel restrictions. Following a quarter-on-quarter (q/q) contraction of 0.3 percent in Q1 2020, GDP contracted a further 9.0 percent q/q in Q2, led by declines in private consumption and fixed investment. After a strong rebound in activity beginning in May, high-frequency indicators suggested that the rebound leveled off in August/September, resulting in a 7.2 percent q/q GDP growth in Q3 2020.

Reopening of the economy and additional containment measures. On April 16, the government outlined a four-stage plan to reopen the economy. Starting on April 20 a larger number of people was allowed in shops and at religious gatherings, and public parks and forests were re-opened. The second phase of the lockdown easing plan was launched on May 4 with the re-opening of hotels and shopping malls (with limitations on the number of persons), the opening of daycares and pre-schools (as of May 6), as well as softening quarantine rules for cross-border workers and students. The third phase was launched on May 18, entailing reopening of restaurants, hairdressers and cosmetic salons, and permission for outdoor sport events with up to 50 persons with no audience. Grades 1-3 in primary schools opened on May 25 with strict sanitary rules, with a maximum number of children allowed in class. The fourth stage started on May 30, with the opening of cinemas, playgrounds, and gyms, all with stricter sanitary regimes than normal. Outdoor events are allowed with up to 150 people, with social distancing or face masks. Internal EU borders were opened on June 13, in with line EU recommendations.

In response to the second wave of the pandemic, the authorities initially tightened restrictions on a regional basis, grouping countries into “yellow” and “red” zones based on the local severity of the outbreak. By October 24, the entire country had been placed in a “red” zone. Following a further acceleration of cases, additional restrictions were announced on November 4 (to be in effect from November 6 to 29). The restrictions include the closure of shopping malls (except pharmacies, food, and services) and tighter limits in smaller retail stores. Hotels can be opened only for business travel. Restaurants are open for takeout/delivery only, remote learning has been implemented for children at all grades, social gatherings of over 5 people have been banned, wedding receptions are not permitted, religious service attendance will face limits, and public transport is limited to 50 percent of seats. Water parks, swimming pools, and gyms are closed. Cultural services are to be closed, including cinemas and museums. The government has also created some benchmarks to assess when a full lockdown should be triggered.

 

Key Policy Responses as of November 19, 2020

 

FISCAL

The fiscal policy response to the first wave of the pandemic has been sizeable, estimated at PLN 116 billion (5.2 percent of GDP). New credit guarantees and micro loans for entrepreneurs estimated at PLN 74 billion (3.3 percent of GDP) were also approved. Additionally, the Polish Development Fund is financing a PLN 100 billion (4.5 percent of GDP) liquidity program for businesses. Most of the measures have expired by now, except for the PFR liquidity loan program for large firms. Key measures include:

  • Additional funds for hospital equipment and supplies;

  • Wage subsidies for employees of affected businesses and self-employed persons. Businesses, regardless of their size, may apply for a three-month subsidy in the event of work stoppages or reduced working time. This subsidy covers social insurance contributions, and it ranges from 50 to 90 percent of the minimum wage for each employee, depending on recorded decrease in turnover in 2020. The subsidy includes furloughed employees.

  • Increased guarantees from the national development bank (BGK) for enterprises. A new Liquidity Guarantee Fund in BGK will be established offering guarantees for loans taken by medium and large companies;

  • Additional loans for micro-firms;

  • Postponement or cancellation of social insurance contributions. For micro firms with up to 9 employees social insurance contributions are covered by the budget for 3 months. For companies employing from 10 to 49 employees, 50 percent of social insurance contributions is paid by the budget. Possible deferral, payment in installments, or cancellation of taxes. The self-employed and employees working on civil law contracts can receive a one-time benefit.

  • Deduction of this year’s losses for 2021 tax settlement (tax returns for 2019 might be corrected in order to deduct the losses of 2020 from the 2019 income);

  • An allowance for parents of young children related to school closures;

  • A “solidarity benefit” for those who lost jobs after March 15, paid for three months (June-August);

  • An increase in the unemployment benefit by 39 percent during the first 90 days of unemployment;

  • To support the local tourism industry and families with children, a tourism voucher has been introduced, providing each child entitled to Family 500+ benefits with a one-time PLN 500 voucher to be spent at hotels or tourist events in Poland.

  • Establishment of a new fund (COVID Fund) dedicated to combat the negative impact of the pandemic with the balance sheet size of PLN 100 bn (revenues and expenditures at PLN 100 bn). The Fund is supervised by the Prime Minister but flows from the fund will be transferred to various ministers and other institutions involved in combating negative consequences of pandemic. Revenues are raised through the issuance of bonds by BGK (bonds are guaranteed by the State Treasury).

  • Financial support of the investment tasks managed by local governments (under new government resolution up to PLN 12 bn will be dedicated to strengthening investments processes in local governments as a Governmental Fund for Local Investments). The support will be transferred to projects worth at least PLN 400000. The aim of new mechanism is to revive public investment in local government subsector. Financing will be ensured by the COVID Fund and as a result its balance sheet might be extended by additional PLN 12 bn (on the revenue and expenditure side). The local government could spend these funds until end of 2022.

  • Interest rate subsidies for bank loans granted to provide financial liquidity to entrepreneurs affected by the COVID-19. The new fund in BGK was established (Subsidy Fund) with the purpose to support companies affected by pandemic through paying subsidies to lower their interest rate payments on turnover loans granted by banks. Fiscal cost of new mechanism for 2020 budget will be up to PLN 0.3 bn.

  • The Polish Development Fund is providing liquidity loans and subsidies for micro, small/medium, and large enterprises. The total value of the program equals PLN 100 billion. Up to 70 percent of the financing may be non-returnable, upon fulfilling the relevant conditions related to maintaining employment, continuing business activity, and the level of lost sales.

  • Foreign workers permits are extended to stay in Poland and work.

Additional support for public investment in road and railway infrastructure. As well as PLN 1 bn to support operational situation of companies managing airports.

In response to the second wave of the pandemic, the authorities announced on November 4 additional fiscal measures to support the economy. The estimated cost of such support is not yet clarified, and parliamentary approval is pending. The key measures include:

  • Co-financing of fixed costs for SMEs in the industries most affected by the restrictions. Subsidies under the PFR Financial Shield of up to 70 percent of fixed costs not covered by revenues, provided that revenues decreased by 30 percent compared to the same period in 2019.

  • Write-off of subsidies from the PFR Financial Shield for SMEs. This would be available for sectors subject to sanitary restrictions, conditional on a cumulative drop in revenues from March 2020 to March 2021 by at least 30 percent.

  • Extension of the Financial Shield program for large Companies until March 31, 2021 (applications) and June 31, 2021 (payments). Change in the rules for calculating the damage due to COVID-19 in preferential loans from the current March - August 2020 to March 2020 - March 2021, in accordance with the original shape of the program.

  • Continuation of de minimis guarantees for SMEs and liquidity guarantees for large companies, which requires coordination with the European Commission on the possibility of subsidies to cover installments for loans with maturity of 6 years for industries affected by the restrictions.

  • Continuation of subsidies to jobs in the form of standstills and reduced working time.

  • Extension of the standstill benefit for self-employed persons in the industries subject to restrictions.

  • Exemption from social security contributions for industries affected by the restrictions.

  • Co-financing of a change in the scope of activities under grants for business; increasing the amount of the subsidy from 6 to 8 times the average salary and extending it by co-financing not only new activities, but also changes in the scope of current activities for industries affected by the restrictions.

  • Second chance policy: Co-financing by the Industry Development Agency (ARP) of costs related to the restructuring of enterprises.

  • Co-financing of leasing in transportation sector.

  • The voucher of PLN 500 for all teachers to cover expenses for the IT equipment necessary to provide remote teaching.

MONETARY AND MACRO-FINANCIAL
  • The National Bank of Poland (NBP) reduced its policy interest rate by 140 bps to 10 bps, with rate cuts on March 17 (50 bps), April 8 (50 bps), and May 28 (40 bps), since March 17. The NBP has re-introduced repo (fine-tuning) operations to provide liquidity to banks, reduced the required reserve ratio from 3.5 to 0.5 percent, and changed the interest rate on required reserves to the level equal to the policy interest rate. The NBP has also begun purchases of Polish Treasury securities in the secondary market, and on April 8 expanded eligible securities to include those guaranteed by the State Treasury. The NBP has also introduced a program to provide funding for bank lending to enterprises. Through November 18 the NBP had purchased PLN 105.5 billion (4.6 percent of GDP) in Treasury and in government guaranteed securities in the secondary market.

    In addition, the 3 percent systemic risk buffer for bank capital requirements has been repealed. The Polish Financial Supervisory Authority (PFSA) announced measures related to provisions and reclassification of loans to existing SMEs/micro enterprises to allow distributing the impact of credit losses over a longer period. Some flexibility has been granted in how banks meet capital and liquidity requirements, and the PFSA is accepting the treatment of a BGK guarantee as fulfillment of the “special collateral” condition. The PFSA has adopted a flexible approach for the approval process of long-term guarantee measures under Solvency II for the insurance sector. The PFSA has also recommended a reduction in the risk weight for properties of borrowers that are not used for rentals, which would reduce bank capital requirements. Additionally, the Polish Banking Association has recommended voluntary deferral of loan payments for affected borrowers for up to three months. Banks have also increased limits for contactless credit cards.

EXCHANGE RATE AND BALANCE OF PAYMENTS
  • No information on foreign exchange intervention has been disclosed.

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