DRAFT COUNTRY PARTNERSHIP STRATEGY (CPS) for POLAND for 2009 - 2013

1. DRAFTCOUNTRY PARTNERSHIP STRATEGY (CPS) for POLAND for 2009 - 2013 Consultations with Civil Society May 2009

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

3. 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

4. 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)

5. 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 and support the economy (Plan for Stability and Development)

6. 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 -

7. 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 -

8. 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 -

9. WORLD BANK PROGRAM 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) -

10. 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 -

11. 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) -

12. 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) -

13. 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.

14. 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 -

15. WORLD BANK PROGRAM Proposed Baseline Lending Program FY Amount US$(M) DPL 2 2009 1250 Warsaw City SIL/Swap 2010 500 PKO BP Credit Line 2010 500 DPL3 2010 1250 City 2 2011 250 Climate Change 1 2011 300 City 3 2012 150 Climate Change 2 2012 300 TOTAL 4500 -

16. WORLD BANK PROGRAM Recent/Proposed Nonlending (AAA) Services Completion FY Performance-Based Budgeting 2009 Poznan Climate Change 2009 DPL Education Reform TA 2009-10 Mazowieckie Public Expenditure Review 2009-10 Climate Change CEM 2009-10 PER 2009-10 DPL Health TA 2010 DPL Social Protection TA 2010 Warsaw City ESW 2010 Transport Policy Note 2010 City 2/3 AAA 2011 Energy ESW 2011 Transport/railways ESW 2011 City 4/5/6 AAA 2012 -

17. WORLD BANK PROGRAM 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 -

18. 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