Report No. Poland Country Assistance Review (In Two Volumes) Volume I: Main Report April 14, 1997 ________________________________________________________________________ Operations Evaluation Department Document of the World Bank Abbreviations and Acronyms ARPP Annual Review of Portfolio Performance ASAL Agriculture Sector Adjustment Loan ATF Agricultural Task Force BAS Budget Accounting System BGZ Polish Bank of Food Economy CAR Country Assistance Review CAS Country Assessment Strategy CEE Central and Eastern Europe CEM Country Economic Memorandum CMEA/COMECON Council of Mutual Economic Assistance COS Cost Accounting System CSIR Country Strategy Implementation Review CSP Country Strategy Paper DDSR Debt and Debt Service Reduction DHE District Heating Enterprises EAA European Association Agreement EBRD European Bank for Reconstruction and Development EC-PHARE European Commission Poland and Hungary Assistance in Restructuring Economies EC European Commission EU European Union ECA Europe and Central Asian Region ECU European Currency Unit (now called the Euro) EDI Economic Development Institute EFF Extended Fund Facility(IMF) EFSAL Enterprise and Financial Sector Adjustment Loan EIB European Investment Bank EP Employment Promotion Project EPSP Employment Promotion Service Project ERG Energy Restructuring Group ERR Economic Rate of Return Director-General, Operations Evaluation : Mr. Robert Picciotto Acting Director, Operations Evaluation Dept. : Mr. Roger Slade Acting Division Chief : Mr. Luis Ramirez Task Manager : Mr. Luis Landau Abbreviations and Acronyms (cont.) ESAL Energy Sectoral Loan ESMAP Energy Sector Management Assistance Program ESW Economic Sector Work ETP Economic Transformation Program FACT A World Bank Database FDI Foreign Direct Investment FIDL Financial Institutions Development Loan FY Fiscal Year GATT General Agreement of Tariffs and Trade GDPR General Directorate of Public Roads GEF Global Environmental Facility GOP Government of Poland HFPO Housing Finance Project Unit HO Housing Office HSDP Health Service Development Project HUB Hungarian Central Regional Resident Mission IAR Investment Assessment Report ICB International Competitive Bidding IDA International Development Agency IEPS Initial Executive Project Summary IFC International Finance Corporation IFI International Finance Institute IMF International Monetary Fund IMIS Database JV Joint Venture LAC Latin American and the Caribbean MOF Ministry of Finance MOHSW Ministry of Housing and Social Welfare MOLSP Ministry of Labor and Social Policy MOSEC Ministry of Spatial Economy and Construction MPT Ministry of Post and Telecommunications MTME Ministry of Transport and Maritime Economy MTS Medium-Term Scenario MTSAP Medium-Term Sector Adjustment Program NBP National Bank of Poland OECD Organization of Economic Cooperation and Development OED Operations Evaluation Department OPMIS Operational Management Information System PCU Project Coordination Unit PDB Polish Development Bank PGNG Polish Oil and Gas Company PKOBP National Savings Bank PKP Polish State Railway Abbreviations and Acronyms (cont.) POM Project Operation Manual PPF Project Preparation Facility PPGC Polish Power Grid Company PPTT Polish Post, Telephone and Telecommunications PSD Private Sector Development PSU Project Support Unit of the Cooperation Fund RM/RMW Resident Mission in Warsaw RVP Regional Vice-President(cy) SAL Structural Adjustment Loan SAR Staff Appraisal Report SECAL Sectoral Adjustment Loan SME Small- and Medium-Size Enterprise SOE State-owned Enterprise SSN Social Safety Net SWKS Staffweeks TA Technical Assistance TM Task Manager TPSA Polish Telecommunications Company TRS Time Report System UNDP United Nations Development Program USAID United States Agency for International Development VAT Value Added Tax VPU Vice-Presidency Unit WHO World Health Organization The World Bank Washington, D.C. 20433 U.S.A. Office of the Director-General Operations Evaluation April 14, 1997 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT Poland: Country Assistance Review Attached is the report Poland: Country Assistance Review prepared by the Operations Evaluation Department (OED). This Country Assistance Review (CAR) is the fifth of the new type of country- focused studies that, for each country concerned, evaluate (i) the relevance of the Bank’s overall country assistance strategy and (ii) the efficacy of Bank assistance. This CAR also evaluates the cost- effectiveness of the Bank’s lending instruments. The objectives are to establish accountability, derive lessons of experience and provide recommendations for action. The Poland CAR evaluates Bank assistance from 1986 (when Poland rejoined the World Bank) until today. Following several years of studies and project preparation, Bank lending started in 1990, after a new government had launched a decisive, market-oriented economic transformation program (ETP), and reached agreement with the IMF on an Extended Fund Facility. Since that time the Bank has maintained a permanent presence in Poland and has supported decisively the efforts of successive Polish governments to move the country rapidly towards a market-oriented, private-sector driven economy increasingly integrated with the rest of the world. Poland’s transition performance has been excellent both in comparison with other transition economies and in its own right. Poland has experienced the highest economic growth rate in 1990-95, and its private sector activity now accounts for two thirds of GDP. Its currency is stable and its international creditworthiness has been restored. Enterprise restructuring and privatization, financial sector and environmental issues are being addressed. In 1995 Poland became a member of the OECD, and its prospects for early accession into the European Union are good. EBRD has ranked Poland among the top performers, particularly in the areas of small-scale privatization, trade, and foreign exchange reforms. On the other hand unemployment and poverty remain high. There is a need to accelerate the privatization of unprofitable state enterprises such as heavy industry (coal, steel, petrochemicals, oil and gas) and the state-owned commercial banks. The losses of some specialized banks (housing, food economy) and the fiscal burden of a costly social safety net make it difficult to strengthen public finances. Institutionally, the legal and regulatory frameworks, while much improved, still fall short of what Poland needs to take full advantage of its potential to attract private investment. The study finds that Bank support was most valuable in assisting Poland achieve progress in nearly all of these areas. As an advisor, the basic reform strategy was always that of the Polish authorities, but the Bank played a constructive role through an intensive policy dialogue throughout the years, based on responsive Economic and Sector Work, active project preparation, and on Bank- sponsored seminars and other dissemination activities, including those carried out by the Economic 2 Development Institute. The Bank’s role as a development agency was also most valuable, although its efficacy was lessened sometimes by poor quality at entry of projects (such as in the case of projects based on credit lines). Implementation problems have also plagued many operations. Some were due to over-ambitious project design, and complex institutional arrangements. Others were the result of the many government changes experienced by Poland throughout the period. Finally, cumbersome Bank procedures, communication problems and lack of flexible lending instruments to compete with those offered by other lenders contributed to the slow pace of implementation. The cost-effectiveness of the Bank’s assistance program was low when compared to other countries in the ECA Region and elsewhere in the Bank. In spite of these shortcomings, the Bank’s assistance was particularly valuable in many areas, notably the following: helping Poland secure exceptional levels of debt relief, upgrading the country’s infrastructure in power, transport and telecommunications, strengthening and modernizing the commercial banks (in close cooperation with IFC), facilitating the conciliation process of many state- owned enterprises with their creditors, and more generally, strengthening institutions in most sectors of the economy. On the other hand, it has taken longer than originally expected to achieve progress in some of the social sectors and in agriculture. During preparation of this study OED staff have exchanged views with the ECA Region, and an earlier version of the CAR (dated January 27 1997) has been taken into account in preparation of the CAS dated April 14 1997. The study recommends that future Bank assistance to Poland should emphasize selectivity. Since the country has less need for transfer of resources, the focus should be policy formulation, institution building and provision of nonlending services. Lending could still be directed towards infrastructure, agriculture and social services, provided that there is a full unequivocal ministerial commitment to the reforms pursued by the loans, and that maximum use is made of cofinancing opportunities, with private lenders and with other IFIs. Contents Volume I Poland at a Glance......................................................................................................................... 5 Preface ............................................................................................................................... 7 Executive Summary......................................................................................................................