Slow eurozone, 'controversial' policies pose risk for Poland

The IMF said on Tuesday it expects strong economic expansion for central European heavyweight Poland in 2017, but identified controversial domestic policies and slow eurozone growth as downside risks later on. 

Growth would accelerate to 3.7 percent in 2017 from an estimated 3.5 this year, thanks to "strong private consumption supported by the new child benefit scheme, before moderating over the medium term," the IMF said in a report following an annual consultation.

The IMF's growth estimate for this year is slightly weaker than the Polish government's own forecast of 3.6 percent.

The IMF cautioned however that "financial market volatility, and a marked slowdown in emerging markets could propagate into Poland". 

Domestically, "controversial policy initiatives or fiscal slippages could worsen investor sentiment and hinder economic expansion."

Poland's populist Law and Justice (PiS) government won an October 2015 election on promises of generous social spending.
The IMF said it expected spending to increase "the budget deficit to 2.8 percent of GDP in 2016 and to over 3 percent of GDP in 2017", compared to 2.6 percent in 2015, before a planned return to fiscal consolidation from 2018.

The Washington-based institution also said "proposals to convert foreign currency mortgages into zloty, if implemented, could undermine financial stability and further dent market confidence." 

It also wagged a finger at a new bank asset tax, warning it "could undermine credit expansion and growth."

The Fund cautioned Warsaw against plans to return to a lower pension age -- from 65 to 60 for women and 67 to 65 for men -- to "avoid adversely impacting the budget." 

In May, global ratings agency Moody's cut Poland's outlook from stable to negative over "fiscal risks" posed by its right-wing government, but left its investment grade unchanged.

The change was Moody's first such move in over a decade and came after a deeper ratings cut in January by Standard and Poor's, which blamed the PiS government for "weakening institutions."

The PiS has pushed through several pieces of controversial legislation including institutional changes to Poland's constitutional court and public media that critics both at home and abroad -- including the EU -- have slammed as undermining democratic checks and balances.

A nation of 38 million people, Poland remains one of the EU's most vibrant economies, clocking uninterrupted annual growth since it shed communism in 1989, and which has yet to join the eurozone.