PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB7159 (The report # is automatically generated by IDU and should not be changed) Operation Name Development Policy Loan 2 Region EUROPE AND CENTRAL ASIA Country Poland Sector Central government administration (100%) Operation ID P130459 Lending Instrument Development Policy Lending Borrower(s) REPUBLIC OF POLAND Implementing Agency Date PID Prepared October 30, 2012 Estimated Date of Appraisal April 22, 2013 Estimated Date of Board April 16, 2013 Approval Corporate Review Decision Following the corporate review, the decision was taken to proceed with the preparation of the operation. Other Decision {Optional} Teams can add more if they wish or delete this row if no other decisions are added Key development issues and rationale for Bank involvement This is the second in a series of two development policy loans supporting the government of Poland’s goal of strengthening public finances. The DPL program is expected to support Poland’s fiscal consolidation agenda, while strengthening fiscal institutions and improving the efficiency and sustainability of social spending. Proposed Objective(s) The series is designed to support the Polish government in its effort to strengthen public finance in the conditions of lasting economic uncertainty in the Euro area. The DPL support is focused on three critical policy areas. First, fiscal consolidation is needed to rein in public debt and enhance the country’s resilience to external shocks. Second, stronger fiscal institutions are essential to ensure that once the fiscal deficit has come down, it remains at prudent levels over the business cycle. And third, structural and fiscal reforms are required to secure long-term sustainability of social spending, particularly in the face of the country’s aging population. The measures under these three areas are also geared to protect fiscal space for growth-enabling investments. The authorities value the support of the Bank through policy lending for several reasons: it embeds technical advice for reform design; it signals the Government’s commitment to key structural reforms; it establishes a time table to anchor the reform process; and it comes with lower transactions costs and longer maturity than investment lending. Preliminary Description The programmatic DPL is structured around three pillars with the following development objectives: (i) consolidating public finances to ensure a steady decline of the fiscal deficit to stabilize and over the medium-term reduce public debt to maintain favorable access to financial markets; (ii) strengthening fiscal institutions through the introduction of fiscal rules to ingrain a prudent fiscal stance over the medium term; and (iii) advancing long-term fiscal reforms to secure the sustainability of social spending in view of Poland’s demographic challenge. These policies aim to enhance Poland’s economic resilience in the face of adverse times. These policies also aim at protecting fiscal space for key growth-enhancing investments. The proposed DPL2 measures to be supported under each pillar are as follows: Pillar 1 Consolidating Public Finances: Fiscal consolidation remains a key policy priority for 2013. Building on the progress made in 2011 and 2012, a further reduction in the fiscal deficit is crucial to adhere to Poland’s commitment under the Excessive Deficit Procedure, to stay clear of the 55 percent of GDP national public debt limit, and to protect priority spending. Pillar 2 Strengthening Fiscal Institutions: Through the introduction of fiscal rules, the Government aims to ensure that once the fiscal deficit has come down after the initial consolidation process, it remains at prudent levels over the business cycle. In this process, the Government plans to introduce limitations on both national and local government finances to achieve a structural fiscal deficit of 1% of GDP in line with the medium-term objective of the EU Stability and Growth Pact. These rules would safeguard against the re-emergence of excessive structural budget deficits in the medium and long term. Pillar 3 Advancing Long-Term Fiscal Reforms: Strengthening public finances also requires Poland to continue structural reforms across various sectors. These fiscal reforms are focused on helping to secure the sustainability of pension transfers and public health care services, while improving the coverage and generosity of social assistance for the most vulnerable. In addition, introducing a regular income accounting for farmers will enable moving to a system of regular taxation of the agriculture sector based on income, including for the payment all social insurance contributions over the medium term.} Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts The overall poverty, social, and gender impacts of the policy measures supported under this DPL series are expected to be positive. Several of the policy measures will improve the living standards of the poor, both directly through reforms to social protection programs and indirectly through improved stability and solvency of public finances. Environment Aspects The specific policies supported by the DPL series are not likely to have significant effects on Poland’s environment, forests, water resources, habitats or other natural resources. Tentative financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development 1000 Borrower/Recipient IBRD Others (specifiy) Total Contact point World Bank Contact: Gallina Andronova Vincelette Title: Senior Economist Tel: (202) 473-0288 Fax: Email: gvincelette@worldbank.org Borrower Contact: Title: Tel: Email: For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop