Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 106506-PL

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL FINANCE CORPORATION

AND MULTILATERAL INVESTMENT GUARANTEE AGENCY

PERFORMANCE AND LEARNING REVIEW

OF

THE FY14-17 COUNTRY PARTNERSHIP STRATEGY FOR

POLAND

Poland Country Office Central/Southern Europe and Baltic Countries Europe and Central Asia Region The International Finance Corporation Europe and Central Asia The Multilateral Investment Guarantee Agency

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CURRENCY EQUIVALENTS

(Exchange Rate as of July 31, 2016) Currency Unit = Polish Zloty (PLN)

US$ 1.00 = PLN 3.9295

FISCAL YEAR ABBREVIATIONS AND ACRONYMS

ASA Advisory Services and Analytics MFM Macroeconomics and Fiscal Management Global Practice

BB Bank Budget MIC Middle Income Country BGK Bank Gospodarstwa Krajowego MIGA Multilateral Investment Guarantee Agency DB Doing Business MOFA Ministry of Foreign Affairs CEB Council of Europe Development Bank MRA Miscellaneous Reimbursable Arrangement CPF Country Partnership Framework MSME Micro, Small and Medium-sized Enterprise CPS Country Partnership Strategy NBP Narodowy Bank Polski (the Polish central bank)

DG Regio Directorate-General for Regional and Urban Policy NFZ National Health Fund DPL Development Policy Loan OECD Organization for Economic Cooperation and Development EBRD European Bank for Reconstruction and Development OP Operational Program EDU Education Global Practice ORFPP Odra River Flood Protection Project ESW/TA Economic Sector Work/Technical Assistance PFM Public Finance Management EU European Union PiS Law and Justice Party EUR Euro PLK Polskie Linie Kolejowe PLN Polish Zloty FRTAP Financial Reporting Technical Assistance Program PLR Performance and Learning Review FX Foreign Exchange PPP Public Private Partnership FY Fiscal Year PROST Pension Reform Options Simulation Toolkit GDDKiA General Directorate for National Roads and Motorways RAS Reimbursable Advisory Service GDP Gross Domestic Product RIS Research and Innovation Strategy for Smart Specialization GEM Global Economic Monitor RDP Responsible Development Plan GoP Government of Poland SCD Strategic Country Diagnostic HDI Human Development Index S&P Standard & Poor’s HNP Health Nutrition and Population Global Practice SME Small and Medium-sized Enterprise IBRD International Bank for Reconstruction and Development SPL Social Protection and Labor Global Practice IDS Integrated Delivery System SURR Social, Urban, Rural and Resilience Global Practice IFC International Finance Corporation TF Trust Fund IMF International Monetary Fund T&C Trade and Competiveness Global Practice Infra Infrastructure Trans & ICT Transport Information and Communication Technologies

Global Practice IPPF Infrastructure Project Preparation Facility UK United Kingdom LTC Long Term Care WAT Water Global Practice M&E Monitoring and Evaluation WBG World Bank Group

IBRD IFC MIGA Vice President: Director: Task Team Leader:

Cyril Muller Arup Banerji Andrea Kucey/Marina Wes

Dimitris Tsitsiragos Tomasz Telma Kartick Kumar/Ana Maria Mihaescu

Karin Finkelston Dan Biller/Yasser Ibrahim Paul Barbour

PERFORMANCE AND LEARNING REVIEW

OF THE COUNTRY PARTNERSHIP STRATEGY FOR POLAND

TABLE OF CONTENTS

I. Introduction .......................................................................................................................... 1

II. Main Changes in Country Context ...................................................................................... 1

III. Program Implementation ..................................................................................................... 4

IV. WBG portfolio and implementation performance ............................................................... 8

V. Emerging lessons ................................................................................................................. 9

VI. Adjustments to CPS and future engagements .................................................................... 10

VII. Risk to the CPS program.................................................................................................... 11

Annex 1: Updated CPS Results Matrix ........................................................................................ 12

Annex 2: Matrix of changes to original CPS Results Matrix ....................................................... 17

Annex 3: Matrix summarizing progress towards CPS Objectives................................................ 19

Annex 4. WBG Program .............................................................................................................. 24

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I. Introduction

1. The Poland Country Partnership Strategy (CPS) FY14-FY17 is grounded in a partnership to build and share knowledge. Poland has an outstanding track record of economic performance and institutional transformation, more than doubling its GDP per capita in in the past fifteen years. In many respects, growth has resulted in shared prosperity, with reductions in the poverty rate and significant increases in incomes of the bottom 40 percent. The WBG promotes the lessons of Poland’s success, while also providing support in select areas where the Government sees an added value. This includes a long-standing investment lending engagement in flood prevention. 2. The CPS’s two-fold aim is: (a) to foster sustainable income growth for the bottom 40 percent of the population in the context of Poland’s convergence process within the EU; and (b) to support Poland’s emerging role as a global development partner. The CPS is anchored on four strategic engagement areas: Economic Competitiveness, Equity and Inclusion, Climate Action, and Poland as a Global Development Partner. These strategic engagement areas are aligned with Europe’s 2020 strategic agenda of smart, sustainable and inclusive growth, and remain relevant today. 3. A new Government came to power in November 2015, with an agenda to promote strong and inclusive economic growth. The CPS objectives and the corresponding Results Framework of the CPS are consistent with government priorities. In particular, the focus on social inclusion and shared growth is in line with the WBG’s Twin Goals (shared prosperity and eradicating extreme poverty) and the institution’s comparative advantage. Given that the program is broadly on track, this Performance and Learning Report (PLR) reflects progress towards the delivery of results and suggests only modest changes to improve indicators as needed. The preparation of the forthcoming Strategic Country Diagnostic (SCD) will provide an opportunity to engage in a broader dialogue with the authorities and will serve as the basis for the next Country Partnership Framework (CPF).

II. Main Changes in Country Context

Political

4. Following two consecutive terms of a Civic Platform led Government, the conservative Law and Justice Party (PiS) won political victories in May 2015 (presidential elections) and October 2015 (parliamentary elections). The new government took office in November, 2015. The PiS campaigned successfully on a platform of inclusive economic growth, and a focus on the poorer segments of society. This administration marks the first single party Government, without need for a coalition, since the country’s transition to a market economy in 1989. 5. The new Government introduced many policy and institutional changes within the first months in office. Some of them were broadly welcomed, like the introduction of the new child benefit scheme. A few other initiatives have drawn criticism from the opposition parties and some external observers. An active debate is on-going with respect to party initiatives and proposals, the results of which will shape the policy agenda over the medium term. The sovereign downgrade (to BBB+) by S&P in January 2016 has been attributed to political issues.

6. The GoP set forth its economic program in the “Responsible Development Plan” (RDP) in February

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2016. The Plan presents a comprehensive medium-term structural reform agenda to revive domestic investment by mobilizing domestic resources complemented by EU funds, improving business conditions, and promoting innovation. The RDP is based on five pillars: re-industrialization, development of innovative firms, capital for development, foreign expansion, and social and regional development. 7. The WBG remains engaged in an active dialogue with the authorities, particularly in the areas of public finance and social programs, where the Government and Twin Goal priorities converge.

Economic

PolandSelected Indicators Avg. '00-14 2010 2011 2012 2013 2014 2015 E 2016 F 2017 F 2018 F

Income and economic growthGDP growth (annual %) 3.7 3.6 5.0 1.6 1.3 3.3 3.6 3.7 3.5 3.5GDP per capita growth (annual %, real) 3.8 4.0 5.0 1.6 1.4 3.4 3.7 3.7 3.5 3.5GDP per capita (US$, nominal) 9888.2 12602.4 13888.5 13139.8 13767.5 14331.8 12517.9 12292.0 12862.0 13497.0GDP per capita, PPP (current international $) 16537.8 20768.3 22333.8 23151.6 23980.2 24867.7 25765.9 26687.4 27645.5 28641.1Private Consumption growth (annual %) 3.1 2.7 3.1 0.7 0.2 2.4 3.0 3.3 3.3 3.2Gross Investment ( % of nominal GDP) 20.2 20.3 20.7 19.8 18.8 19.7 20.1 20.2 20.4 20.6

Money and PricesInflation, consumer prices (annual %, MRV)1,3 .. 3.1 4.5 2.5 0.8 -0.8 -0.7 -1.0 .. ..Inflation, consumer prices (annual %, period average)3 3.2 2.6 4.3 3.7 0.9 0.0 -0.9 -0.5 1.0 1.5M2 ( % of GDP)2 49.3 54.5 56.7 57.0 58.9 61.3 .. .. .. ..Domestic Credit to the Private Sector ( % of GDP)2 38.7 49.0 51.8 50.5 50.9 51.9 .. .. .. ..10 year interest rate (annual average)3 .. 5.8 6.0 5.0 4.0 3.5 2.7 2.9 .. ..Nominal Exchange Rate (local currency per USD) 3.3 3.0 3.0 3.3 3.2 3.2 3.8 4.0 4.0 4.0Real Exchange Rate Index (2010=100) .. 100.0 95.9 103.9 101.9 103.2 125.2 134.7 136.0 136.6

FiscalRevenue (% of GDP) 39.5 38.1 38.8 38.9 38.4 38.9 38.9 39.0 39.0 39.4Expenditure (% of GDP) 44.1 45.6 43.6 42.6 42.4 42.2 41.5 41.6 41.9 41.4Interest Payments (% of GDP) 2.6 2.5 2.5 2.7 2.5 1.9 1.8 2.0 2.0 1.9Overall Fiscal Balance (% of GDP) -4.5 -7.5 -4.9 -3.7 -4.0 -3.3 -2.6 -2.6 -2.9 -2.0Primary Fiscal Balance (% of GDP) -1.9 -5.0 -2.3 -1.0 -1.5 -1.4 -0.8 -0.6 -0.9 -0.1General Government Debt (% of GDP) 47.3 53.3 54.4 54.0 56.0 50.5 51.3 52.0 52.5 52.0

External AccountsExport growth, f.o.b (nominal US$, annual %) 14.3 16.5 17.4 -1.4 9.2 6.6 -9.5 -0.3 6.1 5.2Import growth, c.i.f (nominal US$, annual %) 12.1 19.9 17.1 -4.9 3.5 8.0 -12.2 -0.7 6.4 5.4Merchandise exports (% of GDP) 30.5 32.7 34.9 36.2 37.8 38.7 40.1 40.8 41.3 41.3Merchandise imports (% of GDP) 33.7 35.7 38.4 38.3 37.9 39.4 39.6 39.9 40.5 40.7Services, net (% of GDP) 1.1 0.9 1.4 1.5 1.9 2.1 2.3 .. .. ..Current account balance (current US$ millions) .. -25875.0 -27357.0 -18605.0 -6744.0 -11125.0 -1169.0 -4343.9 -7049.9 -9789.4Current account balance (% of GDP) .. -5.4 -5.2 -3.7 -1.3 -2.0 -0.3 -0.9 -1.4 -1.9Foreign Direct Investment, net inflows (% of GDP) 2.6 1.9 2.6 1.2 0.8 2.0 0.9 1.8 2.0 1.9

Population, Employment and PovertyPopulation, total (millions) .. 38.5 38.5 38.5 38.5 38.5 38.4 38.4 38.3 38.3Population Growth (annual %) -0.1 -0.3 0.0 -0.1 0.0 0.0 -0.1 -0.2 -0.2 -0.2Unemployment Rate2 .. 9.6 9.6 10.1 10.4 9.0 7.5 .. .. ..Poverty rate ($2.5/day PPP terms)2 0.8 .. .. .. 0.8 0.8 0.7 0.7 0.7 0.7Poverty rate ($5/day PPP terms)2 5.0 .. .. .. 5.0 4.7 4.4 4.4 4.4 4.4Inequality - Gini Coefficient2 33.8 33.2 32.8 32.4 .. .. .. .. .. ..Life Expectancy2 75.4 76.2 76.7 76.8 76.8 .. .. .. .. ..

OtherGDP (current LCU, millions) 1202592.0 1445060.2 1566557.2 1628992.1 1656341.2 1719097.0 1789696.0 1868729.5 1955183.1 2051268.1GDP (current US$, millions) 359025.6 479179.0 528635.1 500151.1 524025.9 544862.9 474707.8 467182.4 488795.8 512817.0GDP per capita LCU (real) 33506.6 37504.9 39371.5 40014.2 40578.8 41948.8 43497.8 45106.1 46689.7 48334.0

Notes: ".." indicates not available. E = estimate, F = forecast. Data from MFMOD unless otherwise noted1/ Used latest month available.2/ World Development Indicators Database and World Bank Staff Estimates3/ World Bank GEM database; MRV = Most recent value4/ This indicator is ranked out of 175 countries in 2007, 178 in 2008, 181 in 2009, and 183 in 2010 and 2011.5/ The HDI ranking in 2001 is in relation to 175 countries and in 2010 in relation to 169 countries. Methodological enhancements in HDI calculations have resulted in notable improvements in the countries' rankings.Sources: MFMOD Database, World Bank WDI and GEM databases, IMF.

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8. With an annual rate of 3.3 percent in 2014 and 3.6 percent in 2015, economic growth has exceeded expectations under the CPS. Growth has been driven by healthy domestic demand, an improving labor market. Average nominal wages have grown at 3.3 percent in 2015, and inflation has been negative at 0.9 percent, while credit growth has been positive. The contribution from exports has been slightly positive, sustained by a weak Zloty, cheap oil, and a gradual rebound in import demand from Western Europe.

9. Poland’s fiscal stance has improved between 2013 and 2016, enabling Poland to exit the EU Excessive Deficit Procedure in the Spring of 2015, one year ahead of the deadline. The general government deficit declined to 2.6 percent of GDP in 2015 from 3.3 percent in 2014, helped by contained current expenditures, partly due to a policy of freezing the state budget wage bill, and lower interest payments on public debt. The public debt at the end of 2015 stood at 51.3 percent of GDP slightly higher than in 2014 (50.5 percent of GDP). The improvement in the external balance has been likewise notable. The current account deficit came down in 2015 to 0.3 percent of GDP from as high a level as 5.4 percent in 2010. Contributing factors have been the weak Zloty, a recuperating EU demand, and moderate import growth. In 2015, Poland’s trade of goods recorded a surplus of 0.5 percent of GDP after decades of persistent deficits.

10. Credit from the banking sector has been healthy and supportive of economic growth. Profitability of banks is declining but still remains solid and roughly two times higher than the EU average. The capital position of the banking sector is favorable as well (in Q1 2016 the total capital ratio (TCR) stood at 16.7 percent and Tier 1 capital ratio at 15.3 percent, with considerably high ratio of RWA to total assets – 64 percent – due to conservative risk weights applied). Going forward, there is some speculation that recent and planned changes in the regulatory environment could have a negative impact on banks’ profits and lending capacity, however, this has not materialized so far. In addition to the need to achieve compliance with tightened EU capital and liquidity requirements, the banks started to pay a new asset tax from early 2016 (3.4 billion zlotys in 2016, equivalent to around a third of banks’ earnings in 2015). The cost of ongoing restructuring of the cooperative bank and credit union sector is also partially borne by the banks through higher contributions to the deposit guarantee fund, and a new, industry-funded resolution fund envisioned in line with EU requirements. Poland’s financial markets have been volatile in recent months, which was the result of both domestic, and foreign factors (such as the increase in global risk aversion in to the aftermath of the results of the UK referendum). The market reaction to the credit rating downgrade by S&P on January 15, 2016 was significant but mostly temporary. 11. Growth is projected to strengthen somewhat in 2016 to 3.7 percent. The drivers are expected to be strong domestic demand as the labor market continues to improve and government transfer increases in line with the policy of the new government to support inclusion. Investment will be spurred by the current high levels of capacity utilization, low interest rates and EU funds. The Government is also expected to promote policies to enhance the climate for investment and innovation. Risks include sustaining financial sector stability and potential fiscal implications of recently announced policy measures.

Inclusion

12. The estimate is that the poverty incidence rate measured at 5.00/day 2005 PPP has decreased from 5.1 percent in 2012 to 4.4 percent in 2015. Still, the poverty at risk remains high and there is a relatively large cohort of the working poor that, at 10.6 percent in 2014, is one the highest in-work poverty rates in the EU.

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13. Employment growth of around 1 percent in 2015 has delivered the lowest unemployment rate since 2008, 6.9 percent of the active labor force. Employment growth has favored workers with tertiary education, delivered modest gains to secondary education workers, and has not benefited to the same degree workers with lower levels of education. The eastern provinces are relatively poorer than the rest of country and the rate of youth unemployment reached 20.1 percent in July, 2015. However, new permanent jobs were predominant in 2015, following a few years of primarily temporary employment opportunities. 14. The poverty rate is expected to continue declining and reach 2.8 percent by the end of 2016. The drop in poverty is expected as a result of a tighter labor market, rising wages, the introduction of the new family benefit program, and financial support for the elderly through more generous indexation of pensions. The dominant inclusion challenges that remain center on regional disparities, youth unemployment and the gender gap in labor force participation. Not only is labor participation below the EU average, but female labor force participation at 61.6 percent is far below the rate for males of 75.2 percent. Increases in labor force participations as well as in labor productivity can help mitigate the effect of the rapidly aging population.

III. Program Implementation

15. The CPS has four strategic engagement areas: Economic Competitiveness, Equity and Inclusion, Climate Action, and Poland as a Global Development Partner. Progress towards the delivery of the CPS objectives and results is on track. Investment operations that did not materialize on hospital, railways and social inclusion require limited adjustments to indicators, but the spirit of the CPS goals remains intact. The Bank’s only investment lending supports works to reduce the risk of flooding. Main construction works are conducted on the Odra River to protect the population around Wroclaw and in the lower parts of the river from periodic flooding, whereas flood-management analyses are also conducted for the Vistula River. IFC’s approach as outlined in the CPS was selective in key areas following several years of limited activity. Through the current CPS period, IFC has been actively exploring new investment opportunities and is well ahead of the commitments outlined in the CPS.

Strategic Engagement Area 1: Economic Competitiveness

Goal 1: Enhanced business environment

16. WBG support has been provided through two Development Policy Loans and analytical work. Poland enhanced its business environment during the CPS period, and while there is some unevenness in DB indicators, its overall ranking improved from 55th in DB2013 to 25th in DB2016, the fastest progress of any country in the region. The Bank reviewed amendments to the construction code in early 2015 (BB) and advised on potential solutions for the construction permit framework in late 2015 (RAS). The Bank supported the Ministry of Justice in tightening contract enforcement with the aim of speeding up the process of settling disputes between companies. At the regional level the discussion on business environment was fueled by the first Polish edition of the subnational Doing Business (RAS). This exercise benchmarked 18 regional capital cities, with the potential to drive peer learning among Polish regional authorities and increase the pace of reforms. The Bank, backed by a RAS funded by the Swiss Government, has been providing multifaceted Financial Reporting Technical Assistance Program (FRTAP) to support the Government and professional stakeholders in enhancing a sustainable regulatory and institutional framework. This technical

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assistance helps effectively apply the EU acquis communautaire and international standards in corporate sector accounting and auditing which is a key element of the market infrastructure and transparency needed to support investment and lending activities and sustained economic growth. 17. In line with the CPF, the IFC recently signed an agreement with Raiffeisen bank to issue gender bonds. Additional IFC work on business development in Poland includes consultations with the country’s main exporters and leading business outreach seminars on local administration, infrastructure and PPPs with Polish corporates. The results have begun to bear fruit with transactions in the FY15 such as IFC’s equity investment of EUR15 million in a generalist Private Equity fund focused on SMEs and mid-cap companies driving job creation in the country. Currently the IFC team is working to provide long-term funding to the leading Polish banks and leasing companies with significant exposure to micro, small and medium size local companies. The IFC funding would be earmarked for MSMEs outside of Poland’s largest cities. IFC assistance would also potentially include a gender component for on-lending to women-owned/managed SMEs and to agribusiness focused SMEs, which local banks have expressed interest in exploring. In addition to providing needed long-term funding for Polish MSMEs and advisory services to help banks build its gender finance business and agribusiness. IFC also intends to explore further opportunities with local partners in Poland in the area of green bonds and Tier II capital. 18. Progress under this Goal is positive and the WBG is likely to achieve the intended results, with the exception of increasing access to electricity, where there has been limited engagement. Goal 2: Increased innovativeness 19. The Bank has contributed to Poland advancing its innovation agenda and the corresponding CPS indicator has been achieved. Specifically the Bank supported the GoP with the review of selected components of the Smart Growth Operational Program (OP), which guides Poland’s support for innovation during the period 2014-2020. The Bank helped advance work on the smart specialization agenda, which is championed by the EC and supported the Government in reviewing national and regional innovation strategies as well as in designing and testing a new approach to a bottom-up selection and verification of priorities of the national innovation policy– the so call entrepreneurial discovery process, where entrepreneurs play a key role. Additionally, the Bank assisted the GoP and Polish regions with preparing a monitoring and evaluation framework for innovation policy, through a RAS. The 1st and 2nd Resilience and Growth DPL supported the legal and regulatory landscape for innovation.

Goal 3: Effective public finance

20. As noted above, fiscal outcomes in Poland have improved in recent years, including during this CPS period. Resilience and Growth DPLs supported prudent and sustainable public finance, including through the adoption of a “permanent fiscal rule”. Regarding other indicators under this goal, progress towards introducing an accounting system for farmers in order to facilitate taxation has been slow and the Bank is no longer providing support in this area. The intended RAS to support cost-efficiency of courts did not materialize. While, there has been a limited engagement on two of the three indicators under this objective, the Bank has been providing support for innovative tax administration schemes, drawing on behavioral economic tools. It also engaged in peer-to-peer knowledge events to help the government advanced reform agenda in the area of tax policy and administration. In addition, the Bank supported the Ministry of Finance

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in designing and testing a spending review process to enhance spending efficiency. The spending review that focused on low income families’ support considered a wide range of efficiency and value-for-money options, ranging from measures to reduce funding to changes in the policy mix. The Bank supported the Polish Government’s effort in PFM reforms, including Polish public sector accounting. By the end of 2016 the Bank will provide other support including awareness raising and capacity building activities to galvanize high-level support for public sector budget and accounting reform. The authorities have committed to keep the deficit below 3 percent of GDP in 2016 and 2017 and expect to resume gradual fiscal consolidation in 2018.

Strategic Engagement Area 2: Equity and Inclusion

Goal 4: Inclusive and effective labor market

21. The DPL series supported amendments to the Law on Early Childcare to facilitate parents re-joining the labor force. It also supported strengthening job-seeker services and promoting flexible employment through the enactment to the Law on Promotion on Employment and Labor market institutions that entered into force in 2014, and whose implementation is proceeding smoothly. The Law introduces instruments to support re-employment, youth employment and employment over 50. The instruments include telecommuting grants, hiring subsidies, loans for new jobs and startups, and regional training programs. Within the context of the First and Second Resilience and Growth DPL series as well, the regulation for professions was simplified lowering barriers for youth to enter the labor markets. The indicator related to lowering barriers to market participation is considered to be met, however, the impact of these initiatives on the ground has not been measured. The Bank engaged in knowledge sharing (policy notes, event and diagnostic reports) that informed introduction and design of labor market reforms to support equity and inclusion such as policy changes to reduce labor market duality, support low income families or long term learning for aging society.

Goal 5: Balanced regional development

22. The Bank has helped strengthen the capacity for strategic planning through the preparation of regional development strategies. Support (ESW/TA) went to the Lubelskie and Slaskie regions in preparing and reviewing their regional development strategies, which are under implementation. The Bank also advised (RAS) Swietokrzyskie in the review and design of its regional innovation strategy that is the basis for developing the region’s innovation ecosystem. Four regional capitals in Eastern Poland participated in the pilot project on preparing Green Urban Transport Solutions led by the Bank (ESW/TA). The Bank reviewed (ESW/TA) an inter-regional development strategy for Eastern Poland for the period 2014-2020 that guides the Eastern Poland Operational Program. Finally Bank’s TA support provided to the Ministry of Finance helped analyze challenges of local government units in mid-term fiscal forecasting and prepared recommendations for a more coordinated system of fiscal data gathering and analysis. All indicators for this goal have been met. Results from implementation of strategies are likely to materialize in the following CPF period. 23. Over the last two years, the WBG has noted that despite impressive economic growth in Poland, in particular following EU accession, significant disparities still exist in the level of development and economic performance between regions. While Warsaw and other big cities have shown middle-income levels for many years, there are still considerable inequalities across regions in Poland, in particular in rural areas. As a result, IFC has begun playing a role in supporting short- and medium-term pro-growth measures to help in

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particular the “bottom 40 percent” in the country. IFC’s engagement has been received very positively by the public and private sectors.

24. Supporting two Polish regions in more effective investment of funds dedicated for the 2014-2020 period is the goal of a joint initiative by the Swietokrzyskie and Podkarpackie regions, Ministry of Economic Development, the EC and the WBG. The Bank provides hands-on technical assistance to these two lagging regions in areas related to vocational education, innovation (technology transfer), entrepreneurship and business climate. The work is financed by the European Commission.

Goal 6: Reformed health care sector in an aging society and a system ensuring access to LTC services for those in need

25. While the investment loan to support the modernization of the hospital network in targeted areas did not materialize, the Bank remains engaged in the discussion with the Government. The Bank’s deepening engagement in the sector marks an achievement during the CPS period, and includes providing advisory support in the area of integrated healthcare delivery to enhance coordination of services provided to patients. Within the RAS signed with the National Health Fund (NFZ) the Bank is conducting systematic reviews of the key domains of the IDS program, helps design IDS pilots, and supports building capacity in managing the IDS program to help achieve better integration of health care. The Bank is also facilitating knowledge sharing on health maps and investments plans with high level workshops including the participation of representatives of the Ministry of Health, European Commission, national health stakeholders, academics and government representatives from other countries. 26. IFC is also engaged in the health sector.The Public Private Partnerships (PPP) program assessed ten healthcare projects proposed by the Ministry of Development’s PPP platform and sought to structure three hospital (financing, building/refurbishing hospital facilities) projects as PPP. As IFC does not have access to financing facilities or donor funding for Poland (given the country’s EU status), the PPP project preparation was to be supported by the EBRD IPPF facility. However, in December 2015, EBRD decided against pursuing PPP opportunities in Poland. Given the Ministry would have had to finance the preparation costs fully, the offer was rejected.

Strategic Engagement Area 3: Climate Action

Goal 7: Informed climate change policy

27. Good progress has been made in strengthening government capacity to build its climate policy on strong empirical evidence. Specifically, an economic model has been prepared to assess the impact of climate policy on the overall economy. The model has been transferred to the authorities and training has been provided. This goal is considered to be met.

Goal 8: Enhanced protection against floods

28. Good progress has been made in advancing the agenda to reduce the exposure to Odra River flooding, likely to increase with climate change. The Odra River Flood Protection Project (ORFPP) will reduce the exposure of around 2.5 million people around Wroclaw by lowering peak water levels through strategic investments. The ORFPP is slated to be completed by December 2017 and a follow-up Odra-Vistula project has commenced implementation and will provide three district areas with flood management infrastructure and related measures: the Middle and Lower Odra, the Nysa- Kłodzka Valley, a medium –

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sized sub-basin of the Upper Odra and selected parts of the Upper Vistula including notably the areas of Kraków, Sandomierz and communities in the Raba and San tributary catchments. The project is co-financed with the Council of Europe Development Bank (CEB) and the European Commission. A total of around 15 million people will be covered under the two projects. While there have been some implementation delays during the Government transition, and some interest in aligning the project with the new Government’s focus on inland waterways, at this time the objective is on track to be met.

Goal 9: Resource-efficient and safe infrastructure

29. Following some preliminary work, the investment loan supporting the railway sector did not materialize. The focus of WBG support has shifted towards road safety, which has improved since 2013. The Bank supported the development of the National Road Safety Program 2020 and preparation and monitoring of the rolling bi-annual Implementation Plans. In addition, it has undertaken a comprehensive review of road safety management capacity in Poland, developed detailed recommendations to improve the road safety data system, road safety education, the Agency for Road Safety, and road safety funding. It has also reviewed the performance of transport systems in Eastern Poland and assisted in policy development related to metropolitan tariffs integration across different public transport modes. Supporting RAS products include Poland Road Safety Technical Support and the GDDKiA Road Safety Practices Review. While some progress has been made towards this goal, the indicators related to physical infrastructure will not be achieved.

Strategic Engagement Area 4: Poland as a Global Development Partner

Goal 10: Contribution to development cooperation and global public goods

30. The CPS emphasized that building Poland’s position as a global development partner is a long term endeavor, made more difficult in the short-term by the tight fiscal situation of the country. Therefore, it foresaw only initial steps during the CPS and adopted a learning approach, with the intent of revising the approach by the time of the Progress and Learning Review. To date steps include the delivery of two knowledge sharing events with Eastern Partnership countries which were organized on a cost-sharing basis in Warsaw (June 2014) and Tbilisi (June 2015). In addition, the Bank is supporting the preparation of a “Lessons from Poland, insight for Poland” project that seeks to draw lessons from Poland’s experience on how countries can transition to high income, currently an issue of broad global interest. This work is expected to be completed and disseminated by the end of the CPS period, at which point this goal can be considered met.

IV. WBG portfolio and implementation performance

31. The WBG engagement remains relevant and meaningful, and is characterized by a broad range of services including financing, analytical, and reimbursable advisory services. During the first half of the CPS the Bank has supported two multi-sectoral development policy loans (in FY15 and FY16) totaling US$ 2 billion. The Bank’s investment portfolio includes two investment loans to enhance flood protection in Poland at Odra and Vistula Rivers. The first loan for the Odra River Flood Protection Project, initiated in 2007, is 73 percent disbursed and expected to close in December 2017. The second loan for the Odra Vistula Flood Management Project is in the early stages of launching the contracting process. The second loan ensures continuity of works started under the first operation. Citizen engagement has been an important part of the preparation of DPLs and investment lending, and the WBG will continue to engage citizens during the

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remainder of this CPS and preparation of the upcoming CPF. 32. Investment lending anticipated in the railway and social assistance sectors did not materialize. Lending related to restructuring of the railway sector did not take place as there was a greater emphasis on the road-related projects on the Government side. The Bank is providing support on road safety and with a transport solutions RAS. While the social inclusion loan did not materialize, the Bank remains very much engaged in social sectors through a variety of engagements including integrated health care and a deepening dialogue on long term care.

33. Reimbursable Advisory Services have become an integral part of the WBG program. While the size remains modest relative to some other EU countries, its growth in terms of number of contracts, clients and tasks reflects the WBG’s growing relevance and comparative advantage. The RAS program in Poland is focused on the delivery of highly technical outputs, where a sophisticated client is interested in global experience to help design detailed aspects of its reforms or investment plans. For the Bank, this is often cutting-edge work, which requires a review of experience not only within traditional Bank clients but also in OECD and other advanced economies. Because of the strong client engagement in this work, output has informed policy measures linked to the DPL and provided an effective way to bring about development results. A list of advisory services and analytics (ASA) products is provided in Annex 4.

34. IFC continues to actively pursue opportunities in Poland in areas aligned with the CPS objectives. As of May 16, 2016, IFC’s committed portfolio is US$92 million (not including regional projects). On existing projects IFC made an investment into a regional telecommunications company in 2014 which operates throughout Central Europe. As of April 2016, the company had 312,000 subscribers across Poland and IFC’s total investment was equal to EUR 6.5 million. IFC intends to invest an additional EUR 1.88 million into the company to support its efforts to scale up and become financially sustainable. At present there are four projects being processed by IFC: (i) a leasing project for US$75 million 5-year senior loan signed and to be fully disbursed in May 2016, and (ii) a loan facility for US$150 million to support MSMEs in poorer regions of Poland, which has a gender finance component, and will be presented to the Board in June 2016; and (iii) two regional agribusiness projects focusing on Kazakhstan, Poland, Romania and Ukraine. 35. IFC is also working with two government agencies: the Ministry of Foreign Affairs (MOFA), and the Ministry of Finance as well as with the Polish central bank (NBP) on business promotion efforts in Poland. Their efforts are aimed at supporting the internationalization of Polish business by promoting Polish companies interested in investing outside of Poland. Specific sectors include: health, pharmaceuticals, energy, and infrastructure. IFC works with MOFA to assist Polish corporates with understanding, assessing and exploiting potential foreign investment opportunities. In this context, IFC has held two business development seminars in Poland in November 2015 and March 2016.

V. Emerging lessons

36. Poland can play a prominent role as a “knowledge exporter”. Poland has become an increasingly important source of information for other countries in the region and across the world, and the Bank can play a role to help the country showcase its success and better understand the country’s experience and applied solutions. This has taken the form of promoting bilateral knowledge sharing visits with several

10

countries across a diverse selection of areas (e.g., subnational finance, innovation, etc.). Another way the WBG is promoting Poland is through a study to share lessons with other middle income countries (MICs) and help raise Poland’s position in global fora. Specifically, this work will explore how the WBG can help sustain and support countries’ transition to high income, and provide a forward looking perspective to identify key challenges and policy reforms for Poland going forward including by drawing on experiences from established high-income countries. It is expected that this innovative initiative, undertaken jointly with the Polish central bank, will showcase its success and document the country’s experience and applied solutions. 37. Poland is a sophisticated counterpart that takes advantage of the WBG’s global knowledge in policy design, impact evaluation and hands on support for implementation. The WBG portfolio of RAS and TA are increasingly being used to enhance impact of government interventions through learning from other countries experience in policy, design, careful ex ante and ex post impact evaluation of existing and new programs as well as help in policy implementation in Poland. Examples include the project on innovation that focused on firms’ needs assessment that informed pilots testing specific initiatives in the areas of innovation and enhancing the business environment, where an assessment of constraints and evaluation of pilots could help attract financing from the private sector or other sources. The WBG has also been asked to provide support for impact evaluation for selected social projects and help the Government in more efficient use of available EU funding. Finally, annual policy-based lending has represented an opportunity to cross-leverage across WBG instruments and blend financing with knowledge 38. The selective approach to investment lending is well-tailored to leverage the WBG role in Poland. The WBG’s approach to investment lending has been informed by the institution’s value added for Poland. The current portfolio is focused in one highly technical area, flood prevention and builds on the success of lessons in implementation of the first project. Over time this long standing engagement has evolved into a key platform to deepen and operationalize the partnership with Poland, develop expertise in strengthening the public administration system, and in the professional preparation of complex investments in compliance with EU directives. Because of its size and cross-sector complexity the Bank has helped to build capacity to manage across government institutions at different levels. The institution also brings unique strength and technical expertise in safeguards for similar projects; and the resettlement process is widely considered a best-practice example. Finally, the Bank financing has been able to crowd-in significant EU and other international co-financing. This strategic and selective approach has proven successful in Poland and could serve as a model for other specialized technical expertise with potential for replication in similar countries.

VI. Adjustments to CPS and future engagements 39. The WBG has been engaging the Government actively since it took office and most areas of the WBG’s CPS remain relevant and on track to deliver the intended results. The priorities that the current Government assigns to sustained and higher economic growth coupled with inclusion is in line with the WBG mandate and Europe 2020 goals. The PLR maintains all of the objectives under the CPS, and proposes a few adjustments in areas where WBG support did not materialize as expected. The DPL program envisioned for FY17 is yet to be confirmed, but there is an ongoing dialogue with the authorities and future engagements will be defined as part of the preparation of the Systemic Country Diagnostic (SCD) and forthcoming CPF.

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Strategic Engagement Area 1: Economic Competitiveness

40. The PLR maintains its attention on facilitating opening businesses and obtaining construction permits, but will drop the target on improving access to electricity given the limited engagement thus far. In addition, the indicators related to introducing accounting for farmers to facilitate taxation and the indicator related to commercial courts will be dropped for the same reason. Going forward, the WBG stands ready to support elements of the Smart Growth Operation Program, and innovation more broadly.

Strategic Engagement Area 2: Equity and Inclusion

41. The indicators under Objective 6 will be revised to reflect the lack of investment lending and the focus on integrated health service delivery supported by RAS.

Strategic Engagement Area 3: Climate Action

42. The indicators for Objective 9, efficient and safe infrastructure, need to be adjusted as the investment lending for railways did not materialize. An indicator will be added to reflect the ongoing work on road safety. The WBG will continue to work on climate change with the Government of Poland, including a potential RAS product in support of the carbon reduction strategy.

Strategic Engagement Area 4: Poland as a Global Development Partner

43. The Bank will replace the indicator related to a Memorandum of Understanding with a new indicator to reflect the joint work on the “Lessons from Poland, insight for Poland” project.

VII. Risk to the CPS program 44. Risks identified at the time of CPS preparation remain valid and at the same level. 45. The CPS identified risks related to a turbulent external environment, which remains a concern. The full economic implications of the outcome of the UK referendum on Brexit are still being assessed. There are some macro risks related to the implementation of the new administration’s social initiatives and tax reforms, which, combined with perceived heightened political risks related to potential erosion of institutional independence resulted in a recent sovereign downgrade. It is not expected that these developments represent a substantial risk to the WBG program, in part as outcomes are well advanced, including those supported by DPL actions that have been achieved. With one year left remaining in the CPS period the sustainability of outcomes will continue to be carefully monitored. In addition, the Results Framework does not rely on additional investment lending to achieve existing indicators so this risk, which materialized during the first half of the CPS, is no longer relevant. Implementation of the Odra project may face some delays due to the change in administration, the shifting responsibilities of some units and institutions, and the nature of the project which includes large public works. Looking forward, the new Government is still articulating its priorities and the SCD will be an important tool in defining areas of a future CPF.

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Annex 1: Updated CPS Results Matrix

Strategic Area of Engagement I: Economic Competitiveness

CPS Objectives and Indicators Instruments and Partners Goal 1: Enhanced business environment Significantly improved performance as measured under the Doing Business methodology in starting a business (time reduced from 32 days to 21 days), and construction permits (time reduced from 301 days to 200 days).

Multisectoral DPL 1 and DPL2- Resilience and Growth Development Policy Loan (FY14&FY15) RAS Doing Business Poland 2015 (FY15) RAS Construction Permits (FY16) RAS Financial Reporting Program (ongoing, FY17) RAS Contract Enforcement (FY13) ESW Public Policy Notes (FY16) TA Doing Business (FY13-FY17) BB Construction Code – review of amendments (FY15) TF with DG Regio (FY16-FY17) Partners Swiss Development Cooperation (funding the Financial Reporting Technical Assistance Program)

Goal 2: Increased innovativeness Instrument to effectively support private sector-led innovation (including an increased focus on SMEs and the introduction of non-grant mechanisms) adopted and used under the upcoming EU Financial Perspective.

WBG Multisectoral DPL 1 and 2 - Resilience and Growth Development Policy Loan (FY14&15) RAS Entrepreneurial Discovery and Needs Assessment (FY15-16) RAS Review of RIS3s (innovation strategies) in Poland and review of Smart Growth Operational Program (FY14) RAS RIS3 (innovation strategy) in Swietokrzyskie region (FY14) RAS Ex ante Assessment of Financial Instruments of the OP Infrastructure and Environment (FY13) RAS Guidance to NCBR to Enhance Efficiency and Effectiveness of its R&D Programs (ongoing, FY17) ESW Innovation Ecosystems ESW Public Policy Notes (FY16) TA M&E of RIS3/Smart Specializations (FY14) TF with DG Regio (FY16-FY17) IFC IFC financing for projects focused on MSMEs outside of Poland’s largest cities. IFC assistance may include a gender component for on-lending to women-owned/managed SMEs and to agribusiness focused SMEs. IFC financing to regional telecommunications project to enhance increased connectivity.

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CPS Objectives and Indicators Instruments and Partners Under Discussion RAS Assessment of Financial Instruments in the Regional Operational Programs 2014-2020 in Poland (FY17) Partners EC (funding innovation support programs under the upcoming Financial Perspective) BGK (The State Development Bank of Poland) Lewiatan (Association of Employers)

Goal 3: Effective public finance Expenditure rule in place ensuring the sustainability of fiscal deficit reduction and compliance . Behavioral taxation pilots conducted and assessed.

WBG Multisectoral DPL 1 and 2 - Resilience and Growth Development Policy Loan (FY14&15) ESW Is Poland Saving Enough (FY14) ESW Poland Saving for Growth and Prosperous Aging ESW Social Sectors Service Delivery ESW Regional Economic Review (FY16) ESW Public Policy Notes (FY16) TA Poland Public Spending Review Program (FY15) TA Regional Development Support – Mid-Term Financial Forecasts (FY15) TA Euro Adoption Preparedness (FY15) TA Public Finance Work on Poland (ongoing, FY17) TA Poland Pension Liability Calculation (PROST) (FY16) RAS Financial Reporting Program (ongoing, FY17) Tax collection behavioral experiment (FY15) Partners EC (engaged in a policy dialogue under the Excessive Deficit Procedure) IMF (engaged in a policy dialogue under regular monitoring activities, and financing a Flexible Credit Line)

Strategic Area of Engagement II: Equity and Inclusion CPS Objectives and Indicators Instruments and Partners

Goal 4: Inclusive and effective labor market Instrument designed to effectively support inclusion through the labor market (especially for older workers, women, and youth) adopted and used under the upcoming EU Financial Perspective

WBG Resilience and Growth DPL 1 2 – Labor Market Pillar (labor market deregulation) ESW Regional Aging Flagship (FY15) ESW Public Policy Notes (FY16) TA Activation and Employment Promotion (FY16) TA Social Inclusion (FY16) RAS Impact Evaluation of Youth BB Integrated Family Support (FY16) Poland Jobs Dialogue (FY16)

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CPS Objectives and Indicators Instruments and Partners Spending Review of Low Income Family Support (FY15) IFC IFC job creation via Private Equity projects focused on MSMEs, leasing and financing of MSMEs and other IFC projects in telecommunications and agribusiness focused on less developed regions of Poland. Gender finance.

Goal 5: Balanced regional development At least five key regional planning instruments (i.e., regional development strategies, regional operational programs, or subnational medium term fiscal plans), prepared with Bank support, under implementation.

WBG TA Ex ante Review of the Eastern Poland Development Strategy (FY13) TA Subnational Development – review of Slaskie regional development strategy (FY13) TA Regional Development Support – Mid-Term Financial Forecasts (FY15) TA Green Urban Transport Solutions for Sub National Governments (ongoing FY16) ESW Support for Lubelskie Regional Development Strategy RAS RIS3 (innovation strategy) in Swietokrzyskie Region (FY14) TF with DG Regio (ongoing, FY17) IFC IFC financing for financial markets projects focused on MSMEs outside of Poland’s largest cities, regional telecommunications project and a sustainable agribusiness project in less developed regions of Poland.

Goal 6: Integrated Health Delivery At least three (3) pilots on integrated health delivery launched.

WBG RAS Integrated Health Care (ongoing, FY17) ESW Regional Aging Flagship (FY15) MRA Long Term Care Strategy for Poland (FY15) TF with DG Regio (ongoing, FY17) IFC IFC PPP Advisory has looked into Polish government’s plans for PPP work in the health sector, however due to the lack of Government financing capacity, the program will not go forward. Partners EC

Strategic Area of Engagement III: Climate Action CPS Objectives and Indicators Instruments and Partners

Goal 7: Informed climate change policy WBG TA Building Economic Modeling Capacity for Climate Policy Analysis (FY12-15)

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CPS Objectives and Indicators Instruments and Partners Economic model to assess the impact on the overall economy of climate change-related policy options in use.

IDF Grant on Low Emissions Strategy (FY12-16) Stargard Geothermal Project (FY14) IFC IFC is organizing a Green bonds conference for the Polish financial sector in June 2016. Partners EC (engaged in a dialogue on climate change objectives and policies)

Goal 8: Enhanced protection against floods Reduction in risk for about 2.5 million people in the Wroclaw area and for urban centers upstream of Wroclaw against 1-in-1000 years flood episodes, such as the 1997 flood.

WBG IPF Odra River Flood Protection Project (ongoing, FY18) IPF Odra-Vistula Flood Management Project (ongoing, FY24) Partners EC and CEB (co-financing the Odra Project)

Goal 9: Road safety enhanced Number of road accidents decreased according to SEWIK BASE (Crash Injury Data Base held by Police): Baseline (2013): 35 847 accidents and 3 357 fatalities (2015): accidents 32 967 and 2, 938 fatalities

WBG TA Poland Road Safety Technical Support (FY15) RAS GDDKiA Road Safety Practices Review (FY16) RAS Road Safety Capacity Development (FY16) Korean Green Growth TF funded TA on Piloting Green Urban Transport Solutions in Transport Sector in Poland (FY14- ongoing) Partners EC (funding physical investments for railways and energy efficiency under the upcoming Financial Perspective, funding road safety related media campaigns) Swiss aid: training for self-government officials involved in road safety Budget: regular road safety surveys (speeding, seatbelts, child restrains), research on economic costs of accidents) Korean Green Growth TF

Strategic Area of Engagement IV: Poland as a Global Development Partner CPS Objectives and Indicators Instruments and Partners

Goal 10: Contribution to development cooperation and global public goods “Lessons from Poland, insights for Poland” completed and disseminated. At least two knowledge events with Eastern Partnership countries held.

WBG TA Poland as a Global Partner (FY11-FY15) Lessons of experience from the Polish transition (series of policy notes) ESW Lessons Learned from Poland, Insights for Poland (FY17) Two knowledge exchange conferences with the Eastern Partnership countries (Tbilisi Jun 2015 and Warsaw Jun 2014) Experience sharing on national audit system with Georgia, Azerbaijan, China; on aspects of the national health system – Mongolia; energy efficiency – Belarus

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CPS Objectives and Indicators Instruments and Partners IFC IFC has organized two conferences for the largest exporters trying to help Polish companies to become regional players. IFC is already working with Polish financial companies in neighboring countries and expects to increase the number of regional clients. Partners: Ministry of Foreign Affairs

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Annex 2: Matrix of changes to original CPS Results Matrix

Strategic Area of Engagement I: Economic Competitiveness

CPS Objectives and Indicators Revised CPS Objectives and Indicators Goal 1: Enhanced business environment Significantly improved performance as measured under the Doing Business methodology in starting a business (time reduced from 32 days to 21 days), construction permits (time reduced from 301 days to 200 days), and getting electricity (time reduced from 186 days to 123 days).

Goal 1: Enhanced business environment Significantly improved performance as measured under the Doing Business methodology in starting a business (time reduced from 32 days to 21 days), and construction permits (time reduced from 301 days to 200 days).

Goal 2: Increased innovativeness Instrument to effectively support private sector-led innovation (including an increased focus on SMEs and the introduction of non-grant mechanisms) adopted and used under the upcoming EU Financial Perspective.

Remains Unchanged

Goal 3: Effective public finance Adoption of a permanent fiscal rule ensuring the sustainability of fiscal deficit reduction; introduction of an accounting system for farmers (as a step towards taxation of the agriculture sector); alignment of resource allocation with strategic priorities for the functioning of commercial courts.

Goal 3: Effective public finance Expenditure rule in place ensuring the sustainability of fiscal deficit reduction and compliance Behavioral taxation pilots conducted and assessed.

Strategic Area of Engagement II: Equity and Inclusion Goal 4: Inclusive and effective labor market Instrument designed to effectively support inclusion through the labor market (especially for older workers, women, and youth) adopted and used under the upcoming EU Financial Perspective

Remains Unchanged

Goal 5: Balanced regional development At least five key regional planning instruments (i.e., regional development strategies, regional operational programs, or subnational medium term fiscal plans), prepared with Bank support, under implementation.

Remains Unchanged

Goal 6: Reformed health care sector in an aging society and a system ensuring access to LTC (long-term care) services for those in need. Modern hospital networks in at least three voivodships (i.e. hospitals are reorganized, networked, or merged using needs-based and spatial planning as well as economic analyses to concentrate specialized services and/or limit duplications, improve patients flows, integrate in- and out-patient and/or health and social care).

Goal 6: Integrated Health Delivery At least three (3) pilots on integrated health delivery launched.

Strategic Area of Engagement III: Climate Action Goal 7: Informed climate change policy Economic model to assess the impact on the overall economy of climate change-related policy options in use.

Remains Unchanged

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CPS Objectives and Indicators Revised CPS Objectives and Indicators Goal 8: Enhanced protection against floods Reduction in risk for about 2.5 million people in the Wroclaw area and for urban centers upstream of Wroclaw against 1-in-1000 years flood episodes, such as the 1997 flood.

Remains Unchanged

Goal 9: Resource-efficient and safe infrastructure Satisfactory implementation of the 2013 railways infrastructure company (PLK) reform program, especially as regards staffing levels, safety systems, and administrative capacity for managing investment programs

Goal 9: Road safety enhanced Number of road fatalities decreased: Baseline (2013): 35 847 accidents and 3 357 fatalities. (2015): 32 967 accidents and 2, 938 fatalities Target (2016): reduced number of fatalities by at least 100 and reduced number of crashes by at least 1000 (as compared to 2015)

Strategic Area of Engagement IV: Poland as a Global Development Partner CPS Objectives and Indicators Revised CPS Objectives and Indicators

Goal 10: Contribution to development cooperation and global public goods Memorandum of Understanding signed and under implementation to develop partnerships in at least three areas of common interest

Goal 10: Contribution to development cooperation and global public goods “Lessons from Poland, insights for Poland” completed and disseminated. At least two knowledge events with Eastern Partnership countries held.

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Annex 3: Matrix summarizing progress towards CPS Objectives

Strategic Engagement Area 1: Economic Competitiveness

CPS Objectives and Indicators Progress to Date (As of April 2016) Instruments and Partners

Goal 1: Enhanced business environment Significantly improved performance as measured under the Doing Business methodology in starting a business (time reduced from 32 days to 21 days), construction permits (time reduced from 301 days to 200 days), and getting electricity (time reduced from 186 days to 123 days).

On Track Currently Starting a business: 30 days Construction Permits: 156 days Getting electricity: 133 days Note: the opinion of the team is that the 2016 DB indicators do not yet measure the impact of the work undertaken; the DB2017 will. The indicator on energy will be dropped.

WBG Multisectoral DPL 1 and DPL2- Resilience and Growth Development Policy Loan (FY14&FY15) RAS Doing Business Poland 2015 (FY15) RAS Construction Permits (FY16) RAS Financial Reporting Program (ongoing, FY17) RAS Contract Enforcement (FY13) ESW Public Policy Notes (FY16) TA Doing Business (FY13-FY17) BB Construction Code – review of amendments (FY15) TF with DG Regio (FY16-FY17)

Partners Swiss Development Cooperation (funding the Financial Reporting Technical Assistance Program)

Goal 2: Increased innovativeness Instrument to effectively support private sector-led innovation (including an increased focus on SMEs and the introduction of non-grant mechanisms) adopted and used under the upcoming EU Financial Perspective.

Achieved Reviews of elements of the Smart Growth OP which is under implementation. The focus is now on delivering full utilization and operationalization of the research and innovation strategies for smart specialization (RIS3s). IFC Achieved IFC financing for projects focused on MSMEs outside of Poland’s largest cities. IFC assistance has included a gender component for on-lending to women-owned/managed SMEs and to agribusiness focused SMEs. IFC financing to regional telecommunications project has enhanced increased connectivity.

WBG Multisectoral DPL 1 and 2 - Resilience and Growth Development Policy Loan (FY14&15) RAS Entrepreneurial Discovery and Needs Assessment (FY15-16) RAS Review of RIS3s (innovation strategies) in Poland and review of Smart Growth Operational Program (FY14) RAS RIS3 (innovation strategy) in Swietokrzyskie region (FY14) RAS Ex ante Assessment of Financial Instruments of the OP Infrastructure and Environment (FY13) RAS Guidance to NCBR to Enhance Efficiency and Effectiveness of its R&D Programs (ongoing, FY17) ESW Innovation Ecosystems ESW Public Policy Notes (FY16) TA M&E of RIS3/Smart Specializations (FY14) TF with DG Regio (FY16-FY17)

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Under Discussion RAS Assessment of Financial Instruments in the Regional Operational Programs 2014-2020 in Poland (FY17) Partners EC (funding innovation support programs under the upcoming Financial Perspective) BGK Lewiatan (Association of Employers)

Goal 3: Effective public finance Adoption of a permanent fiscal rule ensuring the sustainability of fiscal deficit reduction; introduction of an accounting system for farmers (as a step towards taxation of the agriculture sector); alignment of resource allocation with strategic priorities for the functioning of commercial courts.

Partially on track The stabilizing expenditure rule was adopted and later amended. Still represents a framework for fiscal sustainability; No traction on accounting system for farmers and improved allocation of resources in courts.

WBG Multisectoral DPL 1 and 2 - Resilience and Growth Development Policy Loan (FY14&15) ESW Is Poland Saving Enough (FY14) ESW Poland Saving for Growth and Prosperous Aging ESW Social Sectors Service Delivery ESW Regional Economic Review (FY16) ESW Public Policy Notes (FY16) TA Poland Public Spending Review Program (FY15) TA Regional Development Support – Mid-Term Financial Forecasts (FY15) TA Euro Adoption Preparedness (FY15) TA Public Finance Work on Poland (ongoing, FY17) TA Poland Pension Liability Calculation (PROST) (FY16) RAS Financial Reporting Program (ongoing, FY17) Tax collection behavioral experiment (FY15) Partners EC (engaged in a policy dialogue under the Excessive Deficit Procedure) IMF (engaged in a policy dialogue under regular monitoring activities, and financing a Flexible Credit Line)

Strategic Engagement Area 2: Equity and Inclusion Goal 4: Inclusive and effective labor market Instrument designed to effectively support inclusion through the labor market (especially for older workers, women, and youth) adopted and used under the upcoming EU Financial Perspective

On track New Labor Law has introduced instrument to facilitate entry into the labor market of youth, women and the elderly. DPL1&DPL2 of the Resilience and Growth series had a component on labor market activation related to early child care facilities (DPL1) and reducing the tax wedge (DPL2) –

WBG Multisectoral DPL 1 and 2 - Resilience and Growth Development Policy Loan (FY14&15) – Labor Market Pillar (labor market deregulation) ESW Regional Aging Flagship (FY15) ESW Public Policy Notes (FY16) TA Activation and Employment Promotion (FY16) TA Social Inclusion (FY16)

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both should have had positive impact on women’s labor participation The same DPL series addressed the labor market through professional deregulation as a tool for lowering barriers to entry to the youth

The impact of these legal initiatives is underway and efforts undertaken to address some design shortcomings. The Bank will review instruments intended to increase mobility, and support employment of the young and 50+ will be evaluated in 2016.

Support to families was enhanced through making maternity leave longer (up to 12 months), introducing maternity benefit of PLN1000 for 12 months for mothers whose sickness insurance was not sufficient to ensure such income support, increasing the child tax credit values, and increasing eligibility threshold for family benefits. The most recent change includes the 500+ benefit for second and subsequent child and also for the first child in case of poorer families.

Potential labor supply disincentives in family benefit was partially removed by changing benefit withdrawal rules of FB in 2015. However, this “1pln for 1pln” rule was not applied to 500+ benefit for the first child.

Abuse of civil law contracts partially curbed in 2016 with new legislation to restrict their use and increase costs, but enforcement remains problematic. IFC achieved IFC job creation via Private Equity projects focused on MSMEs, leasing and financing of MSMEs and other IFC projects in telecommunications and agribusiness focused on less developed regions of Poland. Gender finance.

RAS Impact Evaluation of Youth BB Integrated Family Support (FY16) Poland Jobs Dialogue (FY16) Spending Review of Low Income Family Support (FY15)

Goal 5: Balanced regional development At least five key regional planning instruments (i.e., regional development strategies, regional operational programs, or subnational medium term fiscal plans), prepared with Bank support, under implementation.

Achieved Five strategies have been produced or revised with WBG support and are under implementation. IFC achieved

WBG TA Ex ante Review of the Eastern Poland Development Strategy (FY13) TA Subnational Development – review of Slaskie regional development strategy (FY13) TA Regional Development Support – Mid-Term Financial Forecasts (FY15)

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IFC financing for financial markets projects has been focused on MSMEs outside of Poland’s largest cities, regional telecommunications project and a sustainable agribusiness project in less developed regions of Poland.

TA Green Urban Transport Solutions for Sub National Governments (ongoing FY16) ESW Support for Lubelskie Regional Development Strategy RAS RIS3 (innovation strategy) in Swietokrzyskie Region (FY14) TF with DG Regio (ongoing, FY17) Partners EC (funding regional development programs under the new EU Financial Perspective) EIB (funding regional infrastructure and co-financing EU programs)

Goal 6: Reformed health care sector in an aging society and a system ensuring access to LTC (long-term care) services for those in need. Modern hospital networks in at least three voivodships (i.e. hospitals are reorganized, networked, or merged using needs-based and spatial planning as well as economic analyses to concentrate specialized services and/or limit duplications, improve patients flows, integrate in- and out-patient and/or health and social care).

Not on track New approach to the health sector was adopted. Instead of work on hospitals the Bank is supporting GoP in the area of integrated health. There is also support on mapping through an EC TF. The Government has also expressed interest in a RAS on integration of care and LTC which marks an achievement in the deepening of the dialogue in health since beginning of the period. Hospitals remain an issue and the Bank is engaged in discussions.

WBG RAS Integrated Health Care (ongoing, FY17) ESW Regional Aging Flagship (FY15) MRA Long Term Care Strategy for Poland (FY15) TF with DG Regio (ongoing, FY17) Partners EC

Strategic Engagement Area 3: Climate Action Goal 7: Informed climate change policy Economic model to assess the impact on the overall economy of climate change-related policy options in use.

Achieved The intended model of climate change impact has been completed and transferred to the authorities, with appropriate training IFC has organized a Green Bond conference attended by main Polish banks. There are early discussions for financial instruments with climate change feature/

WBG TA Building Economic Modeling Capacity for Climate Policy Analysis (FY12-15) IDF Grant on Low Emissions Strategy (FY12-16) Stargard Geothermal Project (FY14) Partners EC (engaged in a dialogue on climate change objectives and policies)

Goal 8: Enhanced protection against floods Reduction in risk for about 2.5 million people in the Wroclaw area and for urban centers upstream of Wroclaw against 1-in-1000 years flood episodes, such as the 1997 flood.

On track Supporting project is under implementation.

WBG IPF Odra River Flood Protection Project (ongoing, FY18) IPF Odra-Vistula Flood Management Project (ongoing, FY24) Partners EC and CEB (co-financing the Odra Projects)

Goal 9: Resource-efficient and safe infrastructure Partially on track WBG TA Poland Road Safety Technical Support (FY15)

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Satisfactory implementation of the 2013 railways infrastructure company (PLK) reform program, especially as regards staffing levels, safety systems, and administrative capacity for managing investment programs

Intended support to the railway sector did not materialize; however, there has been progress on road safety. No progress in railway sector, since railway revitalization and restructuring loan was not requested by the Polish Government, although some preparatory work has been undertaken. Number of fatalities decreasing steadily from 2013. Since 2013, the Bank supported development of the National Road Safety Program 2020 and preparation and monitoring of rolling bi-annual Implementation Plans; undertaken a comprehensive review of road safety management capacity in Poland, developed detailed recommendations related to improvements of road safety data system, road safety education, Lead Agency for Road Safety, road safety funding system, Reviewed performance of transport systems in Eastern Poland and assisted in policy development related to metropolitan tariffs integration across different public transport modes; organized study trip to South Korea in relation to advanced metropolitan transport systems and organized international conference on intelligent urban transport solutions

RAS GDDKiA Road Safety Practices Review (FY16) RAS Road Safety Capacity Development (FY16) Korean Green Growth TF funded TA on Piloting Green Urban Transport Solutions in Transport Sector in Poland (FY14- ongoing) Partners EC (funding physical investments for railways and energy efficiency under the upcoming Financial Perspective, funding road safety related media campaigns) Swiss aid: training for self-government officials involved in road safety Budget: regular road safety surveys (speeding, seatbelts, child restrains), research on economic costs of accidents) Korean Green Growth TF

Strategic Engagement Area 4: Poland as a Global Development Partner Goal 10: Contribution to development cooperation and global public goods Memorandum of Understanding signed and under implementation to develop partnerships in at least three areas of common interest

On track Two knowledge sharing events with Eastern Partnership countries were organized on a cost-sharing basis. First in June 2014 in Warsaw. Second in June 2015 in Tbilisi. IFC on track IFC has thus far organized two conferences for the largest exporters trying to help Polish companies to become regional players. IFC is already working with Polish financial companies in neighboring countries and expects to increase the number of regional clients.

WBG TA Poland as a Global Partner (FY11-FY15) Lessons of experience from the Polish transition (series of policy notes) ESW Lessons Learned from Poland, Insights for Poland (FY17) Two knowledge exchange conferences with the Eastern Partnership countries (Tbilisi Jun 2015 and Warsaw Jun 2014) Experience sharing on national audit system with Georgia, Azerbaijan, China; on aspects of the national health system – Mongolia; energy efficiency – Belarus Partners: Ministry of Foreign Affairs

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Annex 4. WBG Program

DPL and lending projects

Sector Project name FY Million US$

MFM Resilience and Growth DPL1 FY15 966

MFM Resilience and Growth DPL2 FY16 1,000

WAT Odra River Basin Flood Protection Project (till FY18) FY07 184

WAT Odra-Vistula Flood Management Project (combined financing total $1.32 billion [€1.2 billion], WB’s contribution $506 million [€460 million]) FY16 506

TOTAL 2,656

TA / ESW

Sector Project name Status

MFM Euro Adoption Preparedness Completed

MFM Economic Modeling for Climate Policy Completed

MFM Regional Development Support Completed

MFM Public Expenditure Review Completed

SPL Activation and Employment Promotion Completed MFM,

T&C, SPL EW Policy Notes for New Government Completed

MFM, SPL TA Poland Pension Liability Calculation Ongoing

MFM, T&C, SPL EW Lessons from Poland, insights for Poland Ongoing

IDF Grant for Building Capacity to Develop a National Program for Low-Emissions Economy Development Ongoing

MFM TA Public Finance Support Ongoing

ASA RAS, MRA, TF

Sector Project name Status

T&C RIS3 Entrepreneurial Discovery and Needs Assessment Completed

T&C Subnational Doing Business Completed

T&C Research and Innovation Strategies for Smart Specialization review (RIS3) Completed

T&C Innovation/Smart Specialization (RIS3) Swietokrzyskie Completed

T&C Smart Growth Operational Program Review Completed

T&C Construction Permits Completed

Health MRA Long Term Care Strategy for Poland Completed

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Infra Ex-ante assessment of financial instruments to support the implementation of the Client’s “Operational Program Infrastructure and Environment 2014-2020”. Completed

Trans. & ICT Road Safety Capacity Development Completed

Trans. & ICT Transport and ICT Road Safety Practices Review Completed

Governance Financial Reporting TA program (FY10-17) - Swiss Grant Ongoing

T&C Support in IE of NCBiRs programs Ongoing

HNP Integrated Health Care Ongoing SURR,

T&C, EDU TF DG Regio – Lagging Regions Ongoing

SPL IE Youth Employment Programs Under preparation

T&C TF DG Employment – Assessment of the impact of the EU funds Under preparation

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