Oxford Analytica's (OA) 2006 Report on Fiscal Transparency rates Poland's overall compliance with this standard as "Compliance in Progress." In recent years, Poland has made remarkable strides in its efforts to converge with international best practices in fiscal transparency. European Union (EU) accession in 2004 played an important role in consolidating this progress and ensuring basic compatibility with Eurostat criteria. Present government policies appear to be consistent with international fiscal responsibility principles. For example, Poland's deficit targets are met, and there do not seem to be any substantial efforts to hide the true positions of public finances. The fiscal reform program being pursued by the administration at the time of the OA assessment included measures expected to enhance fiscal transparency. Already, the Polish government has accomplished two key milestones: the consolidation of EU funding into the budget and the incorporation of extra-budgetary funds into the state budget. The government is working on introducing performance-based budgeting. Although government finances are still calculated on national accounting standards, a committee consisting of the National Bank of Poland and the Central Statistical Office is working to ensure that national accounts are prepared in compliance with ESA95 standards. According to OA, the Polish authorities are strongly committed to building on the progress of recent years. Budget preparation and execution is carefully regulated and reliable data is reported in a timely manner. Although the availability of accurate information on the government's activities has improved dramatically, some of it is still presented in a way that is not easily accessible and understandable.

General Overview

The 2006 OA report on Fiscal Transparency predicts that Poland, equipped with a relatively clear budget preparation process, will continue its improvements in fiscal transparency. As justification for this optimistic prediction, the OA report notes that the current Polish government is working to further improve the transparency, accuracy, and timeliness of budget execution information, even against the backdrop of constraining coalition politics. In general, the Polish administration is committed to a fiscal reform plan whose main purpose is to improve fiscal transparency. The first stage of this reform has been completed. It involves consolidating European Union (EU) funding into the budget and will enable complete control over spending on EU-related programs. The second stage, completed in 2007, focuses on placing extra-budgetary funds within the state budget. The third stage, beginning in 2009, will introduce performance-based budgeting. The OA report also notes that 2006 amendments to the Act on Public Finances have already required the budget act to contain a comprehensive list of "objectives, performance criteria and expected costs of planned tasks" (p. 404).

According to the OA report, the Polish government is working to shrink the difference between national cash-based accounting and the ESA95-ready accrual accounting methods. The current practice is for the Central Statistical Office (CSO) to convert government data into ESA95-ready format when reporting to Eurostat. The OA report notes that the "revenues and expenditures included in national accounts, however, are reported on a cash basis, and only the central government is covered on a monthly basis" (p. 404). Therefore, according to the OA report, the Polish government has created a committee composed of Ministry of Finance (MoF), National Bank of Poland (NBP), and CSO officials. The committee's charge is to ensure that both financial and non-financial national accounts are managed according to ESA95 standards. The Polish government has committed to begin reclassifying private pension funds outside the general government sector, which will lead to an increased debt-to-GDP ratio.

The 2007 IMF Article IV Consultations with Poland states that the Polish government plans to speed up fiscal consolidation for the medium term as a means to target a deficit of 1% of GDP by 2011 as part of its Stability and Growth Pact. The Polish authorities predict that "this, in combination with stepped-up privatization, would secure a reduction in public debt of 4-7 percent of GDP by 2011," (IMF 2008, p. 13). On a related note, the IMF report also observes that Polish authorities plan to strengthen the medium-term fiscal framework, noting that the current framework does not meet best practice. For instance, the Polish government primarily focuses on annual budgets, and this practice gives a myopic view of fiscal policy and is antithetical to the European Union's medium-term focus. The report advised Poland to adopt a three-year framework, which would increase the efficiency of EU planning and funding.

Finally, according to Adam Niedzielski, writing for the International Budget Project's 2006 Open Budget Index (OBI), Poland's budget process is "substantially" open, scoring 73%. The Index "evaluates the quantity of information provided to citizens in the seven key budget documents that all governments should make public during the course of the budget year" (OBI 2006, p. 1). Of the seven budget documents. Poland produces six, including the pre-budget statement, executive budget proposal, in-year report, mid-year review, year-end report, and auditor's report. The only document not produced is the Citizens' Budget. Of the six produced, all but the auditor's report are accessible to the public. Overall, the OBI rates the public's access to information as "could be improved," and opportunities for citizen participation as "good."

The Principles

Clarity of roles and responsibilities.

CP

In its 2006 Report on Fiscal Policy Transparency in Poland, OA rates Poland's compliance with this principle as "Compliance in Progress." In terms of the structure, functions, and responsibilities of government, the 1997 Polish Constitution and the 1998 Act on Public Finances clearly set government apart from the private sector. A unique aspect of the Polish central government is that it is highly fragmented, consisting of nine social security funds, seven extra-budgetary funds, and a number of other off-budget entities in addition to the central budget. Regarding the coordination and management of budgetary activities, the OA report notes that the government's recent success at reducing the number of independent public sector agencies has helped smooth the coordination of budgetary activities. According to OA, this process of closing down and merging agencies and ministries will continue. A related development is that the division of labor between the national and sub-national governments has been changed recently through decentralization. OA also reports that the relationship between the NBP and the MoF have improved markedly in recent years. It is also worth noting that, since the NBP is a constitutionally independent entity, the government is unable to influence NBP policies and is unable to impose any fiscal responsibilities on the NBP.

In regards to government involvement in the private sector, the OA report states public ownership in the Polish economy is approximately 25% of GDP, which is higher than in most countries in the region. Furthermore, state-owned enterprises (SOEs) make up 20% of total employment in Poland, even though this number is falling slowly. Since 2004, according to the OA report, the Polish government has seesawed in its commitment to privatization, from an overzealous and short-lived privatization plan in 2004 (to reduce state ownership in the economy to 5-15%). Other examples of government involvement in the private sector include the Polish pension system and the regulation of some prices (i.e. electricity and gas). Nevertheless, the Polish government's regulation of the private sector conforms to EU standards. Plus, the Act on Public-Private Partnerships (PPP's) of 2006 provides the regulatory framework for increased and smoother cooperation between the public and private sectors.

In terms of the legal framework for budgetary activities, the main document governing budgetary activities is the Act on Public Finances, which regulates the basic parameters of fiscal activity across the public sector and establishes a well defined budgetary process. Some critics have called for further amendments to the Act, and some fear that the government might try to pass off legal amendments proposed in 2006 as meaningful fiscal reform. Regarding the legal framework for taxation, the OA report rates Poland's tax regulations as "complex." Despite numerous attempts at simplification, they remain muddled by a multitude of exemptions and preferences. The OA report attributes Poland's very large grey economy (estimated at 13% of GDP) to the complexity of Poland's tax regulations. Overall, according to the OA report, the quality of tax administration in Poland is generally considered fairly low, despite some recent attempts at reform, such as the provision of customer service centers at tax offices and the establishment of a central database of tax laws and guidelines.

The OA report underlines Poland's efforts at promoting ethics and fighting corruption within the public sector. The 1998 Act on Civil Services delineates the rights and duties of public servants and the 2002 Code of Ethics for the Civil Service promotes ethical behavior. According to the OA report, corruption is a major problem in Poland, as it is in many other transitional Central-Eastern European countries. To tackle corruption, Poland adopted its 2002 Anti-Corruption Strategy, and quarterly progress reports have since been produced. The government also founded the Central Anti-Corruption Office (CBA). The fact that the CBA is subordinated to the prime minister has raised concerns about its integrity and effectiveness.

Open budget processes

CP

The 2006 OA Report on Fiscal Policy Transparency in Poland rates Poland's compliance with this principle as "Compliance in Progress." Regarding fiscal policy objectives, the OA report notes that Poland's main fiscal challenge is insufficient central control under the finance minister. The OA report also cites the paucity of information about the government's medium-term policy objectives. Nevertheless, the government publishes a three-year forecast in accordance with EU rules. The problem with this, according to the OA report, is that medium-term forecasts can be changed without consequence, since only the annual budget is legally binding. As of 2006, the Polish government had declined setting an official target date for Eurozone membership. According to the OA report, Poland's fiscal challenges will likely prevent it from meeting the Maastricht criteria until 2011-2012. On macroeconomic framework, the MoF's Department of Financial Policy, Analysis, and Statistics publishes a monthly macroeconomic survey that analyses key happenings in the Polish economy. The MoF also publishes a macroeconomic report aimed at foreign investors.

Regarding fiscal risks, the OA report notes that Polish budget documents offer limited information on fiscal risks. However, the Polish Strategy for Public Finances and Economic Development does include 10-year forecasts covering the entire government. Also worth noting is that, according to the OA report, the government's debt management strategy for 2007-09 and the 2005 convergence program contained assessment of fiscal and macroeconomic risks, respectively. On fiscal sustainability, the OA report notes that the state budget documents do not include formal assessments of fiscal sustainability. However, the government must abide by fiscal rules designed to foster sustainability. In terms of fiscal sustainability, the OA report cites as Poland's main challenge a high proportion of non-discretionary spending, which the government has not tended to sufficiently. The OA report predicts this will result in problems if Poland's current benign economic state gets worse. To encourage fiscal sustainability, the budgeted annual nominal deficit of the state budget cannot be exceeded without parliamentary approval and the national debt is capped at 60% of GDP by the Polish Constitution.

The OA report also notes that Poland clearly classifies budget information and is generally in line with international best practices. For instance, the Polish budget clearly delineates between ongoing and new spending and program objectives are clearly identified in each case. The OA report cites as a weakness, however, the fact that funds and agencies can reallocate spending among budget items unilaterally. Regarding budget execution and monitoring, the OA report notes that the MoF releases monthly data on state budget execution that is then published online with a lag of one month. According to the OA report, this considerable lag raises questions about accuracy. The OA report also notes that the government's internal audit system was revamped considerably through 2001 and 2003 amendments to the Act on Public Finance, passed during Poland's EU accession. According to the OA report, Poland's internal audit practice is consistent with recommendations by the Institute of Internal Auditors.

On accounting bias, the OA report notes that the Polish MoF employs a national budgetary classification that is broadly consistent with the Government Finance Statistics Manual (GFSM) of 1986, and the Polish MoF uses ESA95 accrual-based methodology to package reports for the EU. The OA report identifies as a challenge Poland's national accounts, "where revenue and expenditure are reported on a cash basis and only the central government is covered on a monthly basis" (p. 413). In an attempt to forestall crisis, a committee of NBP and MoF officials has emerged to ensure that both financial and non-financial national accounts are managed in compliance with ESA95 standards. Regarding procurement and employment, the OA report that Poland has recently adopted a public procurement law that is fully compliant with EU standards. National preference has been banned and procurement rules are uniformly applied across the entire public sector. Also, stricter transparency standards are now required for contracts exceeding five million euros in value, and the administrative requirement for smaller bids of 30,000-60,000 euros has been reduced. According to the OA report, some criticism persists that methods other than competitive tender might be more efficient. The OA report states public-procurement-related corruption still occurs, but this is more of a problem on the local level. Poland's regulations regarding employment in the public sector are generally in compliance with EU requirements that employment be based in competitive search, competence, and experience. However, according to the OA report, nepotism and connections still play a role, typical for the region.

Regarding fiscal reporting, the OA report notes that, as an EU member state outside the Eurozone, Poland is required to generate annual convergence programs and submit half-yearly fiscal reports. These must include medium-term fiscal policy goals, a plan for attaining these goals, and a trajectory of the public debt. According to the OA report, the pressure of having to submit ESA95-compliant data to Eurostat and the urgency of Poland's Eurozone accession plans has augmented the focus placed on collecting government data. This has led Poland to produce timely, comprehensive data despite the lack of a centralized Treasury system. Nevertheless, certain public sector operations are way short of the standard for state budget data availability.

The 2006 International Monetary Fund Article IV Consultation reported that "data for inclusion in the Government Finance Statistics Yearbook are reported to the Fund on a regular basis and, since 2004, according to the framework of GFSM 2001" (p. 39). The report noted that "the authorities provided comparable data, compiled on an accrual basis, for 2001-03. Monthly data on consolidated core operations of the central government are reported in IFS" (p. 39). Fiscal data for submission to the EU and for use in Stability Programs are produced following ESA95. The IMF cautions, however, that government finance statistics and ESA95 data "while providing a superior classification of revenues and expenditure, traditionally became available with long lags and only on an annual basis, diminishing their value for surveillance purposes. Detailed bridge tables between high-frequency cash data and ESA95 data are not yet available" (p. 39).

Public availability of information.

CP

The 2006 OA Report on Fiscal Policy Transparency in Poland rates Poland's compliance with this principle as "Compliance in Progress." Regarding the public availability of central government operations, the OA report outlines the Polish central government's numerous efforts at disseminating information. In accordance to the annual budget law, the draft budget documents (including outruns of the two previous fiscal years) are published on the MoF website at the same time they are presented to parliament. The central government accounts, including the government deficit and government expenditure commitments, are published each month. On the public availability of public sector operations data, the OA report cites the 2002 Act on Access to Public Information for significantly improving the availability of data on public sector fiscal activities. The Act mandates that every public institution publish such information on its website. In terms of debt reporting, the Act on Public Finances mandates that the government develop a rolling three-year debt management strategy, which is then appended to the budget. This document is available on the MoF website. The make-up of the gross domestic debt at issue value is part of the annual budget and reported on a quarterly schedule. On the advance release of calendars, the OA report notes that Poland subscribes to the IMF Special Data Dissemination Standard (SDDS) and thus publishes release calendars for fiscal data.

Independent assurances of integrity.

CP

The 2006 OA Report on Fiscal Policy Transparency rates Poland's compliance with this principle as "Compliance in Progress." The OA report notes that Poland, as a subscriber to the IMF's SDDS, is broadly compliant with IMF standards for fiscal data quality, periodicity, consistency, and timeliness. While the MoF publishes its macroeconomic forecasts, the models they are based on are not published. According to the OA report, this has led to doubts regarding the independence of Polish forecasting, since forecasts can be influenced by the government's fiscal demands. The OA report further notes that Poland's accounting and auditing functions are strictly separated within government. Also, in 2001, the Polish government launched an internal audit program of budgetary entities by certified auditors. The Supreme Audit Office (NIK) is responsible for auditing the accounts of the central government and extra-budgetary funds. The NIK is mandated by the Polish Constitution and the 1994 Act on the Supreme Chamber Council to be an independent auditor. Required to report to parliament on an annually basis, the NIK is widely regarded as highly professional and equipped with sufficient resources. To maximize quality, NIK can also involve outside experts in audits. The methodology of NIK's operations is publicly available, and all audit results are posted in NIK's Bulletin of Public Information. At the sub-national level, NIK is limited to management of subsidies forwarded by the central government. NIK can audit regional accounting chambers but these efforts typically focus mainly on compliance.

The OA report also notes that the CSO is mandated independent by the Act on Official Statistics and is responsible for conducting annual statistical surveys in tandem with other agencies. The OA report deems the CSO to be highly professional, possessing sufficient technical and human resources. However, according to the OA report, staff retention is low due to relatively low compensation levels. Under the Act on Public Finances, the MoF (in collaboration with the CSO and NBP) is responsible for gathering, processing, and distributing government finance data. However, the MoF is not equipped to compile data in GFSM 2001-compliant format. As a result, the CSO is responsible for converting data into the ESA95 format for submission to Eurostat.