2009 Index of Economic Freedom

Quick Facts

Population:

• 38.1 million

GDP (PPP):

• $565.7 billion
• 6.2% growth
• 4.1% 5-year compound annual growth
• $14836 per capita

Unemployment:

• 12.8%

Inflation (CPI):

• 2.5%

FDI Inflow:

• $13.9 billion

Poland's economic freedom score is 60.3, making its economy the 82nd freest in the 2009 Index. Its score is essentially unchanged from last year, reflecting modest declines in five of the 10 economic freedoms that offset a considerable gain in freedom from corruption. Poland is ranked 35th out of 43 countries in the Europe region, and its overall score is above the world average.

Having implemented a series of reforms that facilitate entrepreneurial activity, Poland scores above the world average in trade freedom, monetary freedom, investment freedom, financial freedom, property rights, and freedom from corruption. The average tariff rate is low, but non-tariff barriers include distortionary EU subsidies of agricultural and other goods. Monetary stability is relatively well maintained. The financial system is open and well regulated. Foreign investment is not screened, although red tape and unpredictable regulations make investment costly.

Poland remains weak in business freedom and government size, and property rights could be improved. Government spending is high, and privatization has not progressed significantly in recent years. The court system is fairly reliable but subject to inefficiency and sudden changes in laws and regulations.

Background Back to the top

Poland's struggle for freedom from the Soviet Union ended with the Solidarity movement sweeping the parliament in 1989 and the presidency in the following year. A pioneer among post-Communist countries, Poland has achieved rapid real income growth, a favorable investment climate, and membership in the European Union and NATO. GDP growth in 2007 reached 6.5 percent, the fastest pace in a decade, driven by domestic demand, inflows of EU funds, corporate investment, and exports. In August 2007, the pro-business, center-right Civic Platform (PO) party defeated the Law and Justice party. The Peasant Party has joined PO as its junior coalition partner. The new government has pledged to reform the ailing health care and pension system and is seeking to improve relations with Russia and Germany.

Business Freedom 53.7 Back to the top

The overall freedom to conduct a business is limited by Poland's regulatory environment. Starting a business takes an average of 31 days, compared to the world average of 38 days. Obtaining a business license requires more than the world average of 18 procedures and 225 days. Closing a business can be a lengthy process.

Trade Freedom 85.8 Back to the top

Poland's trade policy is the same as that of other members of the European Union. The common EU weighted average tariff rate was 2.1 percent in 2005. Non-tariff barriers reflected in EU policy include agricultural and manufacturing subsidies, import restrictions for some goods and services, market access restrictions in some services sectors, non-transparent and restrictive regulations and standards, and inconsistent customs administration across EU members. Biotechnology restrictions and pharmaceuticals regulation exceed general EU policy, and the enforcement of intellectual property rights remains problematic. Ten points were deducted from Poland's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 69.0 Back to the top

Poland has a high income tax rate and a low corporate tax rate. The top income tax rate is 40 percent, and the flat corporate tax rate is 19 percent. Other taxes include a value-added tax (VAT), a property tax, and a transfer tax on items not subject to the VAT. In the most recent year, overall tax revenue as a percentage of GDP was 33.8 percent.

Government Size 42.2 Back to the top

Total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equaled 43.9 percent of GDP. Privatization and deregulation have lagged recently.

Monetary Freedom80.8 Back to the top

Inflation is low, averaging 2.1 percent between 2005 and 2007. As a participant in the EU's Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products. The government also monitors utility rates and sets official prices for pharmaceutical and medical materials, taxi services, and any other goods or services deemed necessary for the proper functioning of the economy. Ten points were deducted from Poland's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom60.0 Back to the top

Foreign capital and domestic capital are generally treated equally. The government does not screen investment and allows 100 percent foreign ownership of domestic businesses, except for ceilings in some industries designated as strategic. All investors must obtain government concessions, licenses, or permits to engage in certain activities. Sectors in which concessions are required include broadcasting, aviation, energy, weapons, mining, and private security services. Investors face regulatory unpredictability, high levels of administrative red tape, and numerous labor, health, safety, and environmental regulations. Residents and non-residents may hold foreign exchange accounts, subject to certain restrictions. Payments, transactions, and transfers over a specified amount must be conducted through a domestic bank. Capital transactions with non-EU nations are subject to restrictions and government approval. Foreign ownership of land is subject to numerous restrictions and controls.

Financial Freedom60.0 Back to the top

Poland's financial system is open, growing, and well regulated. Credit is available on market terms, and foreign investors can access domestic financial markets. Banking competition has become intense. Commercial banks control nearly 90 percent of total assets, and majority foreign-owned commercial banks control over 65 percent of total assets. The government maintains majority control in four banks and provides low-interest loans to farmers and homeowners. The insurance sector is growing, but privatization of the state-controlled company, which controls 50 percent of the market, has been slow. Capital markets have become more sophisticated, and the Warsaw Stock Exchange is expanding, with more companies listed.

Property Rights50.0 Back to the top

Property rights are moderately well protected. The legal system protects the acquisition and disposition of property. The judicial system is slow to resolve cases, however, and there can be unexpected changes in laws and regulations. Piracy of intellectual property continues despite government efforts to improve protection.

Freedom From Corruption42.0 Back to the top

Corruption is perceived as significant. Poland ranks 61st out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. The government has established a central office to combat corruption, and the private sector is paying greater attention to fighting it.

Labor Freedom59.8 Back to the top

Relatively rigid labor regulations hinder overall productivity and employment growth. The non-salary cost of employing a worker is high, and the difficulty of firing a worker creates a disincentive for additional hiring.