The main components of the balance of payments are the current account (including the balance on goods and services and the balance of primary and secondary income), the capital account, the financial account, and net errors and omissions. As pointed out by Misala (2011), in the first two decades of economic transformation Poland’s balance
of payments was typical of a catching-up transition economy. The country’s current- account deficit was balanced mainly by the inflow of foreign capital and central bank transactions aimed at smoothing the balance of payments. In 2007–2014 important new factors appeared that led to changes in Poland’s balance of payments. These included the implications of the global economic crisis after 2007, a growing inflow of EU funds, structural changes in the economy, and exports of goods growing faster than imports.
Figure 4.2. Current and capital account on a quarterly basis, 2007–2014
Source: Author’s elaboration based on NBP data.
As shown in Figure 4.2, Poland’s current account deteriorated in the period preced- ing the collapse of world trade in 2009 and at the beginning of the global economic crisis in 2007. This was mainly due to a deeper deficit in the trade of goods. Global trade declined in early 2009, accompanied by a fall in Poland’s exports in euro terms. Paradoxically, this led to an improvement in the country’s trade balance – mainly because imports declined faster than exports. This applied in particular to interme- diate goods in the trade of which Poland previously had the greatest deficit. Later foreign trade revived, pushing the current-account deficit back to its pre-crisis level. At the beginning of 2012, these trends reversed, and in subsequent years Poland noted a steady improvement in its balance of payments. This was mainly due to the con- tinually improving trade balance, followed by rapidly growing exports. The trade of services also showed a growing surplus.
A negative balance of income was one factor that adversely affected Poland’s current-account balance throughout the studied period. This was mainly due to high income earned by foreign direct investors and portfolio investors. Funds transferred by migrants to the country had a positive influence on the balance of income transfers, but were unable to fully offset the balance of income.
Another component of the balance of payments, the capital account, reflects net changes in the ownership of national assets. An essential part of the capital account is money flowing in and out of the economy. These flows are due to the borrowing and sale of assets. In recent years Poland’s balance of payments has been determined mainly by an inflow of EU funds supporting various investment projects. As a result, Poland recorded a surplus in its capital account in the analyzed period, a surplus that grew mainly due to increasing transfers of aid allocated for investment projects. As a result, the total current and capital account balance was positive in 2013 and 2014.
Table 4.11. Financial account, € billion, 2007–2014
2007 2008 2009 2010 2011 2012 2013 2014* Financial account –18.24 –28.40 –14.09 –23.07 –19.93 –9.36 –5.40 –4.99 Liabilities 40.41 23.90 27.35 44.88 30.02 18.46 4.75 16.57 foreign direct investments 18.25 9.72 10.11 13.36 13.27 5.63 0.07 10.24 portfolio investments –0.02 –3.66 11.30 21.89 11.73 15.64 1.73 5.51 other investments 22.18 17.84 5.94 9.63 5.01 –2.81 2.95 0.82 Assets 11.34 –2.82 1.55 9.49 5.28 2.50 –0.84 12.74 foreign direct investments 5.41 2.96 4.37 6.59 3.17 0.45 –2.77 4.24 portfolio investments 4.60 –1.70 1.04 0.62 –0.61 0.34 1.65 5.15 other investments 1.32 –4.08 –3.86 2.28 2.72 1.72 0.28 3.34 Financial derivatives 1.46 0.74 1.30 0.82 0.12 –2.13 –0.57 –0.21 Official reserve assets 9.38 –2.43 10.41 11.50 4.70 8.73 0.75 –0.95 Notes: * Data for the first three quarters of 2014.
Source: Author’s elaboration based on NBP data.
The data in Figure 4.3 show that individual components of the financial account changed significantly in 2007–2014. The inflow of foreign direct investment (FDI) was relatively high throughout the analyzed period, with the exception of 2013, when the net FDI inflow was close to zero. In 2012, the FDI inflow was also low. In the remaining years, the FDI inflow was relatively high, even in 2009, which was a critical year for the developing global crisis. Net portfolio investment inflows were negative in 2007 and 2008. Beginning in 2009, Poland experienced a significant increase in the inflow
of portfolio investment, with most of these funds invested in government bonds. These inflows fell significantly in 2013 and 2014.
The inflow of “other investments” was associated with an increase in the foreign liabilities of companies and increased foreign liabilities of the National Bank of Poland (NBP, 2014). These inflows were very high in 2007 and 2008, and then declined sig- nificantly, turning negative in 2013; in 2014 they were slightly positive.
Poland’s outward FDI flows were relatively high from 2007 to 2014, ranging from € 2.96 billion to € 7.59 billion, except in 2012 and 2013 when they were € 0.45 billion and -€ 2.95 billion respectively. Polish portfolio investment abroad was subject to sub- stantial fluctuations in the analyzed period. It was the highest in 2007 and 2014, at € 4.6 billion and € 5.15 billion respectively. Otherwise, Polish portfolio investment abroad was much lower and twice fell into negative territory.
Figure 4.3. Poland’s gross external debt position by sector, 2007–2014
0 50 100 150 200 250 300 350 1q-20073q-20071q-20083q-20081q-20093q-20091q-20103q-20101q-20113q-20111q-20123q-20121q-20133q-20131q-20143q-2014 EUR , B illi on
Direct Investment: Intercompany Lending Other Sectors
MFIs ,except the Central Bank National Bank of Poland General Government
Notes: * Data for the first three quarters of 2014. Source: Author’s elaboration based on NBP data.
Other investments also varied. The balance of trade in financial derivatives bet ween residents and non-residents was positive but low in 2007–2011. A small negative balance was recorded in this trade after 2011. Reserve assets were also subject to fluctuations.
An important change that largely resulted from the crisis was a significant increase in the gross debt of the Polish economy, which grew from € 134.3 billion at the begin- ning of 2007 to € 292.5 billion at the end of the third quarter of 2014. The most nega- tive feature of this trend was a huge increase in the foreign debt of the government sector, from € 53.5 billion to € 119.3 billion (see Figure 4.3).