Page 1 PROGRAM INFORMATION DOCUMENT (PID) PREAPRAISAL STAGE Report No.: AB4689 Operation Name PL Second Programmatic Development Policy Loan (DPL2) Region EUROPE AND CENTRAL ASIA Sector General education (25%); Health (25%); General public administration (20%); Compulsory pension and unemployment insurance (20%); Other social services (10%). Project ID P116125 Borrower(s) REPUBLIC OF POLAND Implementing Agency MINISTRY OF FINANCE Date PID Prepared April 27, 2009 Estimated Date of Appraisal Authorization May 18, 2009 Estimated Date of Board Approval June 30, 2009 1. Key development issues and rationale for Bank involvement This is the second development policy loan (DPL) in a program of three lending operations supporting a policy program aimed at accelerat ing Poland’s convergence with average EU living standards. Although Poland has made impressive progress towards creating a modern, market based economy, and has successfully acceded into the EU, constraints to the country’s continued rapid convergence with its European partners are becoming visible. The key necessary outcomes identified by the Government and the Bank that the program is designed to help achieve are: to enhance the quality and efficiency of public financial management and expenditure, to increase the supply and skills of the labor force, and to strengthen the business environment. The first loan in the program (DPL1) supported a broad range of policy actions to strengthen public financial management, increase participation in the labor market, and improve the environment for doing business. Consistent with the convergence aims of the program, the policy actions taken by the Government prior to presentation of the first loan to the Board included: satisfactory implementation of the 2008 budget and presentation of the 2009 budget bill consistent with the Convergence Program; a reduction in pay-roll taxes to lower the cost of labor; elimination of required work permits for foreign workers from neighboring countries to increase the labor supply; tightening eligibility requirements for disability benefits; legislation that reduces the minimum capital required to start a business; and the approval of a privatization program encompassing the sale of 740 state owned enterprises. 2. Proposed objective(s) The second lending operation (DPL2) will continue to support reforms to public financial management, and improvements of labor market efficiency in line with the first loan, as well as structural improvements to the finance and provision of health, education and social protection. The second lending operation in the program, has the following objectives: (i) to support structural reforms that will ensure fiscal consolidation over the medium-term; (ii) to protect priority programs and the up-front fiscal costs of structural reforms critical to meeting Poland’s goals of convergence the rest of the EU; and (iii) to mitigate the social cost of the crisis. 3. Preliminary description Page 2 In the months since the first loan was disbursed, the external economic environment has changed substantially, causing growth in Poland to slow sharply. To better manage the uncertainty that the world economic crisis has introduced to Poland's outlook and fiscal targets, as well as pushing ahead with reform of public financial management, the Government is now focusing on the part of the program specifically targeting the labor market, education, health and social protection. The second lending operation in the program (DPL2) will continue to support reforms initiated with the first loan, and include structural improvement and maintaining critical programs in the social sectors. Key policy actions will be taken by the Government prior to presentation of the proposed second loan to the Bank’s Board of Executive Directors. These are: i. Satisfactory continued implementation of the 2009 budget in light of the changed economic outlook (including consideration of IMF and EC assessments); ii. Submission to Parliament of amended Law on Public Finance; iii. Implementation of Government program to increase labor force participation of older workers, known as “50+”; iv. Reduction in the number of occupational categories eligible for early retirement and introduction of actuarial adjustment of early pensions; v. Open a window for participation of public hospitals in a voluntary program that would convert them into corporate entities operating under the commercial code; vi. A dopt DRG-based payments system for 90% of all payments from NFZ to hospitals; vii. Pass a law to initiate a compulsory pre-primary program for 5 year-old children (Grade 0) starting from 2010/11 and begin implementing it on a voluntary basis in 2009/10. The same law initiates a compulsory school program for 6 year-old children from 2011/12. [Mandatory for 6 year-olds today in kindergarten; compulsory in regular primary school in 2011/12.]; viii. Provision for a reserve in the 2009 budget to protect the vulnerable affected by the economic downturn. To inform the policy dialogue, a Bank team is preparing the first Public Expenditure Review for Poland since 2003 and since the country’s accession to the EU, in parallel to DPL2. This was a key element in the analytical assistance agreed in the negotiation of the first lending operation. The PER will not only provide analytical support for the implementation of performance based budgeting and the MTEF, but from extensive analysis of the social sectors, also provide the technical foundations for the measures supported in DPL2. As part of the agreements reached for the second loan, several pieces of analytical and advisory assistance (AAA) have been identified by the Government and the Bank. To help the Government meet some of the triggers for a proposed DPL3 outlined in the matrix in Annex 1, the following analytical and advisory assistance is being discussed with the Government: AAA Item Ministry/Agency a) Performance based budgeting and use of a medium term expenditure framework (including technical assistance to help design and establish institutional structures for rigorous monitoring and impact evaluation as part of the budget allocation process). MOF b) Rationalization of Licensing Activities within Government MOP Page 3 c) Development of a monitoring and impact evaluation protocol for employment assistance and social assistance programs MLSP d) Analysis of a incentive-compat ible subsidy for the proposed “technical leave” scheme MLSP e ) Actuarial analysis of the long-term financial stability of the pension system, under different macroeconomic scenarios M LSP/ZUS f) Identifying barriers to closer ties between employment assistance and social assistance (strategy to “activate” long term unemployed) MLSP g) Analysis and reform options for Long Term Care MLSP/MOH h) Evidence-based prioritization of health financing (NICE-style evaluation) MOH i) Hospital corporatization good practice; MOH j) Strategic use of accreditation, DRGs, and other reimbursement mechanisms to elicit improvements in quality, cost consciousness in delivery of care, and consumer satisfaction. MOH k) Analysis of household vulnerability to the economic slowdown and crisis (to support the vulnerability mapping already underway) PM’s Office 4. Environmental Aspects The proposed policy lending operation does not support any reforms with anticipated direct environmental impacts. The Bank team is verifying with the authorities whether any unintended, indirect risks of negative impact to the environment and natural resources will be adequately mitigated by Poland’s existing safeguards as a member of the EU. 5. Tentative financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development 1250 Total 1250 6. Contact point Contact: Truman G. Packard Title: Senior Economist Tel: 44-20-7592-8406 Fax: 614-0832 Email: Tpackard@worldbank.org Location: London, United Kingdom (IBRD)