PIE: FDI inflow to Poland declines to around PLN 133bn in 2023 from PLN 140bn in 2022

The inflow of foreign direct investment (FDI) to Poland may have amounted to around PLN 133bn last year, the Polish Economic Institute (PIE) has calculated.

Estimates for 2023 suggest a continued solid performance. The NBP's monthly balance of payments statistics show that in the first 10 months of 2023, FDI worth PLN 113 billion flowed into Poland. Data for November and December are not yet available, but the continuation of the current trend suggests that the whole year could close with an inflow of around PLN 133 billion - such a result would mean a foreign investment inflow worth 3.9% of GDP. The final figures may differ slightly - the balance of payments data are revised quite often, PIE's Economic Weekly reported.

In addition, the structure of the indicator is improving. Debt instruments are playing a smaller role, while equity is playing a larger role.

The decline in debt investments means slightly lower FDI inflows in 2023 compared to the previous year, it noted.

The institute, citing data from the National Bank of Poland, indicated that in Q4 2022. - Q3 2023 saw a significant drop in debt investment inflows - from USD 15.3 billion to USD 6 billion.

PIE noted that "the optimal FDI mix is as much equity investment as possible, including reinvested earnings, and less debt instruments", debt instruments facilitate the financing of domestic firms' activities, but at the same time create a financial liability vis-à-vis abroad.

The structure of FDI, however, is better. Currently, equity investment accounts for 80% of inward FDI, with reinvested profits accounting for 56% and brand new equity investment 25%. The share of both categories is about 15-16% higher than the historical average. The share of debt instruments, on the other hand, is significantly lower than in previous years. Such a mix not only helps to improve the long-term potential of the economy, but also works towards maintaining a stably strong PLN exchange rate, PIE reported.

The main challenge for Poland is the shortage of capital, not the structure of equity investments. Penn World Table data shows that Poland has one of the lowest capital-to-GDP ratios in Europe. These figures probably overestimate the scale of the problem (e.g. PIE CEE Monthly), but the Polish economy suffers from a capital shortage anyway. The inflow of additional investments - including reinvested profits - increases the availability of capital in Poland and thus improves the productivity of the economy, it concluded.

According to data from the National Bank of Poland (NBP), the net inflow of foreign direct investment (FDI) to Poland amounted to PLN 140.3 billion in 2022, an increase of 24.3% year-on-year. FDI inflows reached 4.6% of GDP in 2022, with a significant increase in transactions involving debt instruments characteristic of last year.

Source: PIE and ISBnews