Two basic periods can be distinguished in the history of the relationship between the monetary and fiscal policy in the course of the Polish stabilization and transformation process. The first one is the first half of the 1990-2000 decade, when fiscal deficits had a major impact upon changes in the monetary base and money supply. The other period are the later years with their tighter fiscal discipline, which extended the scope of monetary policy by including efforts to curb the current account deficit. In this respect, the moderately disciplined fiscal policy in the second period does not come to expectations, especially under the new exchange rate policy, and given the sluggish adjustment at the micro level. In the light of the premises for the monetary and exchange rate policy, it seems that improving current account balance - the greatest challenge of recent years - is becoming increasingly complex, perhaps exceeding the bounds of a consciously designed economic policy. Under these circumstances, the best way to achieve a balance in external payments is to dampen the growth rate - which would have an adverse effect on the pursuit of rational fiscal discipline - among other things.

The paper comprises three parts. The first part presents the key relationships between monetary and fiscal policy in an economy under transformation. The following part is devoted to a description of Polish fiscal policy in the latter part of the 90s. The final part discusses the assumptions underpinning the monetary policy strategy until the year 2003 and presents the author's conclusions.