Key Takeaways
- Poland's Prime Minister has issued a warning regarding the nation's escalating public debt and widening fiscal deficit, with the general government deficit reaching 6.6% of GDP in 2024 and projected to be around 6.4% in 2025. This significantly exceeds the European Union's 3% threshold, potentially leading to an Excessive Deficit Procedure (EDP) from the European Commission.
- The public debt-to-GDP ratio is expected to continue its upward trend, projected to rise from 55.3% in 2024 to 58.0% in 2025 and potentially reaching 65.3% by 2026, driven by high deficits and significant defense investments. This trajectory is nearing Poland's constitutional limit of 60% of GDP.
- Increased spending on defense (estimated at 4.7% of GDP), social programs like "Family 800+," and rising interest expenditures are key contributors to the fiscal strain. Despite these challenges, Polish bonds remain attractive to investors due to a yield premium over German Bunds.
Poland's Prime Minister has raised concerns over the country's growing public debt and widening fiscal deficit, highlighting the significant economic challenges ahead. The general government deficit hit 6.6% of GDP in 2024, a notable increase from 1.7% in 2021, and is forecast to remain elevated at approximately 6.4% in 2025. This figure substantially surpasses the EU's 3% deficit threshold, making Poland a likely candidate for the European Commission's Excessive Deficit Procedure (EDP).
The nation's public debt-to-GDP ratio is also on an upward trajectory. After reaching 55.3% in 2024, it is projected to climb to 58.0% in 2025 and could reach 65.3% by 2026. This rise is primarily attributed to persistent high deficits, substantial defense investments, and one-off transfers related to RRF loans in 2026. The current trajectory brings the debt close to Poland's constitutional limit of 60% of GDP.
Key drivers of the fiscal deterioration include increased spending on defense, which is estimated at 4.7% of GDP, and continued expenditure on social programs such as the "Family 800+" allowance. Rising interest expenses on the growing public debt are also contributing to the fiscal pressures. Despite these domestic fiscal challenges, Poland's bonds continue to attract European investors, offering a 300-basis-point premium over German Bunds, reflecting a cautious optimism alongside skepticism about fiscal sustainability.
The government's medium-term fiscal-structural plan includes measures like excise duty hikes and non-indexation of personal income tax brackets, aimed at gradual fiscal consolidation. However, political instability and potential delays in implementing these measures pose risks to achieving the desired fiscal improvements. The International Monetary Fund (IMF) has suggested that a modest fiscal adjustment of approximately 0.5% of GDP in 2025 could aid disinflation and create space for monetary policy to support private investment.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.