This article is a part of Poland Unpacked. Weekly intelligence for decision-makers
Last year’s trajectory
Each year, the Ministry of Finance presents a four-year public debt management strategy. Last year’s edition was aligned with the budgetary and structural plan submitted to the European Commission in the autumn. The chart below shows the projected path of public debt over a longer horizon, in line with those plans.
Interactive chart A more fluid reality
Much has changed since then. First, the general government deficit turned out to be significantly larger than previously assumed, reaching 6.6% of GDP – 1.4 percentage points above earlier projections. Second, key macroeconomic indicators have also shifted, most notably nominal GDP growth. Third – and most importantly – the EU’s fiscal framework has become more flexible following the activation by the EU Council of a national escape clause for military spending. As a result, the trajectory presented in the current strategy offers a first glimpse of how public debt relative to GDP may evolve almost through the end of the decade.
Interactive chart Military spending…
The pace of debt accumulation is unprecedented. In 2023 public debt stood at under 50% of GDP; by 2029 it is expected to exceed 75%. That implies an increase in the debt-to-GDP ratio of 50% - or 25 percentage points – in just seven years. The main driver is military spending, which under EU methodology is recorded directly in public debt statistics at the moment of disbursement (unlike the deficit).
…but not only
The projected level of debt in 2029 is fully 15 percentage points higher than envisaged a year ago. Pinpointing the precise reasons for this divergence is more difficult. It is unclear whether the planned path of military spending has been raised relative to last autumn’s assumptions. With a high degree of probability, however, the increase in debt reflects higher non-military outlays – on health care, pensions and disability benefits – as well as downward revisions to projected revenues compared with the previous trajectory. This is evident in Poland’s higher planned deficits for 2025 and 2026, at 6.9% and 6.5% of GDP respectively. Together, these factors push the entire deficit path for the coming years above earlier plans, particularly given the additional flexibility afforded by the EU escape clause.
Domestic rules – and their consequences
Alongside the EU methodology for measuring public debt, domestic definitions also matter. If the projected debt path materializes, the 55%-of-GDP prudential threshold set out in Poland’s Public Finance Act would be breached in 2028. That would trigger the statutory prudential procedures in 2030. These would include, for example, adopting a budget law with no state-budget deficit, freezing pay growth in the public sector, and indexing pensions and disability benefits solely to inflation.
Within the horizon of the strategy, the ratio of state public debt to GDP is projected to remain below the constitutional ceiling of 60% (59.5% of GDP in 2029). These estimates, however, incorporate an assumed gap between expenditures or costs planned under the spending limits used in the financial plans of general government units and their actual execution. In 2026, the difference between the “at-the-limit” version and the adjusted figure amounts to 0.8 percentage points of GDP. Without this assumption, the strategy would most likely point to a breach of the constitutional threshold.
Key Takeaways
- Growth outpaces Europe, but debt is surging. Poland’s economy is expanding faster than the EU core, yet public debt is on track to rise from under 50% of GDP in 2023 to more than 75% by 2029.
- Fiscal rules are being stretched. Higher deficits, aided by EU flexibility for military spending, push Poland toward breaching domestic prudential thresholds and bring constitutional debt limits uncomfortably close.
- Buffers are thinning. Beyond defense, rising social and health spending and weaker revenues leave the public finances exposed to shocks, with limited room to absorb a downturn.