Poland is facing increasing expenditure needs related to infrastructure, climate risks, and security costs due to the war in Ukraine. The IMF official emphasized the importance of setting a “very high bar” for further fiscal loosening in order to address these needs. Prime Minister Donald Tusk’s government has already implemented measures such as hiking public sector pay, social benefits, and the minimum wage to build credibility with voters.
The European Commission has forecasted that Poland’s budget deficit will rise to 5.4% of GDP, one of the highest in the EU. This deficit is expected to exceed the EU’s 3% of GDP threshold next year. This raises concerns about the need to bring down the fiscal deficit over time to prevent public debt from rising and to comply with EU fiscal rules. The IMF’s Senior Regional Representative for Central, Eastern and South-Eastern Europe highlighted the importance of addressing this issue.
Warsaw is currently trying to negotiate an exemption from the EU’s deficit procedure. The high spending needs in Poland have already hindered the implementation of Prime Minister Tusk’s costly election pledge of a higher income tax free allowance. This negotiation highlights the challenges Poland is facing in balancing its fiscal responsibilities while addressing growing expenditure needs.
Poland’s general government debt is forecasted to rise to 60.6% of GDP in 2026 and to 63.2% in 2027, exceeding the constitutional limit of 60%. Finance Minister Andrzej Domanski has indicated that steps will be taken to increase the transparency of public finances, including the establishment of a fiscal council to monitor government policy.
Poland is facing significant challenges in managing its fiscal situation. The need to address rising expenditure needs, reduce the budget deficit, negotiate with the EU, and manage government debt requires careful decision-making. It is crucial for Poland to set a high bar for further fiscal loosening and to implement measures to ensure the sustainability of public finances in the long run. Establishing a fiscal rule and increasing transparency in public finances will be key steps in addressing these challenges.