Poland's Budget Challenges: Navigating Deficits Amid Growing Security Needs

The Polish government has revised its 2025 deficit forecast upwards, with expectations only for a modest reduction next year. This is largely due to high spending in defense, welfare, and debt servicing, which hampers efforts to reduce the budget shortfall. The 2026 draft budget is under a microscope as economic pressures mount alongside political volatility arising from disagreements between top officials.

Finance Minister Andrzej Domanski has disclosed that this year's deficit will hit 6.9% of GDP, marginally decreasing to 6.5% by 2026. While the government initially targeted a 5.5% deficit for 2025, analysts had predicted a 6.4% deficit, based on 2024's figure of 6.6%. The bond market reacted with a rise in Polish 10-year yields, reflecting dissatisfaction with fiscal expectations.

Despite economic challenges, Poland's economy is on an upward trajectory, with GDP growth set to reach 3.4% this year and 3.5% next year. Defense remains a priority, with a record allocation following heightened security concerns due to regional conflicts. The new conservative president opposes tax hikes affecting citizens, emphasizing efficient tax collection.

(With inputs from agencies.)