Poland’s public finances are under severe strain, as evidenced by the rising deficit and public debt relative to GDP; the election is also making it difficult to increase fiscal discipline, according to S&P Global Ratings.
The ratings agency has Poland’s outlook as stable, given its “solid growth prospects and a very solid external position. Poland also has a very credible monetary framework.” However, challenges remain, analyst Karen Vartapetov said during the S&P CEE Capital Markets Conference 2025 in Warsaw, as cited by Polska Business Insider.
“In the medium term, fiscal challenges may put pressure on Poland’s rating,” she said,” adding, “For now, we are in no hurry to adjust Poland’s rating, we want to see the “direction of travel” and the potential announcement of a new fiscal consolidation package, which the government has committed to in the medium term.”
The deficit of the general government sector, calculated according to the EU methodology, amounted to 6.6 percent of GDP in 2024. This is forecast to drop to 6.3 percent this year, 0.8 percentage points higher than assumed six months ago.
Given the ongoing election campaign, significant spending cuts or tax increases are unlikely. In addition, the high deficit translates into increasingly higher financing costs, which will make savings even more difficult in the absence of fiscal tightening.
Vartapetov said that Poland’s “fiscal weakness” is mitigated by other factors.
“It’s not just defense spending, but also the legacy of the pandemic. Very generous social transfers to households and businesses are still present, especially when we talk about wages and pensions. So the increase in spending on these obligations was quite exceptional, quite high. Governments are very reluctant to withdraw these support measures,” the analyst pointed out.
She added that normal market forces should stimulate a correction in the medium term. That is, if they maintain the deficit-to-GDP ratio at this level for too long, investors will question the government’s fiscal sustainability.
S&P Global Ratings forecasts that Poland’s general government deficit will fall to 3.9 percent of GDP in 2028 (from an expected 6.1 percent in 2025 and 5.1 percent in 2026, without providing a forecast for 2027), although these estimates may be complicated by the prospect of parliamentary elections in 2027.
Economists at Citi Handlowy also pointed to challenges ahead. “Since the outbreak of the war in Ukraine, the deficit has begun to grow significantly, and fiscal policy has entered a path that may be unsustainable in the long term. Correcting the current course may require increases in some taxes or reductions in spending, which are actions that will require the president’s consent.”
They added that Poland could eventually face a budget scenario in which they have limited room to maneuver, making it impossible to conduct an active fiscal policy.
Poland’s deficit-to-GDP ratio has already triggered the EU’s excessive deficit procedure, as Brussels mandates member states to maintain a ratio under 3 percent. Poland has submitted an “escape clause” to avoid this procedure, largely due to its high defense spending as a ratio to its GDP.
Two weeks ago, S&P carried out a half-year review of Poland’s rating, leaving it at “A-” and its outlook is stable.
The post S&P maintains Polish ratings, warns it needs to get deficit under control appeared first on Remix News.
Remix News
