It is no longer high inflation, but public debt rapidly approaching the constitutional limit of 60% of GDP that threatens the stability of Poland’s economy, according to economists surveyed by the European Financial Congress. A new report highlights the need for a clear economic strategy and fiscal consolidation. Without this, interest payments on bonds will consume an increasing portion of the state budget. Moreover, GDP growth is now projected to be lower than estimates made in June.
“In the December edition of the European Financial Congress forecasts, I see two main conclusions compared to the June edition. The first is that economists have lowered their expectations for economic growth for both the current year and 2025,” said Marcin Mrowiec, macroeconomic coordinator of the European Financial Congress, in an interview with Newseria. “The second conclusion concerns public finances.”
The report, titled “Macroeconomic Challenges and Forecasts for Poland,” is published semi-annually, in June and December, coinciding with the European Financial Congress events. The current edition is based on opinions from 29 experts and macroeconomists collected by December 6, 2024. Compared to the June report, the consensus now projects GDP growth to be 0.3 percentage points lower for both 2024 and 2025. The forecast for 2024 is 2.9%, and for 2025, it is 3.5%. The inflation forecast has also been lowered: to 3.6% for 2024 (down from 4.0% in June) and to 4.4% for 2025 (previously 4.5%).
Geopolitical Risks and Fiscal Policy Concerns
Although inflation remains elevated, it no longer ranks as the primary risk in the coming months. Economists now identify geopolitical risks as the greatest threat to the financial system’s stability and the credibility of the Polish złoty. Close behind is the poor state of public finances combined with expansionary fiscal policies, which drive up public debt.
“From the surveys we sent to a broad panel of experts, the picture of public finances shows that we will exceed 60% debt-to-GDP, if not in 2025 (with a forecast of 59%), then certainly in 2026 and 2027, where the average expectation is already above 60%. This should prompt reflection. We ask respondents about the debt-to-GDP ratio based on the EU methodology, which accurately reflects the level of indebtedness. Unfortunately, our national methodology understates this figure,” emphasizes Marcin Mrowiec. “In Poland, we haven’t so much ‘broken the thermometer’ as ‘adjusted the scale.’ Successive governments have engaged in this practice, but the steps taken over the past eight years to exclude actual debt from official calculations have gone the furthest. Our recommendation is to return to economically justified definitions of debt, which would show the debt at a higher level and compel corrective actions.”
Approaching the Constitutional Debt Limit
According to the Polish Constitution, the maximum allowable public debt is 60% of GDP. The 2025 budget law anticipates that public debt will approach this constitutional limit by the end of 2025 and exceed it the following year. When this happens, the government will be required to present a balanced budget, where all expenditures are fully covered by revenues.
“The necessary measures will involve either increasing taxes or reducing expenditures. Politically, this is very unpopular. Furthermore, the risk for all of us is that the political class has adopted a habit of making promises and distributing benefits without considering costs, which are added to our debt. Since these debts do not immediately cause negative consequences, politicians may believe—or pretend to believe—that there will never be any repercussions,” says Mrowiec. “However, the debt accumulates, and the cost of servicing it rises. I think this will become a significant issue for us within a few years.”
Rising Deficit and Debt Projections
The public finance sector deficit, calculated using the EU methodology, was 5.3% of GDP at the end of 2023. It is projected to reach 5.8% of GDP by the end of 2024, 5.5% by the end of 2025, and 4.7% by the end of 2026, despite solid economic growth. This means public sector debt will continue to rise, exceeding 55% of GDP by the end of 2024.
“We’re not facing a financial catastrophe in the next six months, year, or even two years. Compared to other European countries, particularly those in Western Europe, our debt level remains relatively low. However, we pay higher interest rates on our debt than they do. That makes this issue more pressing for us,” Mrowiec explains. “We need to have a serious discussion about how much our expenditures have increased in recent years, how much more we are spending compared to our tax revenues, and how we must balance this in the medium term.”
A Call for Economic Responsibility
The growing debt and increasing interest costs pose a long-term challenge for Poland’s economy. Without decisive fiscal consolidation, the country risks undermining its financial stability and economic credibility. Policymakers are urged to adopt a sustainable approach to public finances, balancing expenditure growth with realistic revenue projections to avoid a future financial crisis.
