Poland’s rapidly rising defence expenditure could become a significant engine of economic growth, economists say. The scale of the benefit will depend largely on how much public procurement translates into orders for domestic industry. Increasing Polish companies’ production capacity, strengthening technological capabilities and reducing dependence on imported equipment could prove crucial.
– We are already spending enormous amounts on defence. This year, expenditure will reach PLN 200 billion, three times as much as before the outbreak of the war in Ukraine. Poland leads NATO in terms of defence spending as a share of GDP, but we are not a leader when it comes to exporting our own products or using industrial cooperation agreements to benefit the Polish economy – Prof. Paweł Wojciechowski, Chief Economist at the Business Centre Club, tells Newseria.
According to Deloitte estimates published last year, Poland’s total defence expenditure between 2025 and 2035 is expected to reach PLN 1.9 trillion. That is more than twice the PLN 825 billion spent between 2014 and 2024.
– The structure of defence expenditure will change in the coming years. Today, almost 50% of the budget goes towards modernisation, meaning purchases of new equipment as well as research and development. Eventually, that share will fall to around one third because spending on maintenance and personnel will increase. Expenditure on people and the armed forces will account for almost 45% – Prof. Wojciechowski explains. – This is a structural change in the budget. There will no longer be much scope for cutting expenditure. Every piece of equipment purchased has a life cycle of 40–50 years. It has to be maintained and modernised, and personnel must be trained to operate it. Defence spending as a share of GDP will therefore not decline.
According to Deloitte, personnel costs, including salaries, pensions and military disability benefits, will absorb the largest share of defence expenditure over the coming decade, reaching PLN 719 billion. Another PLN 503 billion is expected to be allocated to new equipment purchases and research and development, while PLN 111 billion will go towards military infrastructure.
The expert stresses that the structure of expenditure may prove just as important as its overall scale. Under some circumstances, the costs associated with modernising the armed forces could outweigh the benefits for the Polish economy and domestic industry.
– Domestic value added can emerge only if the import intensity of defence spending falls. The share of research and development carried out by defence companies must increase so that they generate greater value added in the form of higher wages and profits. At present, this issue is not covered by any economic programme or even by an industrial policy – says the Business Centre Club’s Chief Economist.
Deloitte estimates that around 40% of defence procurement will physically be carried out in Poland, meaning that most equipment will still be imported.
PKO BP, in its report Military Spending – Security and Development, estimates that Poland will spend more than PLN 640 billion on military equipment alone by 2035.
– Paradoxically, SAFE, which is a European programme, significantly strengthens the Polish economy. According to the government, 90% of orders will go to the Polish defence industry and only 10% abroad. Until now, it was the other way around: around 37% of orders went to Polish defence companies, while the rest was purchased abroad – Prof. Wojciechowski notes.
According to PKO BP’s analysis, additional demand generated between 2024 and 2035 could create more than PLN 1.3 trillion in additional GDP, equivalent to around 38% of Poland’s 2023 GDP.
Even assuming a high level of import dependence in defence procurement, the cumulative impact on Polish GDP is expected to remain positive and exceed the value of the expenditure itself.
The economic benefits could be significantly greater if the military modernisation programme were accompanied by an expansion of Poland’s domestic defence industry. PKO BP economists calculated that halving the import intensity of equipment purchases – from 60% to 30% – would increase the cumulative GDP effect by around PLN 360 billion over the period analysed.
– Import dependence can be reduced in areas where Poland already has a competitive advantage. For example, we are one of the largest producers of drones. We also have strengths in armoured combat vehicles and, to a lesser extent, artillery. We certainly do not have such an advantage in multirole aircraft, because that market is dominated by large corporations, primarily American and Western European. But there are niches in which Poland is capable of competing, provided there is effective cooperation between state-controlled industry, State Treasury companies and the private sector, where the potential for technological development is greater – the BCC economist says.
The expert argues that regardless of the structure of expenditure and the proportion of imports, foreign procurement contracts should be linked to additional benefits for the economy, including technology transfers, participation by domestic suppliers, servicing contracts and rights to modernise equipment.
– Linking procurement with an increase in the technological and industrial capacity of Poland’s defence sector is difficult. On the one hand, we need to direct orders towards Polish defence companies. On the other, we must increase their capacity to absorb this demand through research and development spending that strengthens the technological base and what is known as technological sovereignty, allowing Poland to build its own intellectual property and expertise – Prof. Wojciechowski explains.
PKO BP’s report notes that research and development accounted for only 0.3% of Polish defence expenditure in 2023. In France and Germany, the share of R&D in military budgets was around ten times higher.
– Imports are not inherently bad. Imports are beneficial when they are accompanied by an industrial cooperation agreement that transfers technology. In other words, the transaction should leave behind more than just an invoice to be paid; some of the technology should remain in Poland – says the Business Centre Club’s Chief Economist.
– Regardless of what is being purchased, Poland should seek to ensure that the offset component is embedded primarily in the domestic defence industry. In the past, offsets sometimes benefited sectors outside defence. The situation is different today, but that does not mean we are always able to negotiate the best possible terms at the contracting stage. We need to look at the entire product life cycle – from the initial purchase and supply of spare parts through training and MRO, meaning maintenance, repair and overhaul support for aircraft modernisation or other types of military equipment.
