The Polish government has recently introduced an ambitious structural and budgetary plan for 2025-2028, aimed at addressing the country’s fiscal deficit.
The document, submitted to the EU, outlines Poland’s strategy to reduce its public deficit not through immediate austerity, but by fostering economic growth and optimizing spending over the coming years. This approach reflects a notable shift in fiscal policy, which the government hopes will bring the deficit down from an expected 5.7% of GDP in 2023 to 2.9% by 2028.
According to the plan, the public deficit will be incrementally reduced, beginning with a small drop to 5.5% of GDP next year. Subsequent reductions will take place in 2026 (down to 4.5%), 2027 (3.7%), and finally 2.9% by 2028. These adjustments aim to bring Poland out of the EU’s excessive deficit procedure, which is a regulatory framework requiring countries with budget deficits above 3% of GDP to submit a corrective action plan.
However, the government also expects public debt to rise until 2027, potentially surpassing 60% of GDP. Although this exceeds the EU’s recommended debt threshold, Poland’s own constitutional methodology for calculating debt will keep the figure within the acceptable limit domestically. According to EU metrics, Poland anticipates bringing debt back under 60% of GDP by 2030. The government’s plan is based on optimising fiscal management and economic growth, as opposed to enforcing stringent cuts to public spending – a marked difference from the approach used between 2009 and 2015, during the last period of excessive deficit.
The document’s release has reignited discussions about the ruling coalition’s election promise to double the income tax exemption threshold from 30,000 złoty (€6,600) to 60,000 złoty (€13,200). However, there is no mention of an immediate increase in the plan. Rather, the government indicates that the parameters around personal income tax, including the exemption threshold, will remain the same. Finance Minister Andrzej Domański has suggested that the government may gradually increase this threshold over time if fiscal conditions permit, reaffirming that the commitment remains in place but is dependent on the economic environment.
One aspect of the plan that has raised concerns is its reliance on economic forecasts from the European Commission. According to these projections, Poland’s GDP growth rate is expected to slow dramatically from 3.2% in 2025 to 1.6% by 2028. Critics argue that these forecasts are overly conservative and fail to account for Poland’s increasingly robust labor market, which has benefited from the influx of Ukrainian and Belarusian workers. If the actual economic growth rate is faster than the Commission projects, Poland may see its fiscal deficit shrink even more rapidly, potentially freeing up funds to fulfil promises such as raising the tax exemption threshold.
Debt levels, however, remain a significant concern. Poland’s debt-to-GDP ratio is set to breach the 60% threshold for the first time since the Communist era, with debt servicing costs expected to exceed 2% of GDP. This could place additional strain on public finances, particularly if international financial markets react adversely to the higher debt levels. Economists from the bank Pekao SA believe that Poland’s accelerated deficit reduction schedule – targeting a four-year consolidation rather than a slower seven-year process – could positively influence investor sentiment, positioning Poland as a stable, reliable borrower on the global financial stage.
According to the plan, the public deficit will be incrementally reduced, beginning with a small drop to 5.5% of GDP next year. Subsequent reductions will take place in 2026 (down to 4.5%), 2027 (3.7%), and finally 2.9% by 2028. These adjustments aim to bring Poland out of the EU’s excessive deficit procedure, which is a regulatory framework requiring countries with budget deficits above 3% of GDP to submit a corrective action plan.
However, the government also expects public debt to rise until 2027, potentially surpassing 60% of GDP. Although this exceeds the EU’s recommended debt threshold, Poland’s own constitutional methodology for calculating debt will keep the figure within the acceptable limit domestically. According to EU metrics, Poland anticipates bringing debt back under 60% of GDP by 2030. The government’s plan is based on optimising fiscal management and economic growth, as opposed to enforcing stringent cuts to public spending – a marked difference from the approach used between 2009 and 2015, during the last period of excessive deficit.
The document’s release has reignited discussions about the ruling coalition’s election promise to double the income tax exemption threshold from 30,000 złoty (€6,600) to 60,000 złoty (€13,200). However, there is no mention of an immediate increase in the plan. Rather, the government indicates that the parameters around personal income tax, including the exemption threshold, will remain the same. Finance Minister Andrzej Domański has suggested that the government may gradually increase this threshold over time if fiscal conditions permit, reaffirming that the commitment remains in place but is dependent on the economic environment.
One aspect of the plan that has raised concerns is its reliance on economic forecasts from the European Commission. According to these projections, Poland’s GDP growth rate is expected to slow dramatically from 3.2% in 2025 to 1.6% by 2028. Critics argue that these forecasts are overly conservative and fail to account for Poland’s increasingly robust labor market, which has benefited from the influx of Ukrainian and Belarusian workers. If the actual economic growth rate is faster than the Commission projects, Poland may see its fiscal deficit shrink even more rapidly, potentially freeing up funds to fulfil promises such as raising the tax exemption threshold.
Debt levels, however, remain a significant concern. Poland’s debt-to-GDP ratio is set to breach the 60% threshold for the first time since the Communist era, with debt servicing costs expected to exceed 2% of GDP. This could place additional strain on public finances, particularly if international financial markets react adversely to the higher debt levels. Economists from the bank Pekao SA believe that Poland’s accelerated deficit reduction schedule – targeting a four-year consolidation rather than a slower seven-year process – could positively influence investor sentiment, positioning Poland as a stable, reliable borrower on the global financial stage.
The plan represents a philosophical shift not only for Poland but also within the EU, as the European Union itself has become less prescriptive about austerity measures. The document suggests that Poland’s path out of the deficit procedure will rely more on freezing certain expenditures and fostering a conducive environment for economic growth rather than cutting services or welfare spending.
Overall, the Polish government’s plan seeks to strike a balance between managing the deficit and sustaining economic growth. However, it will need to navigate several uncertainties, including fluctuations in energy prices, which have a significant impact on inflation and consumer costs. The government’s decision on whether to continue freezing energy prices, for instance, will play a crucial role in shaping inflation forecasts and could influence the central bank’s monetary policy stance over the coming years.
As Poland moves forward with this growth-driven strategy, the government remains cautious, recognising that fiscal stability will depend on both internal economic policies and broader trends within the EU. While the current approach signals a willingness to tackle the deficit while fostering economic resilience, much will hinge on the strength of Poland’s economy and the successful implementation of these structural reforms. This balance between proactive fiscal management and promoting economic growth is likely to shape Poland’s financial landscape well beyond 2028, making it a crucial period for the nation’s economic future.
As 2024 approaches, the Polish Ministry of Funds and Regional Policy is preparing to send new payment requests from the EU’s Recovery and Resilience Facility to Brussels. However, a politically sensitive issue has arisen around one of the critical milestones for accessing these funds: the extension of social security contributions to cover civil contracts, commonly known as umowy zlecenia in Poland. This change would mean that freelance contractors, who are currently exempt from social security contributions, would see their take-home pay reduced unless employers increase their payments.
Katarzyna Pełczyńska-Nałęcz, the funds and regional policy minister, has indicated that the government’s decision on this policy shift is expected in the coming weeks. “Once we have a government decision – whether full implementation, partial, or delayed – we will negotiate with the European Commission accordingly,” she explained. “We are ready for the toughest negotiating challenge, but the starting point, the unified decision of the Polish government, is key.”
If Poland enacts these reforms, a contractor currently earning 5,000 złoty (€1,080) gross, who now takes home PLN 4,070 (€880) net, would see their net pay drop to 3,512 złoty (€760). Should the client wish to maintain their contractor’s current net pay, the cost of that contract would rise by about 40% to nearly 7,000 złoty (€1,500). On the positive side, extending social security contributions to these contracts would help contractors build larger pension entitlements, strengthen the state’s Social Insurance Fund (ZUS), and reduce the prevalence of these so-called “junk contracts” in Poland’s job market. More importantly, compliance with this EU requirement would unlock additional funding from Brussels, vital for the country’s recovery.
Overall, the Polish government’s plan seeks to strike a balance between managing the deficit and sustaining economic growth. However, it will need to navigate several uncertainties, including fluctuations in energy prices, which have a significant impact on inflation and consumer costs. The government’s decision on whether to continue freezing energy prices, for instance, will play a crucial role in shaping inflation forecasts and could influence the central bank’s monetary policy stance over the coming years.
As Poland moves forward with this growth-driven strategy, the government remains cautious, recognising that fiscal stability will depend on both internal economic policies and broader trends within the EU. While the current approach signals a willingness to tackle the deficit while fostering economic resilience, much will hinge on the strength of Poland’s economy and the successful implementation of these structural reforms. This balance between proactive fiscal management and promoting economic growth is likely to shape Poland’s financial landscape well beyond 2028, making it a crucial period for the nation’s economic future.
Poland’s Budget Plan
As 2024 approaches, the Polish Ministry of Funds and Regional Policy is preparing to send new payment requests from the EU’s Recovery and Resilience Facility to Brussels. However, a politically sensitive issue has arisen around one of the critical milestones for accessing these funds: the extension of social security contributions to cover civil contracts, commonly known as umowy zlecenia in Poland. This change would mean that freelance contractors, who are currently exempt from social security contributions, would see their take-home pay reduced unless employers increase their payments.
Katarzyna Pełczyńska-Nałęcz, the funds and regional policy minister, has indicated that the government’s decision on this policy shift is expected in the coming weeks. “Once we have a government decision – whether full implementation, partial, or delayed – we will negotiate with the European Commission accordingly,” she explained. “We are ready for the toughest negotiating challenge, but the starting point, the unified decision of the Polish government, is key.”
If Poland enacts these reforms, a contractor currently earning 5,000 złoty (€1,080) gross, who now takes home PLN 4,070 (€880) net, would see their net pay drop to 3,512 złoty (€760). Should the client wish to maintain their contractor’s current net pay, the cost of that contract would rise by about 40% to nearly 7,000 złoty (€1,500). On the positive side, extending social security contributions to these contracts would help contractors build larger pension entitlements, strengthen the state’s Social Insurance Fund (ZUS), and reduce the prevalence of these so-called “junk contracts” in Poland’s job market. More importantly, compliance with this EU requirement would unlock additional funding from Brussels, vital for the country’s recovery.
To date, Poland has sent three payment requests to the EU, amounting to 67 billion złoty (€14.4 billion). Of this, 27 billion złoty (€5.8 billion) has been received, with the remaining 40 billion złoty (€8.6 billion) expected by year’s end. Pełczyńska-Nałęcz anticipates that these funds will enable investments of between 80 billion złoty and 00 billion złoty (€17.2–€21.5 billion) next year.
Looking to the upcoming US presidential election, analysts at Poland’s PKO BP have assessed the potential economic implications for Poland of a win by either Kamala Harris or Donald Trump. Their analysis suggests that a Harris victory may be more favorable for the Polish economy in several key areas.
Firstly, they predict that a Trump win could result in reduced military aid to Ukraine, heightening geopolitical risks for Poland due to its proximity to the conflict. This could lead to higher risk premiums on Polish assets, decreasing their value. A Harris administration, on the other hand, would likely maintain current levels of support for Ukraine, avoiding this potential volatility for Polish markets.
Second, a Trump presidency could bring about a 10% tariff on all imports to the US, negatively impacting Polish manufacturers and exporters. Poland’s economy is tightly linked with Germany’s, and as the US is a major destination for German exports, any disruption could ripple back to Poland. By contrast, a Harris win would be less likely to involve aggressive changes to US trade policy, allowing Polish exports to continue without additional trade barriers.
Third, the analysts argue that Trump’s economic programme is more inflationary than Harris’s, due to policies such as increased tariffs, a larger fiscal deficit, and planned deportations of immigrants. This could result in the Federal Reserve adopting a higher interest rate path to counter inflation, narrowing the gap between US and Polish interest rates. This scenario would likely weaken the Polish złoty against the dollar, increasing the cost of dollar-denominated imports to Poland.
With the US election just three weeks away, much remains uncertain. Polls are tight in swing states like Pennsylvania, Wisconsin, and Georgia, where both candidates are currently neck-and-neck. The outcome will likely depend on very slim margins, underscoring the election's importance to both the US and countries with strong economic ties to it, like Poland.
US Election Outcomes and Polish Economic Interests
Looking to the upcoming US presidential election, analysts at Poland’s PKO BP have assessed the potential economic implications for Poland of a win by either Kamala Harris or Donald Trump. Their analysis suggests that a Harris victory may be more favorable for the Polish economy in several key areas.
Firstly, they predict that a Trump win could result in reduced military aid to Ukraine, heightening geopolitical risks for Poland due to its proximity to the conflict. This could lead to higher risk premiums on Polish assets, decreasing their value. A Harris administration, on the other hand, would likely maintain current levels of support for Ukraine, avoiding this potential volatility for Polish markets.
Second, a Trump presidency could bring about a 10% tariff on all imports to the US, negatively impacting Polish manufacturers and exporters. Poland’s economy is tightly linked with Germany’s, and as the US is a major destination for German exports, any disruption could ripple back to Poland. By contrast, a Harris win would be less likely to involve aggressive changes to US trade policy, allowing Polish exports to continue without additional trade barriers.
Third, the analysts argue that Trump’s economic programme is more inflationary than Harris’s, due to policies such as increased tariffs, a larger fiscal deficit, and planned deportations of immigrants. This could result in the Federal Reserve adopting a higher interest rate path to counter inflation, narrowing the gap between US and Polish interest rates. This scenario would likely weaken the Polish złoty against the dollar, increasing the cost of dollar-denominated imports to Poland.
With the US election just three weeks away, much remains uncertain. Polls are tight in swing states like Pennsylvania, Wisconsin, and Georgia, where both candidates are currently neck-and-neck. The outcome will likely depend on very slim margins, underscoring the election's importance to both the US and countries with strong economic ties to it, like Poland.
As Poland faces key decisions on domestic reforms and navigates the potential impacts of international political developments, the coming months will be pivotal in shaping the country’s economic future. The government’s strategic choices – both in terms of its EU funding milestones and its response to global trade dynamics – will determine its ability to stabilize the economy and drive sustainable growth in the years to come.
Poland, meanwhile, is enjoying a different economic narrative. The much-anticipated IPO of Żabka, the country’s largest convenience store chain, has been a massive success, with the company set to debut on the Warsaw Stock Exchange on October 17. Investors quickly snapped up the 300 million shares on offer – representing 30% of the company’s total capital – at a price of 21.5 złoty (€4.60) per share. This IPO raised a substantial 6.5 billion złoty (€1.4 billion), making it the fourth-largest IPO in the Warsaw exchange’s history. Żabka’s owners also have the option to release an additional 45 million shares, potentially increasing the offering’s total value to 7.4 billion złoty (€1.6 billion).
Unofficial sources report that demand was so high that all shares were reserved within minutes on the first day, and investor interest continued strong throughout the week. With this overwhelming demand, share allotments are expected to be heavily reduced, with some estimates suggesting a reduction rate of over 90%. Investors who requested 100 shares, for example, might receive fewer than 10.
If Żabka’s valuation remains stable post-listing, it will likely become one of the top 20 largest companies on the Warsaw Stock Exchange. For the Polish market, this could be a pivotal moment, highlighting the potential for strong local IPOs and reinforcing Warsaw’s status as a significant player in Central European finance.
Poland’s debt market is also drawing positive attention, particularly when compared to Hungary. Amundi, one of Europe’s largest asset management firms with $2.3 trillion in assets under management, has signaled a preference for Polish bonds over Hungarian ones. Analysts at Amundi have pointed to Poland’s more hawkish central bank as a factor. While the National Bank of Poland (NBP) is only considering its first interest rate cuts in the second quarter of next year, the Hungarian central bank has already made multiple cuts, making Hungary’s monetary easing cycle more advanced.
Additionally, Polish banks are providing steady support for Polish bonds, backed by high liquidity in the Polish banking system. This liquidity is primarily due to ongoing inflows of EU funds, which contribute to a robust financial ecosystem. In contrast, Hungary faces a more challenging situation: slower economic growth and persistent friction with the European Union over various political issues, which undermines market confidence in Hungarian assets.
Bloomberg reports that this preference for Polish over Hungarian assets is echoed by other major players like Bank of America, which has noted that foreign investor participation in the Polish bond market is at a record low, suggesting substantial room for new positions. Banks such as Barclays, Citigroup, Erste Bank, and Morgan Stanley have also advised clients that the Hungarian forint is likely to weaken further. In fact, last week, the forint hit a record low against the Polish złoty, underscoring the relative strength of Poland’s currency amid Central European market volatility.
With Germany facing consecutive economic contractions, Poland’s Żabka IPO sparking excitement on the Warsaw Stock Exchange, and Polish bonds standing out on the international stage, Poland is currently experiencing an economic upswing that sets it apart from its regional neighbors. This positive trajectory reflects broader investor confidence and suggests that Poland could continue to attract attention in both its equity and bond markets in the months to come.
Żabka’s Successful IPO Ignites Polish Stock Market
Poland, meanwhile, is enjoying a different economic narrative. The much-anticipated IPO of Żabka, the country’s largest convenience store chain, has been a massive success, with the company set to debut on the Warsaw Stock Exchange on October 17. Investors quickly snapped up the 300 million shares on offer – representing 30% of the company’s total capital – at a price of 21.5 złoty (€4.60) per share. This IPO raised a substantial 6.5 billion złoty (€1.4 billion), making it the fourth-largest IPO in the Warsaw exchange’s history. Żabka’s owners also have the option to release an additional 45 million shares, potentially increasing the offering’s total value to 7.4 billion złoty (€1.6 billion).
Unofficial sources report that demand was so high that all shares were reserved within minutes on the first day, and investor interest continued strong throughout the week. With this overwhelming demand, share allotments are expected to be heavily reduced, with some estimates suggesting a reduction rate of over 90%. Investors who requested 100 shares, for example, might receive fewer than 10.
If Żabka’s valuation remains stable post-listing, it will likely become one of the top 20 largest companies on the Warsaw Stock Exchange. For the Polish market, this could be a pivotal moment, highlighting the potential for strong local IPOs and reinforcing Warsaw’s status as a significant player in Central European finance.
Poland’s Bonds Outshine Hungary’s on the Global Stage
Poland’s debt market is also drawing positive attention, particularly when compared to Hungary. Amundi, one of Europe’s largest asset management firms with $2.3 trillion in assets under management, has signaled a preference for Polish bonds over Hungarian ones. Analysts at Amundi have pointed to Poland’s more hawkish central bank as a factor. While the National Bank of Poland (NBP) is only considering its first interest rate cuts in the second quarter of next year, the Hungarian central bank has already made multiple cuts, making Hungary’s monetary easing cycle more advanced.
Additionally, Polish banks are providing steady support for Polish bonds, backed by high liquidity in the Polish banking system. This liquidity is primarily due to ongoing inflows of EU funds, which contribute to a robust financial ecosystem. In contrast, Hungary faces a more challenging situation: slower economic growth and persistent friction with the European Union over various political issues, which undermines market confidence in Hungarian assets.
Bloomberg reports that this preference for Polish over Hungarian assets is echoed by other major players like Bank of America, which has noted that foreign investor participation in the Polish bond market is at a record low, suggesting substantial room for new positions. Banks such as Barclays, Citigroup, Erste Bank, and Morgan Stanley have also advised clients that the Hungarian forint is likely to weaken further. In fact, last week, the forint hit a record low against the Polish złoty, underscoring the relative strength of Poland’s currency amid Central European market volatility.
With Germany facing consecutive economic contractions, Poland’s Żabka IPO sparking excitement on the Warsaw Stock Exchange, and Polish bonds standing out on the international stage, Poland is currently experiencing an economic upswing that sets it apart from its regional neighbors. This positive trajectory reflects broader investor confidence and suggests that Poland could continue to attract attention in both its equity and bond markets in the months to come.
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