WARSAW — The cost of political fighting between President Karol Nawrocki and the Polish government, combined with a booming defense bill, is starting to show up in the country’s finances.
Ratings agency Fitch said on Friday that the deadlock is weighing on Poland’s credit score, something that could push up the country’s borrowing costs.
While the agency kept Poland’s long-term sovereign rating unchanged at A-, it cut its outlook to “negative” over concerns about public sector wages and defense spending.
Those concerns are now compounded by the risk of EU funds getting frozen again. Brussels unblocked billions in cash thanks to promises from the centrist government of PM Donald Tusk that it would roll back unlawful judicial reforms pushed through under the previous populist right-wing Law and Justice (PiS) party government, which ruled Poland between 2015 and 2023.
But the right-wing Nawrocki, who is backed by PiS, is unlikely to sign off on such legislation. Fitch said that repeated vetoes by Nawrocki of the government’s efforts to bring Poland back in line with EU law were paralyzing policy until the next parliamentary election in 2027.
Fitch’s update quickly resulted in a blame game between Tusk’s coalition government and PiS.
“This decision is the consequence of President Nawrocki blocking key legislation, which limits the space to strengthen the foundations of the economy and deliver the necessary fiscal consolidation,” Finance and Economy Minister Andrzej Domański said on X.
Domański argued that while the government has restored growth, kept unemployment low and overseen the fastest disinflation in Europe, the negative outlook is a “warning signal” that should be heeded by Nawrocki and his advisers.
PiS pushed back that the fiscal deterioration predates Nawrocki’s presidency, since he has only been in office since Aug. 6.
PiS’s former deputy prime minister and defense minister, Mariusz Błaszczak, further warned that Fitch’s outlook cut “signals increased risk for investors, which could lead to higher borrowing costs on international markets.” This, in turn, could squeeze the defense budget and force the government to look for savings or new funding sources, he added.
Growing defense burden
Poland is NATO’s top defense spender relative to economic output, with 4.7 percent of GDP currently earmarked for that purpose. The country has recently joined the $1 trillion economy club and is set to attend the G20 summit in Miami in 2026 as an observer.
Fitch underlined that the start of Nawrocki’s presidency “highlights likely challenges for the coalition government to implement policy. Since early August, the president has vetoed various bills and publicly stated his opposition to tax increases and proposed tax cuts.”
With political tension already running high in the wake of this year’s presidential election, domestic considerations will increasingly dominate fiscal decisions in the run-up to the parliamentary vote in 2027.
The election cycle could further weaken fiscal discipline, especially as “options for raising revenue are limited and a significant share of spending is rigid,” Poland’s Bank Millennium said in a note.
Fitch projects the deficit will average 6.7 percent of GDP through 2025 due to the “lack of a credible consolidation strategy” before the next election. The figure is likely to hit 6.9 percent before the end of 2025, before easing slightly to 6.8 percent in 2026, still above the government’s budget projections of 6.5 percent.
“Our forecast reflects our expectation of a limited ability to increase taxes, and continued increases in public investment and defense spending … despite additional revenue from the freeze of income tax thresholds and slower growth of public sector salaries and social spending,” the agency said.
Fitch expects Poland’s general government debt to rise from 49.5 percent of GDP in 2023 to 59.3 percent this year and 68.3 percent in 2027, the result of continued primary deficits and guarantees for the army fund.
Meantime, it expects interest payments to grow from 5.1 percent of revenues in 2024 to 7.2 percent in 2027, well above the 4.3 percent median for countries with similar credit ratings.
Fitch’s update is a “clear signal for the government that the lack of action to visibly reduce the fiscal deficit could lead to a downgrade of Poland’s credit rating,” according to Bank Millennium.
This article has been updated.
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