Polish defence spending set to hit Nato target of 2% of GDP

By bne IntelliNews April 15, 2015

Wojciech Kość in Warsaw -

 

While Warsaw's decade-long plan to spend billions to modernise the army was announced in 2012, it is only now that it has made it to centre stage of the country's political and security debate.

In a year of presidential and general elections, national security and the alleged Russian threat will be at the top of the agenda. President Bronislaw Komorowski, who is constitutionally the head of the Polish armed forces, chose to run for a second term under the slogan of “choose unity and security”.

Security comes at a cost, however. Alongside its smaller neighbour Lithuania, Poland leads the European Union in plans to boost defence spending, according to a report from the Stockholm International Peace Research Institute (Sipri) published on April 13. Poland, Lithuania – as well as other CEE countries - eye what they see as Russia's renewed imperial ambitions, clearly manifested by the annexation of Crimea a year ago and the conflict in Eastern Ukraine that has followed since.

Poland has budgeted for a 20% boost for defence spending in 2015. Over the whole 10 years of the defence plan, €9.3bn will be spent on purchasing new equipment, according to the Sipri report.

That will mean Poland will join Estonia, Greece, the US and possibly the UK as the only Nato members whose defence expenditure will meet the alliance’s recommended level of 2% of GDP. Warsaw plans to spend 2.1% of GDP this year. 

The increase in defence spending is a success of the president, who first pledged that he would work to convince the government – the finance ministry in particular – to earmark more money for the army in June 2014. In effect, not only will there be more resources for the armed forces in 2015, but the expenditure threshold of “at least 2% of GDP” was written into the draft law on modernisation of the army. The law is currently going through the parliament.

But getting the increased expenditure through the government was not easy, with the finance ministry looking down on the idea, as it is only slowly getting towards the goal of getting the budget deficit below the level of 3% of GDP, which will enable Poland to leave the EU’s Excessive Deficit Procedure and tick one of the criteria for the adoption of the euro.

On the other hand, however, Poland appears to be back on the growth path, with GDP growing 3.3% y/y in 2014 and indicators such as foreign trade suggesting that the growth will also exceed 3% in Q1. This means, according to economists, that finding extra money for security spending might not necessarily go against the ministry of finance’s attempt to impose more fiscal discipline.

“It’s a question of the state’s priorities, of course, but with the economic growth looking positive at the moment, the extra spending can be withstood by the budget and not lead to an increased deficit,” says Urszula Kryńska, an economist with Bank Millennium. She cautions, however, that the Ministry of Finance might have to look for cuts elsewhere should the growth come short of expectations.

In the current political climate fed by worrying news from Ukraine, the issue of the deficit does not appear crucial.

“A condition for Poland’s independence is her own strength. It is worrying that it is considered a success that Poland increased its defence spending by a mere 0.05pp, whereas a success would be to up it by 1pp to 3% of GDP,” left-leaning commentator Jerzy Rolicki wrote in Gazeta Wyborcza on April 14, in an article that well depicts the mood in Poland, where even the traditionally less hawkish left is now demanding more money for the armed forces.

Under its defence expenditure plan, Poland is hoping for an overhaul of its army’s technical abilities. According to the Sipri report, the most important buys include 32 combat and 70 multi-role helicopters, a number of naval vessels and coastal defence systems for the Baltic Sea, 97 drones, and 20 air and missile defence systems, several hundred tanks and other armoured vehicles, and cruise missiles to arm Poland’s new fleet of F-16 combat aircraft. One of these purchases will be decided in April, as Poland is reportedly set to name the winner of a €2.5bn contract for the helicopters. 

 

 

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