The Polish government has revised its 2023 budget plan, increasing the deficit by 35% – or by PLN24bn (€5.4bn) – to PLN92bn, officials said on June 9.

The revision comes amidst a deteriorating economic situation and rising inflation, and as many of Poland's neighbours embark on austerity programmes.  The new budget proposal also assumes a lower GDP growth rate of 0.9%, down from 2.5% in the original plan, and a higher average annual inflation rate of 12%, up from 8.5%.

Poland is going through an economic slowdown induced by the National Bank of Poland’s (NBP’s) fight with inflation, driven by supply problems lingering in the wake of the COVID-19 pandemic and the energy crunch brought about by the Russian aggression against Ukraine.

Amending the budget was necessary to protect the public finances and support the economic recovery amid the ongoing pandemic and energy crisis, Prime Minister Mateusz Morawiecki and Finance Minister Magdalena Rzeczkowska told a press conference. 

The deficit increase was mainly due to higher spending on social programmes, health care, education and infrastructure, they also said.

Fiscal expansion is expected to continue this year as the Law and Justice (PiS) government is seeking to secure a third straight term in office in the election due later this year,

The budget amendment will now be submitted to the parliament for approval, which is expected to rubber-stamp it by the end of June.

The opposition parties criticise the PiS-led government coalition for mismanaging the economy and failing to curb inflation.

The CPI growth came in at 13% y/y in May, a significant drop from 18.4% y/y in February but still way above the median NBP inflation target of 2.5%. 

The PiS party has ignored the country’s already high inflation to announce a series of spending giveaways before this October’s election, notably a sharp jump in monthly child benefit from PLN500 to PLN800 (€178), as well as subsidised mortgages and higher public sector wages. 

Geoff Gottlieb, the IMF’s senior regional representative for Central, Eastern and South-Eastern Europe, warned Poland recently that “a new fiscal impetus would likely add to inflationary pressures”. This could “necessitate additional monetary policy tightening,” Gottlieb told Reuters.

Poland's budget deficit is expected to hit 5% of GDP this year, and 3.7% next year.