Poland’s public finance sector deficit is projected to reach 6.8% of GDP in 2026 and 5.7% in 2027, according to analysts at Bank Pekao, who cite sustained military spending, weaker tax revenues and looser European fiscal rules as key drivers behind the widening shortfall, PAP reported on July 3.

"The deficit of the entire public finance sector, according to our forecast, will amount to 6.8% of GDP in 2026 and 5.7% of GDP in 2027," economists at Bank Pekao wrote in their latest report. "This forecast assumes maintaining the current expenditure plans (including maintaining increased military expenditure above 4% of GDP, no new social transfers) and no significant changes in tax policy."

The latest forecast marks a notable revision from earlier this year, when Pekao projected the deficit would be 5.2% in 2026 and 4.7% in 2027. The update reflects a higher-than-expected deficit in 2024, which reached 6.6% of GDP, exceeding the bank’s earlier estimate of just under 6%.

Separately, Poland's Monetary Policy Council forecast that the CPI inflation in the coming months will fall below 3.5% this year, under the upper bound for deviations of the NBP inflation target, the MPC said in the press release on July 2.

The National Bank of Poland (NBP) took the markets by surprise this week by cutting rates by 25bp to 5% and analysts believe there may be two more rate cuts to come this year.

Pekao analysts also pointed to shifting fiscal dynamics across the European Union, including relaxed enforcement of deficit rules under the EU’s excessive deficit procedure. "Member states agreed that they need a significant increase in military spending and infrastructure investment," the report noted. "The excessive deficit procedure itself has been relaxed [...] and it can be assumed that it will not be rigorously enforced."

The performance of Poland’s 2025 state budget has also disappointed, with analysts citing higher-than-anticipated transfers to local governments and weaker tax collections. "Transfers of funds from the state budget to local governments are higher and tax revenues, especially excise tax and CIT, are lower than we expected," the report stated.

The bank now projects that Poland’s public debt will rise to 63% of GDP in 2026 and 67% in 2027, up from a projected 58% in 2025. "Since 2023, however, the deficit is winning the race [against growth] and this will not change – according to our forecasts – at least until 2028."

Despite breaching the 60% Maastricht Treaty threshold, Poland's debt level will remain below the EU and eurozone averages. "This is more than the limit of the Maastricht Treaty (60%), but still less than the EU average (81%), not to mention the eurozone average (87%)."

The report estimates that the cost of servicing the debt will stabilise at approximately 2.7% of GDP annually, a level comparable to the peak of the eurozone debt crisis in 2012.