Poland military spending surge threatens EU peak budget deficit

Military spending in Poland, having more than doubled over the past five years to reach $53 billion, is triggering severe budget deficits and fiscal risks across the national economy.

According to a report by the British newspaper The Guardian, based on interviews with officials, arms manufacturers, and economists, the Warsaw administration aims to drive growth by channelling its defence budget into domestic production, yet the accelerating arms drive is straining public finances.

The country’s defence spending has risen from 2.2% to 4.8% of gross domestic product (GDP) within the past five years.

Reaching $53 billion by 2026, this figure has elevated Poland to the position of the fourth-largest military spender in the European Union (EU), behind Germany, France, and Italy.

The Warsaw administration is attempting to bring manufacturing onto domestic soil to diminish import reliance. A new facility built by missile systems manufacturer MBDA in Czosnow, north of the capital Warsaw, stands among the tangible examples of this initiative.

Speaking about the factory, which has risen on land that was a cornfield until two years ago, MBDA Polska managing director and former British marine Jim Price said: “Everyone had to move twice as fast to meet Poland’s needs.”

Poland also secured the largest financing share under the European Union’s concessional defence loan programme SAFE, receiving approximately 44 billion euros.

The government plans to direct nearly 90% of these resources to domestic companies led by the state-owned defence industry group Polska Grupa Zbrojeniowa.

Despite this, a significant portion of Poland’s defence budget continues to flow abroad. Warsaw is purchasing Patriot air defence systems, Abrams tanks, and F-35 fighter aircraft from the US.

Foreign companies, meanwhile, are integrating into Polish industry through joint production projects. The British company Babcock is participating in the construction of Miecznik frigates at the Gdynia shipyard, while BAE Systems is setting up an artillery production facility near Katowice.

Artillery shell production is also being expanded rapidly. Poland, which was able to manufacture only 5,000 units of 155 mm artillery shells annually in 2023, aims to raise this figure to 30,000 in 2026, and to 200,000 within the following two years.

Prime Minister Donald Tusk, assessing the existing capacity, said: “More than this is expended in a single day on the Russia-Ukraine front.” The Warsaw administration plans to establish three more factories to expand ammunition output.

However, the rapid increase in military expenditure is rattling the budgetary balance. In the draft budget for next year, the budget deficit is projected to reach 7.1% of GDP. This ratio could make Poland the country with the highest budget deficit in the EU.

The European Commission’s May forecast indicated that the deficit would stand at 6.3% in 2027.

The Commission expects the country’s public debt to climb from 59.7% in 2025 to 68.3% in 2027, driven in part by defence investments.

International credit rating agency Moody’s downgraded Poland’s credit rating from A2 to A3 in September, citing persistently high deficits, a growing interest burden, and rising public debt.

The agency pointed out that defence, healthcare, public investments, and social commitments prevent the narrowing of the budget deficit.

ING economist Leszek Kąsek assessed the current situation: “This path is not sustainable. It is necessary to question whether Poland can maintain its growth rate and whether politicians are prepared to correct the course.”

Financing the military has turned into political friction between President Karol Nawrocki and the Tusk government.

Nawrocki vetoed legislation linked to the SAFE loans. Nawrocki’s supporters proposed that rearmament should be financed by selling part of the gold reserves.

Finance Minister Andrzej Domański described this proposal as a “fantasy” and announced that the government will continue its struggle to access European loans.