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Poland's economic stability has come under scrutiny following a recent decision by Fitch Ratings to revise the country's outlook from stable to negative while affirming its long-term foreign currency issuer default rating at 'A-'. This move, announced on September 5, 2025, highlights growing concerns over the nation's public finances and political landscape. The adjustment serves as an early warning signal, reflecting challenges in managing high deficits and implementing necessary reforms amid domestic tensions.
The decision comes at a time when Poland is navigating a complex economic environment, marked by robust growth projections but overshadowed by escalating expenditures. Fitch's analysis points to a combination of fiscal slippages, political hurdles, and external pressures that could undermine the country's creditworthiness if not addressed promptly. This is particularly significant for investors and policymakers, as it could influence borrowing costs and market confidence in the coming months.
Key factors driving the outlook change
Fitch's revision is primarily driven by heightened risks to Poland's public finances, stemming from substantial fiscal deviations observed in recent years. The agency noted that the general government deficit expanded to 6.6% of GDP in 2024, up from 5.3% in 2023, surpassing both government targets and earlier forecasts. This increase was fueled by rising public sector spending, which climbed to 49.4% of GDP in 2024 compared to 43.6% in 2021.
A lack of a clear and credible strategy for fiscal consolidation has exacerbated these issues. Fitch emphasized that without decisive measures to curb spending and boost revenues, Poland's fiscal trajectory could deviate further from peers in the 'A' rating category. Political polarization and upcoming electoral cycles are also seen as barriers to effective policy implementation, potentially delaying necessary adjustments.
Fiscal deficit and debt projections
Looking ahead, Fitch anticipates the deficit to widen to 6.9% of GDP in 2025, more than double the median of 2.9% for 'A'-rated sovereigns. This projection exceeds the Polish government's own estimate and reflects ongoing pressures from social programs and infrastructure investments. A modest decline is expected thereafter, with the deficit easing to 6.8% in 2026 and 6.3% in 2027, though these figures remain elevated compared to benchmarks.
Public debt, measured under the EU methodology, is forecasted to rise steadily. From 55.3% of GDP in 2024, it is projected to reach 59.3% in 2025 and climb to 68.3% by 2027. This trajectory contrasts with the 'A' median of 53.7%, underscoring Poland's vulnerability to interest rate fluctuations and economic slowdowns. The European Commission echoes these concerns, predicting a debt-to-GDP ratio of 58.0% in 2025 and 65.3% in 2026, driven by persistent high deficits.
To contextualize, Poland's fiscal challenges are not isolated but part of broader trends in Europe, where post-pandemic recovery and geopolitical tensions have strained budgets. However, Poland's deficits are notably higher than regional averages, prompting calls for targeted reforms such as tax system overhauls and expenditure rationalization.
Political challenges and domestic dynamics
The political environment in Poland plays a pivotal role in Fitch's assessment. President Karol Nawrocki, who assumed office in August 2025 after a closely contested election, has been vocal in opposing certain fiscal measures, including tax increases. His administration has vetoed several bills proposed by the government, creating friction with Prime Minister Donald Tusk's cabinet and hindering fiscal consolidation efforts.
This deadlock is compounded by high political polarization, with the next parliamentary elections slated for 2027 likely to intensify debates over economic policy. Nawrocki, backed by nationalist factions, has prioritized sovereignty and security, aligning with international figures like U.S. President Donald Trump, whom he met recently to discuss alliances and military commitments. Such dynamics could delay reforms, as electoral considerations may prioritize short-term populism over long-term fiscal prudence.
Analysts suggest that this tension between the presidency and the government could lead to policy gridlock, further eroding investor confidence. Historical precedents in Poland show that similar divisions have previously stalled economic initiatives, making swift resolution essential for maintaining rating stability.
Impact of defense spending on finances
A significant contributor to Poland's fiscal strain is its escalating defense expenditures, which have risen sharply in response to regional security threats. In 2024, Poland allocated approximately 4.2% of GDP to defense, the highest among NATO members in Europe. This represents an increase of about 1.5 percentage points since 2021, driven by modernization programs and equipment acquisitions.
Fitch projects defense spending to reach 4.5% of GDP in the near term, with government plans aiming for 4.7% in 2025. While this bolsters national security and aligns with NATO's 2% target - exceeded by Poland since 2015 - it adds pressure on the budget. The Stockholm International Peace Research Institute (SIPRI) reported a 31% year-on-year increase in military spending to $38 billion in 2024.
These outlays include major deals for advanced weaponry, such as U.S.-made Patriot systems and South Korean tanks, reflecting Poland's strategic pivot toward enhanced deterrence amid the ongoing Ukraine conflict. However, balancing this with fiscal responsibility remains a challenge, as defense priorities compete with social welfare and infrastructure needs.
Comparison with other rating agencies
Among the major rating agencies, Poland's creditworthiness varies slightly. Moody's maintains an 'A2' rating with a stable outlook, the highest among the trio. S&P Global Ratings also rates Poland at 'A-' with a stable outlook. Fitch's shift to a negative outlook marks the first such adjustment since March 2025, when it last affirmed the stable view.
Upcoming reviews could signal broader concerns: Moody's is scheduled for September 19, 2025, and S&P for November 7, 2025. Economists anticipate that these agencies may follow suit with negative outlooks, though outright downgrades are not expected imminently. This collective scrutiny underscores the need for Poland to demonstrate progress in fiscal management to avoid a cascade of negative actions.
Economic growth and future outlook
Despite fiscal headwinds, Poland's economy shows resilience. Fitch forecasts real GDP growth of 3.2% in both 2025 and 2026, outpacing the 2.3% median for peers. This is supported by strong domestic demand, EU funding inflows, and a rebound in exports. The European Commission aligns with this, projecting similar expansion driven by private consumption and investments.
However, risks persist, including inflation pressures, global trade disruptions, and geopolitical uncertainties. If Poland can navigate these by advancing reforms - such as improving tax compliance and optimizing spending - the negative outlook could be reversed. Failure to do so might lead to higher borrowing costs and reduced foreign investment, impacting long-term growth.
In summary, Fitch's decision highlights the urgency for Poland to address its fiscal imbalances amid political complexities. With strategic adjustments, the country can leverage its economic strengths to restore stability and maintain its investment-grade status.
