Poland on track to face ‘explosion’ of public debt, Commission, expert warn

Poland’s public debt is set to rise to almost 80% of the country’s GDP by 2034, according to the European Commission’s latest report – an assessment economist Jakub Sawulki finds pessimistic, although he warns that current trends do point to skyrocketing public debt.

The Commission recently published its Debt Sustainability Monitor, which provides an overview of the fiscal sustainability challenges facing EU countries in the short, medium and long term, predicting Poland to have the third most significant increase amongst EU member states between now and 2034.

Sawulki, for his part, predicts that Poland’s public debt is expected to rise from 50% of GDP today to 77% in 2034. “Low GDP growth plus high rates, accompanied by high deficit – this all would lead to the explosion of the public debt,” Sawulski stressed on X.

Sawulki’s projections are based on the assumption of no change in fiscal policy, which in Poland’s case would mean keeping the deficit high but also slow GDP growth, which is not expected to exceed 2% after 2030, and high-interest rates, which are expected to rise from 2% today to 4% after 2030.

Although Sawulki acknowledges an “explosion” in public debt, he considers the Commission’s forecast to be particularly pessimistic and unlikely to materialise, stating that it is difficult to predict whether all the conditions mentioned in terms of deficit, interest rates and GDP growth will be met.

The forecast should, therefore, be treated as a “worst-case scenario”, Sawulski said.

However, this does not mean that Poland should ignore the Commission’s forecasts because, under the EU’s new fiscal rule, they would form the basis for assessing the country’s deficit reduction efforts. Poland is, therefore, expected to keep its deficit below 60% in the medium term, Sawulski explained.

What could help Poland is special treatment for defence spending, which could have an impact on the required deficit reduction, although it is not known to what extent,” he said.

In any case, Sawulski added, Poland needs to prepare for fiscal consolidation, look for new sources to finance rising spending, and remember that EU fiscal rules are getting more complicated, not simpler.

After the growth slowdown in 2023, the EU enters 2024 with worse-than-expected economic outcomes, the Commission report shows. By 2025, six member states would have debt levels above 90%, according to the data.

In the medium term, up to 2034, nine member states, including Poland, are at high risk of seeing their public debt rise sharply. In the long term, up to 2070, Poland is one of the 14 countries with a medium risk to financial stability.

(Aleksandra Krzysztoszek | Euractiv.pl)

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