Poland

Fiscal consolidation is likely to prove difficult. The government revised the fiscal deficit target for 2025 wider to 6.9% of GDP, on the back of continued shortfalls in revenues (set against already high social expenditure and record-high defence spending). For 2026, the government has pencilled in a general government deficit at 6.5% of GDP, marking only a limited consolidation. Projected revenues for 2026 are expected to improve from 2025 levels – mainly due to the proposed increase in taxes on banks, proposed larger excise duty hikes on alcohol and tobacco products, improved growth outlook and changes to the VAT regime. At the same time, both social and defence expenditures will likely remain elevated. Implementation risks to the 2026 budget remain, given the uncertainty regarding the President's support for the excise duty increases (the President has now approved the increased taxes on banks, thereby limiting further deterioration in the fiscal outlook). We expect the general government deficit to remain elevated at around –6.7% of GDP in both 2026 and 2027, reflecting limited consolidation progress and persistent pressures from social and defence spending. Further significant consolidation in 2027 is also subject to uncertainty as Poland approaches its next round of general elections in autumn of 2027. That said, the strong growth outlook means that we see risks from revenue slippage as limited – and this should support continued, albeit gradual, fiscal consolidation in Poland.

Strong domestic demand is likely to mean that the current account will remain in deficit over the next few years, though improving export demand could lead to a slight narrowing in the deficit in 2026. Despite the twin deficit, strong EU funds flow and robust domestic growth should continue to support credit ratings.

Political risks have eased following Poland’s 2023–24 electoral cycle but remain relevant. The new centrist coalition government has restored constructive relations with EU institutions, sharply improving predictability in policymaking and paving the way for the unblocking of previously frozen EU funds. Judicial reform and rule-of-law commitments have helped to stabilize domestic governance expectations and investor sentiment.

Nonetheless, vulnerabilities remain. Coalition cohesion is fragile, with divergent priorities on fiscal consolidation and institutional reform. The opposition remains strong and politically motivated challenges to the government’s agenda cannot be ruled out. Policy volatility could re-emerge ahead of the 2027 general election, particularly if fiscal pressures intensify or reform fatigue sets in. Still, compared with recent years, the political environment is markedly more stable, with a clear pro-EU trajectory underpinning policy continuity.