(Bloomberg) — Polish Prime Minister Donald Tusk proposed a bigger budget for 2025 because of a huge increase in defense spending and his plan to maintain support ahead of next year’s presidential election.
The budget plan, announced on Wednesday, projects a deficit of 5.5% of economic output next year, compared with an expected 5.3% in 2024. The military alone will receive flows worth 4.7% of gross domestic product, as NATO member Poland bolsters its defenses amid Russia’s ongoing invasion of neighboring Ukraine.
Tusk’s coalition came to power late last year promising to bring Poland back to the European mainstream after eight turbulent years of nationalist rule. But it has struggled to overcome opposition to its legislative agenda from President Andrzej Duda, an ally of the former government whose term expires in mid-2025. The prime minister has ruled out austerity ahead of what is expected to be a close election.
The planned 2025 budget deficit has exceeded analysts’ expectations, which Finance Minister Andrzej Domanski said was partly caused by the need to redeem Covid-era bonds issued by state-guaranteed institutions. The zloty weakened ahead of the release of the budget details.
A Bloomberg survey of 20 economists had a median forecast of a deficit of 4.5%, with the highest forecast at 4.9%. The EU has opened an excessive deficit procedure against Poland in an attempt to force the member state to return to guidelines of limiting deficits to 3% of GDP.
Domanski has downplayed the financial challenge, telling Bloomberg this month that accelerating economic growth, expected to reach 3.9% next year, will help keep the budget deficit under control.
The budget draft then goes to parliament. Parliament cannot change the planned deficit, but it can restructure expenditure.
–With help from Barbara Sladkowska, Maciej Martewicz and Piotr Bujnicki.
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