WARSAW, Sept. 22 (Xinhua) -- Poland has sharply increased defense spending on military equipment, force expansion and domestic defense production as it seeks to strengthen its long-term military capabilities amid heightened security concerns.
The country budgeted a record 200 billion Polish zlotys (52 billion U.S. dollars) for defense in 2026, accounting for 4.81 percent of GDP. However, high defense spending has added pressure on public finances, with rating agency Moody's recently citing defense expenditure as a factor constraining deficit reduction when it downgraded Poland's credit rating to A3 from A2.
Poland's challenge reflects a broader dilemma across Europe, where governments are committing more resources to defense while facing growing pressure on public finances.
HIGHER SPENDING BECOMES LONG-TERM COMMITMENT
The escalation of Russia-Ukraine conflicts has heightened security concerns in Poland and other European countries.
As a key country on NATO's eastern flank, Poland has pursued major arms purchases while pushing for a permanent U.S. military base on its territory. Deputy Defense Minister Stanislaw Wziatek said Monday that Poland would spend more than 15 billion zlotys (3.9 billion dollars) on the phased development of the base.
Defense spending will remain high in 2027. Poland has earmarked 198.1 billion zlotys (51.5 billion dollars) for defense in 2027, equivalent to over 4.51 percent of GDP. The government expects a record level of military equipment deliveries next year.
The trend extends across Europe. The European Defense Agency (EDA) estimates that EU defense expenditure will reach 454 billion euros (about 522 billion U.S. dollars) in 2026 and, on current trends, as much as 547 billion euros (629 billion dollars) by 2029.
Germany is increasing spending on core defense capabilities from an estimated 124.7 billion euros (143.4 billion dollars) in 2026 to more than 150 billion euros (172 billion dollars) by 2029. France has announced an additional 36 billion euros (41 billion dollars) for its 2024-2030 military programming plan.
SHRINKING FISCAL ROOM
A recent analysis published by the Organization for Economic Co-operation and Development (OECD) found that sustaining large defense budgets would add significantly to existing fiscal pressures, requiring many countries to increase tax revenues or cut other spending to keep debt at manageable levels.
The OECD said that while higher defense spending may provide a modest short-term boost to activity, the benefits are uncertain and may fade over time.
Higher defense spending adds to existing fiscal pressures from pensions, health care and climate-related spending, forcing countries to make increasingly difficult budget choices, the OECD said.
Poland illustrates those competing demands. Rafal Benecki, chief economist at ING Poland, said the country's fiscal policy had "too many priorities," including high defense spending, generous social policies and large investment needs, while taxes were expected to remain low.
Benecki said that Poland needed a convincing fiscal adjustment plan and clearer fiscal priorities to strengthen confidence in the sustainability of public finances.
TEMPORARY RELIEF
The EU has taken steps to ease fiscal constraints on higher defense spending. It has activated the national escape clause under the Stability and Growth Pact, giving member states temporary budgetary flexibility to increase defense spending.
The bloc has also established the Security Action for Europe (SAFE) instrument, which provides loans to member states for defense investment. Poland is the largest recipient of SAFE funding, with an allocation of 43.7 billion euros (50.2 billion dollars).
However, the relief has limits. The flexibility under the national escape clause is temporary, while SAFE financing ultimately consists of loans to member states, which may still add to public debt.
The OECD said that normal EU fiscal limits will apply again after the escape clauses expire, requiring fiscal tightening in countries where public debt is growing at unsustainable rates.
The European Central Bank has also said that the temporary flexibility would require member states using the national escape clause to step up fiscal consolidation from 2029.
While SAFE provides member states with additional resources for defense investment, highly indebted countries still face significant fiscal constraints in taking on additional debt, according to Rosalba Fama, a researcher at Bocconi University's Institute for European Policymaking. ■