WARSAW, Oct. 9 (Xinhua) -- Poland's economy has maintained relatively strong growth, but rising public debt, elevated borrowing costs and growing banks' exposure to government securities are raising concerns about the country's ability to sustain investment and long-term development.
A report released Friday by SGH Warsaw School of Economics (SGH) and the Polish Bank Association (ZBP) highlights a growing dilemma: how to bring public finances under control without undermining the investment needed to support future growth.
GROWTH WITHOUT FISCAL RELIEF
Poland has shown robust economic activity in recent years. According to the European Commission's spring forecast, its gross domestic product (GDP) grew 3.6 percent in 2025, and is projected to grow 3.25 percent in 2026 and 2.7 percent in 2027.
However, this relatively strong performance has not translated into a corresponding improvement in public finances. The European Commission expects its debt-to-GDP ratio to rise from 59.7 percent of GDP in 2025 to 64.5 percent in 2026 and 68.3 percent in 2027.
The divergence between economic growth and fiscal performance reflects structural pressures on government spending.
According to the International Monetary Fund (IMF), Poland's widening fiscal deficit since 2021 reflects a substantial increase in expenditure. Public spending is now close to levels in advanced European economies, while government revenues remain closer to the average for Central and Eastern Europe (CEE).
The SGH-ZBP report reaches a similar conclusion. It estimates that around 76 to 78 percent of state-budget expenditure is effectively rigid, including pensions and transfers, healthcare, defense, public-sector wages and debt service.
Such spending commitments leave limited room for fiscal adjustments. Higher borrowing costs are adding to the pressure. The yield on Poland's 10-year government bonds reached 6.55 percent on Sept. 15, its highest level since early 2023.
The report estimates that annual debt-service costs could rise from 66.5 billion zlotys (about 17 billion U.S. dollars) in 2024 to nearly 130 billion zlotys (about 33 billion dollars) in 2029.
As a growing share of public resources is devoted to servicing existing debt, the government's flexibility to finance new development projects could become increasingly constrained.
BANKS' GROWING EXPOSURE TO PUBLIC DEBT
Beyond the direct fiscal burden, the report identifies another potential risk: the growing concentration of government debt on Polish banks' balance sheets.
Between 2017 and the first quarter of 2026, Treasury debt and liabilities of government-related funds covered by the SGH-ZBP study increased by about 1.5 trillion zlotys (about 380 billion dollars). Banks increased their holdings of government and state-guaranteed securities by 561 billion zlotys (about 143 billion dollars), absorbing about 37 percent of that increase.
A strong domestic investor base can help stabilize government financing by reducing dependence on foreign investors. But it also ties the government's fiscal position closer to the banking system.
Government debt instruments account for roughly a quarter of Polish bank assets, the highest share among the EU countries compared in the study.
This exposure could become problematic if rising sovereign risk premiums reduce the market value of government securities or limit banks' capacity to expand lending.
The report's simulation suggests that a three-percentage-point increase in Poland's sovereign risk premium could reduce banks' additional lending capacity by about 204 billion zlotys (about 52 billion dollars).
INVESTMENT NEEDS COMPLICATE FISCAL CHOICES
The challenge is particularly significant given Poland's substantial long-term investment requirements.
The SGH-ZBP report estimates that investment demand in energy, infrastructure, digitalisation and defense could total around 4 trillion zlotys (about 1.02 trillion dollars) by 2040. At present, Polish companies finance about 74 percent of investment from internal funds.
Meeting future investment needs on this scale will require broader access to financing, including bank credit, capital markets and public investment support.
This creates a difficult policy trade-off. Cutting investment may improve the fiscal numbers but weaken productivity and future revenues. Continued heavy reliance on public borrowing, however, would raise debt-service costs and deepen banks' exposure to sovereign debt.
The economic impact will also depend on how borrowed funds are used. The SGH-ZBP report therefore advocates a gradual, multi-year consolidation that protects productive investment rather than simple austerity policy.
It also recommends shifting toward a financing model in which public and EU resources are used to mobilize private capital through guarantees, equity investment and risk-sharing arrangements.
For Poland, the central challenge is not simply to reduce public borrowing, but to ensure that fiscal consolidation and investment financing reinforce rather than undermine each other. ■