Economic news

• RATING: Fitch Ratings affirmed Poland’s long-term foreign-currency sovereign rating at “A-” with a negative outlook. The negative outlook reflects projections of persistently elevated fiscal deficits and a rapid increase in public debt. The agency revised the outlook to negative from stable in September 2025.
• BUDGET: The state budget deficit at end-2025 amounted to PLN 275.6bn. This figure was not unexpected, having been signaled several weeks earlier by the Minister of Finance, Andrzej Domański. At the same time, the December 2025 deficit was substantially lower than a year earlier, by PLN 39bn. Approximately half of this improvement resulted from a sharp increase in PIT revenues in December (from PLN 5.6bn to PLN 22.8bn), reflecting the reform of local government financing, alongside lower central government expenditure (PLN 99bn in 2025 versus PLN 113.6bn a year earlier). For 2025 as a whole, both revenues and expenditures were significantly below the levels assumed in the original budget bill. Revenues were overestimated by nearly PLN 44bn, while the shortfall was more than offset by expenditure cuts amounting to PLN 50bn relative to the initial plan.
• MONETARY POLICY: According to the March projection of the NBP, inflation is expected to remain close to the NBP’s target through end-2026 and even into 2027, as stated by NBP President Adam Glapiński during a conference. Detailed projection figures will be released on Wednesday following the Monetary Policy Council’s interest rate decision. Moreover, in the assessment of Monetary Policy Council member Ireneusz Dąbrowski, the target level of the policy rate in Poland should be 3.5%, and a move below that level would be very challenging unless inflation were to become anchored in the lower part of the deviation band around the NBP target. These remarks suggest that the current NBP projections do not envisage such a scenario.
• LABOUR MARKET: The unemployment rate measured according to the Labour Force Survey (LFS) stood at 3.2% in Q4 2025, compared with 3.1% in the previous quarter and 2.8% in Q4 2024, as reported by Statistics Poland. Meanwhile, the registered unemployment rate increased to 6.0% in January from 5.7% a month earlier, in line with expectations and consistent with seasonal patterns.
• DEBT: The Ministry of Finance sold six series of Treasury bonds last week with a total nominal value of PLN 12.5bn (including supplementary allotments), against demand of PLN 15.6bn. Following the auction, the coverage of this year’s gross borrowing requirement increased to 38%. The Ministry plans to hold two bond auctions in March (on 18 and 25 March) with planned supply of PLN 7–13bn, offering the following series: OK0128, NZ0331, PS0731, DS1035 and NZ0936. One bond switch auction is scheduled for 11 March. No Treasury bill auctions are planned.
• MONEY SUPPLY: Broad money (M3) expanded by 10% yoy, slightly below expectations of a stabilisation in money supply growth (10.4%). The breakdown shows continued deceleration in household deposits (to 8.2% yoy), robust growth in corporate deposits (12% yoy), and the strongest increase in currency in circulation in the current cycle (14.6% yoy). On the credit side, growth accelerated across all major segments.
• LOANS: The value of newly extended mortgage loans increased by 41.4% yoy in January, reaching PLN 9.9bn, according to Bureau of Credit Information.

Positive signals in Poland’s public finances

For almost the entirety of 2025, the central government budget was a source of negative news — with speculation even emerging about a potential budget amendment — yet the year ended on a surprisingly positive note. It transpired that the Ministry of Finance not only encountered no significant difficulty in remaining within the statutory deficit ceiling (PLN 289bn), but ultimately generated a PLN 13bn buffer relative to that limit. The final deficit amounted to PLN 276bn. In doing so, the Ministry effectively interrupted the near-linear upward trend in the state budget deficit observed since 2023.

The decline in the deficit is particularly noteworthy given that tax revenues in 2025 were PLN 41.5bn lower than projected in the Budget Act. The largest shortfall was recorded in VAT revenues (–PLN 28bn), with additional underperformance in CIT (–PLN 7bn), PIT (–PLN 3bn), and excise duties (–PLN 5.6bn). However, this revenue gap was fully offset by a reduction in budgetary expenditure from PLN 921bn to PLN 870bn — a decrease of PLN 51bn.

Where did the Ministry identify these savings? Primarily in two areas:

• Subsidies to the Social Insurance Fund (FUS): The transfer intended to cover the shortfall between social security contributions and benefit payments was initially projected at PLN 76–81bn, but ultimately amounted to PLN 64bn — i.e., PLN 10–15bn less than planned. It is possible that this represents a de iure rather than de facto saving, as certain expenditures may have been reallocated from the central budget to off-budget funds. At this stage, this cannot be conclusively assessed.
• Targeted reserves: These were planned at PLN 87bn but were executed at a level PLN 20bn lower. Targeted reserves comprise a broad catalogue of approximately 70 expenditure categories spanning virtually all areas of public finance. The largest single item (PLN 30bn) was intended as a transfer to the COVID-19 Counteraction Fund to service bonds issued by Polish Development Bank (BGK) that had previously financed the Fund; at least PLN 22bn was indeed transferred for this purpose. This suggests that the expenditure savings identified by the Ministry were not concentrated in a single category but were instead broadly dispersed. At present, no further detail is available.

Overall, the execution of last year’s budget suggests that the most challenging period for public finances is likely behind us, namely 2024, when the general government deficit reached 6.6% of GDP. In 2025, the deficit was most likely lower, probably around 6.0% of GDP — significantly below our previous estimate of 6.9% of GDP.

This assessment is based on two key considerations:

• First, the apparent decline in tax revenues in 2025 is to a large extent statistical in nature. In 2024, the government significantly increased the share of PIT and CIT revenues allocated to local governments. While this reduced central government revenues, it improved the fiscal position of local governments, which are likely to have recorded a sizeable surplus in 2025 — around 0.5% of GDP.
• Second, the Ministry of Finance did not need to undertake substantial consolidation measures to comply with the deficit ceiling. The dispersed expenditure savings proved sufficient. Notably, there was no need to delay VAT refunds in December to temporarily boost year-end tax revenues.

In sum, the 2025 budget performance constitutes a constructive signal regarding fiscal prospects for 2026.

Financial market update

In the aftermath of the US/Israeli strikes against Iran, we observed a reaction of the Polish investors quite well aligned with the core markets. The most pronounced moves in Polish assets were observed in the FX segment, while the fixed income (FI) market and equities remained relatively stable. The shift towards risk aversion triggered a sell-off in the Polish zloty, with USD/PLN breaching 3.61 and EUR/PLN surpassing 4.23. Yields on Polish government bonds (POLGBs) and equity indices have not yet materially responded to the rise in geopolitical tensions. It should be noted, however, that the Middle East conflict is geographically distant from Poland and may, at the endgame, weaken Russia’s operational capacity on the Ukrainian front. Over the medium term, this could translate into improved investor sentiment towards Polish assets. Looking further ahead, we also see potential for an increased scale of FX hedging by foreign investors, which in turn should provide support for the zloty.