Public debt will exceed the constitutional threshold in an election year. Ominous predictions of WIIW
The next parliamentary elections will be held in 2027. And it looks like the next government will have very tough decisions to make. This is about the probable need to cut social spending.
The Vienna Institute for International Economic Studies (WIIW) has just calculated that public debt will reach 72% in 2028. GDP – the Institute reports in its quarterly forecasts. To clarify, this is a measure of the so-called debt. general government, i.e. taking into account all extra-budgetary funds.
In 2026, the debt level will reach 65.5%. GDP to grow to 69.0 percent in 2027. GDP – estimated by economists. In turn, the sector deficit this year will reach 6.2%. GDP to reach 6.0% in the next year. GDP and in 2028 fall to 5.7 percent. GDP.
All this with a forecast growth rate of 3.7%. this year, 3.2 percent in 2027 and 2.9 percent in 2028
The debt will exceed the constitutional threshold
It is written in the Polish constitution debt limit at 60 percent GDPbut our constitution in this point, as well as in a number of others, was written in such a way that the definition of what constitutes the state's debt was left to the law. The act stipulated that the constitutional debt did not cover the debt of extra-budgetary institutions, which gave freedom to subsequent governments to continue incurring debt. But this freedom is now coming to an end.
At the end of September, according to data from the Ministry of Finance, general government debt amounted to 58.1%. GDP (PLN 2.2 trillion), and the state public debt (PDP) only 47.7 percent. GDP. This means that the former was 10.5% larger than the latter. GDP. If you apply this difference to the WIIW forecast, it means that in 2028, PDP debt will be 61.5%. GDP and will exceed the constitutional limit. So far, it was estimated that this would happen only in 2029. What does this mean exactly for the average person?
There will be sharp cuts
As part of the recovery mechanisms, the government will have to present a plan to reduce the debt below the 60% threshold, and further debt increases will only be possible if we achieve economic growth. If the threshold is exceeded (based on an announcement in Monitor Polski in accordance with Article 38 of the Act), the government must immediately adjust its budget policy, i.e. realistically: cut spending and/or increase taxes.
For the next year, the Council of Ministers must adopt a budget without a deficit and there will be a ban on new loans for the state budget and guarantees. What's more, there will be no increases in the budget sector, and pensions and annuities will only be indexed by the inflation rate. This means that the component of real wage growth in the economy will be eliminated from indexation. Similarly, local governments will not be able to adopt deficit budgets. These procedures are automatic and mandatory.
Estimates indicate the need for reductions of over PLN 80 billion annually, or even over PLN 100 billion. Programs such as: 800+ (PLN 62 billion per year), 13th and 14th pensions (PLN 32 billion per year), widow's pension (PLN 7 billion) and grandmother's pension (PLN 6 billion) will then be at risk, and additionally there may be tax increases. However, all this will have to be done by the next government after the 2027 elections and these will not be popular decisions.
Of course, the government can still come to terms with the opposition and change the threshold in the constitution to 70%. or e.g. 100 percent A theoretical solution is also a real money printing, and not only through the issuance of bonds. However, this may end in high inflation and economic collapse. Either way, the next government will have an extremely difficult task because the possibilities for high deficits have been exhausted.
Author: Jacek Frączyk, editor of Business Insider Polska
