Poland to Spend Over 31 USD Billion for Defence in 2025 [ANALYSIS]

The last-minute submission was due to changes made by the Council of Ministers on September 28 (Saturday), in response to the recent floods, as noted on the Parliament’s website.

The budget proposal submitted to Parliament, particularly in Section 29 — National Defense, is nearly identical to the one sent to the Social Dialogue Council on 29th August, 2024. However, the financial plan for the Armed Forces Support Fund was initially sent to the Council as a draft but submitted to Parliament as a plan, indicating it was approved in the interim.

This development should be viewed positively, though basic details about the plan, especially its execution, remain undisclosed. This lack of transparency is problematic, as our total defense spending consists of both the budgetary defense expenditures in the national budget and the expenditures from the Armed Forces Support Fund. Two factors obscure the picture: the Fund receives annual contributions from the Ministry of Defense budget, creating a risk of double-counting the same funds. Once when they are transferred to the Fund, and again when the Fund spends them to pay for the procurement efforts pursued by the Polish Ministry of Defence. Additionally, not all of the Fund’s money is spent on military equipment; some is allocated to interest payments, debt servicing, and the Fund’s operations.

The defense budget for 2025 is even larger than in previous years. For 2025, Section 29 — National Defence allocates 123.525 billion PLN (approx USD 31.3 billion). In comparison, the 2024 national budget allocated 117.520 billion PLN, while actual spending in 2023 was 97.080 billion PLN.

In addition to Section 29, other sections of the national budget allocate another 0.776 billion PLN for defense expenditures, bringing the total to 124.302 billion PLN, which represents 3.1% of GDP. From Section 29, 14.021 billion PLN is to be transferred to the Armed Forces Support Fund in 2025, while the Fund’s expenditures for essential tasks are projected at 76.267 billion PLN. In total, Poland could allocate 124.302 billion PLN from the budget and 76.267 billion PLN from the Fund, minus the 14.021 billion PLN transferred from the budget to the Fund in 2025.

This opaque funding mechanism for military spending was criticized by the opposition in the previous parliamentary term. However, now that the opposition has become the ruling party, it has quickly abandoned its previous stance and embraced the existing system. This system provides great flexibility in financing but also carries significant risks if the Armed Forces Support Fund is unable to secure new loans or buyers for its bond issues. The Fund’s short history shows these risks are already present. It remains difficult to assess whether the Fund secures its commitments at a lower cost than if the State Treasury did so.

Within the 123.556 billion PLN allocated in Section 29, funds are distributed as follows:

• PLN 51.532 bn – capital expenditure tied to investment and investment acquisition made by the Polish MoD, and expenditure covering co-financing of the NATO investment programmes, and contributing to the Armed Forces Support Fund (including the 14.021 billion PLN mentioned earlier);
• PLN 48.021 bn. – current expenses, including salaries for professional soldiers and officers, along with pay in relation to salaries, wages for military judges, and civilian employees and teachers, plus derivatives, as well as payments for maintenance and overhaul services, health services, telecommunications, and remaining, procurement of equipment, and other materials, and other inventory and weapons, and food;
• 18.017 billion PLN for pensions and allowances for former military personnel including the professional soldiers and officers, and remaining allowance, including allowances for soldiers in Voluntary Military Service and Territorial Defence Service;
• 5.956 billion PLN for subsidies and grants, such as those for military higher education, the Military Property Agency, and defence needs fulfilled by contractors and military cultural institutions.
• 0.746 bn. zlotys is the amount included in Section 752, National defence in other sections of the state budget. This sum would be allocated to finance the following:
• R&D and specific purpose defence projects;
• Non-Military Defence Preparations Program for military transport needs;
• Activities of the Common Prosecutor’s Office, tied to military matters;
• Annual ESA fee;
• military draft procedures.

Financial plan draft for the Armed Forces Support Fund in 2025.

On 1st January 2025, 3.287 bn. zlotys are to be in the fund.

The fund is to obtain PLN 76.265 bn., due to the following:

• PLN 60.586 bn. from debt financing;
• PLN 14.021 bn. out of the state budget, provided by the Head of the Polish MoD;
• PLN 1.271 bn. coming from foreign sources, non-refundable;
• PLN 159.1 million - income resulting on the grounds support provided to foreign militaries, hosting them at the Polish training ranges, and rendering specialist military services;
• PLN 101.8 million in interest;
• PLN 78.2 million - damages and contractual penalties, returned advance payments, guarantees, securities, and other funds received through implementation of agreements signed for the Armed Forces;
• PLN 22.0 million - VAT and excise tax return, received by military organs due to execution of tasks for the US military, and due too support provided to other, foreign armed forces;
• PLN 17.1 million - income related to specialist services rendered by the Armed Forces;
• PLN 9.1 million - income due to regulations tied to the Military Property Agency.

In 2025 Armed Forces Support Fund expenditure was planned in an amount of 76.267 mld zł, including the following:

• PLN 65.420 bn. - tied to the objectives defined by the Armed Forces Development Programme, specifically to procurement;
• PLN 3.8 bn. - interest rate tied to acquired debt-based financing;
• PLN 3.628 bn. - installments, paying the debt-based financing capital back;
• PLN 3.410 bn. - fees and other costs related to debt management;
• PLN 8.6 million in fees for the National Development Bank (BGK), which manages the Fund.

The Fund is expected to end 2025 with 3.286 billion PLN, to be used in subsequent years.

Only in 2026 will we learn whether this ambitious acquisition and spending plan is indeed finalized as per the listed sums. For the sake of clarity, in 2024 the fund was to receive PLN 53.530 bn., including PLN 12.805 coming from the MoD’s budget. Currently, it is tough to assess whether such amount would be obtainable in 2024, with the exception of the transfer from the MoD. Even higher amount is planned to be obtained in 2025 - PLN 76.265 bn., including PLN 14.021 bn. from the MoD’s budget.

Given the doubts surrounding the realistically obtainable amounts, we shall recall that the Armed Forces Development Program alone is going to have PLN 45.880 billion allocated in 2024. Apart from that, the Fund is also forced to handle the cost associated with organization and handling of debt-based financing, and commission pay for the BGK bank.

Data unveiled by the Ministry of Finances unveils the actual and planned debt status for the Armed Forces Support Fund. It was PLN 27.9 billion - at the end of 2023, and PLN 28.7 bn. in late June 2024. The projected debt levels for now are:

• PLN 57.2 billion - at the end of 2024;
• PLN 114.8 billion - at the end of 2025;
• PLN 188.9 billion - at the end of 2026;
• PLN 247.8 billion - at the end of 2027;
• PLN 282.4 billion - at the end of 2028;

In Poland’s current economic situation, this plan seems highly unrealistic and could place a significant burden on public finances. It’s important to remember that the debt of the Armed Forces Support Fund is guaranteed by the State Treasury and will eventually need to be repaid either through state revenue or by taking on more loans or issuing new bonds.