Debt Juggling: Economists Warn: This Is How Financial Crises Begin

• The government has released next year's budget. Economists have paid particular attention to the debt and deficit figures. Although they are extremely high, they believe they do not reflect reality.
• According to BCC Chief Economist and former Deputy Minister of Finance, Professor Stanisław Gomułka, the debt growth dynamics are so high that the government should see a red light instead of a yellow one.
• Debt will reach nearly 70% of GDP next year.
• Financial markets are closely monitoring our situation. Our favorable economic situation protects us from a negative reaction for now. But what will happen if the economic climate changes?

In the jungle of numbers that were revealed on Thursday (June 28) during the government press conference devoted to the adopted draft budget for 2026 , the data on the state debt attracted particular attention of economists.

According to information provided by the Minister of Finance and Economy, Andrzej Domański, it is expected to reach 53.8% of GDP next year, remaining below the first constitutional prudential threshold, which is set at 55% of GDP .

However, this debt is calculated according to the so-called Polish methodology, which, thanks to imprecise provisions in the Polish Constitution, allows the government to ignore exorbitant budget-related expenditures. Together, these expenditures would bring the national debt to a staggering 66.8% of GDP by the end of next year. This means that we would exceed not only the first but also the second prudential threshold set forth in the Polish Constitution.

Why were budget-related expenses not consolidated?

In such a situation, the Constitution provides for prudential procedures that must be included in the budget for the following year.

Exceeding 55% of GDP means a wage freeze in the public sector, limits state investment, and obliges the government to prepare a deficit-free budget and prohibits the adoption of laws that generate new public spending. Exceeding the 60% limit, on the other hand, obliges the government to prepare a restructuring program aimed at reducing the public debt-to-GDP ratio to below 60%, explains Jan Sarnowski, former deputy minister of finance, tax advisor, and head of the tax practice at Fieldfisher Poland.

However, the government is of the opinion that the maximum permissible level of public debt, calculated according to the national methodology, will not be exceeded in 2026 and therefore the implementation of prudential and remedial procedures in the budget act for 2026 is not necessary.

Accounting tricks and reality. Where does this leave us?

Economists see the situation entirely differently. Former Deputy Minister of Finance and Chief Economist of the Business Centre Club, Professor Stanisław Gomułka, in an interview with WNP, noted that the dynamics of debt growth are alarming.

If debt reaches nearly 67% of GDP next year, what will happen next? the economist wonders, reminding us that all financial crises begin with a loss of control over debt and the inability to service it.

This was the case, for example, with Greece, whose debt rose to 100% of GDP and which was unable to repay its loan obligations.

Prof. Gomułka emphasizes that all state liabilities or those guaranteed by the state should be included in the amount of debt and that dividing these amounts only distorts the real situation.

In turn, according to the president and chief economist of the Institute of Public Finance, Sławomir Dudek, for several years the amount of the budget deficit has not reflected the true state of the state budget.

"There is no point in getting too excited about this amount, because the real amount of the state budget deficit, calculated in accordance with the constitutional definition of the state budget, is most likely completely different, by several dozen billion zlotys!" Dudek wrote on his X account.

According to the economist, comparing the amount of PLN 289 billion (plan for 2025) with PLN 271 billion for 2026 is a misunderstanding, as the government only presents a " shell budget act" without funds in the Bank Gospodarstwa Krajowego or the Polish Development Fund.

Dancing on the line, or one step away from disaster...

For now, financial markets are only keeping a close eye on this "debt juggling." The prospect of 3.5% economic growth next year and 3% inflation shield us from a decisive reaction.

However, this may change soon. Our high deficit and debt mean we don't meet the conditions for joining the eurozone , and we won't meet them for a long time. This makes servicing our debt much more expensive.

We will also fail to reduce the deficit from 6.5% to 4.5% – a goal we committed to. Next year, the deficit will remain at 6.5%. Meanwhile, our borrowing needs are growing.

As announced by Deputy Minister of Finance and Economy Hanna Majszczyk, the budget's net borrowing needs, related not only to securing the deficit but also to redeeming bonds from previous years, will amount to PLN 422.8 billion in 2026. This is PLN 122 billion more than this year .

According to Professor Gomułka , without an increase in VAT revenues, the government has no chance of escaping the debt cycle.

As the professor points out, this is not about increasing the basic rate, which is 23 percent, but about increasing and unifying the reduced rates.

However, as the professor admits, this would require great political courage from the government, which faces another election in two years.