Poland to Borrow Billions for Defence, Beyond the Budget

Until early 2022, the Armed Forces Modernization Fund was functioning in Poland, the financial plan for which was being approved by the Parliament, along with the Budgetary Act. Following the end of the calendar year, the financial plan for that fund was audited by the Supreme Chamber of Control (NIK), while information on the control results was then made public. The Act on Homeland Defence has liquidated that fund, as it was replaced by the Armed Forces Support Fund. Management of that fund was placed in the hands of the BGK Bank (Bank of National Economy). Unfortunately, that led to circumstances in which the financial plan adopted by BGK, and the implementation of that plan became confidential. The data on that matter is only shared with MPs, during confidential meetings of commissions working on these issues. The Supreme Chamber of Control also probably will not be controlling that fund.

Only some scarce data is available, and it can be gathered by browsing different documents issued by the Ministry of Finances. That data is being published based on EU legal regulations. One of those documents is the „Strategy for Debt Management in the Public Finances Sector”. Polish Council of Ministers adopted the 2024 budgetary bill - along with the 2024-2027 edition of the aforesaid document.

According to that document the Armed Forces Modernization Fund managed by the BGK Bank had a debt of:

• PLN 9.913 billion - at the end of 2022;
• PLN 17.0 billion in June 2023.

The planned debt is expected to come in amounts of:

• PLN 47.0 billion - at the end of 2023;
• PLN 86.6 billion - at the end of 2024;
• PLN 156.8 billion - at the end of 2025;
• PLN 239.5 billion - at the end of 2026;
• PLN 314.6 billion (approx. USD 71 billion) - at the end of 2027;

These amounts are very high, as the planned and executed defence procurement also comes at an unprecedented scale these days.

Assuming that the loans taken by the BGK bank are long-term ones (not paid back by new loans), the value for each year may be easily calculated. These amounts are as follows:

• PLN 9.913 bn. throughout the year 2022;
• PLN 37.087 bn. in 2023 (7.087 bn. during the first 6 months, and PLN 30 bn. during the second half of the year);
• PLN 39.6 bn. throughout the year 2024;
• PLN 70.2 bn. throughout the year 2025;
• PLN 82.7 bn. throughout the year 2026;
• PLN 75.1 bn. throughout the year 2027;

If those plans come true, it may be assumed that the level of loans would go up from PLN 10 bn. in 2022 up to the level of almost PLN 40 bn. in 2023-2024, and up to PLN 70-83 bn. in 2025-2027.

This is aligned with the expectations and stems from the number of new defence contracts that are being signed, and, above all, from the associated amounts of money. For quite some time now, it has been clear that debt associated with the Armed Forces Support Fund would be growing at an astronomical pace.

For the sake of comparison, the performance amount associated with FY2022 budget Part 29 - National defence, was, according to the Supreme Chamber of Control, as high as PLN 57.078 bn. According to the amended 2023 budgetary act, the amount associated with Part 29 - National Defence is defined as PLN 97.125 bn. Meanwhile, the FY2024 budgetary bill assumes that PLN 112.733 will be spent on that part next year.

The actual debt levels would only be revealed as further quarters elapse. They will most probably be going up, given the already signed defence procurement contracts. Meanwhile, the tempo at which the growth would progress will probably have an impact on whether further contracts will be concluded, and whether the framework agreements will be implemented to the maximum extent.

The results of the upcoming election will also have an impact on that. These are to set the political stage in Poland until autumn 2027, namely the end of the term described by the aforesaid Strategy.

Defence24.pl, inquiring about the Ministry of Finances on the coordination of defence procurement agreement planning (ones financed by the Armed Forces Support Fund as well), received commentary as follows from the Ministry of Finances:

At the stage when the budgetary act is being annually developed, the Head of the Ministry of Defence submits a list of the planned investment procurements envisaged to be financed within the framework of defence spending limits, as described in Budget's Part 29 - National Defence. The developed budgetary bill is then approved by the Council of Ministers, and then by the Polish Parliament.
Press Department, Communications and Promotion Office, Ministry of Finances

The procurement made with the use of the Armed Forces Support Fund is made within the framework of the plan approved for the given year. That plan (Article 42 of the Act on Homeland Defence) is developed by the BGK Bank no later than 15th June of the year before the year when the financial plan of the Fund shall be valid, and it is then submitted for 1) Arrangement - to the Minister responsible for the state finances; 2) Approval - to the Head of the MoD.

@ Press Department, Communications and Promotion Office, Ministry of Finances

The head of the Polish MoD may approve the financial plan for the Fund after arranging it with the Minister responsible for the state finances, after obtaining the opinion of a Parliamentary Commission having jurisdiction over the state defence. The head of the MoD then submits the financial plan of the Fund to the Parliamentary Commission having jurisdiction over national defence matters until 31st July at the latest, of the year, preceding the year when the Fund's financial plan is to be valid. The approved financial plan for the Fund shall be viewed as the basis for payouts coming from the Fund. The BGK Bank may acquire loans and issue bonds for the fund, or create other liabilities, the financial conditions of which shall be pre-approved by the Minister of Finances. Changes to the Financial Plan shall be approved by the Head of the Polish MoD, after consulting them with the Minister responsible for the State Finances, and once the Head of the MoD obtains an opinion from a Parliamentary Commission having jurisdiction over the state defence matters.

@ Press Department, Communications and Promotion Office, Ministry of Finances