Poland to spend over $15 Billion on Armed Forces Modernization in 2023

The whole 2023 state budget envisages an income of PLN 604.431 bn. Spending levels have been defined as PLN 669.431 bn. The state budget deficit cannot exceed the amount of PLN 65 bn.

The amount of PLN 97 bn. (approx. USD 20 billion) regarding the defence spending includes:

• PLN 96,920,509 thousand - Section 29, National Defence
• PLN 524,491 thousand - Section 752, National defence in other sections of the state budget
• Capital expenditure has been planned to reach the level of 40,151,519 thousand zlotys (roughly USD 8 billion), and this amount is contained in the aforesaid PLN 97 bn. This constitutes 41.2% of the defence expenditure. This is the highest percentage ever, in the history of the Republic of Poland.

In Section 29 - National defence, the spending has been divided as follows:

• PLN 40,123,403 thousand – capital expenditure tied to investment and investment acquisition made by the Polish MoD, and expenditure covering co-financing of the NATO investment programmes;
• PLN 18,075,065 thousand – personnel expenditures - salary for the professional soldiers and officers, and cash consideration related to remuneration, as well as remuneration for civil personnel and teachers, along with related expenditure;
• PLN 19,475,465 thousand - expenditure and spending to cover overhaul, healthcare, telecommunications, and remaining services, and to cover procurement of materials, equipment, hardware, armament, energy, and food supplies;
• PLN 9,500,800 thousand – for retirement pay and benefits for former officers and professional soldiers;
• PLN 1,682,765 thousand – to cover remaining, ongoing expenditure;
• PLN 4,022,922 thousand – benefits for natural persons;
• PLN 4,030,576 thousand – defence-related subsidies;
• PLN 9,506 thousand – co-financed projects involving the EU.

The division of section 29 National defence has been listed in Table no. 1 - State Budget Expenditure in Section 29, National Defence. For the first time a new chapter appears in the bill - no. 75724 - Military Qualification. A separate section associated with this item stems from the new policy adopted by the Polish Ministry of Defence, aimed at recruiting a high number of soldiers. For the sake of comparison, the table includes analogous values taken from the 2022 Budgetary Act, and budget execution for the year 2021, along with a percentage-based comparison.

The amount of PLN 524 million in section 752 - National defence in other sections of the state budget - would be allocated to research and specific purpose projects in defence, Non-military Defence Preparation Programme, activities of the common prosecutor’s office for military cases, ESA contributions, and tasks tied to military qualification processes.

Apart from the budgetary expenditure, financing of military equipment procurement programmes has been planned, with the involvement of the Armed Forces Support Fund. That Fund has been established, based on the Act on Homeland Defence, and it is being organized by the BGK Bank. The financial plan for its predecessor - the Armed Forces Modernization Fund - used to be an annual annex to the Budgetary Act. Unfortunately, the plan for the new fund has not become a part of the Budget.

Most probably this is caused by the fact that the fund in question is managed by a separate joint stock company - the BGK Bank. PM Mateusz Morawiecki announced, when releasing the information on approval of the bill issued by the Council of Ministers, that PLN 30 to 40 bn (approx. 6.4 to 8 USD billion). is expected to be spent, coming from that fund, in 2023. This conforms with the previously issued announcements. Thanks to the fund mechanisms, the Polish Ministry of Defence would be able to finance the procurement as appropriate, if the budgetary assets are insufficient. In a reversed scenario, when the Polish Ministry of Defence does not make use of the whole budget, the unused funds can be transferred to the fund. The Armed Forces Support Fund does not expire, as the budget does, after the end of the FY. This mechanism seems to be beneficial and efficient. One should remember, however, that most of the funds would be derived from bonds issued by the BGK Bank. In the future, more, and more bonds would need to be issued to finance further procurement, and for payment of the bonds-related interest. These bonds are Treasury-guaranteed, which means that they would need to be bought back at some point in the future.

Noteworthy the tank procurement programme initiated based on the 89/2021 resolution of the Council of Ministers issued on 9th July 2021, would still be followed through in 2023 (the resolution is regarding the urgent operational requirement purchase of M1A2 Abrams SEPv3, separate from Korean K2 procurement). It is supervised by the head of the Polish MoD. It would be implemented between 2021 and 2026. In 2023, it is not planned that budget assets would be spent here. That programme may be co-financed by the Armed Forces Support Fund.

The current political-military situation in Europe and many years of backlogs caused by the decisions of basically all Polish governments mean that Poland is forced to radically rethink its defence spending policy. In 2023 amount of PLN 127-137 bn. would be allocated to meet that objective - it is gigantic, 70 to 80 billion could be potentially spent on procurement. It is worth for those funds to be spent following one’s common sense, in a transparent and, to as great extent as possible, overt manner. It would also be desirable to spend most of that money in Poland, domestically.

We would monitor closely further progress for the Polish Ministry of Defence Budget in 2023, and steps made towards making the plans tangible. The amounts are huge. Poland, as a democratic state, shall be obliged to manage that fund clearly and transparently.