Polish Ministry of National Defence did not make use of PLN 10 billion. Most of payment for the F-16 is to take place in 2015

*execution for two quarters of 2014
**Payments financed with FMF loan, total value – USD 1 337.8 million, and with bonds with a total value of USD 81.81 million (these payments are not included in budgetary expenditures).

(Table: Ministry of Finance)

It is worth to remind the readers that in accordance with the Act from June 22. 2001, regarding a long-term programme of “Equipping the Armed Forces of Republic of Poland with multi-role jets” and the conditions of execution of the programme it was assumed that within the period between 2002 and 2010 no more than 0.05% GDP was to be used within the scope of the programme, and in the following years the expenditure was to be set “in accordance with the budget act”.

It should be noted that the modernization Act that was undertaken on May 25. 2001 assumes that no less than 1.95% of GDP shall be allocated to the defence spending each year, excluding the expenditure related to equipping the Armed Forces with multi-role fighters.

That in turn means that within the last decade, in total, within the period of 2002 – 2010, 2% of GDP could have been allocated to the defence budget. Practically – in accordance with the NATO requirements, even though the Polish regulations refer to the GDP from the preceding year, and not to the forecast GDP for the fiscal year described by the act. Within the period of 2011 – 2014 the assumed indicator of defence spending in the GDP did not exceed the value of 1.95 % due to lack of funding of the multi-role jets, while in the years 2011 – 2013 the actual amounts of spending were lower than those assumed in the initial plan.

Decrease of average contribution of defence spending in GDP within the period between 2008 and 2013

In order to have a look at a full image of the Polish defence expenditures within the recent years we decided to collect the information regarding the planned and realized defence spending that are provided for by the requirements of the Act on modernization and enhancement of capabilities of the Armed Forces from May 25 2001 (excluding the multi-role jet fighter programme). The overview is presented in the table below:

(Data: Ministry of Finance) 

It turned out that within the period of 2002 – 2007 average contribution of the defence spendings in realized GDP of the preceding year was higher than 2% and it was at the level of 2.01%. However, in the period between 2008 and 2013 the GDP contribution was lower, at the level of 1.81 %. That means that the indicator was decreased by ca. 10% within the last 6 years, in comparison with the 2002 – 2007 period.

This data does not take into account the direct spending used to execute the program of equipping the Armed Forces with multi-role jets. In accordance with the overview above, within 2003 – 2008 and in 2010 spending not allocated in the MoD budget were incurred. Additionally these funds increased the defence spending contribution in the Polish GDP overally. That means that the cuts in the period between 2008 and 2013 might have been deeper that they seemed to be.

On the flip-side, using larger amounts of money that the budget suggested between 2002 and 2007 raises some questions about the quality of the financial planning itself. However, this does not change the overall, critical assessment of the budget cuts in the recent years.

MoD "lost" at least one modernization programme

It should be noted that the implementation of the budget is a bit varied in comparison to the plan within the years 2010 or 2011,  when the economy was in a bit better condition than it had been for example back in 2009. At the same time, taking into account the modernization arrears of the Polish Army, which are dated to the days of the Warsaw Pact, limiting the defence spending did slow down the process of acquiring modern equipment and armament.

If we assume that the defence spending is realized at the level of 1.95 % of GDP, the government, and MoD in the first place, had not used some funds, amounting to more than 10.5 billion zlotys, in comparison with the funding that was to be allocated to the defence according to the initial assumptions. That means that, as a result of the budget cuts, the MoD lost an opportunity to carry out at least one modernization programmee. Amount of PLN 10 billion was mentioned in the context of acquiring 70 utility helicopters. The detailed overview of the defence budget is presented in the table below.

(Created by: Defence24.pl on the basis of the Ministry of Finance-supplied data)

The Ministry of Finance states that the rule of allocating 1.95 % of GDP from the last year is a guideline for design of the defence spending in the budgetary act projects, but it is not related to realization of this spending, however, the natural aim of proper budgetary planning is to create a realistic image of state expenditures, that would be as close to the reality as it is possible. Thus, such budget would make it possible, to a maximum degree, complete the tasks of the authorities. It is difficult to realize the MoD budget not to an extent that was planned, especially when equipment of the Polish Armed Forces does not provide proper capabilities (e.g. it lacks anti-missile defence systems).

What’s next?

Increasing the defence spending in 2015 up to the level of more than 38 billion zlotys will not make it possible to reverse the results of the cuts from the period between 2008 and 2013, because the additional funds will be used to cover the expenses related to the F-16 jet fighters. At the same time, in accordance with the assumptions of the modernization Acts, acquisition of the fighters was to be financed with the funds beyond the scope of 1.95% of GDP, and it was the scope of 1.95%, where the cuts took place. In order to reverse the consequences of the cuts it is still of key importance to transfer more funds to the MoD, than it is indicated by the regulations of the modernization act.

In order to limit the consequences of the budget cuts implemented in the period between 2008 and 2013 it should be considered to maintain the level of the nominal defence spending at the same level as the one planned for 2015 (ca. 38.3 billion zlotys, 2.27 % of 2014 forecast GDP), until the moment when it gets lower than the NATO recommended 2% of GDP. This will make it possible to accelerate the individual modernization programmes and increase the combat readiness of the armed forces. On the other side it is difficult to expect excessive turbulence in the public finances, since in 2015 such level of defence spending is contained within the assumptions of the approved budget.

The author is an economist, graduate of the Cracow University of Economics.