Poland is borrowing against public services to finance an urgent rearmament.
The strategic case is clear. Since Russia’s 2022 invasion of Ukraine, Poland has more than doubled defense spending from 2.2% to 4.8% of GDP. The allocation now reaches $53 billion, the fourth-highest in the European Union. A country exposed on NATO’s eastern flank cannot treat military readiness as an optional line item.
The fiscal case is less simple. Poland is projected to run a deficit of 7.1% of GDP next year, the highest in the European Union. Moody’s has downgraded the country’s sovereign credit rating to its lowest level since 2002, citing the apparent unwillingness to rebuild fiscal buffers. A fiscal buffer is room in the budget to absorb a recession, an energy shock, a banking problem, or a war-related emergency without immediately borrowing at higher cost.
That signal should not be dismissed as a Brussels reflex. A rating downgrade does not mean that Poland is about to lose market access. It means that the margin for error has narrowed. Bond investors are being asked to finance a government whose defense commitments are rising rapidly while its deficit remains large. If investors demand a higher interest rate, the cost appears first in the budget, not in a headline about national strategy. It competes with health care, transport, education, pensions, and transfers to households.
The next business cycle will test the distinction between a productive defense investment and an unfunded permanent obligation. If Polish growth remains strong, domestic production expands, and the new industrial capacity generates taxable income, the burden is more manageable. If growth slows while interest costs rise, the same borrowing becomes a claim on future budgets. The people who pay are not abstract creditors. They are households facing weaker services, higher taxes, delayed infrastructure, or more expensive mortgages and business loans.
The factory floor shows why the policy is defensible. Near Czosnów, north of Warsaw, a site that was a cornfield two years ago now contains a high-technology weapons facility operated by MBDA Polska. Poland is trying to move from importing weapons to producing more of them domestically. That can create skilled employment, supplier networks, engineering capacity, and a more resilient industrial base. It can also reduce the economic leakage that occurs when public borrowing finances equipment produced abroad.
But the factory does not make the fiscal constraint disappear. Patriot missiles, Abrams tanks, and F-35 aircraft still come from United States suppliers. The European Union’s Safe program has provided Poland €44 billion in defense loans, the largest single disbursement in the program. Warsaw has pledged to direct almost 90% of the funds to domestic industry led by the state-owned Polska Grupa Zbrojeniowa. The arrangement can support Polish production, but the loans remain obligations of the Polish state. Domestic procurement changes where some of the money circulates; it does not make the principal or interest free.
The International Monetary Fund has cautioned that the positive economic spillovers from European defense investment will not necessarily flow back to the governments writing the checks. That is the central accounting question. A Polish factory may create jobs and capabilities while the returns to foreign contractors, imported components, and lenders leave the country. The relevant measure is not the number of plants opened. It is the domestic value added, the tax revenue, the skills retained, and the military capability delivered for each zloty borrowed.
The ammunition figures make the capacity problem concrete. Polish production of 155-millimeter shells stood at 5,000 rounds in 2023. It is expected to reach 30,000 this year and 200,000 annually within two years. Three new munitions factories are planned by 2028. Babcock is working with PGZ on the Miecznik frigate program at Gdynia. BAE Systems is partnering with PGZ’s Mesko subsidiary on an artillery plant near Katowice.
For Polish citizens, however, the relevant question is what these projects add to the economy and what they displace. Defense employment in Katowice or Gdynia is not a substitute for a functioning hospital, a reliable rail connection, or a pension system that can meet its obligations. If investment is concentrated in a few industrial regions, the program may widen regional inequality even while increasing national output. If the state-owned sector receives contracts without transparent performance requirements, domestic production can become a subsidy for inefficient firms rather than a durable industrial base.
Poland’s economic history explains the urgency but does not settle the arithmetic. Living standards rose from 40% of the European Union average in the mid-1990s to 81% last year. European Union membership and catch-up funds financed roads, railways, and other productivity-enhancing infrastructure. Annual output passed $1 trillion in 2025, and the economy grew at an annualized 3.9% in the second quarter. Those gains give Poland a stronger starting position than it had a generation ago.
They do not guarantee that defense borrowing will pay for itself. A higher defense budget can raise demand in the short run. It can also compete for workers, materials, and credit, especially when the economy is near capacity. The same skilled engineers and construction workers needed for ammunition plants are needed for civilian infrastructure. The same public funds cannot be spent twice.
The political dispute over the Safe loans is therefore not a side issue. President Karol Nawrocki attempted to block the government of Prime Minister Donald Tusk from accessing the funds, while nationalist opponents of European support for Ukraine protested outside the foreign ministry. The dispute concerns both security policy and the allocation of scarce fiscal capacity. A democracy is entitled to argue about that choice. It is not entitled to pretend that the choice has no cost.
Poland should continue building the capacity required to defend its territory and support NATO. It should also publish a medium-term fiscal plan showing the defense path, debt-service costs, pension obligations, public-service commitments, and expected domestic industrial returns together. A procurement promise is not an industrial strategy unless it identifies who produces the equipment, who owns the resulting capacity, how performance will be measured, and who bears losses when projections fail. The government should protect essential services and preserve a buffer large enough to respond to the next downturn.
The downgrade and the 7.1% deficit are not arguments for disarmament. They are warnings against confusing strategic necessity with fiscal immunity. The facility at Czosnów is real. So is the obligation attached to the borrowing that helped build it. Poland can finance security and industrial renewal, but only if it states plainly which future claims it is creating and keeps enough fiscal room to meet them.