IMF: Bigger deficit cuts in Poland this year could speed up rate cuts

The International Monetary Fund (IMF) said that if Poland front-loads some of its planned budget cuts into 2025, it could create room for faster interest rate cuts. The IMF mentioned this in a report released on Tuesday. The IMF also noted that Poland's central bank, the National Bank of Poland (NBP), currently has the right policy by keeping rates high due to inflation still being too high.

The NBP held interest rates steady last week, as expected. Governor Adam Glapiński stated that the bank couldn’t change its policy yet because inflation is likely to stay above the bank’s target until the end of 2025. Consumer price inflation (CPI) eased slightly to 4.7% in December from 4.8% in November, but it’s still well above the bank’s goal of 2.5% (with a 1% margin).

The IMF report said that there might be a chance for gradual interest rate cuts starting around mid-2025, especially if wages slow down and inflation continues to decrease toward the target. The IMF's report came after a regular review of Poland's economy, which is the largest in Central Europe.

In Poland, Rafal Trzaskowski, the presidential candidate from the Civic Coalition (KO), which is the main ruling party, has publicly called for Glapiński to lower rates. Other members of the ruling party also think the high rates are hurting the economy. However, Glapiński has said that the government’s relaxed fiscal policies, like large increases in public sector wages, are limiting the ability to cut interest rates.

The IMF predicts that Poland’s budget deficit will decrease from 5.9% of GDP in 2024 to 5.6% in 2025. It is expected to go even lower to 3.5% by 2029, but still higher than the EU's required limit of 3%. Poland’s finance ministry has set a goal to lower the deficit to 2.9% of GDP by 2028.

The IMF also said that tightening fiscal policies in 2025 would help control inflation and give more room for the central bank to support private investments. The IMF suggested that Poland should implement fiscal measures of around 1.5% of GDP, in addition to the measures already in place, to stabilize the country’s debt around 60% of GDP, and ensure there’s enough space for public investment.

Poland’s finance ministry believes that the country’s debt-to-GDP ratio will peak at 61.3% in 2027 and fall below 60% by 2030.
Looking at the economy, the IMF expects Poland’s GDP to grow by 3.5% in 2025. This growth will be supported by European Union funds, although the pace of growth will slow in the following years as these funds decrease. The IMF also warned that there is a lot of uncertainty, with risks to growth on the downside and inflation on the upside. The IMF expects Poland’s CPI to be 3.7% at the end of 2025 and 3.3% at the end of 2026. Poland is expecting its economy to grow by nearly 4% in 2025.

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