On March 12, President Karol Nawrocki vetoed a bill that would have facilitated Poland’s participation in the European Commission’s Security Action for Europe (SAFE) programme, which offers up to EUR 150 billion in loans by 2030 to support joint defence procurement.
Fitch noted that Poland is the largest potential beneficiary of the programme, with access to EUR 43.7 billion in low-interest loans. The country is expected to receive EUR 6.6 billion in pre-financing after the European Commission approved its defence plan.
The government has said it intends to proceed with the SAFE loan despite the veto.
As an alternative, the president and the central bank chief have proposed a plan dubbed “Polish SAFE 0%,” which would fund defence spending through the management of the National Bank of Poland’s foreign reserves, including gold holdings.
Fitch said the proposal would require legislative changes and warned it "could also be exposed to gold price volatility and risk creating uncertainty about the role of the central bank in funding government spending priorities."
The agency said the politically charged debate over SAFE reflects broader challenges underpinning the negative outlook on Poland’s "A-" credit rating.
It cited weakened public finances and a confrontational relationship between the president and the government as factors constraining policymaking, particularly efforts at fiscal consolidation.
Poland’s rising defence spending is funded partly through the state budget and increasingly via the Armed Forces Support Fund, an off-budget vehicle managed by state development bank BGK, which issues debt on the domestic market to finance major military purchases.
On March 13, the Cabinet authorised the defense and finance ministers to sign an agreement to channel SAFE funds through the existing support fund under an "Arming Poland" programme.
However, Fitch said the presidential veto could limit the scope of eligible spending compared with the government’s original plan.
"Participation in SAFE could help ease debt service pressures by lowering marginal borrowing costs and extending maturities," Fitch said, adding that the loans offer more favourable terms than market financing, "especially under current volatile market conditions."
Fitch added that Nawrocki’s decision on SAFE follows a series of vetoes of government proposals since he took office in August.
While increased defence spending enjoys broad political support amid heightened security risks, the debate over funding sources and geopolitical implications—including relations with the EU and the United States—highlights deepening political polarization and "the risk that a prolonged period of political gridlock will limit Poland’s capacity to implement policies," Fitch said.
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Source: IAR, PAP, fitchratings.com